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Interpretive Guidance - Interpretive Letters
Publication date:
Agency Transaction: Pricing
Rule Number:

Rule G-12, Rule G-15

Agency transaction: pricing. Your letter of August 3, 1979 has been referred to me for response. In your letter you inquire as to the relationship between the requirements to show on customers confirmations the "yield at which transaction is effected" and the "resulting dollar price," particularly in the context of agency transactions where the professional receives a concession or other dealer reallowance as its remuneration.

Under rule G-15, the dollar price disclosed to a customer must be calculated on the basis of the yield at which the transaction was effected. This calculation is made without reference to any possible concession or other allowance which a municipal securities dealer may receive from another municipal securities professional. Accordingly, the dollar price shown on a customer confirmation will always be derived directly from the yield price.

For example, a municipal securities dealer seeking to purchase $100,000 fifteen-year bonds with a 5% coupon as agent for a customer would commonly purchase the securities from another professional at a yield price less a concession (e.g., "5.60½"), and confirm to the customer at the net yield price ("5.60"), retaining the concession as its remuneration. In our example, the customer confirmation would be required to disclose the "yield at which transaction is effected" ("5.60"), the "resulting dollar price" ("93.96"), and the fact that the dealer received $500 as its remuneration in the form of a dealer concession. The dollar price is computed directly from the yield price, and is not net of the concession received.

The confusion may arise from comparing the confirmation sent to a customer to the confirmation sent to the professional on the other side of a transaction. On the inter-dealer confirmation, the "yield at which transaction is effected" will be shown, as well as the amount of the concession, but the unit dollar price may be expressed net of the concession (in our example, "93.46," being the gross dollar price of "93.96" less the ½ point reallowance). This may give the appearance of a difference in price between the purchase and sale confirmations, but in fact both transactions are being effected at the same yield price (in our example, "5.60"), and the dollar price disclosed to the customer is the result of this yield. MSRB interpretation of September 20, 1979.

NOTE: The above letter refers to the text of rule G-15 as in effect prior to amendments effective on January 16, 1992.

Interpretive Guidance - Interpretive Letters
Publication date:
Callable Securities: Pricing to Call
Rule Number:

Rule G-12, Rule G-15

Callable securities: pricing to call. Your letter, dated January 25, 1979 has been referred to me for response. In your letter, you raise a question regarding pricing of callable securities under rules G-12 and G-15. Specifically, you inquire as to how the dollar price should be calculated for transactions in a particular issue of [Name of bond deleted] bonds. The terms of the issue provide in pertinent part that the securities are subject to redemption prior to maturity on or after October 1, 1984, at declining premiums, from the proceeds of prepayments of mortgage loans (the "1984 call feature").

As you know, Board rules G-12 and G-15 require that

... where a transaction is effected on a yield basis, the dollar price shall be calculated to the lowest of price to premium call, price to par option, or price to maturity...

As an interpretive matter, the Board has adopted the position that the calculation of dollar price to a premium call or par option date should be to that date at which the issuer may exercise an option to call the whole of a particular issue or, in the case of serial bonds, a particular maturity, and not to the date of a call in part.

With respect to your question, the Board is of the view that the dollar price for transactions involving the securities in question should not be calculated to the 1984 call feature. The Board bases its conclusion on (1) the fact that it is extremely unlikely as a practical matter that the call would be exercised as to all or even a significant part of the issue (that is, it is much more likely to operate in practice as an "in part" call) and (2) the exercise of the 1984 call feature would depend on events which are not subject to the control of the issuer. I note that the Board cited this as the reason for not utilizing "catastrophe call" features for purposes of price calculation. MSRB interpretation of March 9, 1979.

Interpretive Guidance - Interpretive Letters
Publication date:
Particularity of Legend
Rule Number:

Rule G-15

Particularity of legend. I refer to your recent letter in which you inquired regarding the appropriateness of using a particular legend to satisfy certain requirements of rule G-15 on customer confirmations. As you note in your letter, rule G-15 requires that information concerning time of execution of a transaction and the identity of the contra-side of an agency transaction be furnished to customers, at least upon request. You have requested advice as to whether the following legend satisfies the requirements of rule G-15 with respect to this information:

"Other details about this trade may be obtained by written request to the above address."

We are of the opinion that the legend in question does not satisfy the requirements of rule G-15 because it is too general in nature. The legend does not sufficiently apprise customers of their right to obtain information pertaining to the time of execution of a transaction or the identity of the contra-party, as contemplated by rule G-15. A legend specifically alluding to the availability of such information is necessary to satisfy the rule.

The Board has not adopted a standardized form, nor approved particular language for use in compliance with the requirements of the rule. I believe, however, that [Name deleted] is a member of the Dealer Bank Association. I suggest that you refer to the Forms Book prepared by the Dealer Bank Association, which may be of help to you. MSRB interpretation of March 6, 1979.