Notice2024-08943
Self-Regulatory Organizations; Municipal Securities Rulemaking Board; Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change Consisting of Proposed Rule Change To Amend MSRB Rule G-14 To Shorten the Timeframe for Reporting Trades in Municipal Securities to the MSRB
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
April 26, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 82 (Friday, April 26, 2024)</title>
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[Federal Register Volume 89, Number 82 (Friday, April 26, 2024)]
[Notices]
[Pages 32485-32491]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-08943]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100003; File No. SR-MSRB-2024-01]
Self-Regulatory Organizations; Municipal Securities Rulemaking
Board; Order Instituting Proceedings To Determine Whether To Approve or
Disapprove a Proposed Rule Change Consisting of Proposed Rule Change To
Amend MSRB Rule G-14 To Shorten the Timeframe for Reporting Trades in
Municipal Securities to the MSRB
April 22, 2024.
I. Introduction
On January 12, 2024, the Municipal Securities Rulemaking Board
(``MSRB'') filed with the Securities and Exchange Commission (``SEC''
or ``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'' or ``Exchange Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to (1) amend MSRB Rule G-14
(``Rule G-14''), on reports of sales or purchases, to (i) shorten the
amount of time within which brokers, dealers, and municipal securities
dealers (collectively, ``dealers,'' and each individually, a
``dealer'') must report most transactions to the MSRB; and (ii) require
dealers to report certain transactions with a new trade indicator, and
make certain clarifying amendments, and (2) make conforming amendments
to MSRB Rule G-12, on uniform practice (``Rule G-12''), and the MSRB's
Real-Time Transaction Reporting System (``RTRS'') Information Facility
(``IF-1'') to reflect the shortened reporting timeframe (collectively,
the ``proposed rule change'').\3\ The proposed rule change was
published for comment in the Federal Register on January 26, 2024.\4\
The Commission received comments in response to the proposed rule
change.\5\ This order institutes proceedings under Section 19(b)(2)(B)
of the Act \6\ to determine whether to approve or disapprove the
proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Securities Exchange Act Release No. 34-99402 (Jan. 19,
2024), 89 FR 5384 (Jan. 26, 2024) (``Notice'').
\4\ Notice, 89 FR at 5384.
\5\ Comment letters received by the Commission are available on
our website at <a href="https://www.sec.gov/comments/sr-msrb-2024-01/srmsrb202401.htm">https://www.sec.gov/comments/sr-msrb-2024-01/srmsrb202401.htm</a>.
\6\ 15 U.S.C. 78s(b)(2)(B).
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II. Description of the Proposed Rule Change
Rule G-14 on reports of sales or purchases requires dealers to
report their transactions to RTRS within 15 minutes of the Time of
Trade,\7\ absent an exception,\8\ in accordance with Rule G-14, the
Rule G-14 RTRS Procedures, and the RTRS Users Manual.\9\ Since the
current 15-minute requirement went into effect in 2005, the fixed
income markets have changed dramatically, including a significant
increase in the use of electronic trading platforms or other electronic
communication protocols to facilitate the execution of transactions. As
described in more detail in the Notice, the proposed rule change is
intended to bring about greater market transparency through more timely
disclosure and dissemination of information to market participants and
market-supporting vendors so that the information better reflects
current market conditions on a real-time basis, while carefully
balancing the considerations raised by commenters throughout the
rulemaking process.\10\ Additionally, the proposed rule change would
also make certain conforming technical changes to Rule G-12(f)(i) and
IF-1. The MSRB has stated that it will review the available trade
reporting information and data arising from implementation of the
changes to trade reporting introduced by the proposed rule change,
including but not limited to the two exceptions to the one-minute
reporting requirement,\11\ to inform any further potential changes by
the MSRB, through future rulemaking, to the trade reporting
requirements due to increasing marketplace and technology efficiencies,
process improvements, continuing or new barriers to accelerated
reporting, unanticipated market impacts, or other factors.\12\
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\7\ Rule G-14 RTRS Procedures Section (d)(iii) defines ``Time of
Trade'' as the time at which a contract is formed for a sale or
purchase of municipal securities at a set quantity and set price.
\8\ See Notice, 89 FR at 5384 n.5 (describing transactions
currently exempt from the reporting requirements under Rule G-
14(b)(v)).
\9\ The RTRS Users Manual is available at <a href="https://www.msrb.org/RTRS-Users-Manual">https://www.msrb.org/RTRS-Users-Manual</a>.
\10\ Id.
\11\ Id.
\12\ Id.
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A. New Baseline Reporting Requirement: One Minute After the Time of
Trade
The proposed amendments to Rule G-14 RTRS Procedures Section
(a)(ii) generally would provide that transactions effected with a Time
of Trade during the hours of an RTRS Business Day \13\ must be reported
to an RTRS Portal \14\ ``as soon as practicable, but no later than one
minute'' (rather than within the current 15-minute standard) after the
Time of Trade, subject to several existing reporting exceptions, which
would be retained in the amended rule,\15\ and two new intra-day
reporting exceptions relating to dealers with limited trading activity
and trades with a manual component that would be added by the proposed
rule change.\16\ Except for those trades that would qualify for a
reporting exception, all trades currently required to be reported
within 15 minutes after the Time of Trade would, under the proposed
rule change, be required to be reported no later than one minute after
the Time of Trade.
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\13\ Rule G-14 RTRS Procedures Section (d)(ii) defines ``RTRS
Business Day'' as 7:30 a.m. to 6:30 p.m., Eastern Time, Monday
through Friday, unless otherwise announced by the MSRB.
\14\ See Notice, 89 at 5385 n.13 (discussing the various
portals).
\15\ See Notice, 89 FR at 5385 n.14 (describing the existing
exceptions).
\16\ The two new intra-day reporting exceptions, consisting of
trades by dealers with limited trading activity and trades with a
manual component, would be designated as Rule G-14 RTRS Procedures
Sections (a)(ii)(C)(1) and (2), respectively. See Notice, 89 FR at
5385 n.15.
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i. New Requirement To Report Trades ``as Soon as Practicable''
Section (a)(ii) of the proposed amendment to Rule G-14 RTRS
Procedures adds a new requirement that, absent an exception, trades
must be reported as soon as practicable (but no later than one minute
after the Time of Trade).\17\ This ``as soon as practicable''
requirement would also apply to trades subject to longer trade
reporting deadlines under the two new exceptions for dealers with
limited trading activity pursuant to Rule G-14 RTRS Procedures Section
(a)(ii)(C)(1) and Supplementary Material .01, or trades with a manual
component pursuant to Rule G-14 RTRS Procedures Section (a)(ii)(C)(2)
and Supplementary Material .02.\18\ Although Rule G-14 RTRS Procedures
do not currently explicitly prohibit a dealer from waiting until the
existing 15-minute deadline to report a trade notwithstanding the fact
that the dealer could reasonably have reported such
[[Page 32486]]
trade more rapidly, the MSRB notes that under the proposed rule change
a dealer could not simply await the deadline to report a trade if it
were practicable to report such trade more rapidly.\19\
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\17\ Notice, 89 FR at 5386.
\18\ Id.
\19\ Id.
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As provided in more detail in the Notice, proposed Supplementary
Material .03 would provide guidance relating to policies and procedures
for complying with the ``as soon as practicable'' reporting
requirement.\20\ The MSRB noted that dealers must not purposely
withhold trade reports, for example, by programming their systems to
delay reporting until the last permissible minute or by otherwise
delaying reports to a time just before the deadline if it would have
been practicable to report such trades more rapidly.\21\ For trades
with a manual component, and consistent with Supplementary Material
.03(b) of FINRA Rule 6730, the MSRB recognized that the trade reporting
process may not be completed as quickly as, for example, where an
automated trade reporting system is used.\22\ The MSRB explained that
it expected that the regulatory authorities that examine dealers and
enforce compliance with this requirement would take into consideration
the manual nature of the dealer's trade reporting process in
determining whether the dealer's policies and procedures are reasonably
designed to report the trade ``as soon as practicable'' after
execution.\23\
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\20\ Id. Where a dealer has reasonably designed policies,
procedures and systems in place, the dealer generally would not be
viewed as violating the ``as soon as practicable'' requirement
because of delays in trade reporting due to extrinsic factors that
are not reasonably predictable and where the dealer does not intend
to delay the reporting of the trade (for example, due to a systems
outage).
\21\ Id.
\22\ Id.
\23\ Id.
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ii. Time of Trade Discussion
The ``Time of Trade'' is the time at which a contract is formed for
a sale or purchase of municipal securities at a set quantity and set
price.\24\ For transaction reporting purposes, the Time of Trade is the
same as the time that a trade is ``executed'' and, generally, is
consistent with the ``time of execution'' for recordkeeping
purposes.\25\
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\24\ See current Rule G-14 RTRS Procedures Section (d)(iii).
\25\ See Notice, 89 FR at 5386 for a discussion on time of
execution and note 22 for additional guidance material on the time
of execution.
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iii. Valid Contract Discussion
In general, to form a valid contract, there must be at least an
offer and acceptance of that offer. As a result, the MSRB noted that
dealers should consider the point in time at which an offer to buy or
sell municipal securities was met with an acceptance of that offer.
This ``meeting of the minds,'' \26\ cannot occur before the final
material terms, such as the exact security, price and quantity, have
been agreed to and such terms are known by the parties to the
transaction.\27\ The MSRB further explained that dealers should be
clear in their communications regarding the final material terms of the
trade and how such terms would be conveyed between the parties \28\ to
ensure that such a valid trade contract has been formed.\29\
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\26\ See generally FINRA Regulatory Notice 16-30 (Trade
Reporting and Compliance Engine (TRACE): FINRA Reminds Firms of
their Obligation to Report Accurately the Time of Execution for
Transactions in TRACE-eligible Securities) (Aug. 2016); MSRB Notice
2016-19 (MSRB Provides Guidance on MSRB Rule G-14, on Reports of
Sales or Purchases of Municipal Securities (Aug. 9, 2019) (the
``2016 RTRS FAQs'') at questions 1 and 2.
\27\ See generally MSRB Notice 2004-18 (Notice Requesting
Comment on Draft Amendments to Rule G-34 to Facilitate Real-Time
Transaction Reporting and Explaining Time of Trade for Reporting New
Issue Trades) (June 18, 2004); 2016 RTRS FAQs at question 1.
\28\ Notice, 89 FR at 5386 n.26.
\29\ See Notice 89 FR at 5387 (discussing the particulars for
when transactions have been executed, confirmed, and reported).
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iv. Exceptions to the Baseline Reporting Requirement
Proposed amendments to Rule G-14 RTRS Procedures Section (a)(ii)
add two new exceptions to the proposed one-minute reporting
requirement: (a) New Section (C)(1) provides an exception for a dealer
with ``limited trading activity,'' and (b) new Section (C)(2) provides
an exception for a dealer reporting a ``trade with a manual
component.'' \30\
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\30\ Notice, 89 FR at 5387 (explaining how these exceptions have
a narrowly tailored purpose).
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a. Exception for Dealers With Limited Trading Activity
New Section (a)(ii)(C)(1) would except a dealer with ``limited
trading activity'' from the one-minute reporting requirement and would
instead be required to report its trades as soon as practicable, but no
later than 15 minutes after the Time of Trade for so long as the dealer
remains qualified for the limited trading activity exception, as
further specified in new Supplementary Material .01.\31\ Proposed
Section (d)(xi) of Rule G-14 RTRS Procedures would define a dealer with
limited trading activity as a dealer that, during at least one of the
prior two consecutive calendar years, reported to an RTRS Portal fewer
than 1,800 transactions, excluding transactions exempted under Rule G-
14(b)(v) and transactions specified in Rule G-14 RTRS Procedures
Sections (a)(ii)(A) and (B) (i.e., transactions having an end-of-trade-
day reporting exception).\32\ A dealer relying on this exception to
report trades within the 15-minute timeframe, rather than the new
standard one-minute timeframe, would have to confirm that it meets the
criteria for a dealer with limited trading activity for each year
during which it continues to rely on the exception (e.g., the dealer
could confirm its eligibility based on its internal trade records and
by checking MSRB compliance tools which would indicate a dealer's
transaction volume for a given year).\33\ Notwithstanding the
foregoing, the MSRB reminded dealers with limited trading activity of
the new overarching obligation to report trades as soon as
practicable.\34\
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\31\ The MSRB noted that transactions effected by such a dealer
with a Time of Trade outside the hours of an RTRS Business Day would
be permitted to be reported no later than 15 minutes after the
beginning of the next RTRS Business Day pursuant to Rule G-14 RTRS
Procedures Section (a)(iii). The MSRB also noted that, as is the
case today, transactions for which an end-of-trade-day or post-
trade-day reporting exception is available under redesignated
Sections (A) and (B) would continue to have that exception
available. Notice, 89 FR at 5387 n.29.
\32\ This number of transactions is expected to capture
approximately 1.5 percent of the trades in the municipal securities
markets in a given calendar year. Notice, 89 FR at 5387 n.30.
\33\ See Notice, 89 FR at 5387-5388 (using a hypothetical to
illustrate variations in dealer eligibility for the limited trading
exception).
\34\ See Notice, 89 FR at 5386 discussing the new requirement to
report trades as soon as practicable.
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b. Exception for Trades With a Manual Component
Rule G-14 RTRS Procedures Section (a)(ii)(C)(2) would except a
``trade with a manual component'' as defined in new Section (d)(xii) of
Rule G-14 RTRS Procedures from the one-minute reporting requirement.
Dealers with such trades would be required to report such trades as
soon as practicable and within the time periods specified in new
Supplementary Material .02, unless another exception from the one-
minute reporting requirement applies under proposed Rule G-14 RTRS
Procedures Sections (a)(ii)(A) and (B) (i.e., transactions having an
end-of-trade-day or post-trade-day reporting exception) or
(a)(ii)(C)(1) (i.e., transactions by dealers with limited trading
activity).\35\ Section (d)(xii) of Rule G-14 RTRS Procedures would
define a ``trade with a manual component'' as a transaction that is
[[Page 32487]]
manually executed or where the dealer must manually enter any of the
trade details or information necessary for reporting the trade directly
into an RTRS Portal (for example, by manually entering trade data into
the RTRS Web Portal) or into a system that facilitates trade reporting
(for example, by transmitting the information manually entered into a
dealer's in-house or third-party system) to an RTRS Portal. As
described below and in the Notice, a dealer reporting to the MSRB a
trade meeting the definition for a ``trade with a manual component''
would be required to append a new trade indicator so that the MSRB can
identify manual trades.\36\
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\35\ As explained by the MSRB, transactions effected with a Time
of Trade outside the hours of an RTRS Business Day would be
permitted to be reported no later than 15 minutes after the
beginning of the next RTRS Business Day pursuant to Rule G-14 RTRS
Procedures Section (a)(iii). Notice, 89 FR at 5387 n.38.
\36\ Such new indicator would be required for any trade with a
manual component, whether the dealer reports such trade within the
new one-minute timeframe or the dealer seeks to take advantage of
the longer timeframes permitted for trades with a manual component.
Notice, 89 FR at 5388 n.39.
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As explained by the MSRB, this ``manual'' exception would apply
narrowly, and would normally encompass any human participation,
approval or other intervention necessary to complete the initial
execution and reporting of trade information after execution,
regardless of whether undertaken by electronic means (e.g., keyboard
entry), physical signature or other physical action. To qualify as a
trade with a manual component, the manual aspect(s) of the trade
generally would occur after the relevant Time of Trade (i.e., the time
at which a contract is formed for the transaction). As further
explained by the MSRB, any manual aspects that precede the time of
trade (e.g., phone calls to locate bonds to be sold to a customer
before the dealer agrees to sell such bonds to a purchasing customer)
would normally not be relevant for purposes of the exception unless
they have a direct impact on the activities that must be undertaken
post-execution to enter information necessary to report the trade.\37\
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\37\ The MSRB provided various scenarios to illustrate
application of the manual exception would apply. See generally
Notice, 89 FR at 5389 n.40 and 5390 n.50.
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The MSRB provided the following non-exhaustive list of situations
in which trades would be considered to have a manual component: where a
dealer executes a trade by manual or hybrid means, such as voice or
negotiated trading by telephone, email, or through a chat/messaging
function, and subsequently must manually enter into a system that
facilitates trade reporting all or some of the information required to
book the trade and report it to RTRS; where a dealer executes a trade
(typically a larger-sized trade) that requires additional steps to
negotiate and confirm details of the trade with a client and manually
enters the trade into risk and reporting systems; where a dually-
registered broker-dealer/investment adviser executes a block
transaction that requires allocations of portions of the block trade to
the individual accounts of the firm's advisory clients that must be
manually inputted in connection with a trade; where an electronically
or manually executed trade is subject to manual review by a second
reviewer for risk management (e.g., transactions above a certain dollar
or par amount or other transactions meriting heightened risk review)
and, as part of or following the review, the trade must be manually
approved, amended or released before the trade is reported to RTRS;
where a dealer's trade execution processes may entail further diligence
following the Time of Trade involving a manual step (e.g., manually
checking another market to confirm that a better price is not available
to the customer); \38\ where a dealer trades a municipal security,
whether for the first time or under other circumstances where the
security master information may not already be populated (e.g.,
information has been removed or archived due to a long lapse in trading
the security), and additional manual steps are necessary to set up the
security and populate the associated indicative data in the dealer's
systems prior to executing and reporting the trade; where a dealer
receives a large order or a trade list resulting in a portfolio of
trades with potentially numerous unique securities involving rapid
execution and frequent communications on multiple transactions with
multiple counterparties, and the dealer must then book and report those
transactions manually, one by one; \39\ where a broker's broker engages
in mediated transactions that involve multiple transactions with
multiple counterparties; and where a dealer reports a trade manually
through the RTRS Web Portal.
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\38\ The MSRB noted that dealers experiencing significant levels
of post-Time of Trade price adjustments due to such post-trade best
execution processes should consider whether these processes are well
suited to the dealer's obligations under MSRB Rule G-18 and whether
the dealer is appropriately evaluating when a contract has in fact
been formed with its customer. Notice, 89 FR at 5389 n.41.
\39\ The MSRB explained that in instances where a dealer trades
a basket of securities at a single price for the full basket, rather
than individual prices for each security based on its then-current
market price, such price likely would be away from the market,
requiring inclusion of the ``away from market'' special condition
indicator and qualifying for an end-of-trade-day reporting exception
under proposed Rule G-14 RTRS Procedures Section (a)(ii)(A)(3).
Notice, 89 FR at 5389 n.42.
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The MSRB stated that the appropriateness of treating any step in
the trade execution and reporting process as being manual must be
assessed in light of the anti-circumvention provision included in the
proposed rule change with regard to the delay in execution or insertion
of manual tasks for the purpose of meeting this new exception.\40\ New
Supplementary Material .02(a) would require all trades with a manual
component to be reported as soon as practicable and would specify that
in no event may a dealer purposely delay the execution of an order,
introduce any manual steps following the Time of Trade, or otherwise
modify any steps prior to executing or reporting a trade for the
purpose of utilizing the exception for manual trades.\41\
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\40\ See Notice, 89 FR at 5390 (discussing the prohibition on
purposeful insertion of manual steps in trade reporting process).
\41\ Id.
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New Supplementary Material .03 would require that dealers adopt
policies and procedures for complying with the as soon as practicable
reporting requirement, including by implementing systems that commence
the trade reporting process without delay upon execution and provides
for additional guidance for regulatory authorities that enforce and
examine dealers for compliance with this requirement to take into
consideration the manual nature of the dealer's trade reporting
process.\42\
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\42\ For trades with a manual component, the MSRB explained that
it recognized that the trade reporting process may not be completed
as quickly as, for example, where an automated trade reporting
system is used. The MSRB further explained that in these cases, the
MSRB expects that the regulatory authorities that examine dealers
and enforce compliance with this requirement would take into
consideration the manual nature of the dealer's trade reporting
process in determining whether the dealer's policies and procedures
are reasonably designed to report the trade ``as soon as
practicable'' after execution. Notice, 89 FR at 5388.
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The MSRB also noted that dealers should consider the types of
transactions in which they regularly engage and whether they can
reasonably reduce the time between a transaction's Time of Trade and
its reporting, and more generally should make a good faith effort to
report their trades as soon as practicable.\43\ The MSRB currently
collects and analyzes data regarding dealers' historic reporting of
transactions to RTRS under various scenarios and such data will
continue to be available to the regulators for analysis under the
proposed one-minute
[[Page 32488]]
standard. Subject to Commission approval of the proposed rule change,
the MSRB explained that it would be reviewing the use of the manual
exception and would share with the examining authorities any analyses
resulting from such reviews.\44\
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\43\ Id. at 5389.
\44\ Id. at 5390.
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1. Phase-In Period for Trades With a Manual Component
New Supplementary Material .02(b) would subject trades with a
manual component to a phase-in period for timely reporting over three
years (``phase-in period''). During the first year of effectiveness of
the exception, trades meeting this definition would be required to be
reported as soon as practicable, but no later than 15 minutes after the
Time of Trade.\45\ During the second year, such trades would be
required to be reported as soon as practicable, but no later than 10
minutes after the Time of Trade. After the second year and thereafter,
such trades would be required to be reported as soon as practicable,
but no later than five minutes after the Time of Trade. Dealers should
remember that the ``as soon as practicable'' reporting obligation may,
depending on the facts and circumstances, require quicker reporting
than the applicable outer reporting obligation during and after the
phase-in period.
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\45\ While the deadline for reporting during this first year
would remain the same as the current 15-minute timeframe, such trade
reports would also be subject to the new requirement that they be
reported as soon as practicable. See Notice, 89 FR at 5390 n.48.
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The MSRB explained that it would be reviewing the available trade
reporting information and data arising from implementation of the
proposed rule, as well as marketplace developments, feedback from
market participants, and examination or enforcement findings from the
Commission, FINRA and the other appropriate regulatory agencies to
inform any further potential changes to the trade reporting
requirements.\46\
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\46\ Notice, 89 FR at 5390.
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2. Prohibition on Purposeful Insertion of Manual Steps in Trade
Reporting Process
New Supplementary Material .02(a) would specifically prohibit
dealers from purposely delaying the execution of an order, introducing
any manual steps following the Time of Trade, or otherwise purposefully
modifying any steps to execute or report a trade to utilize the
exception for manual trades. This requirement would not prohibit
reasonable manual steps that are taken for legitimate purposes and
would not apply to any steps that are taken prior to the time of trade
that do not have the effect of delaying the subsequent reporting of
such trade.\47\
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\47\ Notice, 89 FR at 5890.
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3. Manual Trade Indicator
Proposed amendments to Rule G-14 RTRS Procedures Section (b)(iv)
would require the report of a trade meeting the MSRB's definition for a
``trade with a manual component,'' as defined in proposed Section
(d)(xii) of Rule G-14 RTRS Procedures,\48\ to append a new trade
indicator \49\ to such a trade report. This indicator would be
mandatory for every trade that meets the standard to append the
indicator,\50\ regardless of whether the trade is actually reported
within one minute after the Time of Trade, is reported within the
applicable timeframe under the manual trade exception or is otherwise
subject to another reporting exception.
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\48\ See generally Notice, 89 FR at 5388-90.
\49\ See Notice, 89 FR at 5391 n.51 (discussing how the manual
trade indicator would be used for regulatory purposes).
\50\ Current Rule G-14 RTRS Procedures Section (a)(iv) requires
that transaction data that is not submitted in a timely and accurate
manner must be submitted or corrected as soon as possible. The
manual trade indicator is not intended to be used to reflect the
manual nature of any correction to a prior trade report. Notice, 89
FR at 5390 n.50.
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v. Pattern or Practice of Late Trade Reporting
Current Rule G-14 RTRS Procedures Section (a)(iv) requires that
transaction data that is not submitted in a timely and accurate manner
must be submitted or corrected as soon as possible--even when a dealer
is late in reporting a trade, the dealer remains obligated to report
such trade as soon as possible. The proposed amendments further provide
that any transaction that is not reported within the applicable time
period shall be designated as ``late.'' \51\ The MSRB stated that a
pattern or practice of late reporting without exceptional circumstances
or reasonable justification may be considered a violation of Rule G-14.
The MSRB further noted that the determination of whether exceptional
circumstances or reasonable justifications exist for late trade
reporting is dependent on the particular facts and circumstances and
whether such circumstances are addressed in the dealer's systems and
procedures.\52\ The MSRB explained that it expected that the regulatory
authorities that examine dealers and enforce compliance with the
reporting timeframes established under Rule G-14 RTRS Procedures would
focus their examination for and enforcement of the rule's timing
requirements on the consistency of timely reporting and the existence
of effective controls to limit late reporting to exceptional
circumstances or where reasonable justifications exist for a late trade
report, rather than on individual late trade report outliers.\53\
Notwithstanding such expectation, where facts and circumstances
indicate that an individual late report was intentional or otherwise
egregious, or could reasonably be viewed as potentially giving rise to
an associated fair practice, fair pricing, best execution or other
material regulatory concern under MSRB or Commission rules with respect
to that or a related transaction, the MSRB noted that the regulatory
authorities could reasonably determine to take action with respect to
such late trade in the examination or enforcement context.\54\
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\51\ See generally id. at 5391 n.52 (MSRB explaining that late
trade designations are currently, and would continue to be,
available to regulators and, through the MSRB compliance tool
described below in the Notice under ``Purpose--Proposed Rule
Change--Compliance Tools,'' to the dealer submitting the late
trade).
\52\ See Notice, 89 FR at 5391 for non-exhaustive list of
factors that would be considered in determining whether a rule
violation has occurred.
\53\ Id.
\54\ Id.
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vi. Compliance Tools
The MSRB explained that it would continue to provide various
compliance tools to assist dealers with compliance and for examining
authorities to monitor for compliance.\55\
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\55\ Id. (discussing the various compliance tools).
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vii. Proposed Technical Amendments
a. Non-Substantive Amendments
Non-substantive amendments to Rule G-14 RTRS Procedures Section
(a)(ii) regroup and renumber its current Sections (A) through (C) to
new Sections (A)(1) through (A)(3), renumber current Sections (D) and
(E) to new Sections (B)(1) and B(2), and correct a cross-reference in
Section (b)(iv) to certain of these Sections to be consistent with such
renumbering.\56\ In addition, a technical amendment to Rule G-14 RTRS
Procedures Section (a)(ii) changes the word ``of'' to ``after'' and
omits the word ``within'' in the phrase ``within 15 minutes of Time of
Trade'' for clarity and consistency of usage throughout the Rule G-14
RTRS Procedures as amended.\57\
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\56\ Id. at 5392.
\57\ Id.
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[[Page 32489]]
b. Clarifying Amendments--Special Condition Indicators and Trades on an
Invalid RTTM Trade Date
Rule G-14 RTRS Procedures Section (b)(iv) currently sets forth
information regarding certain existing special condition indicators
while also referencing the existence of other special condition
indicators in Section 4.3.2 of the Specifications for Real-Time
Reporting of Municipal Securities Transactions. The proposed clarifying
amendments to Section (b)(iv) of Rule G-14 RTRS Procedures would
incorporate into the language thereof reference to all applicable
special condition indicators, including the new trade with a manual
component indicator and existing special condition indicators
previously adopted by the MSRB but that are currently only documented
explicitly in the Specifications for Real-Time Reporting of Municipal
Securities Transactions.\58\ Other than the addition of the new trade
with a manual component indicator, the proposed clarifying amendments
to this provision would not make any changes to the types or usage of
existing special condition indicators.\59\ Rule G-14 RTRS Procedures
Section (a)(iii) would be amended to reflect that, in addition to
trades effected outside the hours of the RTRS Business Day, inter-
dealer trades may be executed on certain holidays (other than those
recognized as non-RTRS Business Days) that are not valid RTTM trade
dates (``invalid RTTM trade date''), and in either case such trades are
to be reported no later than within 15 minutes after the beginning of
the next RTRS Business Day. Such invalid RTTM trade date transactions
are already subject to this same next RTRS Business Day reporting
requirement.\60\ The proposed clarifying amendment to this provision
would not make any changes to the circumstances or timing of reporting
of such trades.\61\
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\58\ See generally Notice, 89 FR at 5392 n.55.
\59\ Id. at 5392.
\60\ See Section 4.3.2 of the Specifications for Real-Time
Reporting of Municipal Securities Transactions; Exchange Act Release
No. 55957 (June 26, 2007), 72 FR 36532 (July 3, 2007), File No. SR-
MSRB-2007-01.
\61\ Notice, 89 FR at 5392.
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c. Proposed Conforming Amendments to Rule G-12 and RTRS Information
Facility
Proposed amendments to Rule G-12, on uniform practice, would make
conforming changes to Section (f)(i) thereof to require that each
transaction effected during the RTRS Business Day shall be submitted
for comparison as soon as practicable, but no later than one minute
after the Time of Trade unless an exception applies. The proposed rule
change would also modify the IF-1 to clarify lateness checking against
the applicable reporting deadline(s) provided for in proposed
amendments to Rule G-14 RTRS Procedures, as opposed to the current 15-
minute requirement.\62\
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\62\ Id.
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III. Summary of Comments Received
The Commission received thirteen comment letters on the proposed
rule change.\63\ Commenters generally supported the MSRB's goal of
facilitating equal access to information and market transparency.\64\
However, many commenters expressed concern that the MSRB failed to
demonstrate how a one-minute reporting requirement would clearly and
substantially benefit the municipal securities market.\65\ To this end,
several commenters raised concern that the one-minute reporting
requirement would increase costs of new technology infrastructure
which, commenters argued, could impair municipal market liquidity by
putting small and mid-size firms out of business.\66\ Commenters
maintained that the exceptions to the one-minute reporting requirement
were requisite to implementing the proposed rule change.\67\ Otherwise,
commenters asserted that a general one-minute reporting requirement
would be unworkable.\68\ One commenter, however, strongly encouraged
the MSRB to fully phase-out the exceptions.\69\ Another commenter noted
a similar proposal \70\ by the Financial Industry Regulatory Authority,
Inc. (``FINRA''), and requested that the MSRB and FINRA harmonize the
scope of the manual trade exception.\71\
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\63\ See letters to Vanessa A. Countryman, Secretary,
Commission, from Michael Noto, FINRA Registered Representative dated
Jan. 31, 2024 (``Noto''); J. Ben Watkins, Director, Division of Bond
Finance, State of Florida dated Feb. 13, 2024 (``State of
Florida''); Matthew Kamler, President, Sanderlin Securities LLC
dated Feb. 14, 2024 (``Sanderlin Securities''); Gerard O'Rielly, Co-
Chief Executive Officer and Co-Chief Investment Officer and David A.
Plecha, Global Head of Fixed Income, Dimensional Fund Advisors LP
dated Feb. 15, 2024 (``Dimensional Fund Advisors''); Michael Decker,
Senior Vice President, Bond Dealers of America dated Feb. 15, 2024
(``BDA''); Sarah A. Bessin, Deputy General Counsel, Investment
Company Institute dated Feb. 15, 2024 (``ICI''); Kenneth E. Bentsen,
Jr., President and CEO, Securities Industry and Financial Markets
Association dated Feb. 15, 2024 (``SIFMA''); Howard Meyerson,
Managing Director, Financial Information Forum dated Feb. 15, 2024
(``FIF I''); Gregory Babyak, Global Head of Regulatory Affairs,
Bloomberg L.P. dated Feb. 16, 2024 (``Bloomberg''); Melissa P.
Hoots, CEO/COO, Falcon Square Capital, LLC dated Feb. 16, 2024
(``Falcon Square Capital''); Matt Dalton, Chief Executive Officer,
Belle Haven Investments, LP dated Feb. 16, 2024 (``Belle Haven'');
Christopher A. Iacovella, President & Chief Executive Officer,
American Securities Association dated Feb. 16, 2024 (``ASA''). Also,
after the close of the comment period, one commenter submitted a
supplemental letter. See letter from Financial Information Forum
dated Feb. 26, 2024 (``FIF II''). The Commission's Office of
Municipal Securities held a meeting with a representative from the
State of Florida on Feb. 13, 2024, and the Commission's Offices of
Municipal Securities and Trading and Markets held a meeting with
representatives from the BDA. See Memoranda from the Office of
Municipal Securities regarding 2024 meetings.
\64\ See, e.g., letters from SIFMA; BDA; ICI; Dimensional Fund
Advisors; Belle Haven.
\65\ See, e.g., BDA Letter at 1; Noto Letter; State of Florida
Letter at 1-2; Sanderlin Securities Letter at 2-4; SIFMA Letter at
2; ASA Letter at 1 and 5-6; Falcon Square Capital Letter at 1-2;
Belle Haven Letter at 3-6; ICI Letter at 2, FN4.
\66\ See, e.g., BDA Letter at 3-4; State of Florida Letter at 2;
Sanderlin Securities Letter at 1-3; Falcon Square Capital Letter at
2.
\67\ See, e.g., BDA Letter at 1; ICI Letter at 3; SIFMA Letter
at 2; FIF I Letter at 2.
\68\ See generally BDA Letter; ICI Letter, SIFMA Letter; FIF I
Letter; Belle Haven Letter.
\69\ Dimensional Fund Advisors Letter at 2.
\70\ See Securities Exchange Act Release No. 99404 (Jan. 19,
2024), 89 FR 5034 (Jan. 24, 2024) (``FINRA Notice'').
\71\ See FIF I Letter at 3.
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Commenters offered several views relating to the exceptions. Some
commenters noted that the manual trade exception balances shortening
reporting requirements while avoiding undue disruptions to the
municipal securities market.\72\ However, one commenter argued that the
MSRB had not provided any data to support a reduction in reporting time
for manual trades or any evidence that firms that are currently
reporting manually are not already reporting as soon as
practicable.\73\ This commenter also maintained that the phase-in
period could eliminate small firms which are incapable of meeting the
phased-in time periods.\74\ Another commenter remained troubled by the
language of the manual trade exception as it suggested the possibility
of leading to further reductions or even the elimination of the manual
trade exception.\75\ As a potential solution, commenters noted that the
MSRB could collect data and conduct impact assessments prior to each
phase-in period to ensure continued market integrity.\76\ Some
commenters stated that the proposed use of the manual trade indicator
could not be effectively implemented or monitored for compliance and
proposed that trades subject to the one-minute reporting requirement
should be flagged
[[Page 32490]]
instead.\77\ Commenters generally viewed the limited trading activity
exception favorably.\78\ One commenter, however, argued that the
proposed 1,800-trade threshold was far too low and requested that the
MSRB either significantly expand the threshold or conduct further
analysis to justify the 1,800 threshold.\79\
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\72\ See, e.g., ICI Letter at 3; SIFMA Letter at 3-4 (noting
that the proposed manual trade exception is an attempt to promote
continued liquidity of the subject fixed-income markets).
\73\ Belle Haven Letter at 7.
\74\ Id. at 5.
\75\ ASA Letter at 2.
\76\ See, e.g., SIFMA Letter at 6-7; ICI Letter at 3-4; BDA
Letter at 3.
\77\ See, e.g., SIFMA Letter at 9; BDA Letter at 3.
\78\ See, e.g., SIFMA Letter at 9; BDA Letter at 2; Falcon
Square Capital Letter at 3; Belle Haven Letter at 6; FIF I Letter at
2.
\79\ Falcon Square Capital Letter at 3.
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Some commenters addressed the proposed implementation period. Two
commenters requested a two-year implementation and requested that the
MSRB and FINRA remain open to the creation of FAQs or the provision of
implementation guidance to achieve greater compliance.\80\ One
commenter requested an eighteen-month implementation period from the
date the MSRB and FINRA publish updated technical specifications and
guidance.\81\
---------------------------------------------------------------------------
\80\ See BDA Letter at 4; SIFMA Letter at 10.
\81\ See FIF I Letter at 5-7 (commenter also requested a free
testing period of 90-days instead of the standard 30-days).
---------------------------------------------------------------------------
Commenters also challenged the proposed rule change as
circumventing regulatory obligations pursuant to the Exchange Act and
requested that the MSRB conduct further analysis before implementing
the proposed rule change.\82\
---------------------------------------------------------------------------
\82\ See, e.g., Belle Haven Letter at 2; ASA Letter at 3; Falcon
Square Capital Letter at 6.
---------------------------------------------------------------------------
IV. Proceedings To Determine Whether To Approve or Disapprove SR-MSRB-
2024-01 and Grounds for Disapproval Under Consideration
The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Act \83\ to determine whether the proposed rule
change should be approved or disapproved. Institution of proceedings is
appropriate at this time in view of the legal and policy issues raised
by the proposed rule change. Institution of proceedings does not
indicate, however, that the Commission has reached any conclusion with
respect to any of the issues involved. Rather, as described below, the
Commission seeks and encourages interested persons to comment on the
proposed rule change.
---------------------------------------------------------------------------
\83\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------
Pursuant to Section 19(b)(2)(B) of the Act,\84\ the Commission is
providing notice of the grounds for disapproval under consideration.
The Commission believes it is appropriate to institute proceedings at
this time in view of the legal and policy issues raised by the
proposal. In particular, Section 15B(b)(2) of the Act \85\ requires
that the MSRB propose and adopt rules to effect the purposes of the Act
with respect to transactions in municipal securities effected by
brokers, dealers, and municipal securities dealers and advice provided
to or on behalf of municipal entities or obligated persons by brokers,
dealers, municipal securities dealers, and municipal advisors with
respect to municipal financial products, the issuance of municipal
securities, and solicitations of municipal entities or obligated
persons undertaken by brokers, dealers, municipal securities dealers,
and municipal advisors. In addition, Section 15B(b)(2)(C) of the Act
\86\ requires, among other things, that the MSRB's rules be designed to
prevent fraudulent and manipulative acts and practices, to promote just
and equitable principles of trade, to foster cooperation and
coordination with persons facilitating transactions in municipal
securities and municipal financial products, to remove impediments to
and perfect the mechanisms of a free and open market in municipal
securities and municipal financial products, and, in general, to
protect investors, municipal entities, obligated persons, and the
public interest. The Commission asks that commenters address the
sufficiency of MSRB's statements in support of the proposed rule
change, which are set forth in the Notice, in addition to any other
comments they may wish to submit about the proposed rule change. In
particular, the Commission is instituting proceedings to allow for
additional analysis of, and input from commenters with respect to, the
scope and implementation of the proposed exceptions to the one-minute
reporting timeframe.
---------------------------------------------------------------------------
\84\ Id.
\85\ 15 U.S.C. 78o4-(b)(2).
\86\ 15 U.S.C. 78o-4(b)(2)(C).
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V. Procedure: Request for Written Comments
The Commission requests that interested persons provide written
submissions of their data, views, and arguments with respect to the
issues identified above, as well as any others concerns they may have
with the proposed rule change. In particular, the Commission invites
the written views of interested persons concerning whether the proposed
rule change is inconsistent with the Exchange Act and the rules and
regulations thereunder. Although there do not appear to be any issues
relevant to approval or disapproval which would be facilitated by an
oral presentation of views, data, and arguments, the Commission will
consider, pursuant to Rule 19b-4 under the Act,\87\ any request for an
opportunity to make an oral presentation.\88\
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\87\ 17 CFR 240.19b-4.
\88\ Section 19(b)(2) of the Act, as amended by the Securities
Act Amendments of 1975, Public Law 94-29 (June 4, 1975), grants the
Commission flexibility to determine what type of proceeding--either
oral or notice and opportunity for written comments--is appropriate
for consideration of a particular proposal by a self-regulatory
organization. See Securities Act Amendments of 1975, Senate Comm. on
Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st
Sess. 30 (1975).
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Interested persons are invited to submit written data, views, and
arguments regarding whether the proposed rule change should be approved
or disapproved by May 17, 2024. Any person who wishes to file a
rebuttal to any other person's submission must file that rebuttal by
May 31, 2024.
Comments may be submitted by any of the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#7e0c0b121b531d1113131b100a0d3e0d1b1d50191108"><span class="__cf_email__" data-cfemail="a0d2d5ccc58dc3cfcdcdc5ced4d3e0d3c5c38ec7cfd6">[email protected]</span></a>. Please include
File Number SR-MSRB-2024-01 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549.
All submissions should refer to File Number SR-MSRB-2024-01. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>). Copies of the submission, all subsequent amendments, all
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the MSRB. All comments received
will be posted without change;
[[Page 32491]]
the Commission does not edit personal identifying information from
submissions. You should submit only information that you wish to make
available publicly. We may redact in part or withhold entirely from
publication submitted material that is obscene or subject to copyright
protection.
All submissions should refer to File Number SR-MSRB-2024-01 and
should be submitted on or before May 17, 2024. Rebuttal comments should
be submitted May 31, 2024.
For the Commission, pursuant to delegated authority.\89\
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\89\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-08943 Filed 4-25-24; 8:45 am]
BILLING CODE 8011-01-P
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