Public Reporting of Transactions in Municipal Securities:
Proposed Service Filed
The Board has filed a proposed rule change to institute a service that would provide daily public reports summarizing information about customer and inter-dealer transactions in municipal securities reported to the Board under rule G-14. The Board intends to make the Service operational in the third quarter of 1998. There will be a fee of $15,000 for an annual subscription to the Service.
Questions about subscriptions to the Service may be directed to Thomas A. Hutton, Director, Municipal Securities Information Library System. Questions about rule G-14 may be directed to Larry M. Lawrence, Policy and Technology Advisor.
On June 17, 1998, the Board filed with the Securities and Exchange Commission a proposed change to rule G-14 that would institute a service to provide a daily public report summarizing prices and volumes of trading in the municipal securities market during the previous day (the "Combined Daily Report").(1) This report would summarize both inter-dealer and customer transactions, using a format similar to that of the Board's currently produced Inter-Dealer Daily Report. Like the Inter-Dealer Daily Report, the Combined Daily Report would be made available by approximately 6:00 a.m. each business day, reporting on the previous day's market. Subscribers would transfer the report, in electronic form, from the Board's system to their own computer systems. A printed copy of the report would be available for examination, free of charge, in the Board's Public Access Facility in Alexandria, Virginia. These dissemination methods are the same as for the current Inter-Dealer Daily Report.
In addition to the Combined Daily Report Service, the Board also will use the data reported by dealers under rule G-14 to create a surveillance database available to regulatory agencies and organizations responsible for enforcement of Board rules.
Since 1995, rule G-14 has required brokers, dealers and municipal securities dealers ("dealers") to report to the Board their inter-dealer transactions in municipal securities via the automated comparison system for municipal securities operated by National Securities Clearing Corporation ("NSCC"). The Board has used this information in its Transaction Reporting Program to create a database of transaction information that can be used for market surveillance purposes and for inspection and enforcement by agencies and organizations charged with enforcement of Board rules. The Board also uses the reported transaction information to create the Inter-Dealer Daily Report, which is used by market participants to help gauge the value of municipal securities. The Board currently has eight subscribers to the Inter-Dealer Daily Report. Most of these are information vendors that redistribute the information to their own subscribers and/or use the information in various securities valuation products that they market.
In 1996, the Board filed with the Commission an amendment to rule G-14, requiring dealers to report their customer transactions in municipal securities to the Board in certain prescribed formats.(2) This will allow the Board to include customer transaction data in the surveillance database and in the Daily Reports of price and volume activity. The Commission approved this amendment and it became effective March 1, 1998.(3) The Board has been receiving customer transaction data since that time.
In March 1998, the Board stated its intention to make the Combined Daily Report available on an operational basis in the third quarter of 1998 and made samples of the Report available for comment.(4) . Two comments were received, one requesting that the Board continue to produce the Inter-Dealer Daily report after the Combined Daily Report becomes operational, and the other suggesting that the electronic version of the report include "filler" fields (spaces) to ensure compatibility with the electronic Inter-Dealer Daily Report. The Board has determined to continue production of the Inter-Dealer Daily Report, and has revised the electronic format as requested.
Description of the Combined Daily Report
The criteria for including municipal securities information on the proposed Combined Daily Report will be essentially the same as the criteria for the current Inter-Dealer Daily Report. If a municipal security (identified by its CUSIP number) is reported, in compliance with rule G-14, as having been traded four or more times on a given day, then the high, low, and average price and total par value of all the reported trades in that security will be on the Combined Daily Report the next morning. The average price will be calculated as the arithmetic mean of reported transaction prices of those trades between $100,000 and $1,000,000 in par value. This reporting band is meant to exclude odd lots and very large trades from the average price. In applying these criteria, inter-dealer and customer transactions will be considered together. This means that any combination of inter-dealer and customer transactions totaling four or more in one CUSIP will trigger the inclusion of price information in the Combined Daily Report. Based upon transaction data reported to the Board in March, April and May 1998, it appears that approximately one thousand issues will be traded four or more times on a typical day.
The Combined Daily Report includes summary information describing the day's market in municipal securities. The summary covers all municipal securities trades, regardless of frequency of trading. The average daily market statistics during the week of March 30, 1998 were:
Total par amount traded $8.6 billion
Total number of trades reported 22,199
Total number of issues traded 11,499
Number of issues traded four or more times 1,025
The following data elements for each issue would be published in the Combined Daily Report.
CUSIP number: The CUSIP number that identifies the issue.
Security description: A short description of the issue that was traded.
Number of trades: The total number of trades in the issue (both inter-dealer and customer) that were reported to the MSRB.
Volume traded: The total dollar value of all trades in the issue on the trade date.
High price: The highest price of all trades in the issue.
Low price: The lowest price of all trades in the issue.
Average price: The arithmetic mean of all trades whose par values were between $100,000 and $1,000,000.
Trades in average: The number of trades whose par values were between $100,000 and $1,000,000.
When issued: If "yes," indicates that the issue was traded while in "when, as, and if issued" status.
Assumed settlement date: In some cases, it is necessary to assume a settlement date to calculate price from yield for inclusion of the price in the Daily Report. The assumed settlement date for both inter-dealer and customer trades will be 15 business days after the trade date (T+15). When it has been necessary to assume a settlement date, this date will be shown on the Daily Report.
Review Process for Customer Transaction Data Used in Combined Daily Report
Customer transaction records submitted by dealers will be reviewed automatically as part of data processing within the Board's Transaction Reporting System. Trade records will be excluded from eligibility for the Combined Daily Report if: (i) the trade date reported in the record is for a day other than the day being reported in the Daily Report; (ii) the trade record or the file containing the trade record is not in the required format or otherwise violates stated system input requirements;(5) (iii) the submitter of the file has not filed with the Board the required information to identify itself; (iv) the trade record contains a dealer identifier that is unknown to the Board;(6) (v) the information contained in the trade record is so substantially outside expected parameters that an input error is suspected; (vi) the CUSIP number submitted is not known to be a valid CUSIP number for a municipal securities issue;(7) or (vii) the trade record contains no dollar price and a dollar price cannot be calculated from the reported yield on the transaction using the Board's available data about the security and standard yield-to-price calculation techniques for securities with periodic interest payments and with more than six months to redemption, contained in Board rule G-33(b)(i)(B)(2).(8)
Combined Daily Report Service
The Board expects to make the Combined Daily Report Service available during the third quarter of 1998, and will file with the Commission, in advance, an exact date for beginning operation. The fee for an annual subscription to the Service will be $15,000.
1. File No. SR-MSRB-98-9. Comments on the proposed amendment may be made to the Commission and should refer to this file number.
2. Securities Exchange Act Release No. 37859 (October 23, 1996).
3. See Securities Exchange Act Release No. 37998 (November 29, 1996) and Securities Exchange Act Release No. 39495 (December 29, 1997).
4. See Securities Exchange Act Release No. 39835 (April 7, 1998).
5. Format requirements and input procedures are described in "Board to Proceed with Customer Transaction Reporting Program: Rule G-14" (MSRB Reports, Vol 16, No. 3 (September 1996) at 3 - 16. This document, along explanatory questions and answers and the latest information on the Program, can be found on the Board's World Wide Web site at www.msrb.org.
6. To identify dealers, the Board uses symbols assigned to dealers by the NASD. Dealers are required to obtain a valid symbol under rule G-14(b)(iii). The Transaction Reporting Procedures contained within rule G-14 also require that each dealer effecting customer transactions provide the Board with certain contact information and testing-related information.
7. The Board currently receives updated information on municipal securities CUSIP numbers each day from the CUSIP Service Bureau and J.J. Kenny Co., Inc.
8. The current software used for calculation is provided by TIPs Inc. The securities information used to calculate price from yield currently is provided by J.J. Kenny Co., Inc.
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