Public Reporting of Individual Transactions in Frequently Traded

Questions about subscriptions to the service may be directed to Thomas A. Hutton, Director, Municipal Securities Information Library. Questions about rule G-14 and criteria for including trades in the Daily Transaction Report may be directed to Harold L. Johnson, Deputy General Counsel, or Larry M. Lawrence, Policy and Technology Advisor.

On December 16, 1999, the Securities and Exchange Commission (“Commission”) approved the Board’s plan to produce a daily report containing information on individual transactions in frequently traded municipal securities (the “Daily Transaction Report”).[1] The transaction information on the report will come from dealer reports made to the Board under Board rule G-14 on transaction reporting. This rule requires dealers to report essentially all inter-dealer and customer transactions in municipal securities to the Board by midnight of trade date.

The new report will be the third product offered by the Board to increase the amount of price transparency in the municipal securities market. Like the Board’s current Combined and Inter-Dealer Daily Reports, the Daily Transaction Report will provide information on “frequently traded” issues – issues on which at least four transaction reports were received for a given trade date. Also like the current Daily Reports, the new report will be produced and made available electronically by approximately 7:00 a.m. on the day following trade date. Electronic reports will be produced in the same three formats – printable, comma-delimited, and fixed record length – as the current Daily Reports.[2] However, unlike the current Daily Reports, the Daily Transaction Report will provide transaction detail on each reported trade in a frequently traded issue, rather than merely providing the daily high, low and average prices.[3]

The Daily Transaction Report will display, for each transaction in a frequently traded security: the CUSIP number, a short description of the issue, the par value traded, the time of trade reported by the dealer, and the price of the transaction.[4] Transactions will be categorized as in one of three transaction “types”: (i) sales by dealers to customers; (ii) purchases by dealers from customers; or (iii) inter-dealer trades. Reports will be organized by issue, with the most frequently traded issues listed first. Within an issue, trades will be listed in order of time of trade, from the earliest reported time of trade to the latest.[5] Although the size of each day's report will depend on market activity, it is expected that the Daily Transaction Report on average will provide information on approximately 9,000 individual transactions in approximately 1,000 frequently traded issues. Sample copies showing the appearance of the Daily Transaction Report can be obtained at the Board’s Web site at www.msrb.org.

The Daily Transaction Report will be available by subscription. To obtain a subscription, it will be necessary to sign a subscription agreement, but there will be no fee. The subscription agreement outlines the Board’s disclaimer of liability, the proprietary nature of and usage restrictions on the CUSIP numbers and CUSIP descriptions contained in the report, and certain other matters.

The Board expects to disseminate the Daily Transaction Report to subscribers via the Internet. Information on how to subscribe, a downloadable subscription agreement, instructions for accessing files via the Internet and a set of sample files are available via at the Board’s web site. In addition, recent Daily Transaction Reports will be available for examination, also free of charge, in the Board’s Public Access Facility in Alexandria, Virginia. The Board expects that the new Daily Transaction Report will be made available by mid-January 2000.

A long-standing goal of the Board is to provide market participants with information about the value of securities.[6] Over the past five years, with the advent of the Transaction Reporting Program, the Board has been working toward making transaction price information “transparent” in the marketplace and seeking ways to make that transparency information more comprehensive and contemporaneous.[7] The new Daily Transaction Report represents the next step in this continuing process.

As part of its ongoing effort, the Board intends to monitor the impact of the new report in the market. After the report has been operational for a period of time, the Board will review its operation and will consider whether to lower the “frequently traded” threshold. Doing so would have the effect of listing more issues and more prices in each day’s report and would make the report even more comprehensive in its representation of market activity.

The Board also is reviewing various options for collecting and disseminating transaction transparency information on a more contemporaneous basis. As part of this effort, the Board has created a web-based demonstration system that simulates the kind of information that a “real-time” transparency system might provide and how it might be presented to investors. This demonstration system is available at the Board’s Web site, www.msrb.org. Comments from market participants on the demonstration system are welcome. The Board will draw upon its experience with the “real-time” demonstration system as it considers further steps toward expanded municipal securities market transparency.

ENDNOTES

[1] Securities Exchange Act Release No. 42241 (December 16, 1999), 64 FR 72123 (1999).

[2] The “printable” format can be printed with little or no change by an end-user. The “comma-delimited” and “fixed record length” files can easily be sorted or converted by an end-user’s spreadsheet or other application program (e.g., Microsoft Excel).

[3] The Board also will continue to use all the transaction information reported by dealers to maintain a market surveillance database. The surveillance database is available to the Commission, the National Association of Securities Dealers Regulation (NASDR) and the bank regulatory agencies responsible for enforcement of Board rules.

[4] The report displays a dollar price for each transaction. If the dealer submits a yield with the transaction report, the yield is included on the Daily Transaction Report with the dollar price. There are instances, however, when yields are not reported. For example, dealers for secondary market inter-dealer transactions do not submit yields because the automated comparison system used to report inter-dealer trades cannot accept yield information on those transactions. In certain customer transactions, such as those in defaulted or variable rate securities, it also may be impossible for the dealer to submit a yield. Transactions with customers or dealers in new issues for which no settlement date has been set may be effected and reported by dealers either with a dollar price or a yield. It is not possible for the dealer to report both yield and dollar price on these transactions. The MSRB Transaction Reporting System will calculate a dollar price from yields submitted for these transactions, using an assumed settlement date if necessary. There must be, however, sufficient securities data available to make the calculation (e.g., coupon, dated date, maturity date, first interest payment date, etc.). For additional information, see “Public Reporting of Transactions in Municipal Securities: Rule G-14,” MSRB Reports, Vol. 18, No. 2 (August 1998) at 25-27.

[5] Where trades are submitted by dealers with an invalid time or no time of trade, the report shows the time of trade as “0.”

[6] See, e.g., “From the Chairman,” MSRB Reports, Vol. 8, No. 5 (December 1988) at 2.

[7] See, e.g., “Board to Proceed with Pilot Program to Disseminate Inter-Dealer Transaction Information,” MSRB Reports, Vol. 14, No. 1 (January 1994) at 13; “Reporting Inter-Dealer Transactions to the Board: Rule G-14,” MSRB Reports, Vol. 14, No. 5 (December 1994) at 3-6; and “Transaction Reporting Program for Municipal Securities,” MSRB Reports, Vol. 15, No. 1 (April 1995) at 11-15.