[Federal Register Volume 60, Number 142 (Tuesday, July 25, 1995)]
[Notices]
[Pages 38069-38071]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-18175]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35988; File No. SR-MSRB-95-12]
Self-Regulatory Organization; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by the Municipal Securities
Rulemaking Board Relating to Report of Sales and Purchases and
Associated Transaction Reporting Procedures
July 18, 1995.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on June 22,
1995, the Municipal Securities Rulemaking Board, Inc (``MSRB'' or
``Board'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II
and III below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The MSRB is filing a proposed rule change to rule G-14, on reports
of sales and purchases and associated transaction reporting procedures,
to enhance the Board's transaction reporting pilot program to provide
improved support of market surveillance and enforcement of Board rules.
The proposed rule change would require brokers, dealers, and municipal
securities dealers (``dealers'') that clear transactions for other
dealers to identify the dealers that executed the transaction, when
submitting transaction information to the Board under rule G-14. This
would make available reliable information concerning each broker or
dealer that is party to a transaction, including introducing brokers
who are currently not identified on some transactions submitted to the
Board. Such information would be made available through the Board's
pilot automated transaction reporting system to the Commission and to
organizations charged with inspection for compliance with, and
enforcement of, Board rules (``enforcement agencies''). The Board
requests that the proposed rule change be effective July 24, 1995.
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 self-regulatory organization
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 self-regulatory organization
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 Purpose Rule Change
1. Purpose
On November 9, 1994, the Commission approved an amendment to Board
rule G-14, on reports of sales or purchase of municipal securities, and
associated transaction reporting procedures.\1\ Approval of the
amendment represented a first step in achieving transparency in the
municipal securities market, as it requires dealers to report to the
Board or its designee \2\ information on each inter-dealer transaction
in municipal securities, for public dissemination and for surveillance
and enforcement uses. The amendment enabled implementation of the
Board's transaction reporting pilot program and operation of an
automated information system for transaction reporting (``system'').\3\
\1\ See Securities Exchange Act Release No. 34955 (November 9,
1994), 59 FR 59810.
\2\ The Board has designated National Securities Clearing
Corporation (``NSCC'') as its agent for receiving interdealer
transaction information. Before this designation, NSCC already was
receiving transaction information in its role as the central
facilities provider of the automated comparison system.
\3\ Other required information was also submitted by the Board
to the Commission before the pilot system became operational. See
Securities Exchange Act Release No. 35181 (December 30, 1994), 60 FR
2412, and see letters from Larry M. Lawrence, MSRB, to Keith Riley,
SEC, dated December 31, 1994, and January 23, 1995.
[[Page 38070]]
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The system produces daily, public reports of frequently traded
issues \4\ and summary volume and price information about the inter-
dealer market on the previous business day (``daily report''), and is
building a surveillance database of detailed records about every inter-
dealer transaction that has been successfully compared \5\ by the
automated comparison system. Dealers report transaction information to
the Board, pursuant to rule G-14, through the automated comparison
system. The transaction reporting system has been operational and has
been collecting and publicly reporting inter-dealer transaction
information since January 23, 1995. The Board had begun working with
the National Association of Securities Dealers (``NASD'') and the bank
regulatory agencies to establish detailed operational arrangements by
which comprehensive information will be made available.\6\ This
information includes, among other things identification of parties to
each compared trade and the prices of all securities traded, and is not
limited to transactions in issues that are traded four or more times a
day.
\4\ Currently, only issues that are traded four or more times
during a day are included in the next day's daily report.
\5\ In general, a ``compared'' transaction is one for which
salient information items, provided by both parties to a trade, are
matched and found to agree by the automated comparison system.
\6\ Cooperation between the Board and the enforcement agencies
was noted by the Commission as important in the enforcement of the
customer protection rules, and the Commission's order approving the
system described the NASD as the primary entity responsible for
conducting market surveillance. The NASD already has requested and
received transaction information from the surveillance database, as
part of its enforcement activities. The Board is making arrangements
to further automate the process of making surveillance information
available to the NASD and to expand such support to all enforcement
agencies.
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The Commission has often noted the need to make an ``integrated
audit trail'' of transaction information available to the agencies
charged with enforcement of Board rules. The Commission believes that
an audit trail will ``provide valuable information for market
surveillance and inspection purposes to the MSRB, the Commission, the
NASD, and the relevant banking agencies.''\7\
\7\ See note 1, supra.
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The surveillance databases of transactions being built as part of
the transaction reporting system will provide an effective audit trail
for the enforcement agencies. The proposed rule change will help to
ensure that the audit trail contains the identify of all dealers
involved in each compared inter-dealer municipal securities
transaction.
Currently, transaction information reported to the Board under rule
G-14 through the automated comparison system always includes a
numerical identifier for the dealer that ``clears'' the transaction
through NSCC. In many cases, this dealer, called the ``clearing
broker,'' is also the dealer that executed the transaction. In other
cases, the ``clearing broker'' submits the trade on behalf of another
dealer that executed the transaction. In a clearing-introducing broker
arrangement, the clearing broker may submit transaction information on
behalf of the introducing broker. In this case, the introducing broker
generally is identified as the ``executing broker'' in the comparison
system.
During the first months of transaction reporting operations, the
Board has noted that a substantial number of transactions submitted
under G-14 do not include any indication whether the trade is actually
done by the ``clearing broker'' or on behalf of another ``executing
broker.'' \8\ Under these circumstances, the surveillance database does
not reflect the identity of all dealers involved in the transaction.
The identity of the actual executing brokers on each transaction is
critical to the surveillance database and to monitoring individual
dealers' compliance with the requirement for trade comparison on the
night of trade date.\9\
\8\ Clearing brokers have the option of including the identity
of the introducing brokers when reporting a transaction, in which
case the introducing broker identifiers are entered into the Board's
surveillance database. The database lacks the introducing broker
identifier of transactions for which the clearing broker chooses not
to identify the introducing broker.
\9\ Clearing and introducing brokers are jointly responsible for
submitting transaction information for automated comparison under
rule G-12(f). See ``Enforcement Initiative,'' MSRB Reports, Vol. 14,
No. 3 (June 1994), at 35. Therefore, the clearing broker bears
responsibility for obtaining accurate and timely information from
its executing brokers and submitting it for comparison in time to
achieve comparison on the night of trade data. However, charting the
performance of individual executing brokers would be helpful both to
the clearing brokers and to the enforcement agencies, since it would
indicate which executing brokers are presenting problems.
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The proposed rule change would require dealers who clear
transactions for other dealers to identify the executing dealers
involved in the trade. This would involve relatively minor changes in
current practice. Clearing brokers would have to ensure the presence of
the executing broker identification for both the ``buy side'' and the
``sell side'' for every transaction submitted to the automated
comparison system.\10\ In addition, each executing broker of municipal
securities transactions that has not yet been assigned an executing
broker symbol would have to request an assignment.\11\
\10\ A clearing broker that uses an ``omnibus'' account to
handle introducing brokers' trades might have to change its
practices to identify the introducing broker in each case, rather
than using its own clearing broker symbol.
\11\ The NASD assigns executing broker symbols to brokers,
dealers, and municipal securities dealers. A self-clearing broker
may use an NASD-assigned symbol to identify itself in its role as
executing broker, or it may use its NSCC-assigned broker number for
this purpose.
2. Statutory Basis
The Board believes the proposed rule change is consistent with
Section 15B(b)(2)(C), which requires, in pertinent part, that the
Board's rules:
be designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, * * *
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. * * *
B. Self-Regulatory Organization's Statement on Burden on Competition
The Board 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 on Comments on the Proposed
rule Change Received From Members, Participants or Others
The Board has neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing
for Commission Action
Because the foregoing proposed rule change: (1) Does not
significantly affect the protection of investors or the public
interest; (2) does not impose any significant burden on competition;
(3) was provided to the Commission for its review at least five days
prior to the filing date; and (4) does not become operative for thirty
days from the date of its filing on June 22, 1995, the proposed rule
change has become effective pursuant to Section 19(b)(3)(A) of the Act
and Rule 19b-4(e)(6) thereunder. In particular, the Commission believes
the proposed rule change would qualify as a ``non-controversial
filing'' in that the proposed standards do not significantly affect the
protection of investors or the public interest and do not impose any
[[Page 38071]]
significant burden on competition. At any time within sixty days of the
filing of the proposed rule change, the Commission may summarily
abrogate such rule change if it appears to the Commission that such
action is necessary or appropriate in the public interest, for the
protection of investors, or otherwise in furtherance of the purposes of
the Act.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549.
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. Sec. 552, will be available for inspection and copying at
the Commission's Public Reference Room. Copies of such filing will also
be available for inspection and copying at the principal office of the
MSRB. All submissions should refer to File No. SR-MSRB-95-12 and should
be submitted by August 15, 1995.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-18175 Filed 7-24-95; 8:45 am]
BILLING CODE 8610-01-M
