[Federal Register: September 14, 2006 (Volume 71, Number 178)]
[Notices]
[Page 54323-54325]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr14se06-73]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-54416; File No. SR-MSRB-2006-07]
Self-Regulatory Organizations; Municipal Securities Rulemaking
Board; Notice of Filing of Proposed Rule Change to MSRB Rule G-14 RTRS
Procedures Relating to ``List Offering Price'' and ``Takedown''
Transactions
September 8, 2006.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on August 15, 2006, the Municipal Securities Rulemaking Board (``MSRB''
or ``Board'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I, II, and III below, which Items have been substantially
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).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The MSRB is filing with the Commission a proposed rule change to
Rule G-14 RTRS Procedures under Rule G-14, Reports of Sales or
Purchases, to expand the usage of ``list offering price'' transactions
to include certain inter-dealer ``takedown'' transactions and to
require the reporting of these transactions as ``list offering price''
transactions on the first day of trading of a new issue. The text of
the proposed rule change is available on the MSRB's Web site (http://www.msrb.org
), at the MSRB's principal office, and at the Commission's
Public Reference Room.
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 Sections
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
MSRB Rule G-14 requires brokers, dealers, and municipal securities
dealers (collectively ``dealers'') to report information about each
purchase and sale transaction effected in municipal securities to the
Real-Time Transaction Reporting System (``RTRS'') in the manner
prescribed by Rule G-14 RTRS Procedures. Rule G-14 requires that
transactions effected with a time of trade during the hours of the RTRS
business day be reported within fifteen minutes of the time of trade to
an RTRS Portal.
Under MSRB Rule G-14 RTRS Procedures, paragraph (a)(ii), there are
three exceptions to this fifteen minute reporting requirement. The
exception addressed by the proposed rule change currently allows
syndicate managers, syndicate members and selling group members that
effect trades in new issues on the first day of trading at the list
offering price to report such trades by the end of the day on which the
trades were executed.\3\ This exception is known as the ``List Offering
Price'' exception.
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\3\ The other two exceptions to the fifteen minute reporting
rule are: (1) A dealer effecting a trade in a short-term instrument
under nine months in effective maturity (including variable rate
instruments, auction rate products, and commercial paper) shall
report such trades by the end of the business day on which the
trades were executed; and (2) a dealer shall report a trade within
three hours of the time of trade if certain conditions apply. See
MSRB Rule G-14 RTRS Procedures (a)(ii)(B) and (C).
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The ``List Offering Price'' is defined as the publicly announced
initial offering price at which a new issue of municipal securities is
to be offered to the public.\4\ The MSRB provided the end-of-day
reporting deadline for these customer transactions because of the
substantial operational difficulties underwriters would face in
reporting large numbers of List Offering Price transactions within a
fifteen-minute window after the formal award. The MSRB also concluded
that real-time dissemination of large numbers of primary market
transactions occurring at the same price would not offer a substantial
benefit to RTRS transparency objectives.
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\4\ If the price is not publicly disseminated (e.g., if the
security is a ``not reoffered'' maturity within a serial issue), the
price is not a List Offering Price. See ``Reminder Notice on List
Offering Price and Three-hour Exception for Real-Time Transaction
Reporting: Rule G-14,'' MSRB Notice 2004-40 (December 10, 2004).
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For purposes of RTRS transaction reporting, a ``Takedown''
transaction is
[[Page 54324]]
a primary market sale transaction executed on the first day of trading
of a new issue by a sole underwriter or syndicate manager to a
syndicate or selling group member at a discount from the List Offering
Price. In a 2004 notice, the MSRB stated that these inter-dealer
transactions must be reported within fifteen minutes of the time of
execution and that they do not fall within the List Offering Price end-
of-day exception.\5\ As experience with real-time transaction reporting
has increased, however, industry members have pointed out that Takedown
transactions share many of the same characteristics as List Offering
Price transactions. A high volume of Takedown transactions on the first
day of trading in a new issue, for example, often presents operational
difficulties for underwriters attempting to report all of their
Takedown transactions within a fifteen-minute window. It also has been
noted that prices for both Takedown transactions and List Offering
Price transactions are set under an offering price agreement for the
new issue and therefore do not necessarily reflect market prices at the
time the transaction is effected. Thus, the proposed rule change would
expand the definition of List Offering Price to include Takedown
transactions, require use of an indicator on reports of all List
Offering Price and Takedown transactions, and retain the end of the day
exception from the normal fifteen minute reporting deadline for the
expanded category of ``List Offering Price/Takedown'' transactions.\6\
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\5\ See id.
\6\ These List Offering Price/Takedown transactions would be
designated with the same special condition indicator currently in
use for List Offering Price transactions. The technical requirements
for the current List Offering Price indicator are summarized in the
Specifications for Real-Time Reporting of Municipal Securities
Transactions which is available on-line at http://www.msrb.org. The
draft revisions to the Specifications for the indicator identifying
the List Offering Price/Takedown Transactions may be found in
``Request for Comment on Draft Procedures for Reporting Special
Condition Indicators on Certain New Issue Transactions,'' MSRB
Notice 2006-10 (April 21, 2006).
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The proposed List Offering Price/Takedown indicator would be
required to be used by dealers when reporting any primary market sale
transaction executed on the first day of trading of a new issue:
By a sole underwriter, syndicate manager, syndicate member
or selling group member at the published list offering price for the
security (``List Offering Price Transaction''); or
By a sole underwriter or syndicate manager to a syndicate
or selling group member at a discount from the published list offering
price for the security (``RTRS Takedown Transaction'').
The indicator would be included on MSRB price transparency reports
to designate to transparency report users that the trade report does
not represent a normal secondary market transaction. The proposed rule
change recognizes the similarities between List Offering Price and
Takedown transactions and the dissimilarities between these
transactions and secondary market transactions in a new issue. Since
the secondary market transactions in a new issue are likely to provide
the best gauge of the current market value for a new issue and may be
reported to RTRS simultaneously with List Offering Price and Takedown
transactions, the MSRB believes that transparency reports on the first
day of trading for a new issue would be more useful if List Offering
Price and Takedown transactions were identified with a special
condition indicator.
2. Statutory Basis
The MSRB believes that the proposed rule change is consistent with
Section 15B(b)(2)(C) of the Act,\7\ which provides that the MSRB's
rules shall: Be designed to prevent fraudulent and manipulative acts
and practices, to promote just and equitable principles of trade, to
foster cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to, and
facilitating transactions in municipal securities, to remove
impediments to and perfect the mechanism of a free and open market in
municipal securities, and, in general, to protect investors and the
public interest.
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\7\ 15 U.S.C. 78o-4(b)(2)(C).
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The MSRB believes that the proposed rule change is consistent with
the Act because it will allow the municipal securities industry to
produce more accurate trade reporting and transparency and will enhance
surveillance data used by enforcement agencies.
B. Self-Regulatory Organization's Statement on Burden on Competition
The MSRB does not believe that the proposed rule change will result
in any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act since it would apply equally to
all dealers.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received from Members, Participants, or Others
On April 21, 2006, the MSRB published for comment a notice with
respect to reporting procedures for List Offering Price and Takedown
transactions.\8\ In response, the MSRB received six comment letters
from: The Bond Market Association (``TBMA''), Jerry L. Chapman, Private
Investor (``Chapman''), Digital Assurance Certification LLC (``DAC''),
First Southwest Company (``First Southwest''), Nuveen Investments
(``Nuveen'') and Wulff, Hansen & Co. (``Wulff, Hansen'').\9\
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\8\ MSRB Notice 2006-10 (April 21, 2006).
\9\ The comment letter from Wulff, Hansen did not address the
issues relating to List Offering Price and Takedown transactions in
MSRB Notice 2006-10 (April 21, 2006). Rather, the comment letter
discussed other aspects of the Notice that are not relevant to this
rule filing.
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TBMA, Chapman, DAC and Nuveen all indicated support for including
Takedown trades in the definition of list price transactions and
allowing such transactions to be reported by the end of the day.
Chapman stated that he is ``happy to see the MSRB is * * * recognizing
[that] a takedown trade is a list trade.'' First Southwest supported
the proposal to include Takedown transactions ``within the definition
of List Offering Price'' and giving such transactions the end-of-day
exception from real-time reporting.\10\
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\10\ First Southwest, however, opposed the proposal in MSRB
Notice 2006-10 (April 21, 2006) that dealers would be required to
use a special condition indicator for these transactions. The
indicator, however, must be mandatory in order to be useful in
distinguishing List Offering Price and Takedown transactions from
secondary market transactions.
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After reviewing these comments, the MSRB approved the draft
amendments for filing with the SEC.
III. Date of Effectiveness of the Proposed Rule Change and Timing For
Commission Action
The MSRB proposes an effective date for the proposed rule change of
January 8, 2007. Within 35 days of the date of publication of this
notice in the Federal 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 foregoing, including whether the proposed rule
[[Page 54325]]
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml.
); or Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-MSRB-2006-07 on the subject line.
Paper Comments
Send paper comments in triplicate to Nancy M. Morris,
Secretary, Securities and Exchange Commission, Station Place, 100 F
Street, NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-MSRB-2006-07. This file
number should be included on the subject line if e-mail is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml
). Copies of the submission, 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 such
filing also will be available for inspection and copying at the MSRB's
offices. All comments received will be posted without change; the
Commission does not edit personal identifying information from
submissions. You should submit only information that you wish to make
available publicly. All submissions should refer to File Number SR-
MSRB-2006-07 and should be submitted on or before October 5, 2006.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\11\
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\11\ 17 CFR 200.30-3(a)(12).
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J. Lynn Taylor,
Assistant Secretary.
[FR Doc. E6-15230 Filed 9-13-06; 8:45 am]
BILLING CODE 8010-01-P