Amendments Approved to Rule G-34 to Facilitate Real-Time Transaction Reporting

On January 7, 2005, the Securities and Exchange Commission (SEC) approved amendments to Rule G-34, on CUSIP numbers and new issue requirements, to facilitate real-time transaction reporting of new issue municipal securities.[1]  The amendments become effective January 31, 2005.

Beginning January 31, 2005, the transaction reporting process for municipal securities will convert to a “real-time” process, with most trades being subject to a 15-minute reporting requirement.[2]  Two exceptions in Rule G-14 apply to some transactions done on the first day of trading in a new issue.  Under those exceptions: (i) syndicate managers and syndicate members [3] that effect trades in a new issue at the list offering price[4] may report trades by the end of the first day of trading; and (ii) dealers that are not syndicate managers or syndicate members and that have not traded an issue in the previous year may report trades within three hours of the time of trade execution.[5]  While many trades executed during the first day of trading will qualify for one of these exceptions, other trades (e.g., “non-list price” trades by syndicate managers and syndicate members) will have to be reported within 15 minutes of trade execution.  It also should be noted that the three-hour reporting exception, which generally will be available to dealers outside the underwriting group on the first day of trading, will require accelerated reporting of trades compared with the current end-of-day reporting requirement. 

Rule G-34 requires underwriters[6] to take certain steps to ensure that the issues they underwrite can be processed in the market’s systems for clearance, settlement and transaction reporting.  The amendments modify these requirements to ensure that dealers can report trades on the first day of trading in a new issue in real-time.  Discussed below are the substantive requirements in the amendments to Rule G-34 that become effective January 31, 2005.[7]

Time of Formal Award

Since the timing for trade reports in a real-time environment generally will be measured from the time of trade execution rather than the day that the trade occurs, the amendments replace the concept of “initial trade date” with “time of formal award.”  For negotiated issues, time of formal award is the time that the bond purchase agreement (BPA) is executed.  On competitive issues, time of formal award is the time of the issuer’s official announcement of the award.  Time of formal award represents the earliest time that a trade on a “when, as and if issued” basis in a new issue can be executed, confirmed and reported.

Timing of CUSIP Number Assignment

The amendments ensure that CUSIP numbers are always assigned prior to the first trade execution in a new issue.  On negotiated issues, underwriters are required to ensure that CUSIP numbers are assigned prior to the time of formal award.  For competitive issues, a dealer acting as a financial advisor to an issuer is required to ensure that CUSIP numbers are assigned prior to the time of award.  If CUSIP numbers have not been pre-assigned to an issue, the dealer awarded the issue is required to ensure that CUSIP numbers are assigned prior to its first execution of a transaction in the new issue.

Dissemination of Information on a New Issue

To ensure that other dealers have the necessary information to process transactions in a new issue on the first day of trading, the amendments require underwriters to communicate CUSIP numbers, identifying information for the issue and the time of formal award in a manner reasonably designed to reach market participants that may trade the issue.  Each of these items of information are required to be disseminated as soon as possible, with the dissemination of all necessary information to be made no later than the time of the underwriter’s first trade execution in the new issue.  The MSRB anticipates that existing information vendors and other mechanisms for dissemination of real-time information on municipal securities will be used by underwriters to communicate this information.

January 12, 2005

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Text of Amendments*

Rule G-34: CUSIP Numbers and New Issue Requirements

(a) New Issue Securities.

(i) Assignment of CUSIP Numbers.

(A) Except as otherwise provided in this section (a), each broker, dealer or municipal securities dealer who acquires, whether as principal or agent, a new issue of municipal securities from the issuer of such securities for the purpose of distributing such new issue (“underwriter”) shall apply in writing to the Board or its designee for assignment of a CUSIP number or numbers to such new issue. The [broker, dealer or municipal securities dealer] underwriter shall make such application as promptly as possible, but in no event later than, in the case of negotiated sales, a time sufficient to ensure assignment of a CUSIP number or numbers [on or] prior to the [business day on which] time the contract to purchase the securities from the issuer is executed; or, in the case of competitive sales, the [date of award] time of the first execution of a transaction in the new issue by the underwriter. A broker, dealer or municipal securities dealer acting as a financial advisor to an issuer in connection with a competitive sale of an issue shall ensure that application for a CUSIP number or numbers is made in sufficient time to permit assignment of CUSIP numbers prior to the [date] time of award. [The broker, dealer or municipal securities dealer shall provide to the Board or its designee] In making an application for CUSIP number assignment, the following information shall be provided:

(1) - (8)  No changes.

(B) The information required by subparagraph (i)(A) of this section (a) shall be provided in accordance with the provisions of this subparagraph. [At the time application is made the broker, dealer or municipal securities dealer making such application shall provide to the Board or its designee a] The application shall include a copy of a notice of sale, official statement, legal opinion, or other similar documentation prepared by or on behalf of the issuer, or portions of such documentation, reflecting the information required by subparagraph (i)(A) of this section (a). Such documentation may be submitted in preliminary form if no final documentation is available at the time of application. In such event the final documentation, or the relevant portions of such documentation, reflecting any changes in the information required by subparagraph (i)(A) of this section (a) shall be submitted when such documentation becomes available. If no such documentation, whether in preliminary or final form, is available at the time application for CUSIP number assignment is made, such copy shall be provided promptly after the documentation becomes available.

(C) The provisions of paragraph (i) of this section (a) shall not apply with respect to any new issue of municipal securities on which the issuer or a person acting on behalf of the issuer has submitted an application for assignment of a CUSIP number or numbers. [to such issue to the Board or its designee.]

(D) In the event that the proceeds of the new issue will be used, in whole or in part, to refund an outstanding issue or issues of municipal securities in such a way that part but not all of the outstanding issue or issues previously assigned a single CUSIP number is to be refunded to one or more redemption date(s) and price(s) (or all of an outstanding issue is to be refunded to more than one redemption date and price), the broker, dealer or municipal securities dealer shall apply in writing to the Board or its designee for a reassignment of a CUSIP number to each part of the outstanding issue refunded to a particular redemption date and price and shall provide to the Board or its designee the following information on the issue or issues to be refunded:

(1) – (3) No changes.

The [broker, dealer or municipal securities dealer] underwriter also shall provide documentation supporting the information provided pursuant to the requirements of this subparagraph (D).

(ii) Application for Depository Eligibility, CUSIP Number Affixture and Initial Communications. Each [broker, dealer or municipal securities dealer who acquires, whether as principal or agent, a new issue of municipal securities from the issuer of such securities for the purpose of distributing such new issue ("]underwriter [")] shall carry out the following functions:

(A) – (B) No changes.

(C) The underwriter[, on initial trade date,] shall [communicate] as promptly as possible announce each item of information listed below in a manner reasonably designed to reach market participants that may trade the new issue.  All information shall be announced no later than the time of the first execution of a transaction in the new issue by the underwriter. [the following information to syndicate and selling group members]:

(1) No changes.

(2) the [initial trade date] time of formal award.  For purposes of this subparagraph (a)(ii)(C), [initial trade date] time of formal award shall mean, for competitive issues, [either] the [date] time [of] the issuer announces the award, [or the first date allocations are made to syndicate or selling group members, whichever date is later,] and, for negotiated issues, [either] the [date] time [on which] the contract to purchase the securities from the issuer is executed[, or the first date allocations are made to syndicate or selling group members, whichever date is later].

(D) No changes.

(iii) No changes.