SAME DAY FUNDS SETTLEMENT

(Volume 16, Number 1 ) JANUARY 1996

SAME DAY FUNDS SETTLEMENT

Route To: Manager, Muni Department Underwriting Operations Public Finance Compliance

NOTICE

The conversion to same-day funds settlement is set for February 22, 1996.

In 1988, the Group of Thirty published a report listing nine recommendations on how to improve risk, efficiency and cost in the world's clearance and settlement systems.[1] One of the recommendations called for making payments associated with the settlement of securities transactions consistent for all markets by adopting a same-day funds payment convention. In the United States securities markets this goal is being implemented by the use of a same-day funds payment convention for transactions settled in depositories and clearing corporations.[2] These changes in depository and clearing corporation procedures will apply to municipal securities transactions along with transactions in corporate securities. The conversion to same-day funds settlement is set for February 22, 1996.

While retail customer transactions will not be affected by the conversion to same-day funds payment, institutional and inter-dealer transactions settled by payments made to and from registered securities depositories and clearing agencies will change in some cases. "Next-day" funds payments, currently the practice for many types of municipal securities transactions settled in depositories and clearing corporations, will be eliminated.[3] The Board does not anticipate that changes in its rules will be necessary in the conversion to same-day funds settlement. Dealers, however, may need to adjust payment practices for inter-dealer and institutional customer transactions. Additionally, issuers and their paying agents for municipal securities also may need to examine their principal and interest payment practices on municipal securities based on the new depository procedures.

December 11, 1995

ENDNOTES

[1] The Group of Thirty is an organization devoted to increasing the understanding of international financial issues.

[2] "Group of Thirty U.S. Working Committee Status Report and Request for Comment" (August 1990) reprinted in MSRB Reports, Vol. 10, No. 4 (October 1990) at 11.

[3] "Next-day" funds are payments which are guaranteed to be available on the next business day, in same-day funds.

[4] Rule G-12(f) on use of automated comparison, clearance and settlement systems requires that dealers submit all eligible transactions to the automated comparison system and that those transactions settle by book-entry at a securities depository registered with the Securities and Exchange Commission. The same requirements are found in rule G-15(d) on delivery/receipt vs. payment transactions with customers.

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