Self-Regulatory Organizations; Municipal Securities Rulemaking Board; Notice of Filing of a Proposed Rule Change To Amend MSRB Rule G-14 To Shorten the Timeframe for Reporting Trades in Municipal Securities to the MSRB, 5384-5415 [2024-01394]
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5384
Federal Register / Vol. 89, No. 18 / Friday, January 26, 2024 / Notices
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–99402; File No. SR–MSRB–
2024–01]
Self-Regulatory Organizations;
Municipal Securities Rulemaking
Board; Notice of Filing of a Proposed
Rule Change To Amend MSRB Rule G–
14 To Shorten the Timeframe for
Reporting Trades in Municipal
Securities to the MSRB
January 19, 2024.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (‘‘Act’’
or ‘‘Exchange Act’’) 1 and Rule 19b–4
thereunder,2 notice is hereby given that
on January 12, 2024, the Municipal
Securities Rulemaking Board (‘‘MSRB’’
or ‘‘Board’’) filed with the Securities
and Exchange Commission (‘‘SEC’’ or
‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the MSRB. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
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I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The MSRB filed with the Commission
a proposed rule change to (i) amend
Rule G–14 RTRS Procedures under
MSRB Rule G–14, on reports of sales or
purchases (‘‘Rule G–14’’), to shorten the
amount of time within which brokers,
dealers and municipal securities dealers
(individually and collectively,
‘‘dealers’’) must report most transactions
to the MSRB, require dealers to report
certain transactions with a new trade
indicator, and make certain clarifying
amendments, and (ii) 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’’).
If the Commission approves the
proposed rule change, the MSRB will
announce the effective date of the
proposed rule change in a regulatory
notice to be published on the MSRB
website.
The text of the proposed rule change
is available on the MSRB’s website at
https://msrb.org/2024-SEC-Filings, at
the MSRB’s principal office, and at the
Commission’s Public Reference Room.
1 15
2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
MSRB included statements concerning
the purpose of and basis for the
proposed rule change and discussed any
comments it received on the proposed
rule change. The text of these statements
may be examined at the places specified
in Item IV below. The MSRB has
prepared summaries, set forth in
Sections A, B, and C below, of the most
significant aspects of such statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
Background
Since 2005, the MSRB has collected
and disseminated information from
dealers about their municipal securities
purchase and sale transactions.3 Dealers
currently are required to report their
transactions to RTRS within 15 minutes
of the Time of Trade,4 absent an
exception,5 in accordance with Rule G–
14, the Rule G–14 RTRS Procedures,
and the RTRS Users Manual.6
The transaction information collected
by the MSRB in accordance with Rule
G–14 serves the dual primary purposes
of market transparency and market
surveillance.7 To advance the goal of
market transparency, the MSRB
disseminates trade reporting
information from RTRS to paid
subscribers through certain data
subscription feeds. These data
subscription feeds serve as the core
source of price-related information used
by market participants, industry utilities
and vendors that, among other things,
3 See Exchange Act Release No. 50605 (Oct. 29,
2004), 69 FR 64346 (Nov. 4, 2004), File No. SR–
MSRB–2004–06; see also MSRB Notice 2004–29
(Approval by the SEC of Real-Time Transaction
Reporting and Price Dissemination: Rules G–12(f)
and G–14) (September 2, 2004).
4 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.
5 Transactions in securities without CUSIP
numbers, transactions in municipal fund securities,
and certain inter-dealer securities movements not
eligible for comparison through a clearing agency
are currently exempt from the reporting
requirements under Rule G–14(b)(v).
6 The RTRS Users Manual is available at https://
www.msrb.org/RTRS-Users-Manual. Prior to the
creation of RTRS in 2005, the MSRB collected trade
data on an end-of-day basis for next day
dissemination and surveillance purposes through a
predecessor transaction reporting system.
7 See Rule G–14(b)(i). Transaction information
collected by RTRS is also used in connection with
assessments under MSRB Rule A–13(d).
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operate pricing-related tools and
services used throughout the municipal
market to support execution of trades at
fair and reasonable prices that reflect
current market values. To further
advance the goal of market transparency
and to make such price-related
information available to individual
investors and other market participants
contemporaneously with data flowing to
market professionals through the RTRS
subscription feeds, the MSRB
disseminates trade reporting
information free of charge to the general
public through the MSRB’s centralized
Electronic Municipal Market Access
(‘‘EMMA®’’) website.8
To advance the goal of market
surveillance, the MSRB maintains a
comprehensive database of transaction
information, which is made available to
the examining authorities, including the
Commission, the Financial Industry
Regulatory Authority (‘‘FINRA’’), and
other appropriate regulatory agencies.
The availability of trade reporting data
strengthens market transparency,
promotes investor protection and
reduces information asymmetry
between institutional and retail
investors.
Fixed income markets have changed
dramatically since the current 15minute requirement went into effect in
2005, including a significant increase in
the use of electronic trading platforms
or other electronic communication
protocols to facilitate the execution of
transactions. The MSRB has continued
to explore ways to modernize the rule
and provide for more timely, granular
and informative data to further enhance
the value of disseminated transaction
data. In doing so, the MSRB has taken
a measured and data-driven approach,
using available trade reporting data and
the public comment process to help
inform its policy objectives and actions.
The MSRB has utilized a series of
concept releases, requests for comments
and extensive outreach to solicit input
from market participants and
stakeholders.9 As a result of these efforts
8 See MSRB Notice 2009–22 (MSRB Receives
Approval to Launch Primary Market Disclosure
Service of MSRB’s Electronic Municipal Market
Access System (EMMA) for Electronic
Dissemination of Official Statements) (May 22,
2009).
9 See MSRB Notice 2013–02 (Request for
Comment on More Contemporaneous Trade Price
Information Through a New Central Transparency
Platform) (Jan. 17, 2013); MSRB Notice 2013–14
(Concept Release on Pre-Trade and Post-Trade
Pricing Data Dissemination through a New Central
Transparency Platform) (July 31, 2013); MSRB
Notice 2014–14 (Request for Comment on
Enhancements to Post-Trade Transaction Data
Disseminated Through a New Central Transparency
Platform) (Aug. 13, 2014); MSRB Notice 2022–07
(Request for Comment on Transaction Reporting
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and of RTRS re-engineering to ensure its
on-going effectiveness as demands on
the system were expected to rise over
time, the MSRB has implemented
various refinements to RTRS, RTRS
Information Facility (IF–1), and the
content and quality of trade-related
information made available to investors
and the public.10
The MSRB has found that, in 2022,
approximately 73.7 percent of the trades
in the municipal securities market that
are currently subject to the 15-minute
reporting timeframe were reported
within one minute of execution, and
approximately 97 percent of trades in
the municipal securities market that are
currently subject to the 15-minute
reporting timeframe were reported
within five minutes of execution.11 In
light of the technological advances and
evolving market practices in the
intervening 19 years since the MSRB
first adopted the 15-minute reporting
requirement, including the increase in
electronic trading, and consistent with
the MSRB’s longstanding goals of
increasing transparency and improving
access to timely transaction data, the
MSRB is proposing updates to
modernize the reporting timeframes and
provide timelier transparency. In this
effort, the MSRB would continue to
assess its RTRS reporting requirements
in light of market developments,
including reporting timeframes, and
consider whether any further
modifications are warranted.
Proposed Rule Change
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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.
The proposed amendments to Rule G–
14 RTRS Procedures under Rule G–14
would:
Obligations under MSRB Rule G–14) (Aug. 2, 2022)
(the ‘‘2022 Request for Comment’’).
10 See, e.g., Exchange Act Release No. 75039 (May
22, 2015), 80 FR 31084 (June 1, 2015), File No. SR–
MSRB–2015–02, and Exchange Act Release No.
77366 (Mar. 14, 2016), 81 FR 14919 (Mar. 18, 2016),
File No. SR–MSRB–2016–05 (expanding and adding
trade indicators); Exchange Act Release No. 83038
(Apr. 12, 2018), 83 FR 17200 (Apr. 18, 2018), File
No. SR–MSRB–2018–02 (modernizing RTRS
Information Facility (IF–1)).
11 See infra ‘‘Self-Regulatory Organization’s
Statement on Burden on Competition—Trade
Reporting Analysis’’ in Section 4(a) Table 1. Trade
Report Time by Trade Size—Cumulative
Percentages. January to December 2022.
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• Establish a baseline one-minute
trade reporting requirement;
• Establish a requirement that, with
limited exceptions, trades be reported as
soon as practicable and that dealers
adopt policies and procedures in
connection with this requirement;
• Create two new exceptions to the
new one-minute reporting requirement,
consisting of (1) a 15-minute exception
for dealers with ‘‘limited trading
activity,’’ and (2) a phased-in approach
for implementation from 15 minutes to
an eventual five-minute reporting
requirement for ‘‘trades with a manual
component’’;
• Maintain and clarify all existing
exceptions to the current 15-minute
reporting requirement, as well as the 15minute from start of next day reporting
requirement for trades conducted
outside the trading day, so that they
would continue to apply under the new
one-minute reporting requirement;
• Require that dealers reporting any
trade with a manual component use a
new special condition indicator when
the trade is reported to the MSRB;
• Specify that dealers may not
purposely delay the execution or
reporting of a transaction, introduce any
manual steps following the Time of
Trade, or otherwise modify any steps to
execute or report the trade for the
purpose of utilizing the manual trade
exception;
• Provide that a rule violation would
be found where there is a ‘‘pattern or
practice’’ of late trade reporting without
‘‘reasonable justification or exceptional
circumstances’’; and
• Clarify within Rule G–14 RTRS
Procedures the usage of all existing and
new special condition indicators.
The proposed rule change would also
make certain conforming technical
changes to Rule G–12(f)(i) and IF–1. A
more detailed description of the
proposed rule change follows.
If the proposed rule change is
approved, the MSRB would 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. Such monitoring would
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.
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New Baseline Reporting Requirement:
One Minute After the Time of Trade
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 12 must be reported to an
RTRS Portal 13 ‘‘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,14 and two new intraday reporting exceptions relating to
dealers with limited trading activity and
trades with a manual component that
would be added by the proposed rule
change, as described below.15 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.
12 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.
13 RTRS has three ‘‘Portals’’ for submission of
transaction data, and aspects of RTRS are designed
to function in coordination with the Real-Time
Trade Matching (‘‘RTTM’’) system of the Depository
Trust & Clearing Corporation (‘‘DTCC’’) in
conjunction with its subsidiary National Securities
Clearing Corporation. Rule G–14 RTRS Procedures
Section (a)(i) describes the three RTRS Portals:
Message Portal used for trade submission and trade
modification as described in Section (A) thereof;
RTRS Web Portal used for low-volume transaction
submission and modification as described in
Section (B) thereof; and RTTM Web Portal used
only for inter-dealer transactions eligible for
automated comparison as described in Section (C)
thereof.
14 Three of these existing exceptions, consisting of
List Offering Price/Takedown Transactions, trades
in certain short-term or variable rate instruments,
and away from market trades, require that trades be
reported by the end of the day on which they are
executed and do not rely on the Time of Trade.
These three end-of-trade-date reporting exceptions
would be retained without change and would be
redesignated as Rule G–14 RTRS Procedures
Section (a)(ii)(A)(1), (2) and (3), respectively. Two
other existing exceptions for certain special
circumstances would also be retained without
change, consisting of dealers reporting inter-dealer
‘‘VRDO ineligible on trade date’’ transactions,
which must be reported by the end of the day on
which the trade becomes eligible for automated
comparison, and of dealers reporting inter-dealer
‘‘resubmission of an RTTM cancel,’’ which must be
reported by the end of the next RTRS Business Day
following cancellation of the original trade. These
two exceptions would be redesignated as Rule G–
14 RTRS Procedures Sections (a)(ii)(B)(1) and (2),
respectively.
15 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.
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New Requirement To Report Trades ‘‘as
Soon as Practicable’’
The proposed amendment to Rule G–
14 RTRS Procedures Section (a)(ii) 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). In
addition, this same ‘‘as soon as
practicable’’ requirement would 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 .01,16 or
trades with a manual component
pursuant to Rule G–14 RTRS Procedures
Section (a)(ii)(C)(2) and Supplementary
Material .02,17 as described below.
The new ‘‘as soon as practicable’’
language, which does not currently
appear in Rule G–14 RTRS Procedures,
would harmonize this element of RTRS
trade reporting requirements for
municipal securities with FINRA’s trade
reporting requirement for its Trade
Reporting and Compliance Engine
(‘‘TRACE’’) for TRACE-eligible
securities.18 Thus, while 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 trade more rapidly, 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.
In connection with the new ‘‘as soon
as practicable’’ requirement, the
proposed rule change includes new
Supplementary Material .03 relating to
policies and procedures for complying
with the ‘‘as soon as practicable’’
reporting requirement. Under proposed
Supplementary Material .03(a),
consistent with Supplementary Material
.03(a) of FINRA Rule 6730, dealers
would be required to adopt policies and
procedures reasonably designed to
comply with the ‘‘as soon as
practicable’’ standard and would be
required to implement systems that
commence the trade reporting process
without delay upon execution. Where a
dealer has reasonably designed policies,
procedures and systems in place, the
dealer generally would not be viewed as
16 See infra ‘‘Purpose—Proposed Rule Change—
Exceptions to the Baseline Reporting
Requirement—Exception for Dealers with Limited
Trading Activity.’’
17 See infra ‘‘Purpose—Proposed Rule Change—
Exceptions to the Baseline Reporting
Requirement—Exception for Trades with a Manual
Component.’’
18 See e.g., FINRA Rule 6730(a).
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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).
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.
For trades with a manual component,
and consistent with Supplementary
Material .03(b) of FINRA Rule 6730, the
MSRB recognizes that the trade
reporting process may not be completed
as quickly as, for example, where an
automated trade reporting system is
used. 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.19
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.20 While the
definition of Time of Trade would not
be changed, the precision with which
the establishment of the Time of Trade
for a particular transaction would
become more critical in the context of
the proposed shorter, one-minute
reporting requirement compared to the
current 15-minute reporting
requirement because, absent an
exception, dealers would have less time
to report the trade. The time taken to
report the trade is measured by
comparing the Time of Trade reported
by the dealer with the timestamp
assigned when the initial trade report is
received by an RTRS Portal.21 For
transaction reporting purposes, Time of
19 See Supplementary Material .03(b) of FINRA
Rule 6730. See also infra ‘‘Purpose—Proposed Rule
Change—Exceptions to the Baseline Reporting
Requirement—Exception for Trades with a Manual
Component’’ for a discussion of the new exception
for trades with a manual component.
20 See current Rule G–14 RTRS Procedures
Section (d)(iii).
21 See Exchange Act Release No. 49902 (June 22,
2004), 69 FR 38925 (June 29, 2004), File No. SR–
MSRB–2004–02; see also MSRB Notice 2004–13
(Real-Time Transaction Reporting: Notice of Filing
of Proposed Rule Change to Rules G–14 and G–
12(f)) (June 1, 2004); IF–1.
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Trade is considered to be the same as
the time that a trade is ‘‘executed’’ and,
generally, is consistent with the ‘‘time of
execution’’ for recordkeeping
purposes.22 Importantly, the time that
the trade is executed is not necessarily
the time that the trade information is
entered into the dealer’s processing
system. For example, if a trade is
executed on a trading desk but not
entered for processing until later, the
time of execution (not the time of
entering the record into the processing
system) is required to be reported as the
‘‘Time of Trade.’’ 23
While the principles of contract law
are mostly governed by state statutory
and common law, generally, in order to
form a valid contract, there must be at
least an offer and acceptance of that
offer. As a result, 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 offer and acceptance, or a
‘‘meeting of the minds,’’ 24 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.25 Further, dealers should be
22 See Rule G–8(a)(vi) and (vii); see also RTRS G–
14 Transaction Reporting Procedures (FAQs
regarding Time of Trade Reporting) at question 8
(Aug. 1, 1996); MSRB Notice 2016–19 (MSRB
Provides Guidance on MSRB Rule G–14, on Reports
of Sales or Purchases of Municipal Securities) at
question 1 (Aug. 9, 2016) (the ‘‘2016 RTRS FAQs’’).
Pursuant to Rule G–15(a)(vi)(A), the time of
execution reflected on customer confirmations is
required to be the same as the time of execution
reflected in the dealer’s records and thus should
generally be consistent with the time of trade
reported by the dealer.
23 See RTRS Users Manual (Questions and
Answers on Reporting Trades), at question 1 (Aug.
09, 2016), available at https://www.msrb.org/
Questions-and-Answers-Notice-Concerning-RealTime-Reporting-Municipal-Securities-Transactions.
Similarly, transactions effected outside of the hours
of an RTRS Business Day are required to be
reported within 15 minutes after the start of the
next RTRS Business Day. The time the trade was
executed (rather than the time that the trade report
is made) is the ‘‘Time of Trade’’ required to be
reported.
24 See 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)
(describing this meeting of the minds that
substantively parallels the guidance provided by
the MSRB in the 2016 RTRS FAQs at questions 1
and 2).
25 See 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) (‘‘Transaction reporting
procedures define the ‘time of trade’ as the time
when a contract is formed for a sale or purchase of
municipal securities at a set price and set quantity.
For purposes of transaction reporting, this is
considered to be the same as the time that a trade
is ‘executed.’’’) (internal citations omitted); see also
2016 RTRS FAQs at question 1.
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clear in their communications regarding
the final material terms of the trade and
how such terms would be conveyed
between the parties to ensure that such
a valid trade contract has been formed.26
In the context of new issue securities,
the MSRB has previously stated that a
transaction effected on a ‘‘when, as and
if issued’’ basis cannot be executed,
confirmed and reported until the
municipal security has been formally
awarded by the issuer.27 Thus, while
dealers may take orders for securities
and make conditional trading
commitments prior to the award, dealers
cannot execute transactions, send
confirmations or make a trade report
prior to the time of formal award. The
MSRB has previously characterized presale orders as expressions of the
purchasers’ firm intent to buy the new
issue securities in accordance with the
stated terms, which order may only be
executed upon the award of the issue or
the execution of a bond purchase
agreement.28 Importantly, such
expressions of an intent to purchase
municipal securities are subject to
material conditions that negate
execution of an agreed upon offer and
acceptance until the issuer has
committed to the issuance of the
securities.
The MSRB believes that this same
rationale applies to secondary market
transactions where the commitment of
the parties is subject to material
conditions. When a sales representative
of a dealer takes a customer order, but
is unable to execute that order until
their trader performs supervisory or
other firm-mandated reviews or
approvals of such order—for example,
to determine that the customer order
does not exceed internally-set risk and
compliance parameters or to complete
best-execution, suitability/best interest
or fair pricing protocols that may result
in a changed price or quantity to the
customer or in not completing execution
of the trade—the dealer reasonably may
determine that the ‘‘meeting of the
minds’’ has not yet occurred until such
26 See 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).
27 2016 RTRS FAQs at question 2.
28 See MSRB Interpretive Guidance, Rule G–12
(Confirmation: Mailing of WAII Confirmation) (Apr.
30, 1982). In the same vein, retail orders submitted
during a retail order period under MSRB Rule G–
11 are viewed as conditional commitments. See
MSRB Rule G–11(a)(vii) (defining the term ‘‘retail
order period’’). See also, e.g., MSRB Notice 2014–
14 (Request for Comment on Enhancements to PostTrade Transaction Data Disseminated Through a
New Central Transparency Platform) (Aug. 13,
2014) (describing the conditional nature of
conditional trading commitments).
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processes, procedures or protocols have
been completed and the dealer has
affirmatively ‘‘accepted’’ the order. In
such circumstances, the dealer should
be clear in its communications with its
counterparty regarding the final terms of
the trade and how such terms would be
conveyed between the parties to ensure
that such a valid trade contract has been
formed, such as clearly communicating
to the customer that the order should
not be viewed as accepted until such
processes, procedures or protocols are
completed and the trade is finally
executed. Such processes, procedures or
protocols should be appropriately
reflected in a dealer’s written policies
and procedures. Because the Time of
Trade is tied to the contractual
agreement (that is, offer and acceptance,
whether oral or written) between the
parties to a transaction, a dealer and its
counterparty may come to an express
agreement as to the Time of Trade for
a given transaction, as appropriate, that
is consistent with the time at which the
agreement becomes binding upon the
parties under contract law.
Exceptions to the Baseline Reporting
Requirement
Proposed amendments to Rule G–14
RTRS Procedures Section (a)(ii) add two
new exceptions to the proposed oneminute reporting requirement. New
Section (C)(1) provides an exception for
a dealer with ‘‘limited trading activity’’
and new Section (C)(2) provides an
exception for a dealer reporting a ‘‘trade
with a manual component.’’ These two
new exceptions would have the
narrowly-tailored purpose of addressing
the timing of trade reporting for the
dealers and transactions qualifying for
one of the exceptions (either retaining
the current 15-minute timeframe or
taking a more stepwise approach to
shortening the reporting timeframe). As
with the existing exceptions, these two
new exceptions would not alter or
diminish any of the investor protections
afforded by other MSRB rules or federal
securities laws or regulations applicable
to pricing, best execution, disclosure,
suitability/best interest, and other
aspects of the trades being reported.
Exception for Dealers With Limited
Trading Activity
A dealer with ‘‘limited trading
activity’’ would be excepted from the
one-minute reporting requirement
pursuant to new Section (a)(ii)(C)(1) 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
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exception, as further specified in new
Supplementary Material .01.29
Proposed Section (d)(xi) of Rule G–14
RTRS Procedures defines 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-oftrade-day reporting exception).30 A
dealer relying on this exception to
report trades within the 15-minute
timeframe, rather than the new standard
one-minute timeframe, must 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, as described
below, which would indicate a dealer’s
transaction volume for a given year).31
If a dealer does not meet the criteria for
a given calendar year (that is, has 1,800
or more transactions not having an endof-trade-day or post-trade-day reporting
exception in both preceding calendar
years), such dealer would not be eligible
for the exception, after a three-month
grace period at the beginning of such
calendar year, for transactions reported
on and after April 1 of such calendar
year. Therefore, the dealer would be
required to report transactions to RTRS
no later than one minute after the Time
of Trade for the remainder of that
calendar year, unless another exception
under the rule applies. A dealer that
meets the criteria for a given calendar
29 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). As is the case today,
transactions for which an end-of-trade-day or posttrade-day reporting exception is available under
redesignated Sections (A) and (B) would continue
to have that exception available.
30 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, based on transaction data from calendar year
2022, and generally aligns with FINRA’s proposal
to similarly shorten trade reporting requirements for
TRACE-eligible securities, in which FINRA would
except dealers with similarly limited trading
activity for the respective markets of TRACEeligible securities. See File No. SR–FINRA–2024–
004 (Jan. 11, 2024) (the ‘‘2024 FINRA Proposed Rule
Change’’).
31 See infra ‘‘Purpose—Proposed Rule Change—
Exceptions to the Baseline Reporting
Requirement—Exception for Dealers with Limited
Trading Activity.’’
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year may utilize the exception on or
after January 1 of such calendar year.32
Calendar
year
2024
2025
2026
2027
2028
Trade count 34
............
............
............
............
............
1,900
1,700
2,000
1,900
1,700
2029 ............
2,000
Eligible for exception during calendar year?
N/A.
N/A.
Yes, based on 2025 trade count below the 1,800 threshold.
Yes, based on 2025 trade count below the 1,800 threshold.
No, based on 2026 and 2027 trade counts above the 1,800 threshold in both years (must transition reporting to
one minute on and after April 1, 2028).
Yes, based on 2028 trade count below the 1,800 threshold (may resume reporting in 15 minutes on January 1,
2029).
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Based on the hypothetical data
presented in the table above, Dealer X
would be eligible for the exception as a
dealer with limited trading activity for
the calendar years 2026 and 2027
effective January 1 of each such year,35
based on trade count for the year 2025.
However, Dealer X would no longer
qualify for such an exception for the
calendar year 2028. As a result, for
2028, beginning on and after April 1,
2028, after the three-month grace
period, Dealer X must begin reporting
all of its trades (other than those subject
to another exception) no later than one
minute after the Time of Trade.
However, Dealer X would again qualify
for calendar year 2029 as a dealer with
limited trading activity based upon its
2028 trade count and may resume
reporting its trades no later than 15
minutes after the Time of Trade on
January 1, 2029.
As shown above, this approach may
cause some dealers’ eligibility for the
exception to change from year to year.
However, based on substantial historical
trade reporting data, the majority of
dealers that are eligible for the
exception are expected to stay within
the exception. Similarly, the majority of
dealers that are not eligible for the
exception are expected to remain
ineligible for the exception in
subsequent years.36
32 A previously active dealer that newly becomes
eligible for the exception for dealers with limited
trading activity following the first year of the
implementation of the proposed rule change may
continue to see their trades marked as late on RTRS
report cards and related RTRS feedback based on
the one-minute deadline for a short period of time
at the beginning of a new calendar year until the
MSRB is able to systematically update the dealer’s
status in the RTRS system. Any such late indicator
would not, for examination or enforcement
purposes, be viewed as a violation by a dealer that
otherwise was qualified as a dealer with limited
trading activity at the time of the report.
33 While the first two years of data shown in the
chart represent trades occurring in years prior to the
likely effective date of the proposed rule change,
such data would be used to determine whether a
dealer would be eligible for the limited trading
VerDate Sep<11>2014
For example, assume the following
hypothetical trade counts for Dealer X
for a given calendar year: 33
19:53 Jan 25, 2024
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As proposed, Section (d)(xii) of Rule
G–14 RTRS Procedures would define a
‘‘trade with a manual component’’ as a
transaction that is 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 inhouse or third-party system) to an RTRS
Portal. As described below, 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.39
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). 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
activity exception in the first years after the
effective date. The chart assumes that the first
calendar year in which the new reporting
timeframes under the proposed rule change,
including the exception for a dealer with limited
trading activity, would be effective is calendar year
2026.
34 The trade count is intended to reflect the
number of transactions not subject to a reporting
exception under proposed Section (a)(ii) of Rule G–
14 RTRS Procedures. For purposes of illustration,
the hypotheticals include manual trades subject to
an intra-day exception as proposed.
35 See supra n.32.
36 Approximately 30 out of 647 dealers reporting
trades, or less than five percent of such dealers,
were within a 20 percent deviation of 1,800 trades
in 2022.
37 See infra ‘‘Purpose—Proposed Rule Change—
New Requirement to Report Trades ‘as Soon as
Practicable.’ ’’
38 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).
39 See infra ‘‘Purpose—Proposed Rule Change—
Manual Trade Indicator.’’ As described therein,
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.
Notwithstanding the foregoing,
dealers with limited trading activity are
reminded of the new overarching
obligation to report trades as soon as
practicable, as described above.37
Exception for Trades With a Manual
Component
A ‘‘trade with a manual component’’
as defined in new Section (d)(xii) of
Rule G–14 RTRS Procedures would be
excepted from the one-minute reporting
requirement pursuant to Rule G–14
RTRS Procedures Section (a)(ii)(C)(2).
Instead, 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 posttrade-day reporting exception) or
(a)(ii)(C)(1) (i.e., transactions by dealers
with limited trading activity).38
Trades Having a Manual Component
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undertaken post-execution to enter
information necessary to report the
trade.40
In that regard, while an exhaustive list
cannot be provided here, the MSRB
contemplates that the exception would
often be appropriately applicable to the
following situations, depending on the
specific facts and circumstances, due to
the manual nature of components of the
trade execution or reporting process that
would make reporting a transaction
within one minute of the Time of Trade
unfeasible, even where the dealer makes
reasonable efforts to report the trade as
soon as practicable after execution (as
required):
• 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 brokerdealer/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;
40 This manual exception applies to the reporting
of a trade upon the trade being executed. If a report
has been made and the dealer detects a mistake that
requires cancellation or correction, any
modification of an already submitted trade report
must be performed as soon as possible pursuant to
Rule G–14 RTRS Procedures Section (a)(iv). See
MSRB Interpretive Guidance (Reminder Regarding
Modification and Cancellation of Transaction
Reports: Rule G–14) (Mar. 2, 2005), available at
https://www.msrb.org/Reminder-RegardingModification-and-Cancellation-TransactionReports-Rule-G-14. While a trade modification to a
previously reported automated trade may be
manual in nature (for example, the trade is
corrected through the RTRS Web Portal or is
corrected through a dealer’s system and not using
a cancel and replace process), that manual
modification process would not, by itself, result in
the initial trade qualifying as a trade with a manual
component. Where the trade correction is made
through a cancel and replace process, the time of
trade must reflect the time of execution of the initial
trade report and not the time when the modification
was reported to RTRS. While RTRS will continue
to provide dealers with the option to either modify
the trade or cancel and replace the trade, the MSRB
has stated that modification is preferred when
changes are necessary because a modification is
counted as a single change to a trade report,
whereas cancellation and resubmission are counted
as a change and (unless the resubmission is done
within the original deadline for reporting the trade)
also as a late report of a trade. Id.; see also infra
n.50.
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• 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); 41
• 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; 42
• 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.
Dealers should review their trade flow
and processes and consider which of
their trades would be deemed a ‘‘trade
with a manual component’’ under the
proposed rule change.43
41 Dealers experiencing significant levels of postTime of Trade price adjustments due to such posttrade 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.
42 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).
43 Dealers should undertake this review
regardless of whether they intend to take advantage
of the longer timeframes permitted for trades with
a manual component since all reports of trades
meeting the definition of a trade with a manual
component would be required to append the new
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The appropriateness of treating any
step in the trade execution and
reporting process as being manual must
be assessed in light of the anticircumvention 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.44 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.45 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.46
In light of the overarching obligation
to report trades as soon as practicable,
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.47 Each dealer seeking to
comply with the proposed rule
change—including the one-minute
manual trade indicator, as described infra
‘‘Purpose—Proposed Rule Change—Manual Trade
Indicator.’’
44 See infra ‘‘Purpose—Proposed Rule Change—
Exceptions to the Baseline Reporting
Requirement—Exception for Trades with a Manual
Component—Prohibition on Purposeful Insertion of
Manual Steps in Trade Reporting Process.’’
45 Id.
46 See infra ‘‘Purpose—Proposed Rule Change—
New Requirement to Report Trades ‘as Soon as
Practicable.’ ’’
47 See infra ‘‘Purpose—Proposed Rule Change—
Exceptions to the Baseline Reporting
Requirement—Exception for Trades with a Manual
Component.’’ For trades with a manual component,
the MSRB recognizes that the trade reporting
process may not be completed as quickly as, for
example, where an automated trade reporting
system is used. 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.
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reporting requirement and new or
existing exceptions from such
requirement—should consider the
extent to which it can automate its trade
reporting and related execution
processes, consistent with its client’s
needs and the dealer’s best execution
and other regulatory obligations. Where
automation is not feasible at a
reasonable cost in light of the specific
facts and circumstances with respect to
the dealer’s trading activity and overall
business (e.g., the level, nature and
economic viability of its activity in
municipal securities), dealers should be
implementing more efficient trade entry
processes to meet the applicable
reporting requirement, including the
new requirement to report trades as
soon as practicable, particularly with a
view to the phased-in reduction in the
reporting timeframe for trades with a
manual component under the proposed
rule change where a process that may
provide sufficient time to report timely
during the first year may not be
sufficiently efficient to meet the further
shortened timeframe in a subsequent
year. The MSRB expects that dealers
would periodically assess their systems
and processes to ensure that they have
implemented sufficiently efficient
policies and procedures for timely trade
reporting.
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 oneminute standard. Subject to the
Commission approval of the proposed
rule change, the MSRB would be
reviewing the use of the manual
exception and would share with the
examining authorities any analyses
resulting from such reviews.
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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’’). Specifically, 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.48
During the second year, such trades
48 While the deadline for reporting during this
first year would remain the same as the current 15minute timeframe, such trade reports would also be
subject to the new requirement that they be
reported as soon as practicable. See supra
‘‘Purpose—Proposed Rule Change—New
Requirement to Report Trades ‘as Soon as
Practicable.’ ’’
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exception for manual trades. This would
not prohibit reasonable manual steps
that are taken for legitimate purposes
(such as a manual review of trades that
exceed certain risk thresholds or that
meet certain criteria for regulatory
purposes). Further, this prohibition
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.
It is important to note that a manual
step added to the trade execution or
reporting process that may have only a
nominal or pretextual purpose other
than qualifying a trade for the exception
for manual trades, particularly where
such purpose can be effectively fulfilled
in an alternative manner that does not
introduce such manual step into the
trade execution or reporting process,
may be viewed as being made for the
purpose of qualifying for this exception
within the meaning of proposed
Supplementary Material .02(a),
depending on the facts and
circumstances. This express prohibition
is intended to facilitate movement in the
direction of more timely reporting and
increased transparency in circumstances
where there is no reasonable
justification for the delay in trade
execution and related subsequent trade
reporting or for insertion of manual
steps after the Time of Trade.
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.
In establishing the phase-in period,
the MSRB intends to provide sufficient
time for dealers to implement
programming and/or other policy and
process changes necessary to meet an
eventual five-minute reporting
requirement, as well as to provide
regulators an opportunity to assess any
potential market impact from the
gradual reduction in reporting
timeframe. However, dealers are also
reminded that the ‘‘as soon as
practicable’’ reporting obligation as
described above may, depending on the
facts and circumstances, require quicker
reporting than the applicable outer
reporting obligation during and after the
phase-in period. For example, while
dealers must report their trades with a
manual component no later than 15
minutes from the Time of Trade during
the first year that the rule is operational,
dealers should be reviewing their
policies, procedures and practices and
considering whether they can report
such trades more quickly. In general, the
MSRB would expect a dealer’s trade
reporting statistics to show overall
improvements in trade reporting speed
without compromising data quality, due
to the new ‘‘as soon as practicable’’
obligation and the two new intra-day
exceptions.
If the proposed rule change is
approved, the MSRB would be
reviewing 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, as well as
marketplace developments, feedback
from market participants, and
examination or enforcement findings
from the Commission, FINRA and the
other appropriate regulatory agencies.
Such monitoring would inform any
further potential changes by the MSRB
to the trade reporting requirements.
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,49 to append a new
trade indicator 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.
In addition to serving as a critical
component of the manual trade
exception, this trade indicator would
Prohibition on Purposeful Insertion of
Manual Steps in Trade Reporting
Process
As noted above, 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
49 See supra ‘‘Purpose—Proposed Rule Change—
Exceptions to the Baseline Reporting
Requirement—Exception for Trades with a Manual
Component—Trades Having a Manual Component.’’
50 Rule G–14 RTRS Procedures Section (a)(iv)
currently requires that transaction data that is not
submitted in a timely and accurate manner must be
submitted or corrected as soon as possible. See also
supra n.40. The manual trade indicator is not
intended to be used to reflect the manual nature of
any correction to a prior trade report; rather the use
of the indicator is driven solely by whether or not
the initial trade had a manual component.
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allow the MSRB to collect additional
data to help it better understand the
extent to which the municipal securities
market continues to operate manually.51
Such understanding would assist the
MSRB in engaging with market
participants regarding impediments to
greater use of automation, and help
determine the effectiveness and
potential impediments to full
compliance with the proposed phase-in
period to determine whether
adjustments should be made or other
next steps should be taken.
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Pattern or Practice of Late Trade
Reporting
Rule G–14 RTRS Procedures Section
(a)(iv) currently 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.
Proposed amendments to this section
would further provide that any
transaction that is not reported within
the applicable time period shall be
designated as ‘‘late.’’ 52 A pattern or
practice of late reporting without
exceptional circumstances or reasonable
justification may be considered a
violation of Rule G–14.
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. For
example, failures or latencies of MSRB,
third-party or internal systems used to
submit trade information generally
would constitute exceptional
51 The manual trade indicator would be used for
regulatory purposes only and would not, under the
proposed rule change, be included in the trade data
disseminated to the public through the EMMA
website and subscription feeds. This information
would help inform the MSRB regarding broader
trends in the marketplace beyond the specific
provisions of the proposed rule change. For
example, the use of the manual trade indicator
would help identify changes in the prevalence of
manual trades as market conditions change or in
light of other events or trends having an impact on
the municipal securities market.
52 Late trade designations are currently, and
would continue to be, available to regulators and,
through the MSRB compliance tool described below
in ‘‘Purpose—Proposed Rule Change—Compliance
Tools,’’ to the dealer submitting the late trade. See
Section 2.9 of the Specifications for Real-Time
Reporting of Municipal Securities Transactions in
connection with error codes currently generated by
RTRS with respect to late trade reports. The trade
data disseminated to the public through the EMMA
website and subscription feeds does not currently
and would not have appended to it a late report
indicator nor an indicator of which deadline was
applicable (other than the indicators currently
published).
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circumstances or reasonable
justifications, particularly where such
incident is outside of the reasonable
control of the dealer and could not be
resolved by the dealer within the
applicable reporting timeframe.
However, dealers must have sufficiently
robust systems with adequate capability
and capacity to enable them to report in
accordance with Rule G–14; thus,
recurring systems issues in a dealer’s or
a vendor’s systems would not be
considered reasonable justification or
exceptional circumstances to excuse a
pattern or practice of late trade
reporting. As another example, unusual
market conditions, such as extreme
volatility in a security or in the market
as a whole, can constitute exceptional
circumstances. In addition, a dealer may
have reasonable justification for late
trade reporting where it is executing a
bid list that includes a large number of
distinct securities that cannot
reasonably be reported within the
applicable timeframe. These three
examples do not represent the only
potential situations that could constitute
exceptional circumstances or reasonable
justification. Dealers would bear the
burden of proof related to such
exceptional circumstances or reasonable
justification.
The pattern or practice approach to
determining rule violations would take
into consideration factors such as the
complexity of the trade, differences in
market segments, differences in the
execution of trades of varying types of
municipal securities products,
impediments to use of straight through
processing and electronic trading
venues, the nature and purpose of any
manual steps involved in the execution
and reporting of transactions with a
manual component, the existence of
systems and procedures that provide for
reporting timeliness and any other
relevant factors to determine if a rule
violation has occurred. While this
approach recognizes that there may be
legitimate situations involving
exceptional circumstances or reasonable
justification in which trades may not be
reported within the required time limit,
dealers are reminded of the overarching
obligation to report trades as soon as
practicable in light of the effects of such
circumstances or justification. As a
result, all 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.
The MSRB expects that the regulatory
authorities that examine dealers and
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5391
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. 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
regulatory authorities could reasonably
determine to take action with respect to
such late trade in the examination or
enforcement context.
Compliance Tools
The MSRB would continue to provide
various compliance tools to assist
dealers with compliance and for
examining authorities to monitor for
compliance. For example, currently, if a
trade is reported late, an error message
indicating this fact is sent in real-time
to the submitter through the Message
Portal, through the RTRS Web Portal,
and by means of electronic mail. Such
error messages are designed to promote
dealer awareness of the late report and
provide an opportunity to evaluate the
reason for lateness and make
appropriate adjustments as needed. In
addition, on a monthly basis, RTRS
produces statistics on dealer
performance related to the timely
submission of transactions and
correction of errors and provides these
statistics to dealers as well as to
regulators. The MSRB expects to create
additional compliance tools in the form
of new or modified reports for dealers
and examining/enforcement authorities,
allowing them to more easily monitor
compliance.53 Such tools would be
53 For example, the MSRB currently produces a
series of reports for dealers submitting trades to
RTRS, including a Dealer Data Quality Report
(commonly referred to as a ‘‘report card’’). See
MSRB Real-Time Transaction Reporting System
(RTRS) Manual (Nov. 2022), available at https://
www.msrb.org/sites/default/files/RTRSWeb-UsersManual.pdf. This report describes a dealer’s
transaction reporting data with regard to status,
match rate, timeliness of reporting, and the number
of changes or corrections to reported trade data. For
most statistics, the industry rate is also provided for
comparison. The Lateness Breakout portion of the
report has a category for each type of reporting
deadline, showing how many trades were reported
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expected to provide data that would
permit a dealer to monitor compliance
patterns as well as provide support for
the dealer to determine and confirm its
relevant trade count for the current and
preceding calendar years, including for
the purpose, among other things, of
assisting dealers to determine whether
the exception for dealers with limited
trading activity is available.54 Similarly,
through a late trade indicator, data
would be available for regulators to
determine the applicable trade reporting
obligation for each trade and analyze the
data to assist in identifying a pattern or
practice of late trade reporting, based on
the specific facts and circumstances
relevant to the particular trade reports.
Technical Amendments
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 crossreference in Section (b)(iv) to certain of
these Sections to be consistent with
such renumbering. 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.
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Clarifying Amendments—Special
Condition Indicators and Trades on an
Invalid RTTM Trade Date
The proposed rule change would
make certain clarifying amendments to
Rule G–14 RTRS Procedures Section
(b)(iv) relating to transactions with
special conditions. That Section
currently specifically 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
timely and late relative to the applicable deadline.
Such reports are available in both single-month and
twelve-month formats.
54 See proposed Supplementary Material .01(a),
which would require a dealer relying on the
exception for dealers with limited trading activity
to confirm on an annual basis that it meets the
criteria for a dealer with limited trading activity.
Where a dealer resubmits an RTTM cancel under
proposed redesignated Rule G–14 RTRS Procedures
Sections (a)(ii)(B)(2), for purposes of avoiding
double counting, only the original trade, if not
otherwise excepted, would count for purposes of
this exception and not the resubmitted trade.
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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.55
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.
In addition, 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 nonRTRS 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.56 The
proposed clarifying amendment to this
provision would not make any changes
to the circumstances or timing of
reporting of such trades.
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
55 Each of these special condition indicators were
formally adopted through MSRB rulemaking and
also appear in various interpretive or other
regulatory materials. See generally Section 4.3.2
and Appendix B.2 of the Specifications for RealTime Reporting of Municipal Securities
Transactions. See also Exchange Act Release No.
49902 (June 22, 2004), 69 FR 38925 (June 29, 2004),
File No. SR–MSRB–2004–02; Exchange Act Release
No. 55957 (June 26, 2007), 72 FR 36532 (July 3,
2007), File No. SR–MSRB–2007–01; Exchange Act
Release No. 74564 (Mar. 23, 2015), 80 FR 16466
(Mar. 27, 2015), File No. SR–MSRB–2015–02.
56 See Section 4.3.2 of the Specifications for RealTime 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.
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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.
Effective Date and Implementation
The MSRB intends to provide time for
dealers and the MSRB to undertake the
programming, process changes and/or
vendor arrangements needed to
implement the proposed rule change, as
well as to provide an adequate testing
period for dealers and subscribers that
interface with RTRS or third parties
involved in the submission and/or
subscription process (including but not
limited to DTCC, its RTTM system,
other dealers, or other key utilities or
vendors). Thus, if the proposed rule
change is approved by the Commission,
the MSRB would announce an effective
date (for example, approximately within
18 months from such Commission
approval) in a notice published on the
MSRB website. Such effective date
would be intended to maintain
implementation of the proposed rule
change on substantially the same
implementation timeframe as the 2024
FINRA Proposed Rule Change.
2. Statutory Basis
Section 15B(b)(2) of the Exchange
Act 57 provides that the MSRB shall
propose and adopt rules to effect the
purposes of the Exchange Act with
respect to, among other matters,
transactions in municipal securities
effected by dealers. Section 15B(b)(2)(C)
of the Exchange Act 58 further provides
that the MSRB’s rules shall 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 engaged in regulating, clearing,
settling, processing information with
respect to, and facilitating transactions
in municipal securities and municipal
financial products, to remove
impediments to and perfect the
mechanism 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 MSRB believes the proposed rule
change, consisting of proposed
amendments to Rule G–14 RTRS
Procedures under Rule G–14 as well as
conforming proposed amendments to
Rule G–12(f)(i) and IF–1, is consistent
with Section 15B(b)(2)(C) of the
57 15
58 15
E:\FR\FM\26JAN2.SGM
U.S.C. 78o–4(b)(2).
U.S.C. 78o–4(b)(2)(C).
26JAN2
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Exchange Act 59 because it would
promote just and equitable principles of
trade, foster cooperation and
coordination with personnel engaged in
regulating and facilitating transactions
in municipal securities, remove
impediments to a free and open market
in municipal securities and generally
protect investors and the public interest.
The proposed rule change would
promote just and equitable principles of
trade because it would reduce
information asymmetry between market
professionals (such as dealers and
institutional investors) and retail
investors by ensuring increased access
to more timely information about
executed municipal securities
transactions for all investors. Currently,
market professionals may in some
circumstances have better or more rapid
access to information about trade prices
through market venues to which retail
investors do not have access, and the
reduction in the timeframe for trade
reporting would shorten or eliminate
the period during which any such
asymmetry in access to such
information may exist.
The proposed rule change would
foster cooperation and coordination
with persons engaged in regulating and
processing information, facilitating a
consistent standard for trade reporting
across many fixed income products,
including municipal securities. As
noted above, the proposed rule change
was developed in close coordination
with FINRA, which is proposing a
similar shortened trade reporting
requirement for many TRACE-eligible
securities. Fostering a consistent
standard across classes of securities
would facilitate greater and more
efficient compliance among MSRBregistered dealers, the majority of which
also transact in other fixed income
securities that are subject to FINRA’s
regulatory authority. Consistent trade
reporting requirements reduce the risk
of potential confusion and may reduce
compliance burdens resulting from
inconsistent obligations and standards
for different classes of securities. A
shortened trade reporting time, as
facilitated by the proposed rule change,
would promote regulatory consistency,
reducing potential errors caused by
market participants’ imperfect
application of differing standards when
executing and reporting transactions in
municipal securities.
The proposed rule change would
remove impediments to a free and open
market in municipal securities by
making publicly available more timely
information about the market for and
B. Self-Regulatory Organization’s
Statement on Burden on Competition
Section 15B(b)(2)(C) of the Exchange
Act 60 requires that MSRB rules not be
designed to impose any burden on
competition not necessary or
appropriate in furtherance of the
purposes of the Exchange Act. The
MSRB does not believe the proposed
rule change to amend Rule G–14 RTRS
Procedures under Rule G–14, Rule G–
12(f)(i) and IF–1would result in any
burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Exchange Act.
The proposed rule change would apply
the new one-minute reporting timeframe
to all transactions in municipal
securities currently subject to the 15minute reporting requirement and
would provide two new exceptions
designed to balance the benefits of
timelier reporting with the potential
costs of disrupting markets from
transactions most likely to realize a
negative impact by the shortening of the
timeframe and disproportionally
impacting less active and smaller
dealers.61
60 Id.
61 See supra ‘‘Purpose—Proposed Rule Change—
Exceptions to the Baseline Reporting Requirement’’
59 Id.
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the price at which municipal
transactions are executed, which is
central to fairly priced municipal
securities and a dealer’s ability to make
informed quotations. The MSRB
believes that the proposed rule change
would promote investor protection and
the public interest through increased
market transparency by reducing the
timeframe for trade reporting, providing
the market with more efficient pricing
information, which would enhance
investor confidence in the market. At
the same time, the exceptions balance
potential burdens for dealers with
limited trading activity in municipal
securities by permitting such dealers to
report trades as soon as practicable but
not later than the currently applicable
15-minute reporting requirement. The
proposed rule change also addresses
potential burdens faced by dealers
engaged in complex transactions,
including voice/electronically
negotiated transactions involving a
manual post-transaction component, by
permitting a phase-in period for a
gradual implementation. This approach
would enable market participants to
achieve compliance with the shortened
reporting target over a period of time
while not adversely affecting their
ability to execute such transactions
consistent with applicable MSRB or
Commission rules.
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5393
The proposed rule change is intended
to provide more immediate post-trade
transparency in the municipal securities
market and is consistent with the
purposes of RTRS. In the past, the
municipal securities market has
sometimes been associated with
information opacity and low trading
volume for a majority of securities with
relatively few securities that trade
compared to the number of outstanding
securities.62 Information opacity likely
affects retail investors more than
institutional investors and other market
participants; for example, pre-trade
quotes are not widely available in the
municipal securities market, especially
for retail investors who may not have
the access and may be more reliant on
trade data. Furthermore, with far fewer
trades in municipal securities when
compared to equity securities, Treasury
and corporate bonds, each additional
data point from post trade reporting in
municipal securities would potentially
be more valuable to investors and other
market participants than a data point
from these other markets. The reduction
in this opacity resulting from the
proposed rule change would make more
timely information available to all
market participants and help level the
playing field among retail investors,
institutional investors, and dealers,
thereby potentially promoting
competition in the market for municipal
securities.
Therefore, the MSRB believes the
proposed rule change would not impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Exchange Act for
the following reasons. In making this
determination, the MSRB staff was
guided by the MSRB’s Policy on the Use
of Economic Analysis in MSRB
Rulemaking.63 In accordance with this
policy, the MSRB evaluated the
potential impacts on competition of the
proposed rule change. The proposed
rule change in trade reporting time to
one minute after Time of Trade is
intended to better align with the actual
time that it takes a dealer to report most
transactions and provides more
immediate transparency to the market
for a discussion of the proposed two new
exceptions.
62 Based on MSRB’s trade data, approximately
one percent of the outstanding municipal securities
trade on a given day.
63 Policy on the Use of Economic Analysis in
MSRB Rulemaking is available at https://
www.msrb.org/Policy-Use-Economic-AnalysisMSRB-Rulemaking. In evaluating whether there was
a burden on competition, the MSRB was guided by
its principles that require the MSRB to consider
costs and benefits of a rule change, its impact on
capital formation and the main reasonable
alternative regulatory approaches.
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by reducing the reporting time for the
remaining transactions to as soon as
practicable but no later than 15 minutes
after the Time of Trade standard for
trades by dealers with limited trading
activity and to a deadline that would
ultimately be shortened to five minutes
after the Time of Trade for trades with
a manual component.
The MSRB previously shortened the
trade reporting timeframe from the end
of day to 15 minutes from the Time of
Trade in January 2005 with the creation
of RTRS. Since the 2005 change, the
MSRB’s analysis shows that most trades
are indeed reported much sooner than
the current 15-minute trade reporting
deadline, potentially due at least in part
to the advancement in technology.
Specifically, as illustrated in Table 1
below, approximately 73.7 percent of
trades in 2022 were reported within one
minute after a trade execution, with
another approximately 23.3 percent of
trades reported between one minute and
five minutes after the Time of Trade.64
As presently reported, due in part to
technological advancements, most
trades already satisfy a shorter than 15minute reporting requirement. A shorter
reporting timeframe is intended to
provide more immediate transparency
to a market that historically has been
associated with low trading volume for
a majority of Committee on Uniform
Securities Identification Procedures
(‘‘CUSIP’’) numbers, relatively few
securities that trade compared to the
number of outstanding securities and
sometimes has been associated with
information opacity.
Trade Reporting Analysis
Table 1 summarizes the MSRB’s
analysis comparing Time of Trade to
trade reporting time for all trades
required to be reported within 15
minutes in 2022.65 Out of all reportable
municipal securities trades 66 that are
not subject to another end of day
reporting exception or a post-trade day
reporting exception, approximately 73.7
percent were reported within one
minute, while 97.0 percent were
reported within five minutes and 98.9
percent were reported in 15 minutes or
less.67 The MSRB observed a noticeable
difference in the speed of trade
reporting by different trade size groups,
with the reporting time increasing with
trade size. While 76.2 percent of trades
with trade size of $100,000 par value or
less (approximately 84.2 percent of all
trades) were reported within one
minute, only 38.4 percent of trades with
trade size between $1,000,000 and
$5,000,000 par value and 23.1 percent of
trades with trade size above $5,000,000
par value were reported within one
minute. A possible explanation is that
larger institutional-sized trades are more
likely to be executed via non-electronic
means and may rely upon more manual
processing steps.68 However, smallersized trades are more likely executed
and processed electronically, which
could facilitate faster trade reporting.
Table 1. Trade Report Time by Trade Size - Cumulative Percentages
January 2022 to December 2022
All Trades
24.9%
88.5%
91.9%
97.0%
98.6%
98.9%
99.5%
99.5%
100.0%
100.0%
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2 Minutes
3 Minutes
5 Minutes
10 Minutes
15 Minutes
30 Minutes
1 Hour
> 1 Hour
Market Share of Eligible Trades
90.2%
93.0%
97.7%
98.9%
99.2%
99.6%
99.6%
100.0%
84.2%
83.6%
89.1%
95.4%
97.8%
98.3%
99.1%
99.2%
100.0%
13.1%
62.4%
73.4%
85.3%
93.8%
95.7%
97.5%
97.7%
100.0%
2.1%
46.7%
60.7%
76.0%
89.0%
91.9%
94.0%
94.6%
100.0%
0.6%
Table 2 illustrates a variation in trade
reporting time in 2022 between dealers
with 1,800 trades or more annually
during both prior two calendar years
(‘‘Active Dealers’’), and dealers with less
than 1,800 trades annually during at
least one of the prior two calendar years
(‘‘Dealers with Limited Trading
64 The analysis in this rule filing only includes
trades reportable within 15 minutes and excludes
trades that are exempt from the current 15-minute
reporting time including, for example, trades
flagged as being executed at the List Offering or
Takedown Transactions, trades in short-term
instruments maturing in nine months or less,
Auction Rate Securities, Variable Rate Demand
Obligations, trades in commercial paper, as well as
trades ‘‘away from market,’’ among other
exceptions. See also Rule G–14 RTRS Procedures
Sections (a)(ii)(A) and (B). For purposes of the
analysis in this section, if an initially reported trade
was corrected later, the later timestamp was used
for calculating the trade reporting time more
conservatively. All figures are approximate.
65 In 2022, RTRS had the highest number of trades
on record since its implementation in 2005. The
record is likely attributable to interest rate rallying
and volatility throughout the year, though the
amount of par value traded was not a record high.
The heightened level of trading persisted through
2023, with the number of trades reported to RTRS
exceeding the previous record in 2022.
66 See proposed Rule G–14 RTRS Procedures
Sections (a)(ii)(A) and (B) for lists of existing end
of trade day reporting exceptions and post-trade day
reporting exceptions.
67 By comparison, in 2021, a year with much
lower overall trading volume than 2022, 76.7
percent of trades subject to the 15-minute standard
were reported within one minute, 97.3 percent of
such trades were reported within five minutes and
99.5 percent of trades were reported within 15
minutes.
68 MSRB staff conducted oral interviews with
dealers and data providers in the fall of 2022 and
the winter and spring of 2023 and was informed
that larger institutional-sized trades are more likely
to be executed via negotiations and involve manual
processes.
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Difference Between Execution and
Reported Time
15 Seconds
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Federal Register / Vol. 89, No. 18 / Friday, January 26, 2024 / Notices
Activity’’).69 A threshold of 1,800 trades
a year was selected to demonstrate that
Dealers with Limited Trading Activity
as a whole had a relatively small impact
on the entire market and transparency,
with approximately 98.5 percent of
trades in 2022 conducted by Active
Dealers collectively and only 1.5
percent of trades conducted by all
Dealers with Limited Trading Activity.
When calculating the market share by
par value traded, Active Dealers
conducted 98.2 percent of par value
traded in 2022 while Dealers with
Limited Trading Activity conducted
only 1.8 percent of par value traded.70
In 2022, out of 647 dealers conducting
at least one transaction in municipal
securities 474 were Dealers with
Limited Trading Activity and 173 were
Active Dealers.71 This difference in
trade reporting time was pronounced for
the one-minute trade reporting
percentages where Active Dealers had
77.2 percent of trades reported within
one minute while only 47.5 percent of
trades conducted by Dealers with
Limited Trading Activity were reported
within one minute.
Table 2. Trade Reporting Time by Level of Dealer Activity
January 2022 to December 2022
Pen:ent of Trades
Reported Within
Oael\fillute
Percent of Trades
Reported Witm
Tenl\fillute
Market Share of
Trades
l\farket Share of Par
Vaine Traded
11.2%
99.3%
98.5%
98.2%
47.5%
96.8%
1.5%
1.8%
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Benefits, Costs, and Effect on
Competition
The MSRB considers the likely costs
and benefits of a proposed rule change
when the proposal is fully implemented
against the context of the economic
baselines. The baseline is the current
iteration of Rule G–14 RTRS Procedures
(a)(ii) that requires transactions to be
reported within 15 minutes after the
Time of Trade with limited exceptions,
while the future state would be
following the conclusion of the second
calendar year from the effective date of
the proposed rule change, with the full
implementation of the gradual reduction
in reporting timeframe for trades with a
manual component.
In performing this economic analysis
and related cost-benefit estimates, the
MSRB has made a number of
assumptions based on 2022 RTRS data
as explained in more detail below. For
instance, there are few publicly
available sources of information about
revenue and expense data for relevant
business lines of a dealer, especially in
69 See infra ‘‘Self-Regulatory Organization’s
Statement on Burden on Competition—Trade
Reporting Analysis’’ in Table 2.
70 The proportion of trades in municipal
securities conducted by Dealers with Limited
Trading Activity is aligned with the proportion of
aggregate trades conducted by dealers with limited
trading volume in TRACE-eligible securities subject
to the 2024 FINRA Proposed Rule Change when
using FINRA’s annual transactions threshold. See
supra n.30.
71 While low in terms of the trading volume, these
Dealers with Limited Trading Activity may still
serve many underserved investors, especially retail
and institutional investors with a regional focus.
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relation to potential spending on
acquiring or upgrading technology and
infrastructure for some dealers. The
effort is further hampered by the fact
that some dealers are privately-owned,
who are not required to disclose
business operation data in public
filings. Therefore, the MSRB conducted
interviews with select dealers and
vendors who provide electronic trade
reporting services as well as dealer
subscribers of these services to gauge
the likely impact from the proposed rule
change.72 The MSRB believes the
analysis provides a useful projection on
the scale of benefits and costs relative to
the current baseline irrespective of
whether an assumption changes the
absolute estimated costs and benefits.
Benefits
The primary benefit of the proposed
rule change on accelerated trade
reporting would be improved
transparency in the municipal securities
market. Historically, the municipal
securities market has been considered
72 See
supra n.68.
Wu, Simon Z., John Bagley and Marcelo
Vieira, ‘‘Analysis of Municipal Securities Pre-Trade
Data from Alternative Trading Systems,’’ Research
Paper, Municipal Securities Rulemaking Board,
October 2018; Government Accountability Office
(‘‘GAO’’), ‘‘Municipal Securities: Overview of
Market Structure, Pricing, and Regulation,’’ Report
to Congressional Committees, January 2012, page 6;
Green, Richard C., Burton Hollifield, and Norman
Schu¨rhoff. ‘‘Financial intermediation and the costs
of trading in an opaque market.’’ The Review of
Financial Studies 20.2 (2007): 275–314.
74 As an illustration, in its 2022 Request for
Comment, the MSRB’s economic analysis showed
73 See
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less liquid and more opaque when
compared to other securities markets,
with only about 1 percent of all
municipal securities trading on a given
trading day, and pre-trade quotes are not
widely available to all market
participants, especially retail investors
who may not pay for vendor pricing
tools and may be more reliant on trade
data.73 Therefore, post trade data is
important information available to all
market participants, including
particularly to retail investors and the
market professionals that service retail
accounts. By implementing the
proposed rule change, investors would
receive greater advantages on trade
pricing information through the
reporting of more contemporaneous
transactions.74 This emphasis on
contemporaneous trades as opposed to
distant trades would help ensure that
the pricing information remains vital,
potentially decreasing trading costs and
increasing liquidity. In addition, since
only about 1 percent of municipal
securities trade on a given trading day,
that out of the universe of 251,635 ‘‘analyzed
trades’’ with same-CUSIP-number-matched trades
in 2021, where a matched trade was executed before
the analyzed trade’s execution but was reported
after the analyzed trade’s execution, approximately
27.9 percent of those analyzed trades had at least
one matched trade executed more than a minute
before the analyzed trade’s execution. This suggests
those analyzed trades would have benefited from
the matched trades’ execution information if
matched trades were required to be reported no
later than one minute after their execution times.
E:\FR\FM\26JAN2.SGM
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Fll'llls that accouted for 1,800
trades or more (Acm•e Dealers)
Firms that accouted for less than
1,800 trades (Dealers with Limited
Tradill2 Acthity)
5396
Federal Register / Vol. 89, No. 18 / Friday, January 26, 2024 / Notices
information on trades in other
comparable municipal securities would
also be valuable in pricing a security.
Lowering the reporting time would
make more contemporaneous trades in
comparable securities transparent for
other transactions.75 Finally, with far
fewer trades in municipal securities
when compared to equity securities,
Treasury and corporate bonds, each
additional data point from post trade
reporting in municipal securities would
potentially be more valuable to
investors and other market participants
than a data point from these other
markets. According to established
economic literature, investors,
especially retail investors, benefit from
transparency (more and/or better
information) by enhancing their
negotiation power with dealers as well
as reducing dealer’s own search and
intermediation costs, therefore reducing
customer trades’ transaction costs, also
known as bid-ask spread or effective
spread. The MSRB believes additional
data points from more contemporaneous
trades in the same and/or comparable
securities would increase an investor’s
lotter on DSK11XQN23PROD with NOTICES2
75 A 2012 report issued by the GAO stated
‘‘Broker-dealers we spoke with said that the price
of a recently reported interdealer trade for a security
was a particularly good indication of its value for
that segment of the market. However, if a security
has not traded recently, they said they instead look
for recent trades in comparable securities.’’ See
GAO, ‘‘Municipal Securities: Overview of Market
Structure, Pricing, and Regulation,’’ Report to
Congressional Committees, January 2012, page 12.
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negotiating power. Specifically,
regarding trade reporting time, two
research papers scrutinized the
transition in 2005 from reporting trades
at the end of a trading day to 15 minutes
after trade execution. Both studies
revealed a statistically significant
decrease in the average effective spreads
for customer trades. When comparing
the period before and the period after
January 2005, the reduction in average
customer trade effective spread ranged
between 11 to 28 basis points, all else
being equal.76 In addition, more timely
reporting has also been shown to
increase dealer market-making activities
in the municipal markets, potentially
enhancing market liquidity.77
76 See
Sirri, Erik, ‘‘Report on Secondary Market
Trading in the Municipal Securities Market,’’
Research Paper, Municipal Securities Rulemaking
Board, July 2014, and Chalmers, John, Liu, Yu
(Steve) and Wang, Z. Jay, ‘‘The Difference a Day
Makes: Timely Disclosure and Trading Efficiency in
the Muni Market,’’ Journal of Financial Economics,
2021. Sirri (2014) estimated that following the
implementation of RTRS in January 2005, the
average customer trade spread was reduced, all
other relevant factors being equal, by 11 basis
points within the first six-month period and up to
20 basis points within the one-year period.
Chalmers, Wang and Liu (2021) found that dealer
markups across all trade sizes declined by 28 basis
points (14 percent reduction) in a ten-month period
(March 2005 through December 2005). The authors
concluded that the improved timeliness of the
market resulted in large reductions in the costs of
trading municipal bonds.
77 As indicated by an increase in the overnight
and over-the-week dealer capital committed to
inventory, an increase in the number of dealers
involved in completing a round-trip transaction,
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Recent MSRB analyses show that
effective spreads for customer trades
continued to decline in the last
decade.78 However, while the difference
in effective spreads between smaller
retail-sized customer trades and larger
institutional-sized customer trades
shrank over the past decade, the
shrinkage has stopped, and the gap may
have started to widen again since early
2022.79 Therefore, as of September
2023, retail-sized customer trades
continue to have significantly higher
effective spreads than institutional-sized
customer trades as shown in Chart 1,
about three times as large.80
and more round-trip transactions that involve
inventory taking. See Erik Sirri, Report on
Secondary Market Trading in the Municipal
Securities Market, July 2014 (Research Paper,
Municipal Securities Rulemaking Board); John
Chalmers, Yu (Steve) Liu, & Z. Jay Wang, The
Difference a Day Makes: Timely Disclosure and
Trading Efficiency in the Muni Market, 139(1)
Journal of Financial Economics, 313–335 (2021).
78 See Wu, Simon Z., ‘‘Transaction Costs for
Customer Trades in the Municipal Bond Market:
What is Driving the Decline?’’ Research Paper,
Municipal Securities Rulemaking Board, July 2018,
Page 15; and Wu, Simon Z., and Ostroy, Nicholas
J., ‘‘What Has Driven the Surge in Transaction Costs
for Municipal Securities Investors Since 2022?’’
Research Paper, Municipal Securities Rulemaking
Board, August 2023.
79 Wu and Ostroy (2023). The reduction was
mostly due to the steadily declining effective
spreads for retail-sized customer trades, as
institutional-sized customer trades (par value more
than $1,000,000) had a relatively stable level of
effective spreads between 2005 and 2023.
80 Id.
E:\FR\FM\26JAN2.SGM
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Federal Register / Vol. 89, No. 18 / Friday, January 26, 2024 / Notices
5397
Chart 1. Effective Spread for Fixed-Rate Municipal Securities Customer Trades
January 2019 - September 2023
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Based on available economic
literature and the MSRB’s own analysis
of trade data, the MSRB believes that the
proposed rule change would further
reduce customer trade effective spreads
due to the benefit of more immediate
transparency, especially for retail-sized
trades. The MSRB acknowledges the
difference in the potential impact, due
to the different scale of the changes,
between the launch of RTRS in January
2005 with the introduction of a 15minute reporting window in place of
end-of-day reporting, on the one hand,
and the proposed shortening of the trade
reporting requirement from 15 minutes
to one minute, on the other hand.
Nevertheless, while the anticipated
positive effect of the proposed oneminute trade reporting with two new
exceptions may not match the
magnitude of the 2005 RTRS transition,
it is expected to yield valuable
advantages for investors through the
inclusion of more contemporaneous
trade data points in the same and/or
VerDate Sep<11>2014
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Jkt 262001
•••••• fl~)r
$'2!i,000
Valu.~$1.000,t'>OO and Ovier
comparable securities. This holds
particularly true for retail investors,
who have historically paid higher
effective spreads than institutional
investors and derived greater benefits
from post-trade transparency compared
to institutional investors.81 For
illustration purposes, hypothetically if a
shortening of trade reporting time to one
minute for Active Dealers (except for
manual trades) would reduce the
effective spread by an average of five
basis points 82 for customer trades with
81 Id.
82 To be conservative, the MSRB uses five basis
points as an illustration, where a five-basis point
reduction in price value of a $100 par value bond
is equivalent to $0.50 per bond. This estimate is less
than half of the estimated lower-bound reduction
from the 2005 changeover from end-of-day trade
reporting to 15 minutes from Time of Trade
reporting, and is only applicable to noninstitutional-sized customer trades (either sub$1,000,000 par value or $100,000 or lower par value
customer trades). No change in effective spread for
other customer trades is included in the analysis,
as larger-size institutional customers are assumed to
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$1 million or less par value, this would
result in the annual savings (benefits)
for investors of approximately $126.2
million based on the 2022 trading
volume (see Hypothetical Scenario 1 in
Table 3).83 Table 3 also shows a more
conservative scenario when limiting the
hypothetical effective spread reduction
to a trade size of $100,000 par value or
less only, commonly known as a proxy
for retail-sized trades. A reduction of
five basis points in effective spreads
from the proposed rule change
applicable to these trades would result
in the annual savings of approximately
$49 million to retail investors (see
be sophisticated and already have pricing
information.
83 In 2022, $504.8 billion annual par value traded
from all customer purchase and sell trades with
trade size below $1,000,000 par value × 0.05
percent/2 = $126.2 million. Since the five basis
points are the difference between the average
customer purchase and customer sell trades, when
measuring each customer purchase or customer sell
trade, the amount is divided by two.
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-
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Federal Register / Vol. 89, No. 18 / Friday, January 26, 2024 / Notices
Hypothetical Scenario 2 in Table 3).84
On the other hand, while the MSRB
believes dealers would earn less from
investors as a result of narrowing
effective spreads, the shortfall would be
partially offset by gains in market
efficiency, potential reduction in dealer
search and intermediation costs, and
potentially increased revenue from
higher customer trading activity as a
result of lower transaction costs. This is
in line with the economic theory on the
law of demand that a reduction in price
would generally encourage more
purchasing by consumers, all else being
equal.85 In the case of secondary market
trading, the expectation is that a
reduction in trading costs would
encourage more trading by existing
investors and/or bring in new investors
to the municipal securities market over
the long term. The MSRB assumes a
reduction of five basis points in the
effective spreads for the $1 million par
value or lower customer trades would
generate an additional 0.2 percent in
total customer trading volume for that
trade size group, while a reduction of
five basis points in the effective spreads
for the $100,000 par value or lower
customer trades would generate an
additional 0.2 percent in total customer
trading volume for that trade size
group.86 The MSRB therefore estimates
dealers would gain between
approximately $1 million to $3 million
from projected additional annual
customer trading volume.
Table 3. Illustration of Hypothetical Benefit Based on 2022 Trading
Volume
Basis Points in Price
Benefit - Investors
Reduction in
Effective Spread (in
Basis Points)
Benefit - Dealers
Annual Effective Gain from Additional
Spread Savings for Customer Trading
Investors
Volume
2005: 15-Minute Trade Reportiru!
Benefit for All Trades
11 to 28
2023 Proposal: One-Minute Trade Reporting
5.0
$
126,472,000 $
2,954,000
5.0
$
49,044,000 $
981,000
While five basis points are used as an
illustration in Table 3, even if the
reduction in effective spread was only
half of the amount, or 2.5 basis points,
the total annual savings would still
amount to between $24.5 million and
$63.1 million approximately.
In addition to investors benefiting
from more immediate market
transparency, other market participants
would also benefit from the proposed
rule change, including underwriters and
issuers who determine evaluated pricing
of a new issuance, dealers in the
primary and secondary markets who
participate in competitive bidding
activities, and yield curve providers that
rely upon market transactions to update
curves or to supply intra-day price and
yield movement for the market.
Lastly, any trade that meets the
definition of a manual trade would be
required to append a new trade
indicator to such trade when reported to
the MSRB, regardless of when the trade
is reported. This trade indicator would
help the MSRB identify the extent to
which the market still operates
manually and could help determine
whether the proposed gradual reduction
in timeframes proposed would be
feasible to maintain or to continue
reducing in the future.
the trade reporting process for some
Active Dealers; and (c) other ongoing
costs related to ensuring compliance
with the new proposed requirements.
Costs
For the upfront costs, it is possible
dealers may need to seek appropriate
advice of in-house or outside legal and
compliance professionals to revise
policies and procedures in compliance
with the proposed amendments to Rule
G–14 RTRS Procedures. Dealers may
also incur upfront costs related to
education and/or standards of training
in preparation for the implementation of
these proposed amendments, as well as
establishing the newly required manual
trades flag. The MSRB believes the
upfront costs as related to updating
policies and procedures, training and
education would be relatively minor,
perhaps about $6,720 for Dealers with
Limited Trading Activity and up to
$11,200 for Active Dealers for a total of
84 In 2022, $196.1 billion annual par value traded
from all customer trades with trade size at $100,000
par value or less × 0.05 percent/2 = $49 million.
85 Davenant, Charles, An Essay upon the Probable
Methods of Making People Gainers in the Balance
of Trade (London: James Knapton, 1699).
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The MSRB acknowledges that dealers
would likely incur additional costs,
relative to the current state, to meet the
new one-minute transaction reporting
time of one minute outlined in the
proposed amendments to Rule G–14
RTRS Procedures though the
compliance costs would be mitigated by
the fact that nearly 73.7 percent of all
trades were already reported within one
minute of an execution in 2022. These
additional costs would likely include:
(a) one time or upfront costs (e.g.,
setting up and/or revising policies and
procedures, education and training and
implementing the newly required
manual trades flag); (b) ongoing costs
related to subscription(s) to electronic
trade reporting technologies to speed up
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Upfront Costs
86 The 0.2 percent volume increase would be
about half of the lower-bound estimate for the 2005
change over (see Chalmers, Wang and Liu, 2021).
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lotter on DSK11XQN23PROD with NOTICES2
Hypothetical Scenario 1 - Benefit for Sub-$1,000,000 Par
Value Trades Only
Hypothetical Scenario 2 - Benefit for $100,000 Par Value
Trades or Lower Only
Federal Register / Vol. 89, No. 18 / Friday, January 26, 2024 / Notices
about $5.1 million (see Table 3).87 In
addition, there would be a one-time
upfront cost for software or compliance
system upgrade to flag manual trades
and to reprogram the system to comply
with the shorter reporting timeframe,
though the amount would depend on
how this new requirement is
implemented by the industry. While the
MSRB does not have sufficient data and
information presently to estimate the
cost, the MSRB believes the upfront cost
for implementing the manual trade flag
would likely be more substantial than
the other upfront cost components.
Ongoing Costs: Annual Technology
Subscription
lotter on DSK11XQN23PROD with NOTICES2
By comparison, the annual ongoing
technology subscription costs for
electronic trade reporting would likely
be more significant for some Active
Dealers, as these dealers may need to
obtain assistance from outside vendors
or increase in-house programming costs.
It should be noted that some dealers
may be able to fulfill the new trade
reporting time requirement without any
upgrade to their technology. While the
MSRB is not aware of any evidence that
dealers are intentionally delaying trade
reporting, the current Rule G–14
provides a 15-minute reporting window
without the ‘‘as soon as practicable’’
requirement. As a result, some dealers
may not have reported their trades as
soon as practicable in the absence of a
regulatory obligation. In addition, it is
possible that, instead of upgrading
existing technologies, some dealers,
especially those with relatively few
trades in municipal securities, may
augment their workforce to ensure a
shorter reporting lag after a trade
execution. Finally, dealers executing
voice trades and secondary market
trades in newly issued securities may
not be able to speed up the trade
87 The hourly rate data was gathered from the
Commission’s Amendments to Exchange Act Rule
3b-16. See Exchange Act Release No. 94062 (Sep.
20, 2022), 17 CFR parts 232, 240, 242, 249 (Jan. 26,
2022) (File No. S7–02–22), p. 477 n.1102 (citing the
original source of the data from SIFMA
Management & Professional Earnings in the
Securities Industry—2013. The data reflects the
2023 hourly rate level after adjusting for the annual
wage inflation between 2013 and 2023, using the
Federal Reserve Bank of St. Louis Employment Cost
Index: Wages and Salaries: Private Industry
Workers (available at: https://fred.stlouisfed.org/
series/ECIWAG). The MSRB uses a blended hourly
rate of $560 for tasks that could be performed by
in-house attorneys, outside counsel, compliance
managers and chief compliance managers, and
estimates a total of 12 hours for Dealers with
Limited Trading Activity to update policies and
procedures, and implement training and education,
and 20 hours for Active Dealers. As shown in Table
4, the one-time upfront costs are estimated to be
$5.1 million ($11,200 × 173 + $6,720 × 474 = $5.123
million).
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reporting process due to the manual
nature of these trades, even with the
electronic trade reporting technology in
place.88
For the ongoing cost estimate, the
MSRB assumes that Active Dealers
would not need to acquire electronic
trade reporting technology if 90+
percent of the dealer’s trades are
currently reported between one and two
minutes after the Time of Trade,89 as
those dealers are assumed to be able to
report the trades within the proposed
one-minute trade reporting requirement
without resorting to an additional
technology subscription. However, if a
dealer reports 90+ percent of trades by
more than two minutes, the MSRB
assumes the dealer would need to
upgrade its technology to achieve the
one-minute requirement. The MSRB
believes the proposed rule change
would provide an incentive to adjust
internal policies and procedures or to
improve reporting time without
resorting to additional technology
subscription, especially with the new
one-minute trade reporting requirement
for non-excepted trades as well as the
new ‘‘as soon as practicable’’
requirement that harmonizes with the
current analogous FINRA rules. As to
the MSRB’s usage of the 90+ percent
threshold as opposed to a 100 percent
threshold, the proposed rule change
provides an exception for manual trades
for these Active Dealers, meaning that a
100 percent compliance rate with the
baseline one-minute timeframe may not
be required. The MSRB believes that
many of the trades that took longer than
one minute to report likely had a
manual component; therefore, it may be
that a threshold lower than the 90
percent threshold would still satisfy the
new requirements in the proposed rule
change, providing Active Dealers
additional time to report by using the
new exception for manual trades.
However, because the MSRB does not
know the actual share of manual trades
for each dealer at this time, to be
aggressive (i.e., conservative) in
estimating the costs, the MSRB includes
these Active Dealers in the ongoing
88 For example, in 2022, approximately 59
percent of the secondary market transactions
executed within the first three days of a new
issuance were reported within one minute, as
compared to 77 percent of other secondary market
trades. This may be largely due to the additional
time involved in setting up a new CUSIP for the
secondary market trading. The MSRB anticipates
that such trades requiring manual intervention
would be subject to the phased-in reporting
requirement down to five minutes.
89 For each dealer, the MSRB calculated the
nearest minute(s) (rounded up) to report at least 90
percent of its trades in 2022.
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5399
technology subscription cost
calculation.
Chart 2 below illustrates the estimated
technology subscription cost of
acquiring the electronic trade reporting
technology for these dealers. From the
industry outreach effort, the MSRB
learned it would cost a dealer
approximately up to an additional
$60,000 annually, which includes a
bundle of services in addition to the
electronic trade reporting.90 The MSRB
believes, however, this cost estimate
may be on the high side because: (1)
dealers may not need to purchase the
bundle simply to speed up the trade
reporting depending on their existing
subscription services; 91 and (2) some
dealers may have more than 10 percent
of their trades having a manual
component, and since the proposed rule
change would use a phase-in period for
these trades, with the requirement of as
soon as practicable but no later than five
minutes after the Time of Trade after the
second year, it may reduce the need or
the scale to pay for the technology
subscription costs. Furthermore, since
the requirement for the one-minute
trade reporting would likely be
applicable to other TRACE-eligible
fixed-income securities such as
corporate bonds under the 2024 FINRA
Proposed Rule Change, dealers that
trade both municipal securities and
corporate bonds may only need to pay
the subscription cost once, or at least
not need to pay double the amount.
Still, to be aggressive in the cost
estimate, the MSRB would use the
$60,000 as the minimum annual cost for
dealers who would need the new
technology subscription. In addition, it
is possible that some dealers, especially
larger dealers, may need more than one
vendor for automated trade reporting
when executing orders on multiple
90 Some comment letters also cited Bloomberg’s
Trade Order Management Solutions (‘‘TOMS’’)
system, which would cost $250,000 per year. See
Letter from Matthew Kamler, President, Sanderlin
Securities LLC, dated September 27, 2022, at 1.
Another commenter estimated the cost at $500,000
per year. See Letter from John Isaak, Senior Vice
President, Isaak Bond Investments, dated August
16, 2022, at 1. The MSRB understands that TOMS
can be used for many purposes, such as sales,
trading, risk management, compliance and
operations, and not just for electronic trade
reporting. TOMS can also be used for many fixedincome products and not just for municipal
securities. See https://www.bloomberg.com/
professional/product/trade-order-managementsolutions/. Thus, the cost associated with TOMS
would generally appropriately be allocated among
the various uses that a dealer is likely to make of
it.
91 For example, one vendor informed the MSRB
that it charges up to $1,000 per month for straightthrough processing of trades, or $12,000 annually.
Some other dealers mentioned $2,000 monthly, or
about $24,000 annually to incorporate electronic
trade reporting.
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Federal Register / Vol. 89, No. 18 / Friday, January 26, 2024 / Notices
electronic platforms. Therefore, the
MSRB estimates, among Active Dealers
who would need new technology
subscription to comply with the
proposed rule change, such Active
Dealers would incur approximately
$100,000 annually to adopt the
electronic trade reporting to comply
with the proposed rule change,92 while
a dealer with less than 12,000 trades
annually 93 would incur $60,000
annually.94
Chart 2. Diagram for Determining Estimated Technology
Subscription Cost for Active Dealers
Active Dealers
j
90+% of Trades Reported
Between One and Two
Minutes?
No
~Yes
~
No Subscription Cost
Table 4 provides an estimated total
cost of approximately $5.1 million for
the one-time policies and procedures
Annual Trades
Above 12,000?
Annual Trades
Below 12,000?
j
j
Subscription Cost
$100,000 Annually
Subscription Cost
$60,000 Annually
revision for all 647 dealers. As to the
annual ongoing costs, MSRB staff
estimated a total of $6.6 million for the
annual technology subscription for the
88 Active Dealers who would need the
subscription.
Table 4. Estimate of Upfront and Ongoing Costs Based on 2022 Trading Volume
Annual
Upfront Cost Ongoing Costs
Policies and
Technology
Procedures
Subscription
Note: There would also be upfront
costs for system upgrade to flag manual
trades as well as ongoing costs for
ensuring compliance. The MSRB cannot
provide an estimate for these costs
presently because of insufficient
information.
Other Ongoing Compliance Costs
92 The MSRB assumes these dealers would need
a second vendor, but instead of doubling the
amount from $60,000 to $120,000, the MSRB
estimates the amount to be approximately $100,000
assuming there would be some efficiency gain.
93 A market share of between 0.01 percent and 0.1
percent based on the 2022 data.
94 Of the 173 Active Dealers, 82 dealers had
12,000 trades or more in 2022 and 91 had less than
12,000 trades. For Dealers with Limited Trading
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The MSRB anticipates ongoing costs
of ensuring the compliance of relevant
trades to be reported within one minute,
and manual trades to be reported within
the timeframes as proposed during and
after the phase-in period, with a new
trade indictor for such trades.
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5,123,000
$
6,560,000
Comparatively speaking, these ongoing
compliance costs would be relatively
minor and may not significantly exceed
the costs in the current baseline, as all
dealers should already have compliance
programs in place in relation to the
current trade reporting requirement.
Activity, the MSRB assumes there is no need for
technology subscription since they would be able
to utilize one or both new exceptions, and therefore
the proposed new requirement is similar to the
present requirement in Rule G–14 for these dealers.
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Federal Register / Vol. 89, No. 18 / Friday, January 26, 2024 / Notices
Proposed Supplementary Material .02
would require all manual trades from
Active Dealers to be reported within five
minutes eventually, following the
conclusion of the second calendar year
from the effective date. While the RTRS
database currently does not flag manual
trades, assuming all trades currently
reported more than one minute after the
Time of Trade are ‘‘manual’’ trades,
Table 5 illustrates that 90.4 percent of
all trades from Active Dealers were
already reported within five minutes in
2022. Hence, the MSRB believes a five-
5401
minute trade reporting requirement is
achievable for manual trades from
Active Dealers, with a three-year phasein period, which provides ample time
for them to prepare and for the industry
to create solutions.
Table 5. Trade Report Time for Estimated Manual Trades from Active Dealers
January 2022 to December 2022
Effect on Competition, Efficiency and
Capital Formation
The MSRB believes the proposed
change to Rule G–14 RTRS Procedures
would improve market efficiency by
providing more immediate trade
reporting transparency to the market. If
indeed there would be a reduction in
customer transaction costs, as illustrated
by the 2005 RTRS transition, even if on
a smaller scale, the benefits to
customers would accrue over a longer
period that would offset the investment
in upgrading technologies by select
dealers. In addition, it is possible that
lower transaction costs may increase
investor participation and stimulate
market activities by encouraging more
trading by existing investors and/or
bringing in new investors to the
municipal securities market over the
long term, therefore contributing to an
overall increase in capital formation.
Finally, the harmonization of MSRB
rule requirements for municipal
securities with FINRA requirements for
other TRACE-eligible fixed-income
markets, as proposed in the 2024 FINRA
Proposed Rule Change, would create
consistency for dealers who have
trading operations in all these markets,
and, thus, would increase efficiency in
terms of their compliance burdens.
Therefore, the MSRB believes that the
proposed rule change would facilitate
capital formation.
Some dealers may be impacted by the
proposed rule change more than other
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All Trades
dealers to meet the new reporting time.
However, the broader impact on
competition in the municipal securities
market is expected to be minor. The
proposed change to Rule G–14 RTRS
Procedures provides a two-tier system
(one-minute trade reporting requirement
for Active Dealers with an exception for
manual trades and 15-minute trade
reporting requirement for Dealers with
Limited Trading Activity) to mitigate
any potential unfavorable financial
impact for Dealers with Limited Trading
Activity because of a lower revenue
base. Therefore, the MSRB does not
believe the proposed change to Rule G–
14 RTRS Procedures would result in any
burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Exchange Act.
Identifying and Evaluating Reasonable
Alternative Regulatory Approaches
The MSRB has considered and
evaluated several reasonable regulatory
alternatives. One alternative the MSRB
reviewed was to introduce a five-minute
trade reporting period for Active
Dealers. According to the MSRB’s
estimates, as shown in Table 1 above,
23.3 percent (97–73.7 percent) of all
reported trades in municipal securities
would have satisfied the five-minute
reporting requirement but not the oneminute reporting requirement in 2022. If
the MSRB instituted a five-minute trade
reporting period, most of the industry
would already satisfy the obligations of
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a five-minute requirement and it would
likely be less of a burden for dealers to
comply. In effect, MSRB rulemaking
would merely align with current market
practices. However, considering that
most trades (97 percent) already took
five minutes or less to be reported to
RTRS, the MSRB believes the fiveminute reporting requirement, while
easier for dealers to comply with, would
not have advanced the immediacy of
information transparency by a
meaningful amount that would make a
difference for investors, especially retail
investors, and other market participants.
Another alternative would be for the
MSRB to change the trade reporting
time by trade size. The MSRB was
informed by comments received in
response to the 2022 Request for
Comment described below that largesized trades are in many instances still
negotiated telephonically and require
more dealer attention, and therefore
would be considered as trades with a
manual component during the trading
reporting process.95 Table 1 above
95 See Letter from Michael Decker, Senior Vice
President for Public Policy, Bond Dealers of
America, dated October 3, 2022, at 2–3 (‘‘Trades
negotiated and executed by phone, still the
predominant execution method for block-sized
trades in municipals . . . require human
involvement and data entry, delaying the reporting
process easily past one minute.’’); Letter from Seth
A. Miller, General Counsel, President, Advocacy
and Administration, Cambridge Investment
Research, Inc., dated October 3, 2022, at 4; Letter
from Howard Meyerson, Managing Director,
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shows a noticeable difference in the
speed of trade reporting by different
trade size groups, with the reporting
time increasing with trade size. The
MSRB could propose that small and
medium-sized trades, i.e., trades with
par value below $1,000,000 which
constitute about 97.3 percent of all
trades, be reported within one minute
while proposing a longer threshold, for
example, a five-minute threshold for
larger-sized trades which constitute
about 2.7 percent of all trades. However,
trades with a manual component are
already excepted from the one-minute
requirement under the proposed rule
change, regardless of the trade size,
which would be superior to this
alternative method because the length of
time to report a trade is heavily
influenced by the trade reporting
process rather than the size of the trade
per se. In addition, anecdotal evidence
suggests that large-sized trades do have
more of an impact on the direction of
the market, as many market participants
weigh larger trades more heavily in
determining market movements and
many of the existing market produced
yield curves either exclude small-sized
trades from their analysis or weigh them
much less than larger-sized trades.96
Financial Information Forum, dated October 3,
2022, at 4; Letter from Edward J. Smith, General
Counsel and Chief Compliance Officer, Hartfield,
Titus & Donnelly, LLC, dated September 14, 2022,
at 4; Letter from Robert D. Bullington, Vice
President, Compliance Officer, InspereX LLC, dated
October 3, 2022, at 4–5; Letter from John Isaak,
Senior Vice President, Isaak Bond Investments,
dated August 16, 2022, at 1; Letter from Robert
Blum, President, Robert Blum Municipals, Inc.,
dated September 16, 2022 at 1; Letter from
Christopher Ferreri, President, RW Smith &
Associates, LLC, dated September 13, 2022, at 4;
Letter from Lee Maverick, Chief Compliance
Officer, SAMCO Capital Markets, Inc., dated
September 30, 2022, at 2; Letter from Kenneth E.
Bentsen, Jr., President and Chief Executive Officer,
Securities Industry and Financial Markets
Association and the SIFMA Asset Management
Group, dated October 3, 2022, at 8–9; Letter from
Nyron Latif, Head of Operations, Wells Fargo
Wealth and Investment Management, and Todd
Primavera, Head of Operations, Wells Fargo
Corporate and Investment Bank, Wells Fargo &
Company, dated October 3, 2022, at 3; Email from
Glenn Burnett, Zia Corporation, dated September 6,
2022, at 1. See also MSRB Notice 2013–02 (Request
for Comment on More Contemporaneous Trade
Price Information Through a New Central
Transparency Platform) (Jan. 17, 2013) (eliciting
similar comments), available at https://
www.msrb.org/Request-Comment-MoreContemporaneous-Trade-Price-InformationThrough-a-New-Central-Transparency.
96 For example, the most widely used curve is the
Refinitiv® Municipal Market Data (MMD) AAA
benchmark yield curve that only includes
institutional block size trades of $2 million par
amount or more in the secondary or primary
market. For additional information regarding the
MMD AAA curve, see Cameron Marcus Arial,
‘‘Public Administrator Choice Idaho School District
Finance Policy Observed’’ (May 2019). Boise State
University Theses and Dissertations, File No. 1516,
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While there may be both benefits and
costs for large-sized trades to be
reported sooner where possible,97
adding a trade size-based reporting
regime with delayed reporting by largesized trades on top of the manual
component exception may cause
additional complication in trade
reporting, potentially resulting in
increased trade reporting errors and/or
trade cancellations and corrections.
A slight variation of the above
alternative on divergent trade reporting
requirements would consider trades on
Alternative Trading System (‘‘ATS’’)
platforms and other non-ATS trades
differently, since the speed of reporting
differs between these two groups of
inter-dealer trades, with 79.7 percent of
inter-dealer trades on an ATS platform
being reported within one minute in
2022 while only 69 percent of non-ATS
inter-dealer trades being reported within
one minute. However, variation of
requirements could similarly cause
confusion and may further add burden
on dealers who may have to maintain
policies and procedures with multiple
exception paths. In addition, there is a
possibility that this alternative may
impact the competition between ATS
platforms and other non-ATS platforms.
Finally, ATS platforms also report
trades differently, with some ATS
platforms being the reporting party
while other ATS platforms let
participants on the ATS platforms
report trades directly to RTRS. Hence,
not all ATS platforms have the same
reporting procedures.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
On August 2, 2022, the MSRB
published the 2022 Request for
Comment to solicit comment on a
potential amendment to Rule G–14 to
require that, absent an exception,
dealers report transactions to an RTRS
Portal as soon as practicable, but no
later than within one minute following
the Time of Trade (the ‘‘Proposal’’).98
page 68, available at https://
scholarworks.boisestate.edu/cgi/
viewcontent.cgi?article=2639&context=td. This is in
addition to the IHS Markit AAA Curve and
Bloomberg BVAL municipal AAA curves displayed
on the MSRB’s EMMA website, which exclude
small-sized trades from their methodologies.
97 While more immediate transparency is
beneficial to the market in general, there has been
some concerns about information leakage if largesized trades were reported and disseminated
sooner. See Letter from Sarah A. Bessin, Associate
General Counsel, Investment Company Institute,
dated October 3, 2022, at 11.
98 See MSRB Notice 2022–07 (Request for
Comment on Transaction Reporting Obligations
under MSRB Rule G–14) (Aug. 2, 2022), available
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The MSRB also published a
memorandum during the comment
period for the 2022 Request for
Comment providing supplemental data
regarding counts of trade volume and
time of reporting.99
In response to the 2022 Request for
Comment, the MSRB received 53
comment letters from 51 commenters.100
at https://www.msrb.org/sites/default/files/2022-09/
2022-07.pdf.
99 Memorandum from John Bagley, Chief Market
Structure Officer, MSRB (Supplemental Data with
respect to MSRB Notice 2022–07 Request for
Comment on Transaction Reporting Obligations
under MSRB Rule G–14) (‘‘MSRB Memorandum’’)
(providing supplemental trade report time data),
(Sep. 12, 2022), available at https://www.msrb.org/
sites/default/files/2022-09/2022-07-MSRB.pdf.
100 See Letter from Kelli McMorrow, Head of
Government Affairs, American Securities
Association (‘‘ASA’’) dated September 30, 2022;
Letter from Mike Petagna, President, Amuni
Financial, Inc. (‘‘AMUNI’’), dated August 23, 2022;
Email from Bill Bailey (‘‘Bailey’’), dated August 4,
2022; Letter from Matt Dalton, Chief Executive
Officer, Belle Haven Investments, L.P. (‘‘Belle
Haven’’), dated October 3, 2022; Letter from Ronald
P. Bernardi, President and Chief Executive Officer,
Bernardi Securities, Inc. (‘‘BSI’’), dated September
30, 2022; Letter from Will Leahey, Head of
Regulatory Compliance, BetaNXT Inc. (‘‘BetaNXT’’),
dated October 3, 2022; Letter from Michael Decker,
Senior Vice President for Public Policy, Bond
Dealers of America (‘‘BDA’’), dated October 3, 2022;
Letter from David Long, Executive Vice President,
Correspondent Banking/Capital Markets, and
Vincent Webb, Managing Director, Bryant Bank
Capital Markets, Bryant Bank (‘‘BB’’), dated
September 28, 2022; Letter from Seth A. Miller,
General Counsel, President, Advocacy and
Administration, Cambridge Investment Research,
Inc. (‘‘Cambridge’’), dated October 3, 2022; Email
from Jay Lanstein, Chief Executive Officer and Chief
Technology Officer, Cantella & Co., Inc. (‘‘C&C’’),
dated September 16, 2022; Email from Maryann
Cantone, Cantone Research, Inc. (‘‘CRI’’), dated
August 2, 2022; Letter from J.D. Colwell
(‘‘Colwell’’), dated September 9, 2022; Email from
Raymond DeRobbio (‘‘DeRobbio’’), dated August 3,
2022; Letter from Gerard O’Reilly, Co-Chief
Executive Officer and Chief Investment Officer, and
David A. Plecha, Global Head of Fixed Income,
Dimensional Fund Advisors LP (‘‘Dimensional’’),
dated September 26, 2022; Letter from Robert A.
Estrada, Esq., Chairman (Emeritus), Estrada
Hinojosa & Co., Inc. (‘‘EH&C’’), dated October 3,
2022; Letter from Melissa P. Hoots, Chief Executive
Officer and Chief Compliance Officer, Falcon
Square Capital, LLC (‘‘Falcon Square’’), dated
October 3, 2022; Letter from Howard Meyerson,
Managing Director, Financial Information Forum
(‘‘FIF I’’), dated October 3, 2022; Supplemental
Letter from Howard Meyerson, Managing Director,
Financial Information Forum (‘‘FIF II’’), dated April
27, 2023; Letter from Jonathan W. Ford, Senior Vice
President, Ford & Associates, Inc. (‘‘F&A’’), dated
September 9, 2022; Letter from Edward J. Smith,
General Counsel and Chief Compliance Officer,
Hartfield, Titus & Donnelly, LLC (‘‘HTD’’), dated
September 14, 2022; Letter from Melissa Messina,
Executive Vice President, Associate General
Counsel, R. Jeffrey Sands, Managing Principal,
General Counsel, and William Sims, Managing
Principal, Herbert J. Sims & Co., Inc. (‘‘HJS’’), dated
October 3, 2022; Email from Deborah Higgins,
Higgins Capital Management, Inc. (‘‘HCM’’), dated
September 19, 2022; Letter from Lana Calton,
Executive Managing Director, Head of Clearing,
Hilltop Securities (‘‘Hilltop’’), dated October 3,
2022; Letter from Joe Lee, Chief Executive Officer,
Honey Badger Investment Securities, Inc. (‘‘Honey
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Following consideration of the
comments received and in light of
ongoing engagement with affected
market participants, FINRA, the
Commission and other stakeholders, the
MSRB determined to file the proposed
rule change, which incorporates certain
key modifications to the Proposal
designed to address many of the key
Badger’’), dated September 30, 2022; Letter from
Robert Laorno, General Counsel, ICE Bonds
Securities Corporation (‘‘ICE Bonds’’), dated
September 30, 2022; Letter from Robert D.
Bullington, Vice President, Compliance Officer,
InspereX LLC (‘‘InspereX’’), dated October 3, 2022;
Letter from Scott Hayes, President and Chief
Executive Officer, and Chris Neidlinger, Chief
Compliance Officer, Institutional Securities
Corporation (‘‘ISC’’), dated September 30, 2022;
Letter from Sarah A. Bessin, Associate General
Counsel, Investment Company Institute (‘‘ICI’’),
dated October 3, 2022; Email from Darius Lashkari,
Investment Placement Group (‘‘IPG’’), dated August
2, 2022; Letter from John Isaak, Senior Vice
President, Isaak Bond Investments (‘‘IBI I’’), dated
August 16, 2022; Letter from Donald J. Lemek, Vice
President—Operations and Chief Financial Officer,
Isaak Bond Investments, Inc. (‘‘IBI II’’), dated
October 3, 2022; Email from Mike Kiley, Owner,
Kiley Partners, Inc. (‘‘KPI’’), dated September 27,
2022; Letter from Gary Herschitz, Chief Executive
Officer, Madison Paige Securities (‘‘MPS’’), dated
September 30, 2022; Email from Christopher Mayes
(‘‘Mayes’’), dated September 27, 2022; Letter from
Kathy Miner (‘‘Miner’’), dated October 2, 2022;
Letter from Randy Nitzsche, President and Chief
Executive Officer, Northland Securities Inc.
(‘‘NSI’’), dated October 3, 2022; Letter from James
W. Oberweis, President, Oberweis Securities, Inc.
(‘‘OSI’’), dated September 28, 2022; Letter from H.
Deane Armstrong, Chief Compliance Officer, and
Joseph A. Hemphill III, Chief Executive Officer,
Regional Brokers, Inc. (‘‘RBI’’), dated October 3,
2022; Letter from Robert Blum, President, Robert
Blum Municipals, Inc. (‘‘RBMI’’), dated September
16, 2022; Letter from F. Gregory Finn, Chief
Executive Officer, Roosevelt & Cross, Inc. (‘‘R&C’’),
dated October 3, 2022; Letter from Christopher
Ferreri, President, RW Smith & Associates, LLC
(‘‘RWS’’), dated September 13, 2022; Letter from
Lee Maverick, Chief Compliance Officer, SAMCO
Capital Markets, Inc. (‘‘SAMCO’’), dated September
30, 2022; Letter from Matthew Kamler, President,
Sanderlin Securities LLC (‘‘Sanderlin’’), dated
September 27, 2022; Letter from Kenneth E.
Bentsen, Jr., President and Chief Executive Officer,
Securities Industry and Financial Markets
Association and the SIFMA Asset Management
Group (collectively, ‘‘SIFMA’’), dated October 3,
2022; Letter from Joseph Lawless, Chief Executive
Officer, Sentinel Brokers Company, Inc. (‘‘SBC’’),
dated September 30, 2022; Email from Edward
Sheedy (‘‘Sheedy’’), dated August 2, 2022; Letter
from Glen Essert, Stern Brothers & Co. (‘‘Stern’’),
dated October 3, 2022; Letter from Jesy LeBlanc and
Kat Miller, TRADEliance, LLC (‘‘TRADEliance’’),
dated September 28, 2022; Email from William
Tuma (‘‘Tuma’’), dated August 8, 2022; Letter from
Nyron Latif, Head of Operations, Wells Fargo
Wealth and Investment Management, and Todd
Primavera, Head of Operations, Wells Fargo
Corporate and Investment Bank, Wells Fargo &
Company (‘‘Wells Fargo’’), dated October 3, 2022;
Letter from Keener Billups, Managing Director,
Municipal Bond Department, Wiley Bros.-Aintree
Capital (‘‘Wiley’’), dated September 20, 2022; Email
from Thomas Kiernan, Wintrust Investments, LLC
(‘‘Wintrust’’), dated August 2, 2022; Email from
Glenn Burnett, Zia Corporation (‘‘Zia’’), dated
September 6, 2022. All comments are available at:
https://www.msrb.org/sites/default/files/2023-03/
All-Comments-to-Notice-2022-07.pdf.
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concerns expressed by commenters and
other market participants, including the
establishment of the two new intra-day
exceptions 101 to the baseline reporting
requirement.
While two commenters expressed
support for the Proposal,102 and several
other commenters expressed some
support for the overall goal and certain
specific aspects of the Proposal,103 most
commentors objected to shortening the
timeframe for reporting from 15 minutes
to one minute after the Time of Trade.
The comments received in response to
the 2022 Request for Comment are
summarized below by topic and the
corresponding MSRB responses are
provided.104
As Soon as Practicable Requirement
The MSRB sought comment on the
Proposal’s addition of a requirement
that trades must be reported as soon as
practicable. Section (a)(ii) of the Rule G–
14 RTRS Procedures does not currently
include the requirement to report trades
as soon as practicable. Adding this
requirement would harmonize this
provision with FINRA Rule 6730(a),
which currently requires that, with
certain exceptions, trades in TRACEeligible securities be reported as soon as
practicable.
One commenter suggested that the
MSRB more closely harmonize its trade
reporting requirements with FINRA’s
requirements by adopting the existing
‘‘as soon as practicable’’ provision of
FINRA Rule 6730(a),105 and most
commenters addressing this aspect of
the Proposal supported this change or
viewed it as consistent with current
practices.106 No commenter that
opposed the Proposal noted that the
addition of the ‘‘as soon as practicable’’
language was the basis for such
101 See
supra ‘‘Purpose—Proposed Rule Change—
Exceptions to the Baseline Reporting Requirement.’’
102 See Dimensional; Tuma.
103 See ICE Bonds at 1; ICI at 2; SIFMA at 2; Wells
Fargo at 1.
104 Simultaneously with the MSRB’s publication
of the 2022 Request for Comment, FINRA published
a request for comment on a proposal to similarly
shorten FINRA’s TRACE trade reporting timeframe
for transactions in TRACE-eligible securities (the
‘‘FINRA TRACE Proposal’’). See FINRA Regulatory
Notice 22–17 (FINRA Requests Comment on a
Proposal to Shorten the Trade Reporting Timeframe
for Transactions in Certain TRACE-Eligible
Securities From 15 Minutes to One Minute) (Aug.
2, 2022); see also 2024 FINRA Proposed Rule
Change. Many commenters responding to the 2022
Request for Comment also commented on the
FINRA TRACE Proposal. The discussion of
comments herein is mostly confined to those
comments addressing the Proposal or the MSRB.
105 See SIFMA at 4, 7, 17, 21–22. BetaNXT, HJS,
Hilltop and R&C expressed general support for
SIFMA’s comment letter.
106 See Dimensional; EH&C at 2; SIFMA at 4, 7,
17, 21–22.
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opposition.107 Several commenters
noted that the market already effectively
reports trades as soon as practicable.108
Another commenter, while not
explicitly supporting the ‘‘as soon as
practicable’’ language, supported the
notion of examining and investigating
dealers to ensure compliance with such
standard as an alternative to shortening
the timeframe for reporting.109 One
commenter also recommended that the
MSRB provide supervisory guidance
that parallels the provisions of
Supplementary Material .03 of FINRA
Rule 6730 with respect to the obligation
to report trades as soon as
practicable.110
In light of the comments received, the
MSRB proposes to incorporate the
requirement that trades be reported as
soon as practicable into the proposed
rule change for trades subject to an
intra-day reporting deadline, as well as
to require the establishment of policies
and procedures for complying with the
as soon as practicable reporting
requirement in proposed new
Supplementary Material .03. As
discussed in ‘‘Purpose—Proposed Rule
Change—New Requirement to Report
Trades ‘‘as Soon as Practicable’’ above,
where a dealer has reasonably designed
policies, procedures and systems in
place to comply with this standard, and
does not purposely withhold trade
reports if it would have been practicable
to report such trades more rapidly, 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 purposely
intend to delay the reporting of the trade
(e.g., due to a systems outage).
One Minute Timeframe for Reporting
The MSRB sought comment on
shortening the timeframe for reporting
transactions currently required to be
reported within 15 minutes after the
Time of Trade to one minute after the
Time of Trade under the Proposal.111
As noted above, most commenters
objected to shortening the timeframe for
reporting from 15 minutes to one
minute after the Time of Trade, raising
a number of issues regarding the merits
of shortening the reporting timeframe,
107 Rather, commenters opposing the Proposal, as
discussed herein, focused on the shortening of the
deadline from 15 minutes to one minute.
108 See BDA at 1–2; HJS at 5; SBC at 2. Hilltop
and R&C expressed general support for BDA’s
comment letter.
109 See Belle Haven at 7.
110 See SIFMA at 21–22.
111 Transactions would also be required to be
reported as soon as practicable, as described above.
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specific operational aspects of
implementing a shortened timeframe,
the range of transactions and dealers
subject to the new timeframe, and the
speed and manner of transitioning to a
general one-minute reporting
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Operational Issues Relating To
Reporting Within One Minute
Time of Trade
In the 2022 Request for Comment, the
MSRB noted that the time to report a
trade is triggered at the time at which a
contract is formed for a sale or purchase
of municipal securities at a set quantity
and set price. The 2022 Request for
Comment asked whether ‘‘Time of
Trade,’’ as currently defined, is the
appropriate trigger and, if not, what
other elements of the trade should be
established before the reporting
obligation is triggered.
One commenter agreed that the
definition of ‘‘Time of Trade’’
referenced in the 2022 Request for
Comment is the appropriate trade
reporting trigger.112 Several other
commenters expressed a desire for
greater clarity regarding the definition of
‘‘Time of Trade.’’ 113
A few commenters discussed certain
trading scenarios in which they believed
that the ‘‘Time of Trade,’’ as defined by
the MSRB, would not be the appropriate
trigger for trade reporting. One
commenter noted that manual trade
entry does not necessarily begin at the
time of execution, particularly for firms
that manually report trades to the RTRS
Web Portal.114 This commenter noted
that a number of issues may arise that
can result in a delay of the manual trade
entry process, including information
gaps due to new or unfamiliar securities
or having to wait to receive necessary
information from the other side of the
transaction.
Two commenters acknowledged that
while personalized negotiation
effectively occurs prior to the formal
time of execution that marks the
beginning of the trade reporting process,
the two stages are inextricably linked.115
These commenters were concerned that
mandating one-minute trade reporting
across the board would require a delinking of these two processes, which
could introduce artificiality into the
broker-client relationship and hinder
execution until adequate technological
advances are developed. Another
commenter argued that the primary
112 See
Colwell at 3.
BSI at 2; Colwell at 2; ISC at 2; ICI at 3;
IBI II at 1; SIFMA at 14, 20–21; TRADEliance at 1.
114 See Belle Haven at 5.
115 See HJS at 4 (quoting SIFMA at 9).
113 See
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consideration should be the business
method used in trade execution, such as
in the case of the business model of a
voice broker. This commenter provided
an example of a one-on-one transaction
created between a buyer and seller
when a dealer executes a trade with a
customer, and contrasted this with an
intermediated trade by a voice dealer
that includes multiple components. For
these types of intermediated trades, the
commenter noted that perhaps an
appropriate trigger would be when the
intermediate transaction is complete
(e.g., when all underlying trades of the
intermediate transaction are
executed).116
One commenter noted that if dealers
are not permitted 15 minutes to report
manually executed trades, a firm that
wants to continue to execute trades
manually might need to reach an
agreement or understanding with its
customers that the execution time for a
trade agreed to by telephone, instant
messaging or chat communication is the
time that the firm inputs the trade into
the firm’s books and records in a
systematized format for reporting to
RTRS without manual input.117
Another commenter noted that
current fixed income trade matching
processes are not keyed off of time of
execution, which would naturally have
an impact on the degree of precision of
the time of trade execution data when
looking at finer time gradations, such as
within a single minute.118
The MSRB is not seeking to amend
the definition of ‘‘Time of Trade’’ in
conjunction with the proposed oneminute reporting requirement. However,
the MSRB has provided a discussion of
certain factors that may be relevant to
determining the Time of Trade that
should address many of the concerns
that the shorter reporting timeframe
would create greater pressure and
require greater precision in determining
the Time of Trade.119 The MSRB
believes that its use of the term ‘‘Time
of Trade’’ is appropriate and consistent
with how that term is understood by
FINRA in connection with the reporting
of TRACE-eligible securities to TRACE
under applicable FINRA rules, and that
the guidance provided herein would
provide more assurance for dealers in
determining the Time of Trade with
greater clarity and precision.
116 See
HTD at 4.
FIF I at 4. BetaNXT expressed general
support for FIF’s comment letter.
118 See SIFMA at 7.
119 See supra ‘‘Purpose—Proposed Rule Change—
Time of Trade Discussion’’ for a discussion of and
related guidance on the definition of Time of Trade
under Rule G–14 RTRS Procedures Section (d)(iii).
117 See
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Automation of Trade Execution and
Reporting
The 2022 Request for Comment noted
that 76.9 percent of trades in 2021
subject to the existing 15-minute
reporting requirement were reported
within one minute and requested input
on whether there are any commonalities
with the trades that were reported
within one minute or reported after one
minute. The 2022 Request for Comment
also noted that, based on the MSRB’s
analysis, trades conducted on ATS
platforms in 2021 were reported in less
time than trades not conducted on ATS
platforms (‘‘non-ATS trades’’), with 84.4
percent of inter-dealer trades conducted
on an ATS platform being reported
within one minute while only 74.9
percent of non-ATS trades were
reported within one minute. The 2022
Request for Comment sought
information on the reason(s) it takes
more time to report non-ATS trades.
Commenters generally noted that the
commonalities in the trades reported
within one minute or after one minute
depend on the extent of human
intervention required to execute and
report a trade.120 In general, these
commenters acknowledged that faster
reporting may be achieved for the
remaining approximately 20–25 percent
of trades depending on the level of
automation of trades with more straightthrough processing and progressively
reduced human intervention.
Commenters generally agreed that the
shorter reporting times of ATS trades
are the result of those trades being
executed on a fully automated and
connected trading venue.121 They
acknowledged that in a connected
system, trades flow automatically and
timing is almost instantaneous, with
little to no manual intervention.122 In
contrast, these commenters
acknowledged that trades executed
away from an ATS take more time to
report due to higher levels of human
intervention.
The MSRB understands that
automated processes currently play a
significant role in facilitating rapid
reporting of trade information to RTRS.
The MSRB is aware, both through its
own statistics and from input from
commenters, as more fully discussed
below, that trades that involve full
automation through the trade execution
and reporting process typically achieve
near instantaneous trade reporting that
is already consistent with the proposed
120 See BB at 1; Colwell at 2; Falcon Square at 1–
2; FIF I at 2; HTD passim; OSI at 1; TRADEliance
at 2.
121 See HTD at 5; RWS at 5; Sanderlin at 6.
122 See Baily at 1.
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one-minute timeframe, but that other
trades face higher challenges to
achieving one-minute reporting. As
discussed previously, the MSRB
reminds dealers seeking to comply with
the proposed rule change—including
the one-minute reporting requirement
and new or existing exceptions from
such requirement—that they should
consider the extent to which they can
automate their trade reporting and
related execution processes, consistent
with their clients’ needs and the dealers’
best execution and other regulatory
obligations.123
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Manual Steps in the Negotiation,
Execution and Reporting Process
Several commenters raised issues
about the potential impact of the
proposed rule change on trades that are
negotiated by voice and/or where the
reporting process includes one or more
manual components in execution or
trade reporting, such as in the case of
large block trades that require
subsequent allocation, portfolio trades
or other types of complex trades that
require some form of human
intervention.124 These commenters
generally agreed that while manual
trades represent a relatively small
percentage of trades by trade count, for
the types of trades identified above, a
dealer may not be able to input and
verify trade data within one minute if
that process involves human
intervention. These commenters further
asserted that the proposed rule change
would disproportionately impact firms
that accept orders that are not
electronically entered into an order
management system (including orders
received via telephone or instant
message) and would effectively prohibit,
by trade reporting rule, an entire
category of transactions that are
otherwise customary industry practice.
These commenters also noted that this
practice was particularly important to
the municipal securities industry where
large institutional trades or block trades
are more likely to be negotiated and
executed by voice and processed
manually.
Another commenter argued that in
most cases, it is not financially feasible
for a firm to report a trade to RTRS or
123 See supra ‘‘Purpose—Proposed Rule Change—
Exceptions to the Baseline Reporting
Requirement—Exception for Trades with a Manual
Component’’ for a discussion of and related
guidance on trades having a manual component.
124 See e.g., ASA at 4–5; Bailey at 2; C&C at 1;
and FIF I at 1–2; HTD passim; HJS at 2–4; ISC at
2; IBI I at 1; KPI at 1; Mayes at 1; RBMI at 1; RWS
at 1–5; SAMCO at 1–2; SIFMA at 8–12, 24; SBC at
1–2; TRADEliance at 2; Wells Fargo at 3; Wintrust
at 1. Hilltop, Honey Badger, MPS and RBI expressed
general support for ASA’s comment letter.
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TRACE within one minute if the trade
has been executed manually. This
commenter noted that manual trading is
common in the very large universe of
fixed income securities for various
reasons.125 One commenter noted that
the only way for a trade to be entered
within 60 seconds is if two opposing
traders are on the phone at the same
time and they agree to drop their tickets
at that very moment and input the data
immediately.126
The MSRB recognizes that for some
trades in the municipal securities
market, the trade details are entered
manually due to the inherent nature and
characteristics of such trades. The
MSRB also understands that voice and
electronic communications as a means
of trade execution that are not utilizing
straight-through processing or are not
part of an automated trade execution
and reporting process are common for
the municipal securities market. For
these trades, the trade reporting process
might be difficult or impossible to
complete within one minute following
the time of trade, even where the dealer
has established efficient reporting
processes and commences reporting the
trade without delay.
As outlined below, commenters
discussed a number of specific scenarios
involving such communications or other
manual steps in the process of executing
and reporting trades for which
shortening the trade reporting timeframe
could, in their view, potentially result
in adverse consequences.
To address these concerns, including
the specific aspects raised by
commenters outlined in subparagraphs
below, the MSRB has included in the
proposed rule change an exception from
the proposed one-minute trade reporting
timeframe for trades with a manual
component, which would retain the
existing 15-minute deadline for the first
year in which the proposed rule change
is effective and then provide for a
measured decline in the timeframe to
five minutes beginning two years after
such effectiveness, as discussed in
greater detail herein.127 This phased
approach would provide dealers
effecting trades with a manual
component with a phased approach to
achieving compliance that, the MSRB
believes, appropriately addresses the
concerns that commenters expressed.128
125 See
FIF at 2.
at 2.
127 See supra ‘‘Purpose—Proposed Rule Change—
Exceptions to the Baseline Reporting
Requirement—Exception for Trades with a Manual
Component’’ discussing the proposed exception for
trades with a manual component.
128 While the MSRB believes that the exception
for trades with a manual component effectively
126 ISC
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Voice and Negotiated Trading
Many commenters expressed concern
about the potential impact of the
Proposal specifically on voice and
negotiated trading, asserting that, unlike
equity markets, business in fixed
income markets is often conducted
through voice negotiations, for
institutional customers as well as
certain retail investors.129
One commenter that is a dual
registrant as a dealer and investment
advisor noted that an accelerated trade
reporting regime would negatively
impact market participants that
continue to prefer manually negotiated
trades for some portion of their fixed
income trading activity. While
acknowledging that the volume of fixed
income trades executed electronically
has risen, this commenter stated that
many investors still prefer to trade with
dealers by voice or electronic message
(manually negotiated trades) rather than
on an electronic platform to benefit from
receiving input on market color,
including credit information and
information about comparable bonds
trading in the market. The commenter
stated that some investors may also
prefer to negotiate on price directly
because they are executing block-size
trades or portfolio trades. This
commenter stated that trades negotiated
and executed manually (by voice or
electronic message) take longer to input
and report in comparison to trades
executed electronically. This
commenter further noted that a oneminute reporting requirement would
present a variety of process-oriented,
timing, and operational challenges,
especially for a trading desk engaging
with multiple clients simultaneously
and, therefore, the proposed
acceleration of reporting could alter the
efficiency of fixed income markets.130
One commenter noted that the issue
is not that dealers that execute larger
trades are using inefficient processes but
that such trades are typically executed
by institutions using voice brokers. This
commenter also noted that there is a
difference between institutional, voice
brokered fixed income markets and
retail fixed income markets with respect
addresses the core issues raised in the comments
described in Subsections (1) through (6) below, the
MSRB also addresses certain other related
comments not fully resolved by such exception in
‘‘One Minute Timeframe for Reporting—Potential
Negative Consequences of the One Minute
Requirement.’’
129 See e.g., ASA at 3–4; AMUNI at 1; Bailey at
1; BDA at 2; Cambridge at 4; Colwell at 3; HTD
passim; FIF at 3, 4; HJS 2, 5; InspereX at 3–5; ICI
at 3, 4, 7, 9, 11; IBI I at 1; RBMI at 1; RWS at 1–
5; SAMCO at 1–2, 4; SIFMA at 5, 8, 11, 15, 24; SBC
at 2; Wells Fargo at 3; Wintrust at 1.
130 See Wells Fargo at 3.
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to the manner in which trades in these
markets are negotiated, executed and
processed. This commenter expressed
concern that one-minute reporting
would effectively eliminate voice
trading.131
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Larger-Sized Trades
The 2022 Request for Comment noted
that larger-sized trades take longer to
report than smaller-sized trades and
requested input on the reason(s) it takes
a firm that reports larger-sized trades
more time to report a trade (e.g., voice
trades). The MSRB also asked if dealers
and investors would need process
changes for executing and/or reporting
larger-sized trades in a shorter
timeframe and if so, how.
A commenter stated that many small
trades are executed on electronic
platforms and require minimal, if any,
manual intervention, allowing many
smaller trades to be executed and
reported almost instantly. In contrast,
the commenter stated that larger trades
typically require traders to negotiate and
confirm details with a client and
manually enter the transaction into risk
and reporting systems. This commenter
noted that large trades generally require
greater focus on risk management to
promptly source and accurately hedge
the transaction in question, and an
inability for firms to manage their risk
could hamper firms’ willingness to
incur risk, which could dampen
liquidity, increase systemic risk if
dealers become less capable of hedging
on a timely basis and reduce execution
quality for the institutional investor.132
A trade association commenter
representing regulated investment funds
with members that are participants in
the municipal securities market noted
that many of its members send large
trades to dealers that are worked
throughout the day, which may have
implications for dealers’ ability to report
transactions within one minute or an
otherwise shortened timeframe.133 This
commenter also noted that certain
characteristics of trades, particularly
large trades and trades in less liquid
securities, are often done via ‘‘high
touch’’ methods such as voice protocol,
often involving negotiation as to prices
and size of the trade.134
Mediated Transactions
One commenter identified itself as a
broker’s broker that engages in mediated
transactions with other dealers to
facilitate anonymity. It noted that these
mediated trades are often voice
negotiated and require manual
intervention and processing from the
point of execution through the clearance
and settlement processes. The
commenter stated that these trades are
not reported within five minutes of
execution, especially for trades
involving multiple counterparties, but
that dealers use their best efforts to
report their trades as soon as
practicable. The commenter noted that
processing of such trades is typically
manual given the complexities of
mediated institutional transactions.135
This commenter further asserted that
broker’s brokers and other inter-dealer
brokers often are tasked by their dealer
clients to anonymously facilitate trades
in numerous different credits as part of
the clients’ trading needs on behalf of
their own customers, requiring reports
of a large number of trades executed at
the same time. The commenter added
that in some cases a transaction involves
the simultaneous purchase of a security
and a hedge or other corresponding
security with multiple counterparties
(e.g., buyer and seller is intermediated
by a broker’s broker). The commenter
stated that, to the extent that all of these
securities have a one-minute reporting
requirement, both set of trades would
need to be reported within the same
minute, which may be functionally
impossible.136
Block Trades and Trade Allocations
A few commenters expressed
concerns about large block trades
executed by firms that are dual
registrants as dealers and investment
advisers, noting that these large trades
must be further allocated to their
advisory customers. They noted that
large block trades may be executed
contemporaneously with one or more
counterparties, usually through voice
negotiation and a coordinated effort,
and the allocation may involve several
additional smaller transactions with
multiple customers to fully reflect the
deal and may potentially involve
multiple systems.137
Specifically, one commenter noted
that a trade reporting exception is
necessary for block trades executed by
a dealer and allocated to client accounts
of a registered investment adviser that is
part of the same legal entity. This
commenter noted that as a dual
registered dealer and investment
adviser, it regularly executes and reports
RWS at 1; see also SIFMA at 15.
136 See RWS at 1.
137 See AMUNI at 2; BSI at 3; BetaNXT at 5; HJS
at 4; ICI at 6, NSI at 1, RWS at 3; SIFMA at 10, 15,
19, Wells Fargo at 2–4.
SAMCO at 1–2.
132 See SIFMA at 14–16.
133 See ICI at 13 n.41.
134 Id. at 9 n.30.
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Portfolio Trades and Trade Lists
Multiple commenters noted that
dealers may receive large orders and
trade lists that involve rapid execution
and frequent communications on
multiple transactions with multiple
counterparties. They stated that these
trades may be executed as a series of
trades that then must be entered into the
system one-by-one and could be
difficult to report within one minute
following the Time of Trade.141 In
addition, several commenters noted that
some transactions including large blocks
of transactions such as portfolio
transactions may be subject to a firm’s
internal approval processes for risk and
regulatory compliance and additional
due diligence by way of, for example, a
second review to ensure accuracy.142
One trade association commenter
noted that its members execute and
report their portfolio trades
electronically because of the challenges
presented by manually inputting a large
number of trades within a limited time
period.143 In contrast, another trade
association commenter stated that many
customers engaging in portfolio trades
seek to do so through personalized
negotiation rather than through
electronic venues, due in part to the
complexity of counterparties assessing
potentially thousands of different
securities without the targeted
interactions that occur in personalized
negotiation, and because of concerns
about potential pre-execution leakage of
138 See
139 See
Wells Fargo at 2–3.
SIFMA at 15.
140 Id.
135 See
131 See
block trades and allocates portions of
those trades to individual advisers’
client accounts and the sub-account
allocations are executed at the same
price as the initial block trade.138
Another commenter noted that when a
dually-registered dealer/investment
adviser purchases a large block from the
secondary market, it must report the
block trade to RTRS and also report
each allocation to the sub-accounts held
in its investment adviser capacity,
including managed retail customer
accounts.139 This commenter stated that
the reporting issues presented by such
allocations are similar to those for the
reporting of portfolio trades, particularly
the difficulty of reporting potentially
thousands of portfolio trades or
allocations within a one-minute
reporting paradigm, as described
below.140
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141 See BSI at 2; BB at 1; ICI at 13 n.41; FIF I at
4; SIFMA at 14–15; Wells Fargo at 4.
142 See BSI at 2; BB at 1; FIF I at 4; HJS at 6;
SIFMA at 14–15; Wells Fargo at 4.
143 See FIF I at 4.
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information regarding the nature of the
investor’s positions and trading
strategies from electronic trading
venues.144
One commenter noted that dealers
often provide liquidity for portfolios of
bonds, including portfolios with more
than one hundred individual bonds.
This commenter asserted that under a
one-minute reporting rule, dealers may
not be able to execute these types of
portfolio trades at one point in time and
report the trades in a timely manner.
The commenter advocated for an
exception for portfolio trades and for
instances where market participants
solicit actionable bids or offers on
multiple securities, such as a portfolio
trade or a ‘‘bid wanted’’ list.145
Another trade association commenter
representing regulated investment funds
with members that are participants in
the municipal securities market noted
that some of its members engage in
portfolio trades, which require members
to give certain information to dealers,
and that this may have implications for
those dealers’ ability to report
transactions within one minute or an
otherwise shortened timeframe and
encouraged the MSRB to fully explore
potential operational issues.146
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Trading a Bond for the First Time/
Security Master Issues
The 2022 Request for Comment
sought information on any necessary
process(es) a dealer needs to complete
before trading a bond for the first time
that could impact the ability to report a
trade within a reduced timeframe (e.g.,
querying an information service
provider to obtain indicative data on the
security).
Many commenters were concerned
about delays introduced by trades of
newly issued or infrequently traded
securities where the security reference
information or indicative data is not
already available within the firm’s or
the clearing firm’s security master.147
One trade association commenter
advocated that the MSRB provide an
exception for a security that may not be
in a firm’s security master at the time
the trade is executed. It also maintained
that this exception should extend to
instances where a firm maintains
separate security masters for different
customers.148 Another trade association
commenter noted that one-minute
reporting may raise practical challenges
for certain asset classes, citing as an
example, the municipal securities
market as being characterized by a large
number of individual security
references, many of which are
infrequently traded.149
Relatedly, some commenters noted
that the absence of a centralized global
security master for municipal securities
introduces delays in the trade execution
and reporting process and advocated for
the MSRB to consider hosting a security
master for municipal securities.150 A
few commenters suggested that a oneminute trade reporting deadline would
be more practicable if the MSRB hosted
a security master or hosted a securities
master jointly with FINRA.151 One
commenter stated that most market
participants, including large clearing
firms, do not have the entire municipal
securities market reference information
in their database, with new security
references created daily and old
securities maturing. This commenter
noted that, in general, if a security is not
set up in a security master, it is because
there has not been a past transaction at
the dealer or clearing firm, and the time
necessary to process the set-up of a
security in the security master greatly
exceeds one minute.152 A trade
association commenter observed that its
members state that it takes almost all of
the allotted 15 minutes to query an
information service provider to upload
the missing security master information
and indicative data to refresh their
securities master, then submit the trade
report.153 Another commenter stated
that some back-office systems that
provide the connection to the MSRB for
reporting of corresponding trades also
require the security master update to be
performed manually and therefore
cannot report a received trade within
one minute.154
The exception for trades with a
manual component is designed to
address these concerns as described
above. While the MSRB acknowledges
the suggestion that it host a global
security master for use by dealers in
reporting trades to RTRS, and while the
MSRB continues to focus on making its
market transparency systems more
useful for market participants, the
MSRB would not at this time be
instituting such a global security master
149 See
ICI at 4 n.9.
Bailey at 1; BetaNXT at 3–4; BB at 1–2;
Cambridge at 2; ISC at 2; RWS at 5; Sanderlin at
6; SIFMA at 11–12; TRADEliance at 2.
151 See FIF I at 8; SAMCO at 3; SIFMA at 22–23;
Wells Fargo at 4; Zia at 1.
152 See SAMCO at 3.
153 See SIFMA at 22.
154 See Zia at 1.
150 See
144 See
SIFMA at 14.
Wells Fargo at 4.
146 See ICI at 13 n.41.
147 See ASA at 5; Bailey at 1; BetaNXT at 4;
Colwell at 2, 4; ISC at 2, RWS at 4; SAMCO at 3;
Sanderlin at 6–7.
148 See FIF I at 8.
145 See
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5407
in connection with the proposed rule
change.
Multiple Layers in Reporting Process
A commenter opined that the current
RTRS workflow is not suitable for
reporting trades within a one-minute
time frame due to multiple layers (i.e.,
third-party vendors and systems) that
trade reports often pass through before
they are received by RTRS. This
commenter identified the various layers,
including submission of the trade by the
executing firm to RTTM; if an executing
firm is not a clearing firm, the need to
have the clearing firm report the
executing firm’s trade to RTTM; and, if
the clearing firm outsources the trade
reporting function to a service provider,
such provider must make the
submission in the format accepted by
RTRS. To address limitations faced by
some vendors, this commenter
advocated for allowing trade
submissions of municipal securities to
be made directly to TRACE using FIX,
rather than RTRS, or that the
implementation period for the RTRS
reporting changes be postponed until a
reasonable period after the TRACE
reporting changes proposed in the
FINRA TRACE Proposal have been
implemented to avoid dealers being
overburdened with implementing
reporting changes for two different
systems at the same time.155 Other
commenters expressed similar concerns
regarding the reliance on a third party
for clearing and trade reporting.156
One commenter noted that while
many firms use semi-automated
systems, many others use a manual
system to execute trades with their
clearing firm, and that converting to a
fully automated system is far too
expensive and therefore an impractical
solution for many firms.157 Another
commenter stated that it relies on a
third party for clearing and trade
reporting to RTRS, and such clearing
firm performs the trade reporting within
one minute of the time the trade is
submitted by the dealer using the
clearing firm’s order entry system.
However, this commenter states it does
not have an automated order entry
system, indicating the trade may be
input into the clearing firm’s order entry
system after the time of trade and entails
manual steps.158 A third commenter
noted that the industry generally fulfills
the regulatory trade reporting obligation
further downstream in the trade
155 See
FIF I at 6–7 nn.25–28.
BSI at 2; Colwell at 2; Falcon Square at
1–2; HTD at 6; Hilltop at 1; RBMI at 1; Wells Fargo
at 4.
157 See BSI at 2.
158 See Sanderlin at 6.
156 See
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management process, and that
industrywide processes may need
further rearchitecting and significant reengineering of systems to move trade
reporting upstream. This commenter
noted that this problem is of particular
concern for firms that rely on third
parties for trade reporting or for firms
that employ systems that, by design,
report trades through their respective
back-end systems.159
Trades Reported Through RTRS Web
Interface
The MSRB noted that submitting
transactions to RTRS directly through
the RTRS Web interface takes longer.
The 2022 Request for Comment sought
information regarding the average
amount of time required to report a
trade through the RTRS Web interface,
how the MSRB could improve the
process for reporting through the RTRS
Web interface and the instance(s) in
which a dealer might choose to or need
to use the RTRS Web interface.
A few commenters noted that their
trades are reported electronically by
their clearing firms and that they do not
normally report trades via the RTRS
Web interface.160 One commenter noted
that, at least until alternative methods of
reporting trades are developed to allow
dealers to efficiently and effectively
report the types of trades that they
currently report manually, retaining but
considerably improving the existing
web interfaces is necessary.161 The
commenter requested greater
transparency in system outages and
performance degradations, heightened
service level agreements and
emphasized that dealers should not be
penalized for MSRB system outages.
Similarly, some commenters noted that
there may be issues external to MSRB
systems, including internet and other
types of broad-based or localized
outages or degradations outside the
control of dealers that may sometimes
interfere with their ability to make
timely trade reports through the SRO
web interfaces, which would be
increasingly problematic with any
potential shortening of the trade
reporting window.162
The RTRS Web interface is one of
three available RTRS Portals under Rule
G–14 RTRS Procedures Section (a)(i)(B)
(RTRS Web Portal or RTRS Web) and
would be maintained as such under the
proposed rule change. The MSRB will
continue to explore ways in which to
assure RTRS Web’s reliability and
efficiency for use. With regard to
systems outages, the MSRB maintains a
Systems Status Page on the MSRB
website,163 which indicates the current
operational status of each of the MSRB’s
market transparency systems and
related supporting systems and provides
any then-applicable status updates. In
addition, users are able to access a
historical catalogue of past MSRB
systems outages through the Systems
Status Page.
Potential Negative Consequences of the
One Minute Requirement
Accuracy of Information Reported and
Potential Data Entry Errors
The MSRB requested input on
whether reducing the timeframe to as
soon as practicable, but no later than
within one minute after the Time of
Trade, would affect the accuracy of
information reported and/or the
likelihood of potential data entry errors
and if so, the reason for such impact.
A number of commenters predicted
that a rapid transition to a one-minute
standard would result in increased
errors and corrections in trade reporting
as well as late trade reporting that
would lead to increased enforcement
action.164 One commenter observed that
the current 15-minute reporting
timeframe allows for traders to
adequately review trade tickets for
errors in settlement, price, amount, and
similar data fields. This commenter
stated that, even with the current 15minute reporting window, human errors
in completing trade tickets often lead to
trade cancellations and
modifications.165 Some commenters
noted that reducing the trade reporting
time to one minute would likely have a
detrimental effect on reporting accuracy
because market participants would be
far more concerned with timely
reporting than reviewing for accurate
trade information.166 Other commenters
expressed the concern that, if the
Proposal were to be adopted, firms may
not have sufficient time to correct errors
and would therefore be in violation of
trade reporting requirements.167
One commenter expressed concern
that portfolio trades with potentially
thousands of unique securities might
overwhelm the error and correction
process, or result in a surge of late trade
163 See
https://www.msrb.org/System-Status.
ASA at 5; BB at 1; Cambridge at 3; Colwell
at 2; EH&C at 1–2; HJS at 2–3; ICI at 12–13; IBI II
at 1–2; Miner at 1; SIFMA at 15–17.
165 InspereX at 5.
166 Id. at 5–6. Accord. Cambridge at 3; HTD at 6;
RWS at 5; SAMCO at 2.
167 ASA at 5. See also SIFMA at 17.
164 See
159 See
160 See
SIFMA at 20–21.
Colwell at 4; SAMCO at 1; HTD at 6; RWS
at 5.
161 See
162 See
Colwell at 2.
id.; FIF I at 6–7; FIF II at 1–2; SIFMA at
23–24.
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reports, if placed under a one-minute
reporting standard. This commenter
stated that, depending on the nature of
an adjustment or other small change in
terms in the context of a portfolio trade,
that single adjustment might result in
the need for trade reporting correction
for all the reported trades for the basket
of securities within the portfolio.168
Additional commenters felt that the
dissemination of inaccurate data caused
by rushed reporting would be
detrimental to the MSRB’s goal of
increased market transparency.169 One
of these commenters stated that, if a
sizable percentage of trades must be
revised or are reported late due to
practical limitations regarding dealer
operational workflow, this could result
in inaccurate data being reported to the
MSRB and disseminated publicly, thus
undercutting a key purpose of adopting
the shortened reporting timeframes.170
A commenter noted that large trades
require a higher level of review than
other trades and, as a result, large trades
could land in error queues or other
queues for manual reviews for margin or
credit issues. The commenter stated that
it would be extraordinarily difficult to
engage in these types of reviews in an
effectively instantaneous manner as
would be required under a one-minute
reporting regime. This commenter
further stated that ensuring that large
trades are executed accurately is
critically important not only because of
the higher financial stakes inherent in
large trades, but also because the larger
trades are often viewed by the market as
the most informative, as to current price
levels, have the greatest influence on
market indices and generally set market
tone. The commenter believed that the
Proposal, if adopted, could significantly
curtail parties’ ability to engage in
manual handling of trades and would
have negative impacts on risk
management and liquidity, with, at best,
little to no actual benefit to the overall
quality of market data.171
The MSRB believes that the degree to
which a shortened trade reporting
timeframe might result in a greater
prevalence of the reporting of inaccurate
information is significantly ameliorated
by the inclusion of the two new
reporting exceptions under the
proposed rule change since the most
likely circumstances where the risk of
errors could be heightened would be in
the case of trades with a manual
component or trades by dealers that
168 See
SIFMA at 16.
Colwell at 2; HJS at 2–3; ICI at 12–13;
InspereX at 6; Miner at 1.
170 ICI at 12–13.
171 See SIFMA at 16.
169 See
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only engage in limited municipal
securities trading activities. Under the
exception for trades with a manual
component, the existing 15-minute
deadline would be retained for the first
year in which the proposed rule change
is effective and then decline in phases
to five minutes beginning two years
after such effectiveness to provide
dealers adequate time to adjust their
processes and systems. The exception
for dealers with limited trading activity
would retain the current 15-minute
timeframe and therefore there would be
no appreciable impact on the accuracy
of trade reports for such dealers’
transactions.
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Impact on Risk Management and
Hedging
Several commenters articulated
concern that one-minute trade reporting
would result in a decreased ability of
dealers to manage risks through timely
hedging activity. These commenters
noted that unlike securities that are
purchased and sold to customers almost
immediately, securities that are held in
a firm’s own inventory may require
additional coordination and diligence to
hedge those positions or take down a
hedge when the position is unwound.172
One commenter noted that institutional
clients and/or dealers trading in blocks
often need to simultaneously take action
to hedge their risk on such trades,
particularly during periods of volatility.
This commenter expressed concern that
the need for dealers to attend to trade
reporting to meet a one-minute
requirement on their fixed income
trades in lieu of immediately focusing
on hedging or assisting institutional
clients with their own hedging would
have an adverse impact on such
efforts.173
Based on the comments received on
the 2022 Request for Comment, the
MSRB believes that such risk
management or other hedging activities
typically occur during the course of the
types of municipal securities
transactions that commenters identified
as requiring manual or other human
intervention. Such trades would, in
many cases, qualify for the exception for
trades with a manual component,
thereby providing dealers with a phased
approach to reducing the reporting
timeframe to an eventual five minutes in
a manner that should allow such dealers
to put in place appropriate process or
systems changes that would
significantly mitigate these concerns.
172 See Hilltop at 1; ICI at 10; R&C at 1; SIFMA
at 11, 15–16.
173 See SIFMA at 11, 15–16.
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Impact on Best Execution Obligations
Many commenters also expressed
concern that compliance with the
proposed rule change would negatively
impact some firms’ best execution
obligations.174 For example, one
commenter noted that it built out a
semi-automated system to incorporate
the human element, purposely relying
on a person to check and verify several
factors before trade execution, so that its
process protocol reduces trade error
frequency and helps ensure compliance
with due diligence, best execution and
other obligations.175 Another
commenter noted that, due to the
human factor of voice brokerage
activities and the impracticability, if not
impossibility, of automating these
modes of trading, any attempt to
decrease reporting time would require
additional personnel to essentially
shadow traders, preparing tickets and
performing accuracy checks, best
execution checks and suitability checks,
while the trader is verbally negotiating
the terms of the transaction with the
counterparty or broker. This commenter
expressed concern about the ongoing
costs as well as the practicality of such
shadowing of traders.176 One
commenter noted that the Proposal
could create an incentive for firms to
‘‘auto-route’’ more orders to help with
compliance, resulting in fewer
individuals at such firms being involved
with handling orders with the potential
consequences for price improvement
and best execution obligations.177
While it is likely that many dealers
fulfill their best execution obligations
under MSRB Rule G–18 using processes
that would not normally have an impact
on the timing of trade reporting of
individual transactions, the MSRB
understands from commenters that
some dealers may have instituted
processes with respect to their best
execution obligations that include
manual steps or require other human
intervention occurring after the Time of
Trade and therefore could have an
impact on the timing of trade reporting.
The MSRB believes that the exception
for trades with a manual component
would provide dealers that use such a
post-trade best execution process with a
phased approach to reducing the
reporting timeframe to an eventual five
minutes in a manner that should allow
them to make any appropriate
174 See ASA at 5; AMUNI at 1; BSI at 2; HJS at
5; ISC at 2; IBI II at 1–2; SAMCO at 2; SIFMA at
9; SBC at 2.
175 See BSI at 2.
176 See HJS at 5.
177 See ASA at 5.
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5409
adjustments to such process that would
significantly mitigate these concerns.
Burden on Dealers That Report a Small
Number of Trades
The MSRB noted that, on average,
dealers that report a smaller number of
trades per year take longer to report
trades than dealers that report a larger
number of trades and requested
information on the reason(s) it takes a
firm that reports a small number of
trades more time to report a trade and
if and how their processes need to
change to report trades in a shorter
timeframe.
Commenters generally agreed that
many small dealers manually input
their trades into RTRS because their
trade volume does not warrant the cost
to employ automated solutions and that
manually inputting trades means the
reporting process takes longer because
all of the required information must be
keyed in by a human.178 Commenters
argued that a significant increase in
costs would disproportionately impact
small dealers.179 One commenter noted
that shortening the reporting deadline
would eliminate manual entry and
human intervention and force small
firms to use expensive front-end trade
order management systems.180 Another
commenter stated that the municipal
securities market lacks a cost-effective
software solution for all dealers to
comply with the Proposal and any new
system would have to be implemented
over existing technology. It stated that
the prohibitive cost would reduce
participation and efficiency in the
market.181 Commenters noted that this
would impose a disproportionate
financial burden on small- and mediumsized dealers, as they would have to
invest a significant amount of capital to
comply with the Proposal. As a result,
these commenters expressed concern
that many small dealers including those
with regional knowledge may exit fixed
income secondary trading. The
commenters noted that this exit would
lead to a further concentration of
municipal bond trading among the
largest dealers in the industry.182 A
commenter opined that this would, in
turn, reduce competition, concentrate
178 See ASA at 3–4; AMUNI at 1; Belle Haven at
2–7; BSI at 1; BDA at 3–4; Cambridge at 3–4; CRI
at 1; DeRobbio at 1; EH&C at 1–2; Falcon Square at
1; F&A at 1; HCM at 1; HBIS at 1; ICE Bonds at 1;
InspereX at 1–2; ISC at 2–3; IPG at 1; IBI I at 1; IBI
II at 1–2; KPI at 1; Miner at 1–2; NSI at 1; OSI at
1–2; RBMI at 1; SAMCO at 3–4; Sanderlin passim;
SIFMA at 4–8, 12–13; SBC at 1–2; TRADEliance at
1–2; Wiley at 1–2; Wintrust at 1; Zia at 1.
179 See SBC at 1; see also ASA at 1.
180 See BDA at 3.
181 See NSI at 1.
182 See ISC at 1; NSI at 1.
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risk among fewer dealers and give the
remaining dealers more power over
prices.183
Two commenters argued that while
small dealers may presently have the
technology or personnel to handle
trades within 15 minutes, the move to
one minute may be beyond the reach of
many due to the fact that they likely
lack the necessary resources to
implement the requisite technological
changes and acquire any other necessary
resources.184 One commenter explained
that smaller dealers may not just
struggle with the upfront costs related to
the implementation of technologies
necessary to speed up their trade
reporting, which it estimated to be
upwards of half a million dollars, but
would also face ongoing costs associated
with third-party reporting systems.185
One commenter noted that without
the bids placed by small and mid-sized
dealers the efficiency of the market and
quality of best execution would
deteriorate. This commenter noted that
the bids made by small and mid-sized
dealers contribute to a more dynamic
bid-ask process and optimization of
prices.186 Another commenter
emphasized the critical role played by
smaller, specialized or other subsets of
dealers trading particular products and
representing historically underserved
communities and retail investors.187
Two commenters stated that the
Proposal would have a negative impact
on minority-, women- and veteranowned dealers, which tend to be smaller
firms.188 One of these commenters
further stated that many issuers and
institutional buyers seek or require that
minority-, women- or veteran-owned
dealers participate in the municipal
securities business they undertake,
noting that such dealers’ ability to
participate in the secondary market is
vital to their ability to be relevant to
both buy side and borrower clients.189
To address these concerns, the MSRB
has included in the proposed rule
change an exception from the proposed
one-minute trade reporting timeframe
for dealers with limited trading activity
in municipal securities, which would
retain the existing 15-minute deadline,
as discussed in greater detail herein.190
183 See
BDA at 3–4.
SIFMA at 12; see also Belle Haven at 5.
185 See Belle Haven at 5.
186 See ISC at 2.
187 See SIFMA at 12.
188 See Stern at 1; SIFMA at 12.
189 See Stern at 1.
190 See supra ‘‘Purpose—Proposed Rule Change—
Exceptions to the Baseline Reporting
Requirement—Exception for Dealers with Limited
Trading Activity’’ discussing the proposed
exception for dealers with limited trading activity.
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184 See
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Thus, such dealers would not have to
comply with a shorter deadline,
although they would be subject to the
new ‘‘as soon as practicable’’
requirement included in the proposed
rule change.
Alternatives to One Minute
Requirement
One commenter, while expressing
support for the MSRB’s efforts to
provide more timely and informative
data to enhance the value of
disseminated transaction data and
stating that shortening the trade
reporting timeframe is an important step
in these efforts, cautioned that the
industry is not prepared at this time to
report all trades in municipal securities
within one minute after the Time of
Trade. This commenter acknowledged
that based on MSRB data all but 2.7
percent of trades are reported by the
five-minute mark and therefore the
industry is prepared to report most
trades within five minutes of
execution.191 Other commenters also
suggested that the MSRB should target
five minutes as the appropriate
shortened timeframe.192
Other commenters emphasized that
not all types of trades must have the
same timeframe for reporting. For
example, one commenter noted that the
heterogenous nature of the securities
that fall within the MSRB’s jurisdiction
makes a ‘‘one-size-fits-all’’ approach (or
‘‘one-minute-fits-all’’ approach)
inappropriate.193 A few commenters
recommended that, if the MSRB
proceeds to shorten the reporting
timeframe, trades with a manual
component should be excluded from
that shortened timeframe and continue
to be subject to the current 15-minute
timeframe.194 One commenter suggested
exceptions from an accelerated trade
reporting timeframe for internal
allocations at dually-registered dealers/
investment advisers, trades in securities
not in a firm’s security master, certain
reverse inquiries and portfolio trades.195
Comments regarding existing and
specific potential exceptions to the
proposed one minute timeframe and the
MSRB’s responses are discussed below.
The MSRB believes that the proposed
rule change would establish appropriate
timeframes for the submission of trade
reports to RTRS that avoid establishing
a one-size-fits-all approach while
requiring that all such trades be
191 See
ICE Bonds at 1.
Bailey at 1; BSI at 2–3; Colwell at 3;
TRADEliance at 2.
193 See HJS at 2; see also ICI at 10.
194 See, e.g., BDA at 4; FIF I at 2; HJS at 2.
195 See Wells Fargo at 2, 4.
192 See
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reported as soon as practicable. While
most trades subject to the current 15minute timeframe would become
subject to the new baseline one-minute
timeframe, trades with a manual
component would, under a phased
approach that provides dealers with
time to adjust their processes and
systems, eventually become subject to a
five-minute timeframe through
measured steps, and trades by dealers
with limited trading activity in
municipal securities would remain
subject to the existing 15-minute
timeframe.
Exceptions to the One Minute
Timeframe
Continuation of Current Exceptions
In the 2022 Request for Comment, the
MSRB noted that Rule G–14 currently
provides exceptions for certain trades to
be reported at end of day and requested
input on if these exceptions are still
necessary and if so, whether end of day
is still the appropriate timeframe for
reporting these transactions.
The MSRB received two comment
letters requesting existing end-of-day
trade reporting exceptions to be
preserved.196 One commenter described
the complexity of trade reporting for
new issue transactions and voiced
concern that if the current end-of-day
reporting exception for List Offering
Price/Takedown Transactions is
eliminated, then large transactions with
up to 100 syndicate members and
thousands of trades would need to be
pushed through a firm’s systems much
faster than in today’s environment. This
commenter advocated that the MSRB
should maintain the other current endof-day and non-immediate reporting
standards and potentially broaden such
exemptions if a one-minute trade
reporting requirement is instituted.197
This commenter acknowledged that
these trades are required to be reported
to ensure completeness for regulatory
audit trail purposes but they do not add
relevant price information to the
marketplace since the prices for these
transactions are either known to the
market or are off market.198
The proposed rule change would
preserve all existing end-of-day trade
reporting and other non-immediate
exceptions without change.
196 See
SIFMA at 17–18; FIF I at 7–8.
SIFMA at 17. In addition to primary
market transactions, these exceptions relate to
trades in short-term instruments and ‘‘away from
market trades’’ (including customer repurchase
agreement transactions, unit investment trust
related transactions, and tender option bond related
transactions).
198 Id.
197 See
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Additional Trade Reporting Exceptions
The 2022 Request for Comment
inquired if reducing the reporting
timeframe to one minute would require
additional trade reporting exceptions,
other than end of day exceptions, to
allow for certain trades to be reported at
a different time (e.g., three minutes). If
so, the MSRB requested commenters to
identify the types of trades that would
require an exception and why such are
believed to be necessary.
The MSRB has included two
proposed new exceptions to the
proposed one-minute reporting
timeframe in the proposed rule change
to address comments received from
commenters regarding other potential
trade reporting exceptions that could be
included in the Proposal. Commenters
also suggested other potential new
exceptions from the reporting
timeframe, which the MSRB did not
include in the proposed rule change.
These comments and the MSRB’s
responses are discussed below.
Proposed New Exception for Dealers
With Limited Trading Activity
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Several commentors stated that
requiring all dealers, regardless of size,
to report within one minute of the Time
of Trade might harm the market by
pricing smaller firms out of the
industry.199 One commenter predicted
that the proposed rule change would
necessarily require a fully integrated
and automated trading system, requiring
almost no manual input. This
commenter stated that this constituted
an unfair burden and would likely lead
to fewer small-firm market makers.200
Commenters identified trade volume or
trading activity as a metric that might
indicate which firms were likely to be
significantly negatively impacted by the
proposed rule change.201
The MSRB recognizes that, absent any
exceptions, dealers that report a smaller
number of trades may be more affected
if they are required to report trades by
no later than one minute after the Time
of Trade. As discussed above, the
proposed rule change includes an
exception for a ‘‘dealer with limited
trading activity.’’ 202 A dealer with
‘‘limited trading activity’’ would be
excepted from the one-minute reporting
requirement pursuant to new exception
described in ‘‘Purpose—Proposed Rule
Change—Exceptions to the Baseline
199 See
OSI at 1; RWS at 2; Wiley at 1.
OSI at 1.
201 See RWS at 2; Wiley at 1.
202 See supra ‘‘Purpose—Proposed Rule Change—
Exceptions to the Baseline Reporting
Requirement—Exception for Dealers with Limited
Trading Activity.’’
200 See
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Reporting Requirement—Exception for
Dealers with Limited Trading Activity’’
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.
The MSRB believes that this new
exception in the proposed rule change
would address commenters concerns
regarding the potential negative impact
on smaller dealers under the Proposal.
In effect, dealers with limited trading
activity would continue to be subject to
the same 15-minute reporting deadline
as under the current rule provisions,
although they would also be subject to
the new overarching obligation to report
trades as soon as practicable.
Proposed New Exception for Trades
With a Manual Component
As described above, except for two
commenters 203 that expressed support,
all other commenters expressed the
general view that reporting all trades
within one minute after the Time of
Trade, particularly those having a
manual component, is not always
possible. One commenter argued that
the Proposal, absent an exception from
the 15-minute reporting timeframe for
manual trades, would severely impair
the ability of firms to continue to trade
manually and, as a result, could result
in less liquidity and wider spreads that
could negatively impact investors. The
commenter further stated that the lack
of such an exception could adversely
impact smaller dealers and their
customers. This commenter
recommended that electronic trade
executions would be reportable as soon
as practicable and no later than within
one minute of the trade time while
manual trade executions would
continue to be reportable within 15
minutes after the trade time.204 The
commenter noted that this would
require adding a field to the RTRS
systems for an executing dealer to report
whether a trade was executed manually
or electronically.205
At least two commentors pointed to
the need for an exception to address
unpredictable technological/operational
issues, and one proposed a permanent
enforcement exception for trades
reported late due to a lag in reporting,
outage, or other disruption directly
caused by the third-party.206 One
203 See
generally Dimensional; Tuma.
FIF I at 2; see also BDA at 4; HJS at 2.
205 FIF I at 2. The proposed rule change would
require that trades with a manual component be
reported with a new manual trade indicator,
consistent with this comment.
206 InspereX at 6; ICI at 13–14.
204 See
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5411
commenter suggested that enforcement
actions should consider only the
dealer’s conduct during the reporting
timeframe, and perhaps independently
review the conduct of any third-party
reporting entities.207
The MSRB recognizes that not all
trades in municipal securities currently
are executed and reported through
straight-through processes or other
electronic means, and while the
proportion of trades executed and
reported in that manner appears to be
growing over time, it is not likely that
certain segments of the marketplace or
trades conducted under certain
circumstances would migrate to fully
electronic processes in the immediate
future. The commenters raised many
scenarios, described above, where
dealers currently would face significant
challenges to completing the trade
reporting process within one minute
following the Time of Trade, and in
some cases it might not be possible at
all at this time unless significant
technology and/or process changes are
first undertaken by dealers and the
overall industry that could entail
considerable costs or cause material
impacts to counterparties in
transactions with such dealers. The
MSRB believes that, depending on the
specific facts and circumstances, and
based on many of the situations
highlighted by commenters where
human intervention occurs in the course
of reporting a trade to RTRS, such trades
could be viewed as a trade with a
manual component.208
For example, the MSRB acknowledges
commenters’ views that voice brokerage
and negotiated trading continue to be
legitimate means of executing fixed
income securities transactions that may
require the manual entry of data or other
human intervention after the Time of
Trade to report trade details to RTRS.
The MSRB also acknowledges
commenters’ views that dealers and
their customers may have legitimate
reasons for preferring to execute largersized trades or trades in portfolios of
securities manually rather than through
electronic execution, and in many cases
such manual processes may include
steps to address regulatory compliance
or risk management issues. In addition,
the MSRB acknowledges commenters’
descriptions of individual trades that
may be part of a more complex set of
inter-dependent transactions, such as
207 InspereX
at 6.
supra ‘‘Purpose—Proposed Rule Change—
Exceptions to the Baseline Reporting
Requirement—Exception for Trades with a Manual
Component’’ regarding scenarios where, depending
on facts and circumstances, a dealer may consider
a trade as a trade having a manual component.
208 See
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certain mediated transactions
undertaken by broker’s brokers,
transactions among multiple parties
(including simultaneous allocations to
multiple advisory clients of duallyregistered dealers/investment advisers).
Furthermore, the MSRB understands
that individual trades may require
information necessary for reporting that
may not be immediately available to the
executing dealer, such as in the case of
a security that has not been recently
traded and therefore may not be
included in the dealer’s or its clearing
firm’s security master.209
For many trades facing the foregoing
and other circumstances, the MSRB
realizes that a dealer’s trade reporting
process might not always be completed
within one minute following the Time
of Trade, even where the dealer has
established efficient reporting processes
and commences to report the trade
without delay. Accordingly, in response
to the commenters’ concerns, the MSRB
is proposing to adopt a new exception
for trades with a manual component.
The new exception in Rule G–14 RTRS
Procedures and Supplementary Material
.02 to Rule G–14 provides an additional
year from the effective date of the
proposed rule change for firms reporting
transactions with a manual component
to continue to report their trades by no
later than 15 minutes after the Time of
Trade. This time would gradually phase
down to ten minutes for the subsequent
year and five minutes beginning the
following year, providing additional
transitional time for dealers to plan for
and adjust their systems and processes
to the new reporting requirements. The
MSRB notes that some commenters had
suggested that the MSRB establish a
baseline five-minute timeframe for trade
reporting, rather than the 15-minute
timeframe included in the Proposal.
Transactions with a manual component
would have a trade reporting deadline
that matches the proposed eventual fiveminute reporting timeframe.210
In addition, proposed amendments to
Rule G–14 RTRS Procedures Section
(a)(iv) would provide that a pattern or
209 Once the appropriate indicative data is
initially set up in the security master, this issue
would abate with respect to such security and the
dealer would thereafter be able to report the trade
within the required timeframes for subsequent
trades absent other manual factors.
210 Furthermore, since a trade that is reported
through the RTRS Web Portal may be considered a
trade with a manual component and subject to an
exception to the one-minute trade reporting
requirement, the MSRB believes that concerns
regarding the ability to enter trade reports through
this portal are addressed by the proposed exception.
Therefore, the MSRB does not believe that
additional technological changes to the RTRS Web
interface to address this concern are necessary for
this proposed rule change.
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practice of late reporting without
exceptional circumstances or reasonable
justification may be considered a
violation of Rule G–14. The
determination of whether exceptional
circumstances or reasonable
justifications exist for late trade
reporting is dependent on the particular
facts and circumstances. The MSRB has
provided guidance regarding scenarios
that generally would constitute
exceptional circumstances such as
incidents that are outside the reasonable
control of the dealer or where
reasonable justification exists
depending on the specific facts and
circumstances, and based on many of
the situations highlighted by
commenters where human intervention
occurs in the course of reporting a trade
to RTRS.211
Potential Incorporation of Certain
FINRA Exceptions
A commenter suggested that the
MSRB adopt FINRA’s approach to not
require the reporting of customer
repurchase agreement transactions,
stating that such transactions do not
provide price information with value to
market participants.212 The MSRB notes
that such transactions are required to be
reported to RTRS with the ‘‘away from
market’’ indicator, which results in
transaction information not being
disseminated to the public but is made
available to the regulatory authorities
charged with enforcing MSRB rules for
oversight purposes. The MSRB does not
believe that it should reduce the
information currently made available for
such oversight purposes as part of the
proposed rule change and therefore has
not made the suggested change.
This commenter also observed that
FINRA does not require reporting of list
offering price transactions and
takedown transactions for TRACEeligible securities until the next
business day and suggested that the
MSRB harmonize its current end-oftrade-day reporting requirement for List
Offering Price/Takedown Transactions
in municipal securities to this FINRA
reporting deadline.213 Relatedly,
another commenter suggested that all
secondary market trades occurring on
the first day of trading of a municipal
securities offering be provided with the
same end-of-trade day reporting
deadline as for List Offering Price/
Takedown Transactions.214
211 See supra ‘‘Purpose—Proposed Rule Change—
Pattern or Practice of Late Trade Reporting’’ for a
discussion regarding pattern or practice of late
reporting.
212 See SIFMA at 18.
213 Id.
214 See FIF I at 9.
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The MSRB is not aware of any
existing issues regarding the reporting of
List Offering Price/Takedown
Transactions by the end of the trade day
and does not believe the market would
benefit by delaying the public
dissemination of such information until
the next day. The MSRB also notes that
if secondary market transactions that
occur on the first day of trading is at a
price that is different from the list offer
price and is permitted to be reported on
the next business day, all market
participants may not have access to the
prevailing market price of those
secondary market transactions on the
date the trade is executed. Such
secondary market trades would, in
many cases, have prices reflecting thencurrent market conditions rather than
list offering prices that may have been
set one or more days prior. Delaying
dissemination of such price information
would significantly reduce real-time
transparency in the municipal securities
market precisely on the day on which
many securities experience their highest
level of trading. Thus, the MSRB has
determined not to include these
suggested changes in the proposed rule
change as they would reduce market
transparency.
Other Operational Considerations
Trades Executed When System is Not
Open
Two commenters advocated for the
continuation of a next-business day 15minute reporting standard for trades
executed when the respective trade
reporting system is not open. These
commenters supported the continuation
of the current MSRB standard for
transactions effected with a Time of
Trade outside the hours of the RTRS
Business Day to be reported no later
than 15 minutes after the beginning of
the next RTRS Business Day.215 One
trade association commenter noted that
the FINRA rules for equity trade
reporting and TRACE reporting
currently provide a 15-minute reporting
period after the facility opens the next
business day for trades executed when
the reporting facilities are not open.216
This commenter stated that its members
have found the 15-minute period for
reporting overnight trades to be
important in ensuring that an
appropriate review of overnight trades is
being performed by U.S.-based staff
prior to submission. The commenter
also noted that its members are
concerned about technical challenges
with reporting within one minute after
215 See
216 See
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FIF I at 7; SIFMA at 18.
FIF I at 7–8.
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the opening of a reporting system due to
potential connectivity lags, which could
in turn mean that connectivity and
reporting must occur within one minute
at the same time as many other industry
members are seeking connectivity to the
reporting system. Thus, this commenter
expressed support for maintaining a 15minute reporting requirement for
transactions effected with a Time of
Trade outside the hours of the RTRS
Business Day.
The other commenter argued that
given the lapse of time between
execution and reopening inherent in a
situation where trades are executed
when the system is not open, there is no
value in changing this deadline. It
further stated that even for National
Market System stocks and Over the
Counter equity securities, which have
been subject to a 10-second trade
reporting timeframe for many years,
trades occurring after normal trading
hours are required to be reported within
the first 15 minutes after the applicable
FINRA equity trade reporting facility reopens the next trading day.217
The MSRB is not proposing a change
to the current reporting standard for
trades executed when the RTRS system
is not open, which will continue to be
reportable within 15 minutes after the
start of the RTRS Business Day.218
More Rapid Dissemination and Masking
of Trades
Two commenters expressed concerns
about the potentially more rapid
dissemination of trade prices that they
believed could result in a negative
outcome under a one-minute reporting
requirement and advocated for the
continuation of the practices related to
dissemination caps by FINRA or
masking of certain trades by the
MSRB.219 One commenter noted that in
connection with the Proposal, the MSRB
should provide firms the option to
report non-disseminated data elements
on an end-of-day basis or in some cases,
on a next day basis.220 The other
commenter expressed concern that more
rapid dissemination of trade data for
block trades would raise the risk of
significant negative liquidity impacts.
The commenter suggested that MSRB
action would be needed to address the
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217 See
SIFMA at 18.
218 However, a proposed technical amendment to
Rule G–14 RTRS Procedures Section (a)(iii) would
clarify and make explicit in the text thereof that
inter-dealer trades on an ‘‘invalid RTTM trade date’’
are also not required to be reported until 15 minutes
after the next RTRS Business Day. This provision
currently is set out in Section 4.3.2 of the
Specifications for Real-Time Reporting of
Municipal Securities Transactions.
219 See FIF I at 4; SIFMA at 6, 17–19.
220 See FIF I at 4.
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heightened ability that one-minute
dissemination would provide
opportunistic market participants to use
such data on larger trades to further
advantage themselves and reduce the
ability of such blocks to achieve
favorable levels of liquidity.221
The MSRB notes that currently
transaction information disseminated
from RTRS includes exact par value on
all transactions with a par value of $5
million or less but includes an indicator
of ‘‘MM+’’ in place of the exact par
value on transactions where the par
value is greater than $5 million. The
exact par value of transactions having a
par value greater than $5 million is
disseminated from RTRS five business
days later. The MSRB implemented this
approach in response to concerns that,
given the prevalence of thinly traded
securities in the municipal securities
market, it is sometimes possible to
identify institutional investors and
dealers by the exact par value included
on trade reports.222 While the MSRB
would continue to evaluate whether this
threshold is appropriate, the MSRB is
not proposing a change to its masking
practices at this time. The MSRB notes
that, based on the comments, many
larger trades likely would qualify for the
exception for trades with a manual
component and therefore would be
subject to the measured phased
approach to shortening the reporting
timeframe to five minutes, thereby
giving the market time to adjust to any
incremental changes in behavior
resulting in the masked trades being
made publicly available on a shorter
timeframe.
Examination and Enforcement
One commenter noted that FINRA
and SEC examination staff should take
the opportunity, when they are at their
closest interaction with dealer
personnel during the examination
process, to provide appropriate feedback
to firms they believe are not reporting
trades as soon as practicable to assist in
achieving more fully compliant trade
reporting.223 Another commenter noted
that violations for late trade reporting
are black and white and that there are
no other evidentiary measures necessary
in order for a regulator to bring
examination or an enforcement action
against the late-reporting firm.224
221 See
SIFMA at 19.
Exchange Act Release No. 68081 (Oct. 22,
2012); 77 FR 65433 (Oct. 26, 2012), File No. SR–
MSRB–2012–07, available at https://
www.govinfo.gov/content/pkg/FR-2012-10-26/pdf/
2012-26340.pdf.
223 See SIFMA at 22.
224 See InspereX at 4.
222 See
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5413
As noted in ‘‘Purpose—Proposed Rule
Change—Pattern or Practice of Late
Trade Reporting,’’, the proposed rule
change would incorporate pattern or
practice language, similar to the existing
pattern or practice language included in
FINRA’s equity trade reporting rules,225
and has noted that this should be the
focus of examining authorities as
opposed to individual outlier late trade
reports, absent extenuating
circumstances.226 The MSRB already
produces a series of report cards
accessible to dealers that describe the
dealer’s transaction reporting data with
regard to status, match rate, timeliness
of reporting, and the number of changes
or corrections to reported trade data. For
most statistics, the industry rate is also
provided for comparison. The Lateness
Breakout portion of the report has a
category for each type of reporting
deadline, showing how many trades
were reported timely and late relative to
the applicable deadline. Such reports
are available in both single-month and
twelve-month formats. The MSRB
expects to make certain enhancements
to the report cards in connection with
the implementation of the proposed rule
change if approved.
Phased Implementation
Several commentors advocated for a
phased implementation of new
requirements, the appropriate
assessment of market impacts, and the
leveraging of lessons learned and
technology or process innovations for
use at the next step.227 One trade
association commenter noted that its
members also could face challenges
with reporting electronic executions
within one minute after execution
because some trades are transmitted
across multiple layers of systems,
meaning multiple firm and vendor
systems before they are reported, and
that some of these firms and reporting
vendors would need to implement
system and workflow changes to ensure
that they can report all electronic
executions within one minute.228
The MSRB recognizes that sudden
and substantial changes to reporting
deadlines would require some dealers to
make potentially significant changes to
225 See FINRA Regulatory Notice 13–19 (May 23,
2013), available at https://www.finra.org/rulesguidance/notices/13-19.
226 See supra ‘‘Purpose—Proposed Rule Change—
Pattern or Practice of Late Trade Reporting’’ for a
discussion on pattern or practice of late trade
reporting and related expectations for regulatory
authorities that enforce and examine dealers for
compliance with Rule G–14.
227 See Bailey at 1; ICE Bonds at 2; ICI at 4–7;
InspereX at 4; SIFMA at 2–6.
228 See FIF I at 2 and 6. See also ASA at 1–2; ICE
Bonds at 2.
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processes and technology. Therefore, if
the proposed rule change is approved by
the Commission, the MSRB would
announce an effective date (for example,
approximately within 18 months from
such Commission approval) in a notice
published on the MSRB website, and
the proposed rule change also includes
a phased standard for manual trades to
provide dealers time to adjust to the
proposed rule change.229 The MSRB
acknowledges the need for maintaining
regulatory harmonization between the
MSRB with respect to the proposed rule
change and FINRA with respect to its
similar planned changes to TRACE
reporting pursuant to the 2024 FINRA
Proposed Rule Change, and the MSRB’s
effective date for the proposed rule
change would be intended to maintain
implementation thereof on substantially
the same implementation timeframe as
the 2024 FINRA Proposed Rule Change.
Potential Benefits, Costs and Burdens
lotter on DSK11XQN23PROD with NOTICES2
Benefits
The 2022 Request for Comment
sought to understand the benefits to
investors, dealers, municipal advisors,
issuers and other market participants
(i.e., yield curve providers, evaluated
pricing services etc.) and if those
benefits would be different for
institutional investors than individual
investors, whether the benefits would
differ among dealers and if the benefits
to dealers differ from benefits to
investors.
Two commenters strongly supported
the Proposal to amend Rule G–14 to
require that transactions be reported as
soon as practicable, but no later than
within one minute of the time of
trade.230 One commenter agreed with
the MSRB that the municipal securities
market historically has been considered
less liquid and more opaque than other
securities markets, consequently making
post-trade data the most important
source of information for market
participants. This commenter believed
that the proposed shortening of the
reporting timeframe would enhance
transparency and reduce information
asymmetries in the municipal securities
market. It asserted that the enhanced
transparency also enhances investors’
power to negotiate with dealers, leading
to reduced transaction costs.231 The
other commenter noted the importance
of being able to see all sides of the
229 See discussion supra ‘‘Purpose—Proposed
Rule Change—Exceptions to the Baseline Reporting
Requirement—Exception for Trades with a Manual
Component’’ and ‘‘Purpose—Effective Date and
Implementation.’’
230 See Dimensional at 1; Tuma at 1.
231 See Dimensional at 1.
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trades in a particular bond—purchase
from customer, inter-dealer, and sale to
customer—as soon as possible to
accurately evaluate bonds.232
One commenter noted that the
Proposal’s stated benefits are improved
transparency, price relevance, and
immediate impact on market direction,
which are relevant to large block trades,
large issue sizes and ubiquitously
viewed credits. This commenter further
noted that these ‘‘relevant’’ trades can
be market leading, telling, and
important for comparison.233
Some commenters expressed concern
that the Proposal would
disproportionately benefit certain
segments of the market such as
algorithmic trading entities and other
market participants positioned to take
advantage of information arbitrage,234
large wire house firms and the
vendors 235 who provide automated
reporting services and applications at
the expense of others including retail
and traditional institutional investors,
while others believe the market is
operating as intended and further
changes are not necessary.236
Costs and Burdens
The 2022 Request for Comment
sought to understand if a one-minute
trade reporting requirement would have
any undue compliance burdens on
dealers with certain characteristics or
business models and if so, requested
suggestions on how to alleviate the
undue burdens. The 2022 Request for
Comment also requested input on the
likely direct and indirect costs
associated with the one-minute
requirement and who might be affected
by these costs and in what way. The
MSRB asked for data on these costs and
if firms would have to make system
changes to meet a new timeframe for
trade reporting, how long would firms
need to implement such changes.
Regarding these questions, the
majority of commenters in turn
questioned whether the potential
benefits of a one-minute reporting
requirement for all fixed income trades,
absent appropriate exceptions,
outweighed the costs to market
participants and the impact to the fixedincome market structure.237
232 See
Tuma at 1.
NSI at 1.
234 See SIFMA at 3, 13; see also Colwell at 1.
235 See ISC at 1.
236 See NSI at 1.
237 See ASA at 3–4; AMUNI at 1; Belle Haven at
2–7; BSI at 1; BDA at 3–4; Cambridge at 3–4; CRI
at 1; DeRobbio at 1; EH&C at 1–2; Falcon Square at
1; F&A at 1; HC at 1; HBIS at 1; ICE Bonds at 1;
InspereX at 1–2; ISC at 2–3; IPG at 1; IBI I at 1; IBI
II at 1–2; KPI at 1; Miner at 1–2; NSI at 1; OSI at
233 See
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These concerns appear to primarily
stem from concerns regarding the
potential impact on certain types of
trades requiring additional time to
report. Examples include trades
executed by dealers that utilize a thirdparty clearing firm, situations where
trade reporting occurs further
downstream or involves multiple layers
and trades that involve manual steps in
the negotiation, execution and reporting
process; on large-sized trades including
voice and negotiated trades and the
corresponding impact on best execution
obligations; and on dealers that report a
small number of trades.238 Commenters
generally agreed that certain types of
transactions may be reported
successfully with a one-minute
reporting requirement, depending on
the level of automation.239
One trade association commenter
stated some of its members were
concerned that shortening the reporting
timeframe might most benefit
algorithmic trading firms or other
market participants positioned to take
advantage of information arbitrage to the
potential detriment of retail investors
and more traditional institutional
investors.240 This commenter further
noted that the retail market therefore is
unlikely to observe a positive liquidity
effect from automated trading
methodologies that could leverage the
immediacy of trade data under the
Proposal.
One commenter asserted that the size
of a dealer’s market share should not
dictate whether the burdens such dealer
bears are acceptable or not and stated
that a failure to engage in a fulsome
cost-benefit analysis that incorporates
the needs and barriers such dealers face
would be inconsistent with recent
initiatives undertaken by regulators in
support of small enterprises.241
Many commenters described how the
potential issues they identified might
lead to a broader negative impact by
way of, for example, increased
compliance costs that may force many
firms out of the industry, thereby
reducing competition, liquidity, and
market accessibility for certain types of
issuers and investors.242 One
1–2; RBMI at 1; SAMCO at 3–4; Sanderlin passim;
Sheedy at 1; SIFMA at 4–8, 12–13; SBC at 1–2;
TRADEliance at 1–2; Wiley at 1–2; Wintrust at 1;
Zia at 1.
238 See supra ‘‘One Minute Timeframe for
Reporting—Operational Issues Relating to Reporting
Within One Minute—Manual Steps in the
Negotiation, Execution and Reporting Process’’
generally.
239 See Bailey at 4; Oberweis at 1; SIFMA at 21.
240 See SIFMA at 13.
241 See Stern at 1.
242 See BSI at 4; BDA at 4–5; BB at 2; C&C at 1;
Falcon Square at 2–3; HJS 3–5; Honey Badger at 1;
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commenter stated that the Proposal
would have an unreasonable impact on
smaller dealers, which likely lack the
technological systems available to large
firms, and to the extent the small firms
exit the market or limit trading in
response to new or amended regulation,
issuers and investors suffer.243 This
commenter further stated that, to the
extent that the Proposal makes
participating in the market more
difficult and costly for regulated
entities, it would negatively impact
local governments.244
Some commenters asserted that the
Proposal appears to make fixed income
markets operate more like the equity
markets although they are different.245
One commenter observed that there are
innate differences between the
municipal marketplace and the equity
marketplace,246 and another commenter
noted that equity securities can trade
thousands of shares in seconds, making
the need for price transparency in an
extremely short period of time a
necessity but that, in contrast,
municipal securities rarely trade twice
in the same day or multiple times in
one, five or 15 minutes.247 Both
commenters questioned whether
municipal securities would benefit from
the shortening of the reporting
timeframe to one minute, in contrast to
the equity markets, noting the lack of
cost-effective technology solutions for
municipal securities and the likely
prohibitive costs of the Proposal,
particularly to small and medium-sized
dealers.248 Another commenter noted
that there are some 70,000 different
issuers of municipal securities unlike
the less than 5,000 equity issuers and
that the market is not there yet
technologically to do one-minute
trading.249
The MSRB believes that it has
engaged in a fulsome cost-benefit
analysis that incorporates the needs and
barriers dealers would face upon
implementation of the proposed rule
change, as described in ‘‘Self-Regulatory
Organization’s Statement on Burden on
Competition’’ above. Specifically, the
MSRB recognizes that meeting the new
one-minute transaction reporting
requirement under Rule G–14 RTRS
Procedures may result in additional
costs for certain dealers. Additionally,
the MSRB understands that the trade
reporting process for certain types of
trades, including trades with a manual
component, may take longer to report
than a trade for which an automated
execution and reporting system was
used.
The MSRB has taken into
consideration the various operational
considerations raised by commenters
and identified through subsequent
outreach. As a result of this industry
input, the proposed rule change
introduces two new exceptions to
address the concerns related to the
balance of costs and benefits and to
alleviate potential compliance burdens:
(1) an exception for firms with limited
trading activity, and (2) an exception for
transactions with a manual component,
which includes a phased approach to an
eventual five-minute reporting
requirement.250 The two exceptions
created by the proposed rule change are
designed to reduce potential costs and
compliance burdens to less active
dealers and on certain transactions that
are most likely to realize a negative
impact by shortening of the
timeframe,251 and these proposed
exceptions were taken into
consideration in the MSRB’s economic
analysis included in ‘‘Self-Regulatory
Organization’s Statement on Burden on
Competition’’ above.
ISC at 3; ICI at 4; IBI II at 1–2; Miner at 1; NSI at
1; OSI at 1–2; RBMI at 1; SAMCO at 3–4; Wiley at
1–2.
243 See F&A.
244 Id.
245 See ISC at 3; NSI at 1. See also SIFMA at 5.
246 See NSI at 1.
247 See ISC at 3.
248 See id.; NSI at 1.
249 See Bailey at 1.
250 For a detailed discussion of the two
exceptions created by the proposed rule change, see
supra ‘‘Purpose—Proposed Rule Change—
Exceptions to the Baseline Reporting Requirement.’’
251 These two exceptions should provide
considerable relief from potentially higher
compliance costs for smaller dealers that may in
many cases constitute dealers with limited trading
activity and may primarily engage in transactions
with a manual component, thereby potentially
qualifying for both exceptions.
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III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period of
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the self-regulatory organization
consents, the Commission will:
(A) by order approve or disapprove
such proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
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5415
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or Send an email to
rule-comments@sec.gov. Please include
File Number SR–MSRB–2024–01 on the
subject line.
Paper Comments
• 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 (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written 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. Do not include
personal identifiable information in
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
February 16, 2024.
For the Commission, pursuant to delegated
authority.252
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024–01394 Filed 1–25–24; 8:45 am]
BILLING CODE 8011–01–P
252 17
E:\FR\FM\26JAN2.SGM
CFR 200.30–3(a)(12).
26JAN2
Agencies
[Federal Register Volume 89, Number 18 (Friday, January 26, 2024)]
[Notices]
[Pages 5384-5415]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-01394]
[[Page 5383]]
Vol. 89
Friday,
No. 18
January 26, 2024
Part III
Securities and Exchange Commission
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Self-Regulatory Organizations; Municipal Securities Rulemaking Board;
Notice of Filing of a Proposed Rule Change To Amend MSRB Rule G-14 To
Shorten the Timeframe for Reporting Trades in Municipal Securities to
the MSRB; Notice
Federal Register / Vol. 89 , No. 18 / Friday, January 26, 2024 /
Notices
[[Page 5384]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-99402; File No. SR-MSRB-2024-01]
Self-Regulatory Organizations; Municipal Securities Rulemaking
Board; Notice of Filing of a Proposed Rule Change To Amend MSRB Rule G-
14 To Shorten the Timeframe for Reporting Trades in Municipal
Securities to the MSRB
January 19, 2024.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ notice
is hereby given that on January 12, 2024, the Municipal Securities
Rulemaking Board (``MSRB'' or ``Board'') filed with the Securities and
Exchange Commission (``SEC'' or ``Commission'') the proposed rule
change as described in Items I, II, and III below, which Items have
been prepared by the MSRB. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The MSRB filed with the Commission a proposed rule change to (i)
amend Rule G-14 RTRS Procedures under MSRB Rule G-14, on reports of
sales or purchases (``Rule G-14''), to shorten the amount of time
within which brokers, dealers and municipal securities dealers
(individually and collectively, ``dealers'') must report most
transactions to the MSRB, require dealers to report certain
transactions with a new trade indicator, and make certain clarifying
amendments, and (ii) 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'').
If the Commission approves the proposed rule change, the MSRB will
announce the effective date of the proposed rule change in a regulatory
notice to be published on the MSRB website.
The text of the proposed rule change is available on the MSRB's
website at https://msrb.org/2024-SEC-Filings, at the MSRB's principal
office, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the MSRB included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The MSRB has prepared summaries, set forth in Sections
A, B, and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
Background
Since 2005, the MSRB has collected and disseminated information
from dealers about their municipal securities purchase and sale
transactions.\3\ Dealers currently are required to report their
transactions to RTRS within 15 minutes of the Time of Trade,\4\ absent
an exception,\5\ in accordance with Rule G-14, the Rule G-14 RTRS
Procedures, and the RTRS Users Manual.\6\
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\3\ See Exchange Act Release No. 50605 (Oct. 29, 2004), 69 FR
64346 (Nov. 4, 2004), File No. SR-MSRB-2004-06; see also MSRB Notice
2004-29 (Approval by the SEC of Real-Time Transaction Reporting and
Price Dissemination: Rules G-12(f) and G-14) (September 2, 2004).
\4\ 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.
\5\ Transactions in securities without CUSIP numbers,
transactions in municipal fund securities, and certain inter-dealer
securities movements not eligible for comparison through a clearing
agency are currently exempt from the reporting requirements under
Rule G-14(b)(v).
\6\ The RTRS Users Manual is available at https://www.msrb.org/RTRS-Users-Manual. Prior to the creation of RTRS in 2005, the MSRB
collected trade data on an end-of-day basis for next day
dissemination and surveillance purposes through a predecessor
transaction reporting system.
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The transaction information collected by the MSRB in accordance
with Rule G-14 serves the dual primary purposes of market transparency
and market surveillance.\7\ To advance the goal of market transparency,
the MSRB disseminates trade reporting information from RTRS to paid
subscribers through certain data subscription feeds. These data
subscription feeds serve as the core source of price-related
information used by market participants, industry utilities and vendors
that, among other things, operate pricing-related tools and services
used throughout the municipal market to support execution of trades at
fair and reasonable prices that reflect current market values. To
further advance the goal of market transparency and to make such price-
related information available to individual investors and other market
participants contemporaneously with data flowing to market
professionals through the RTRS subscription feeds, the MSRB
disseminates trade reporting information free of charge to the general
public through the MSRB's centralized Electronic Municipal Market
Access (``EMMA[supreg]'') website.\8\
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\7\ See Rule G-14(b)(i). Transaction information collected by
RTRS is also used in connection with assessments under MSRB Rule A-
13(d).
\8\ See MSRB Notice 2009-22 (MSRB Receives Approval to Launch
Primary Market Disclosure Service of MSRB's Electronic Municipal
Market Access System (EMMA) for Electronic Dissemination of Official
Statements) (May 22, 2009).
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To advance the goal of market surveillance, the MSRB maintains a
comprehensive database of transaction information, which is made
available to the examining authorities, including the Commission, the
Financial Industry Regulatory Authority (``FINRA''), and other
appropriate regulatory agencies. The availability of trade reporting
data strengthens market transparency, promotes investor protection and
reduces information asymmetry between institutional and retail
investors.
Fixed income markets have changed dramatically since the current
15-minute requirement went into effect in 2005, including a significant
increase in the use of electronic trading platforms or other electronic
communication protocols to facilitate the execution of transactions.
The MSRB has continued to explore ways to modernize the rule and
provide for more timely, granular and informative data to further
enhance the value of disseminated transaction data. In doing so, the
MSRB has taken a measured and data-driven approach, using available
trade reporting data and the public comment process to help inform its
policy objectives and actions. The MSRB has utilized a series of
concept releases, requests for comments and extensive outreach to
solicit input from market participants and stakeholders.\9\ As a result
of these efforts
[[Page 5385]]
and of RTRS re-engineering to ensure its on-going effectiveness as
demands on the system were expected to rise over time, the MSRB has
implemented various refinements to RTRS, RTRS Information Facility (IF-
1), and the content and quality of trade-related information made
available to investors and the public.\10\
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\9\ See MSRB Notice 2013-02 (Request for Comment on More
Contemporaneous Trade Price Information Through a New Central
Transparency Platform) (Jan. 17, 2013); MSRB Notice 2013-14 (Concept
Release on Pre-Trade and Post-Trade Pricing Data Dissemination
through a New Central Transparency Platform) (July 31, 2013); MSRB
Notice 2014-14 (Request for Comment on Enhancements to Post-Trade
Transaction Data Disseminated Through a New Central Transparency
Platform) (Aug. 13, 2014); MSRB Notice 2022-07 (Request for Comment
on Transaction Reporting Obligations under MSRB Rule G-14) (Aug. 2,
2022) (the ``2022 Request for Comment'').
\10\ See, e.g., Exchange Act Release No. 75039 (May 22, 2015),
80 FR 31084 (June 1, 2015), File No. SR-MSRB-2015-02, and Exchange
Act Release No. 77366 (Mar. 14, 2016), 81 FR 14919 (Mar. 18, 2016),
File No. SR-MSRB-2016-05 (expanding and adding trade indicators);
Exchange Act Release No. 83038 (Apr. 12, 2018), 83 FR 17200 (Apr.
18, 2018), File No. SR-MSRB-2018-02 (modernizing RTRS Information
Facility (IF-1)).
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The MSRB has found that, in 2022, approximately 73.7 percent of the
trades in the municipal securities market that are currently subject to
the 15-minute reporting timeframe were reported within one minute of
execution, and approximately 97 percent of trades in the municipal
securities market that are currently subject to the 15-minute reporting
timeframe were reported within five minutes of execution.\11\ In light
of the technological advances and evolving market practices in the
intervening 19 years since the MSRB first adopted the 15-minute
reporting requirement, including the increase in electronic trading,
and consistent with the MSRB's longstanding goals of increasing
transparency and improving access to timely transaction data, the MSRB
is proposing updates to modernize the reporting timeframes and provide
timelier transparency. In this effort, the MSRB would continue to
assess its RTRS reporting requirements in light of market developments,
including reporting timeframes, and consider whether any further
modifications are warranted.
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\11\ See infra ``Self-Regulatory Organization's Statement on
Burden on Competition--Trade Reporting Analysis'' in Section 4(a)
Table 1. Trade Report Time by Trade Size--Cumulative Percentages.
January to December 2022.
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Proposed Rule Change
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.
The proposed amendments to Rule G-14 RTRS Procedures under Rule G-
14 would:
Establish a baseline one-minute trade reporting
requirement;
Establish a requirement that, with limited exceptions,
trades be reported as soon as practicable and that dealers adopt
policies and procedures in connection with this requirement;
Create two new exceptions to the new one-minute reporting
requirement, consisting of (1) a 15-minute exception for dealers with
``limited trading activity,'' and (2) a phased-in approach for
implementation from 15 minutes to an eventual five-minute reporting
requirement for ``trades with a manual component'';
Maintain and clarify all existing exceptions to the
current 15-minute reporting requirement, as well as the 15-minute from
start of next day reporting requirement for trades conducted outside
the trading day, so that they would continue to apply under the new
one-minute reporting requirement;
Require that dealers reporting any trade with a manual
component use a new special condition indicator when the trade is
reported to the MSRB;
Specify that dealers may not purposely delay the execution
or reporting of a transaction, introduce any manual steps following the
Time of Trade, or otherwise modify any steps to execute or report the
trade for the purpose of utilizing the manual trade exception;
Provide that a rule violation would be found where there
is a ``pattern or practice'' of late trade reporting without
``reasonable justification or exceptional circumstances''; and
Clarify within Rule G-14 RTRS Procedures the usage of all
existing and new special condition indicators.
The proposed rule change would also make certain conforming
technical changes to Rule G-12(f)(i) and IF-1. A more detailed
description of the proposed rule change follows.
If the proposed rule change is approved, the MSRB would 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. Such monitoring would 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.
New Baseline Reporting Requirement: One Minute After the Time of Trade
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 \12\ must be reported to an
RTRS Portal \13\ ``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,\14\ 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, as described below.\15\ 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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\12\ 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.
\13\ RTRS has three ``Portals'' for submission of transaction
data, and aspects of RTRS are designed to function in coordination
with the Real-Time Trade Matching (``RTTM'') system of the
Depository Trust & Clearing Corporation (``DTCC'') in conjunction
with its subsidiary National Securities Clearing Corporation. Rule
G-14 RTRS Procedures Section (a)(i) describes the three RTRS
Portals: Message Portal used for trade submission and trade
modification as described in Section (A) thereof; RTRS Web Portal
used for low-volume transaction submission and modification as
described in Section (B) thereof; and RTTM Web Portal used only for
inter-dealer transactions eligible for automated comparison as
described in Section (C) thereof.
\14\ Three of these existing exceptions, consisting of List
Offering Price/Takedown Transactions, trades in certain short-term
or variable rate instruments, and away from market trades, require
that trades be reported by the end of the day on which they are
executed and do not rely on the Time of Trade. These three end-of-
trade-date reporting exceptions would be retained without change and
would be redesignated as Rule G-14 RTRS Procedures Section
(a)(ii)(A)(1), (2) and (3), respectively. Two other existing
exceptions for certain special circumstances would also be retained
without change, consisting of dealers reporting inter-dealer ``VRDO
ineligible on trade date'' transactions, which must be reported by
the end of the day on which the trade becomes eligible for automated
comparison, and of dealers reporting inter-dealer ``resubmission of
an RTTM cancel,'' which must be reported by the end of the next RTRS
Business Day following cancellation of the original trade. These two
exceptions would be redesignated as Rule G-14 RTRS Procedures
Sections (a)(ii)(B)(1) and (2), respectively.
\15\ 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.
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[[Page 5386]]
New Requirement To Report Trades ``as Soon as Practicable''
The proposed amendment to Rule G-14 RTRS Procedures Section (a)(ii)
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). In addition, this same ``as soon as practicable''
requirement would 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,\16\ or trades with a manual component
pursuant to Rule G-14 RTRS Procedures Section (a)(ii)(C)(2) and
Supplementary Material .02,\17\ as described below.
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\16\ See infra ``Purpose--Proposed Rule Change--Exceptions to
the Baseline Reporting Requirement--Exception for Dealers with
Limited Trading Activity.''
\17\ See infra ``Purpose--Proposed Rule Change--Exceptions to
the Baseline Reporting Requirement--Exception for Trades with a
Manual Component.''
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The new ``as soon as practicable'' language, which does not
currently appear in Rule G-14 RTRS Procedures, would harmonize this
element of RTRS trade reporting requirements for municipal securities
with FINRA's trade reporting requirement for its Trade Reporting and
Compliance Engine (``TRACE'') for TRACE-eligible securities.\18\ Thus,
while 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 trade more rapidly, 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.
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\18\ See e.g., FINRA Rule 6730(a).
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In connection with the new ``as soon as practicable'' requirement,
the proposed rule change includes new Supplementary Material .03
relating to policies and procedures for complying with the ``as soon as
practicable'' reporting requirement. Under proposed Supplementary
Material .03(a), consistent with Supplementary Material .03(a) of FINRA
Rule 6730, dealers would be required to adopt policies and procedures
reasonably designed to comply with the ``as soon as practicable''
standard and would be required to implement systems that commence the
trade reporting process without delay upon execution. 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). 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.
For trades with a manual component, and consistent with
Supplementary Material .03(b) of FINRA Rule 6730, the MSRB recognizes
that the trade reporting process may not be completed as quickly as,
for example, where an automated trade reporting system is used. 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.\19\
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\19\ See Supplementary Material .03(b) of FINRA Rule 6730. See
also infra ``Purpose--Proposed Rule Change--Exceptions to the
Baseline Reporting Requirement--Exception for Trades with a Manual
Component'' for a discussion of the new exception for trades with a
manual component.
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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.\20\ While the definition of Time of Trade would not be changed,
the precision with which the establishment of the Time of Trade for a
particular transaction would become more critical in the context of the
proposed shorter, one-minute reporting requirement compared to the
current 15-minute reporting requirement because, absent an exception,
dealers would have less time to report the trade. The time taken to
report the trade is measured by comparing the Time of Trade reported by
the dealer with the timestamp assigned when the initial trade report is
received by an RTRS Portal.\21\ For transaction reporting purposes,
Time of Trade is considered to be the same as the time that a trade is
``executed'' and, generally, is consistent with the ``time of
execution'' for recordkeeping purposes.\22\ Importantly, the time that
the trade is executed is not necessarily the time that the trade
information is entered into the dealer's processing system. For
example, if a trade is executed on a trading desk but not entered for
processing until later, the time of execution (not the time of entering
the record into the processing system) is required to be reported as
the ``Time of Trade.'' \23\
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\20\ See current Rule G-14 RTRS Procedures Section (d)(iii).
\21\ See Exchange Act Release No. 49902 (June 22, 2004), 69 FR
38925 (June 29, 2004), File No. SR-MSRB-2004-02; see also MSRB
Notice 2004-13 (Real-Time Transaction Reporting: Notice of Filing of
Proposed Rule Change to Rules G-14 and G-12(f)) (June 1, 2004); IF-
1.
\22\ See Rule G-8(a)(vi) and (vii); see also RTRS G-14
Transaction Reporting Procedures (FAQs regarding Time of Trade
Reporting) at question 8 (Aug. 1, 1996); MSRB Notice 2016-19 (MSRB
Provides Guidance on MSRB Rule G-14, on Reports of Sales or
Purchases of Municipal Securities) at question 1 (Aug. 9, 2016) (the
``2016 RTRS FAQs''). Pursuant to Rule G-15(a)(vi)(A), the time of
execution reflected on customer confirmations is required to be the
same as the time of execution reflected in the dealer's records and
thus should generally be consistent with the time of trade reported
by the dealer.
\23\ See RTRS Users Manual (Questions and Answers on Reporting
Trades), at question 1 (Aug. 09, 2016), available at https://www.msrb.org/Questions-and-Answers-Notice-Concerning-Real-Time-Reporting-Municipal-Securities-Transactions. Similarly, transactions
effected outside of the hours of an RTRS Business Day are required
to be reported within 15 minutes after the start of the next RTRS
Business Day. The time the trade was executed (rather than the time
that the trade report is made) is the ``Time of Trade'' required to
be reported.
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While the principles of contract law are mostly governed by state
statutory and common law, generally, in order to form a valid contract,
there must be at least an offer and acceptance of that offer. As a
result, 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 offer and acceptance, or a ``meeting of the minds,'' \24\
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.\25\ Further, dealers should be
[[Page 5387]]
clear in their communications regarding the final material terms of the
trade and how such terms would be conveyed between the parties to
ensure that such a valid trade contract has been formed.\26\
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\24\ See 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) (describing this meeting of
the minds that substantively parallels the guidance provided by the
MSRB in the 2016 RTRS FAQs at questions 1 and 2).
\25\ See 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) (``Transaction reporting procedures define
the `time of trade' as the time when a contract is formed for a sale
or purchase of municipal securities at a set price and set quantity.
For purposes of transaction reporting, this is considered to be the
same as the time that a trade is `executed.''') (internal citations
omitted); see also 2016 RTRS FAQs at question 1.
\26\ See 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).
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In the context of new issue securities, the MSRB has previously
stated that a transaction effected on a ``when, as and if issued''
basis cannot be executed, confirmed and reported until the municipal
security has been formally awarded by the issuer.\27\ Thus, while
dealers may take orders for securities and make conditional trading
commitments prior to the award, dealers cannot execute transactions,
send confirmations or make a trade report prior to the time of formal
award. The MSRB has previously characterized pre-sale orders as
expressions of the purchasers' firm intent to buy the new issue
securities in accordance with the stated terms, which order may only be
executed upon the award of the issue or the execution of a bond
purchase agreement.\28\ Importantly, such expressions of an intent to
purchase municipal securities are subject to material conditions that
negate execution of an agreed upon offer and acceptance until the
issuer has committed to the issuance of the securities.
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\27\ 2016 RTRS FAQs at question 2.
\28\ See MSRB Interpretive Guidance, Rule G-12 (Confirmation:
Mailing of WAII Confirmation) (Apr. 30, 1982). In the same vein,
retail orders submitted during a retail order period under MSRB Rule
G-11 are viewed as conditional commitments. See MSRB Rule G-
11(a)(vii) (defining the term ``retail order period''). See also,
e.g., MSRB Notice 2014-14 (Request for Comment on Enhancements to
Post-Trade Transaction Data Disseminated Through a New Central
Transparency Platform) (Aug. 13, 2014) (describing the conditional
nature of conditional trading commitments).
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The MSRB believes that this same rationale applies to secondary
market transactions where the commitment of the parties is subject to
material conditions. When a sales representative of a dealer takes a
customer order, but is unable to execute that order until their trader
performs supervisory or other firm-mandated reviews or approvals of
such order--for example, to determine that the customer order does not
exceed internally-set risk and compliance parameters or to complete
best-execution, suitability/best interest or fair pricing protocols
that may result in a changed price or quantity to the customer or in
not completing execution of the trade--the dealer reasonably may
determine that the ``meeting of the minds'' has not yet occurred until
such processes, procedures or protocols have been completed and the
dealer has affirmatively ``accepted'' the order. In such circumstances,
the dealer should be clear in its communications with its counterparty
regarding the final terms of the trade and how such terms would be
conveyed between the parties to ensure that such a valid trade contract
has been formed, such as clearly communicating to the customer that the
order should not be viewed as accepted until such processes, procedures
or protocols are completed and the trade is finally executed. Such
processes, procedures or protocols should be appropriately reflected in
a dealer's written policies and procedures. Because the Time of Trade
is tied to the contractual agreement (that is, offer and acceptance,
whether oral or written) between the parties to a transaction, a dealer
and its counterparty may come to an express agreement as to the Time of
Trade for a given transaction, as appropriate, that is consistent with
the time at which the agreement becomes binding upon the parties under
contract law.
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. New Section (C)(1) provides an exception for a dealer with
``limited trading activity'' and new Section (C)(2) provides an
exception for a dealer reporting a ``trade with a manual component.''
These two new exceptions would have the narrowly-tailored purpose of
addressing the timing of trade reporting for the dealers and
transactions qualifying for one of the exceptions (either retaining the
current 15-minute timeframe or taking a more stepwise approach to
shortening the reporting timeframe). As with the existing exceptions,
these two new exceptions would not alter or diminish any of the
investor protections afforded by other MSRB rules or federal securities
laws or regulations applicable to pricing, best execution, disclosure,
suitability/best interest, and other aspects of the trades being
reported.
Exception for Dealers With Limited Trading Activity
A dealer with ``limited trading activity'' would be excepted from
the one-minute reporting requirement pursuant to new Section
(a)(ii)(C)(1) 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.\29\
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\29\ 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). 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.
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Proposed Section (d)(xi) of Rule G-14 RTRS Procedures defines 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).\30\ A dealer relying on this
exception to report trades within the 15-minute timeframe, rather than
the new standard one-minute timeframe, must 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, as described below, which would
indicate a dealer's transaction volume for a given year).\31\ If a
dealer does not meet the criteria for a given calendar year (that is,
has 1,800 or more transactions not having an end-of-trade-day or post-
trade-day reporting exception in both preceding calendar years), such
dealer would not be eligible for the exception, after a three-month
grace period at the beginning of such calendar year, for transactions
reported on and after April 1 of such calendar year. Therefore, the
dealer would be required to report transactions to RTRS no later than
one minute after the Time of Trade for the remainder of that calendar
year, unless another exception under the rule applies. A dealer that
meets the criteria for a given calendar
[[Page 5388]]
year may utilize the exception on or after January 1 of such calendar
year.\32\
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\30\ 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, based on transaction data from
calendar year 2022, and generally aligns with FINRA's proposal to
similarly shorten trade reporting requirements for TRACE-eligible
securities, in which FINRA would except dealers with similarly
limited trading activity for the respective markets of TRACE-
eligible securities. See File No. SR-FINRA-2024-004 (Jan. 11, 2024)
(the ``2024 FINRA Proposed Rule Change'').
\31\ See infra ``Purpose--Proposed Rule Change--Exceptions to
the Baseline Reporting Requirement--Exception for Dealers with
Limited Trading Activity.''
\32\ A previously active dealer that newly becomes eligible for
the exception for dealers with limited trading activity following
the first year of the implementation of the proposed rule change may
continue to see their trades marked as late on RTRS report cards and
related RTRS feedback based on the one-minute deadline for a short
period of time at the beginning of a new calendar year until the
MSRB is able to systematically update the dealer's status in the
RTRS system. Any such late indicator would not, for examination or
enforcement purposes, be viewed as a violation by a dealer that
otherwise was qualified as a dealer with limited trading activity at
the time of the report.
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For example, assume the following hypothetical trade counts for
Dealer X for a given calendar year: \33\
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\33\ While the first two years of data shown in the chart
represent trades occurring in years prior to the likely effective
date of the proposed rule change, such data would be used to
determine whether a dealer would be eligible for the limited trading
activity exception in the first years after the effective date. The
chart assumes that the first calendar year in which the new
reporting timeframes under the proposed rule change, including the
exception for a dealer with limited trading activity, would be
effective is calendar year 2026.
------------------------------------------------------------------------
Trade count Eligible for exception during
Calendar year \34\ calendar year?
------------------------------------------------------------------------
2024..................... 1,900 N/A.
2025..................... 1,700 N/A.
2026..................... 2,000 Yes, based on 2025 trade
count below the 1,800
threshold.
2027..................... 1,900 Yes, based on 2025 trade
count below the 1,800
threshold.
2028..................... 1,700 No, based on 2026 and 2027
trade counts above the 1,800
threshold in both years
(must transition reporting
to one minute on and after
April 1, 2028).
2029..................... 2,000 Yes, based on 2028 trade
count below the 1,800
threshold (may resume
reporting in 15 minutes on
January 1, 2029).
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Based on the hypothetical data presented in the table above, Dealer
X would be eligible for the exception as a dealer with limited trading
activity for the calendar years 2026 and 2027 effective January 1 of
each such year,\35\ based on trade count for the year 2025. However,
Dealer X would no longer qualify for such an exception for the calendar
year 2028. As a result, for 2028, beginning on and after April 1, 2028,
after the three-month grace period, Dealer X must begin reporting all
of its trades (other than those subject to another exception) no later
than one minute after the Time of Trade. However, Dealer X would again
qualify for calendar year 2029 as a dealer with limited trading
activity based upon its 2028 trade count and may resume reporting its
trades no later than 15 minutes after the Time of Trade on January 1,
2029.
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\34\ The trade count is intended to reflect the number of
transactions not subject to a reporting exception under proposed
Section (a)(ii) of Rule G-14 RTRS Procedures. For purposes of
illustration, the hypotheticals include manual trades subject to an
intra-day exception as proposed.
\35\ See supra n.32.
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As shown above, this approach may cause some dealers' eligibility
for the exception to change from year to year. However, based on
substantial historical trade reporting data, the majority of dealers
that are eligible for the exception are expected to stay within the
exception. Similarly, the majority of dealers that are not eligible for
the exception are expected to remain ineligible for the exception in
subsequent years.\36\
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\36\ Approximately 30 out of 647 dealers reporting trades, or
less than five percent of such dealers, were within a 20 percent
deviation of 1,800 trades in 2022.
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Notwithstanding the foregoing, dealers with limited trading
activity are reminded of the new overarching obligation to report
trades as soon as practicable, as described above.\37\
---------------------------------------------------------------------------
\37\ See infra ``Purpose--Proposed Rule Change--New Requirement
to Report Trades `as Soon as Practicable.' ''
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Exception for Trades With a Manual Component
A ``trade with a manual component'' as defined in new Section
(d)(xii) of Rule G-14 RTRS Procedures would be excepted from the one-
minute reporting requirement pursuant to Rule G-14 RTRS Procedures
Section (a)(ii)(C)(2). Instead, 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).\38\
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\38\ 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).
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Trades Having a Manual Component
As proposed, Section (d)(xii) of Rule G-14 RTRS Procedures would
define a ``trade with a manual component'' as a transaction that is
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, 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.\39\
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\39\ See infra ``Purpose--Proposed Rule Change--Manual Trade
Indicator.'' As described therein, 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.
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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). 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
[[Page 5389]]
undertaken post-execution to enter information necessary to report the
trade.\40\
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\40\ This manual exception applies to the reporting of a trade
upon the trade being executed. If a report has been made and the
dealer detects a mistake that requires cancellation or correction,
any modification of an already submitted trade report must be
performed as soon as possible pursuant to Rule G-14 RTRS Procedures
Section (a)(iv). See MSRB Interpretive Guidance (Reminder Regarding
Modification and Cancellation of Transaction Reports: Rule G-14)
(Mar. 2, 2005), available at https://www.msrb.org/Reminder-Regarding-Modification-and-Cancellation-Transaction-Reports-Rule-G-14. While a trade modification to a previously reported automated
trade may be manual in nature (for example, the trade is corrected
through the RTRS Web Portal or is corrected through a dealer's
system and not using a cancel and replace process), that manual
modification process would not, by itself, result in the initial
trade qualifying as a trade with a manual component. Where the trade
correction is made through a cancel and replace process, the time of
trade must reflect the time of execution of the initial trade report
and not the time when the modification was reported to RTRS. While
RTRS will continue to provide dealers with the option to either
modify the trade or cancel and replace the trade, the MSRB has
stated that modification is preferred when changes are necessary
because a modification is counted as a single change to a trade
report, whereas cancellation and resubmission are counted as a
change and (unless the resubmission is done within the original
deadline for reporting the trade) also as a late report of a trade.
Id.; see also infra n.50.
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In that regard, while an exhaustive list cannot be provided here,
the MSRB contemplates that the exception would often be appropriately
applicable to the following situations, depending on the specific facts
and circumstances, due to the manual nature of components of the trade
execution or reporting process that would make reporting a transaction
within one minute of the Time of Trade unfeasible, even where the
dealer makes reasonable efforts to report the trade as soon as
practicable after execution (as required):
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); \41\
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\41\ 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.
---------------------------------------------------------------------------
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; \42\
---------------------------------------------------------------------------
\42\ 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).
---------------------------------------------------------------------------
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.
Dealers should review their trade flow and processes and consider
which of their trades would be deemed a ``trade with a manual
component'' under the proposed rule change.\43\
---------------------------------------------------------------------------
\43\ Dealers should undertake this review regardless of whether
they intend to take advantage of the longer timeframes permitted for
trades with a manual component since all reports of trades meeting
the definition of a trade with a manual component would be required
to append the new manual trade indicator, as described infra
``Purpose--Proposed Rule Change--Manual Trade Indicator.''
---------------------------------------------------------------------------
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.\44\ 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.\45\ 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.\46\
---------------------------------------------------------------------------
\44\ See infra ``Purpose--Proposed Rule Change--Exceptions to
the Baseline Reporting Requirement--Exception for Trades with a
Manual Component--Prohibition on Purposeful Insertion of Manual
Steps in Trade Reporting Process.''
\45\ Id.
\46\ See infra ``Purpose--Proposed Rule Change--New Requirement
to Report Trades `as Soon as Practicable.' ''
---------------------------------------------------------------------------
In light of the overarching obligation to report trades as soon as
practicable, 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.\47\ Each dealer seeking to comply with the
proposed rule change--including the one-minute
[[Page 5390]]
reporting requirement and new or existing exceptions from such
requirement--should consider the extent to which it can automate its
trade reporting and related execution processes, consistent with its
client's needs and the dealer's best execution and other regulatory
obligations. Where automation is not feasible at a reasonable cost in
light of the specific facts and circumstances with respect to the
dealer's trading activity and overall business (e.g., the level, nature
and economic viability of its activity in municipal securities),
dealers should be implementing more efficient trade entry processes to
meet the applicable reporting requirement, including the new
requirement to report trades as soon as practicable, particularly with
a view to the phased-in reduction in the reporting timeframe for trades
with a manual component under the proposed rule change where a process
that may provide sufficient time to report timely during the first year
may not be sufficiently efficient to meet the further shortened
timeframe in a subsequent year. The MSRB expects that dealers would
periodically assess their systems and processes to ensure that they
have implemented sufficiently efficient policies and procedures for
timely trade reporting.
---------------------------------------------------------------------------
\47\ See infra ``Purpose--Proposed Rule Change--Exceptions to
the Baseline Reporting Requirement--Exception for Trades with a
Manual Component.'' For trades with a manual component, the MSRB
recognizes that the trade reporting process may not be completed as
quickly as, for example, where an automated trade reporting system
is used. 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.
---------------------------------------------------------------------------
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 standard. Subject to the Commission
approval of the proposed rule change, the MSRB would be reviewing the
use of the manual exception and would share with the examining
authorities any analyses resulting from such reviews.
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''). Specifically, 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.\48\ 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.
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\48\ 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 supra ``Purpose--Proposed Rule
Change--New Requirement to Report Trades `as Soon as Practicable.'
''
---------------------------------------------------------------------------
In establishing the phase-in period, the MSRB intends to provide
sufficient time for dealers to implement programming and/or other
policy and process changes necessary to meet an eventual five-minute
reporting requirement, as well as to provide regulators an opportunity
to assess any potential market impact from the gradual reduction in
reporting timeframe. However, dealers are also reminded that the ``as
soon as practicable'' reporting obligation as described above may,
depending on the facts and circumstances, require quicker reporting
than the applicable outer reporting obligation during and after the
phase-in period. For example, while dealers must report their trades
with a manual component no later than 15 minutes from the Time of Trade
during the first year that the rule is operational, dealers should be
reviewing their policies, procedures and practices and considering
whether they can report such trades more quickly. In general, the MSRB
would expect a dealer's trade reporting statistics to show overall
improvements in trade reporting speed without compromising data
quality, due to the new ``as soon as practicable'' obligation and the
two new intra-day exceptions.
If the proposed rule change is approved, the MSRB would be
reviewing 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, as well as marketplace
developments, feedback from market participants, and examination or
enforcement findings from the Commission, FINRA and the other
appropriate regulatory agencies. Such monitoring would inform any
further potential changes by the MSRB to the trade reporting
requirements.
Prohibition on Purposeful Insertion of Manual Steps in Trade Reporting
Process
As noted above, 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 would not prohibit
reasonable manual steps that are taken for legitimate purposes (such as
a manual review of trades that exceed certain risk thresholds or that
meet certain criteria for regulatory purposes). Further, this
prohibition 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.
It is important to note that a manual step added to the trade
execution or reporting process that may have only a nominal or
pretextual purpose other than qualifying a trade for the exception for
manual trades, particularly where such purpose can be effectively
fulfilled in an alternative manner that does not introduce such manual
step into the trade execution or reporting process, may be viewed as
being made for the purpose of qualifying for this exception within the
meaning of proposed Supplementary Material .02(a), depending on the
facts and circumstances. This express prohibition is intended to
facilitate movement in the direction of more timely reporting and
increased transparency in circumstances where there is no reasonable
justification for the delay in trade execution and related subsequent
trade reporting or for insertion of manual steps after the Time of
Trade.
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,\49\ to append a new trade
indicator 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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\49\ See supra ``Purpose--Proposed Rule Change--Exceptions to
the Baseline Reporting Requirement--Exception for Trades with a
Manual Component--Trades Having a Manual Component.''
\50\ Rule G-14 RTRS Procedures Section (a)(iv) currently
requires that transaction data that is not submitted in a timely and
accurate manner must be submitted or corrected as soon as possible.
See also supra n.40. The manual trade indicator is not intended to
be used to reflect the manual nature of any correction to a prior
trade report; rather the use of the indicator is driven solely by
whether or not the initial trade had a manual component.
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In addition to serving as a critical component of the manual trade
exception, this trade indicator would
[[Page 5391]]
allow the MSRB to collect additional data to help it better understand
the extent to which the municipal securities market continues to
operate manually.\51\ Such understanding would assist the MSRB in
engaging with market participants regarding impediments to greater use
of automation, and help determine the effectiveness and potential
impediments to full compliance with the proposed phase-in period to
determine whether adjustments should be made or other next steps should
be taken.
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\51\ The manual trade indicator would be used for regulatory
purposes only and would not, under the proposed rule change, be
included in the trade data disseminated to the public through the
EMMA website and subscription feeds. This information would help
inform the MSRB regarding broader trends in the marketplace beyond
the specific provisions of the proposed rule change. For example,
the use of the manual trade indicator would help identify changes in
the prevalence of manual trades as market conditions change or in
light of other events or trends having an impact on the municipal
securities market.
---------------------------------------------------------------------------
Pattern or Practice of Late Trade Reporting
Rule G-14 RTRS Procedures Section (a)(iv) currently 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. Proposed amendments to this section
would further provide that any transaction that is not reported within
the applicable time period shall be designated as ``late.'' \52\ A
pattern or practice of late reporting without exceptional circumstances
or reasonable justification may be considered a violation of Rule G-14.
---------------------------------------------------------------------------
\52\ Late trade designations are currently, and would continue
to be, available to regulators and, through the MSRB compliance tool
described below in ``Purpose--Proposed Rule Change--Compliance
Tools,'' to the dealer submitting the late trade. See Section 2.9 of
the Specifications for Real-Time Reporting of Municipal Securities
Transactions in connection with error codes currently generated by
RTRS with respect to late trade reports. The trade data disseminated
to the public through the EMMA website and subscription feeds does
not currently and would not have appended to it a late report
indicator nor an indicator of which deadline was applicable (other
than the indicators currently published).
---------------------------------------------------------------------------
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. For
example, failures or latencies of MSRB, third-party or internal systems
used to submit trade information generally would constitute exceptional
circumstances or reasonable justifications, particularly where such
incident is outside of the reasonable control of the dealer and could
not be resolved by the dealer within the applicable reporting
timeframe. However, dealers must have sufficiently robust systems with
adequate capability and capacity to enable them to report in accordance
with Rule G-14; thus, recurring systems issues in a dealer's or a
vendor's systems would not be considered reasonable justification or
exceptional circumstances to excuse a pattern or practice of late trade
reporting. As another example, unusual market conditions, such as
extreme volatility in a security or in the market as a whole, can
constitute exceptional circumstances. In addition, a dealer may have
reasonable justification for late trade reporting where it is executing
a bid list that includes a large number of distinct securities that
cannot reasonably be reported within the applicable timeframe. These
three examples do not represent the only potential situations that
could constitute exceptional circumstances or reasonable justification.
Dealers would bear the burden of proof related to such exceptional
circumstances or reasonable justification.
The pattern or practice approach to determining rule violations
would take into consideration factors such as the complexity of the
trade, differences in market segments, differences in the execution of
trades of varying types of municipal securities products, impediments
to use of straight through processing and electronic trading venues,
the nature and purpose of any manual steps involved in the execution
and reporting of transactions with a manual component, the existence of
systems and procedures that provide for reporting timeliness and any
other relevant factors to determine if a rule violation has occurred.
While this approach recognizes that there may be legitimate situations
involving exceptional circumstances or reasonable justification in
which trades may not be reported within the required time limit,
dealers are reminded of the overarching obligation to report trades as
soon as practicable in light of the effects of such circumstances or
justification. As a result, all 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.
The MSRB expects 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. 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 regulatory authorities could reasonably determine to take action
with respect to such late trade in the examination or enforcement
context.
Compliance Tools
The MSRB would continue to provide various compliance tools to
assist dealers with compliance and for examining authorities to monitor
for compliance. For example, currently, if a trade is reported late, an
error message indicating this fact is sent in real-time to the
submitter through the Message Portal, through the RTRS Web Portal, and
by means of electronic mail. Such error messages are designed to
promote dealer awareness of the late report and provide an opportunity
to evaluate the reason for lateness and make appropriate adjustments as
needed. In addition, on a monthly basis, RTRS produces statistics on
dealer performance related to the timely submission of transactions and
correction of errors and provides these statistics to dealers as well
as to regulators. The MSRB expects to create additional compliance
tools in the form of new or modified reports for dealers and examining/
enforcement authorities, allowing them to more easily monitor
compliance.\53\ Such tools would be
[[Page 5392]]
expected to provide data that would permit a dealer to monitor
compliance patterns as well as provide support for the dealer to
determine and confirm its relevant trade count for the current and
preceding calendar years, including for the purpose, among other
things, of assisting dealers to determine whether the exception for
dealers with limited trading activity is available.\54\ Similarly,
through a late trade indicator, data would be available for regulators
to determine the applicable trade reporting obligation for each trade
and analyze the data to assist in identifying a pattern or practice of
late trade reporting, based on the specific facts and circumstances
relevant to the particular trade reports.
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\53\ For example, the MSRB currently produces a series of
reports for dealers submitting trades to RTRS, including a Dealer
Data Quality Report (commonly referred to as a ``report card''). See
MSRB Real-Time Transaction Reporting System (RTRS) Manual (Nov.
2022), available at https://www.msrb.org/sites/default/files/RTRSWeb-Users-Manual.pdf. This report describes a dealer's
transaction reporting data with regard to status, match rate,
timeliness of reporting, and the number of changes or corrections to
reported trade data. For most statistics, the industry rate is also
provided for comparison. The Lateness Breakout portion of the report
has a category for each type of reporting deadline, showing how many
trades were reported timely and late relative to the applicable
deadline. Such reports are available in both single-month and
twelve-month formats.
\54\ See proposed Supplementary Material .01(a), which would
require a dealer relying on the exception for dealers with limited
trading activity to confirm on an annual basis that it meets the
criteria for a dealer with limited trading activity. Where a dealer
resubmits an RTTM cancel under proposed redesignated Rule G-14 RTRS
Procedures Sections (a)(ii)(B)(2), for purposes of avoiding double
counting, only the original trade, if not otherwise excepted, would
count for purposes of this exception and not the resubmitted trade.
---------------------------------------------------------------------------
Technical Amendments
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. 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.
Clarifying Amendments--Special Condition Indicators and Trades on an
Invalid RTTM Trade Date
The proposed rule change would make certain clarifying amendments
to Rule G-14 RTRS Procedures Section (b)(iv) relating to transactions
with special conditions. That Section currently specifically 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.\55\ 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.
---------------------------------------------------------------------------
\55\ Each of these special condition indicators were formally
adopted through MSRB rulemaking and also appear in various
interpretive or other regulatory materials. See generally Section
4.3.2 and Appendix B.2 of the Specifications for Real-Time Reporting
of Municipal Securities Transactions. See also Exchange Act Release
No. 49902 (June 22, 2004), 69 FR 38925 (June 29, 2004), File No. SR-
MSRB-2004-02; Exchange Act Release No. 55957 (June 26, 2007), 72 FR
36532 (July 3, 2007), File No. SR-MSRB-2007-01; Exchange Act Release
No. 74564 (Mar. 23, 2015), 80 FR 16466 (Mar. 27, 2015), File No. SR-
MSRB-2015-02.
---------------------------------------------------------------------------
In addition, 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.\56\ The
proposed clarifying amendment to this provision would not make any
changes to the circumstances or timing of reporting of such trades.
---------------------------------------------------------------------------
\56\ 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.
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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.
Effective Date and Implementation
The MSRB intends to provide time for dealers and the MSRB to
undertake the programming, process changes and/or vendor arrangements
needed to implement the proposed rule change, as well as to provide an
adequate testing period for dealers and subscribers that interface with
RTRS or third parties involved in the submission and/or subscription
process (including but not limited to DTCC, its RTTM system, other
dealers, or other key utilities or vendors). Thus, if the proposed rule
change is approved by the Commission, the MSRB would announce an
effective date (for example, approximately within 18 months from such
Commission approval) in a notice published on the MSRB website. Such
effective date would be intended to maintain implementation of the
proposed rule change on substantially the same implementation timeframe
as the 2024 FINRA Proposed Rule Change.
2. Statutory Basis
Section 15B(b)(2) of the Exchange Act \57\ provides that the MSRB
shall propose and adopt rules to effect the purposes of the Exchange
Act with respect to, among other matters, transactions in municipal
securities effected by dealers. Section 15B(b)(2)(C) of the Exchange
Act \58\ further provides that the MSRB's rules shall 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 engaged in regulating, clearing, settling,
processing information with respect to, and facilitating transactions
in municipal securities and municipal financial products, to remove
impediments to and perfect the mechanism 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.
---------------------------------------------------------------------------
\57\ 15 U.S.C. 78o-4(b)(2).
\58\ 15 U.S.C. 78o-4(b)(2)(C).
---------------------------------------------------------------------------
The MSRB believes the proposed rule change, consisting of proposed
amendments to Rule G-14 RTRS Procedures under Rule G-14 as well as
conforming proposed amendments to Rule G-12(f)(i) and IF-1, is
consistent with Section 15B(b)(2)(C) of the
[[Page 5393]]
Exchange Act \59\ because it would promote just and equitable
principles of trade, foster cooperation and coordination with personnel
engaged in regulating and facilitating transactions in municipal
securities, remove impediments to a free and open market in municipal
securities and generally protect investors and the public interest. The
proposed rule change would promote just and equitable principles of
trade because it would reduce information asymmetry between market
professionals (such as dealers and institutional investors) and retail
investors by ensuring increased access to more timely information about
executed municipal securities transactions for all investors.
Currently, market professionals may in some circumstances have better
or more rapid access to information about trade prices through market
venues to which retail investors do not have access, and the reduction
in the timeframe for trade reporting would shorten or eliminate the
period during which any such asymmetry in access to such information
may exist.
---------------------------------------------------------------------------
\59\ Id.
---------------------------------------------------------------------------
The proposed rule change would foster cooperation and coordination
with persons engaged in regulating and processing information,
facilitating a consistent standard for trade reporting across many
fixed income products, including municipal securities. As noted above,
the proposed rule change was developed in close coordination with
FINRA, which is proposing a similar shortened trade reporting
requirement for many TRACE-eligible securities. Fostering a consistent
standard across classes of securities would facilitate greater and more
efficient compliance among MSRB-registered dealers, the majority of
which also transact in other fixed income securities that are subject
to FINRA's regulatory authority. Consistent trade reporting
requirements reduce the risk of potential confusion and may reduce
compliance burdens resulting from inconsistent obligations and
standards for different classes of securities. A shortened trade
reporting time, as facilitated by the proposed rule change, would
promote regulatory consistency, reducing potential errors caused by
market participants' imperfect application of differing standards when
executing and reporting transactions in municipal securities.
The proposed rule change would remove impediments to a free and
open market in municipal securities by making publicly available more
timely information about the market for and the price at which
municipal transactions are executed, which is central to fairly priced
municipal securities and a dealer's ability to make informed
quotations. The MSRB believes that the proposed rule change would
promote investor protection and the public interest through increased
market transparency by reducing the timeframe for trade reporting,
providing the market with more efficient pricing information, which
would enhance investor confidence in the market. At the same time, the
exceptions balance potential burdens for dealers with limited trading
activity in municipal securities by permitting such dealers to report
trades as soon as practicable but not later than the currently
applicable 15-minute reporting requirement. The proposed rule change
also addresses potential burdens faced by dealers engaged in complex
transactions, including voice/electronically negotiated transactions
involving a manual post-transaction component, by permitting a phase-in
period for a gradual implementation. This approach would enable market
participants to achieve compliance with the shortened reporting target
over a period of time while not adversely affecting their ability to
execute such transactions consistent with applicable MSRB or Commission
rules.
B. Self-Regulatory Organization's Statement on Burden on Competition
Section 15B(b)(2)(C) of the Exchange Act \60\ requires that MSRB
rules not be designed to impose any burden on competition not necessary
or appropriate in furtherance of the purposes of the Exchange Act. The
MSRB does not believe the proposed rule change to amend Rule G-14 RTRS
Procedures under Rule G-14, Rule G-12(f)(i) and IF-1would result in any
burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Exchange Act. The proposed rule
change would apply the new one-minute reporting timeframe to all
transactions in municipal securities currently subject to the 15-minute
reporting requirement and would provide two new exceptions designed to
balance the benefits of timelier reporting with the potential costs of
disrupting markets from transactions most likely to realize a negative
impact by the shortening of the timeframe and disproportionally
impacting less active and smaller dealers.\61\
---------------------------------------------------------------------------
\60\ Id.
\61\ See supra ``Purpose--Proposed Rule Change--Exceptions to
the Baseline Reporting Requirement'' for a discussion of the
proposed two new exceptions.
---------------------------------------------------------------------------
The proposed rule change is intended to provide more immediate
post-trade transparency in the municipal securities market and is
consistent with the purposes of RTRS. In the past, the municipal
securities market has sometimes been associated with information
opacity and low trading volume for a majority of securities with
relatively few securities that trade compared to the number of
outstanding securities.\62\ Information opacity likely affects retail
investors more than institutional investors and other market
participants; for example, pre-trade quotes are not widely available in
the municipal securities market, especially for retail investors who
may not have the access and may be more reliant on trade data.
Furthermore, with far fewer trades in municipal securities when
compared to equity securities, Treasury and corporate bonds, each
additional data point from post trade reporting in municipal securities
would potentially be more valuable to investors and other market
participants than a data point from these other markets. The reduction
in this opacity resulting from the proposed rule change would make more
timely information available to all market participants and help level
the playing field among retail investors, institutional investors, and
dealers, thereby potentially promoting competition in the market for
municipal securities.
---------------------------------------------------------------------------
\62\ Based on MSRB's trade data, approximately one percent of
the outstanding municipal securities trade on a given day.
---------------------------------------------------------------------------
Therefore, the MSRB believes the proposed rule change would not
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Exchange Act for the following
reasons. In making this determination, the MSRB staff was guided by the
MSRB's Policy on the Use of Economic Analysis in MSRB Rulemaking.\63\
In accordance with this policy, the MSRB evaluated the potential
impacts on competition of the proposed rule change. The proposed rule
change in trade reporting time to one minute after Time of Trade is
intended to better align with the actual time that it takes a dealer to
report most transactions and provides more immediate transparency to
the market
[[Page 5394]]
by reducing the reporting time for the remaining transactions to as
soon as practicable but no later than 15 minutes after the Time of
Trade standard for trades by dealers with limited trading activity and
to a deadline that would ultimately be shortened to five minutes after
the Time of Trade for trades with a manual component.
---------------------------------------------------------------------------
\63\ Policy on the Use of Economic Analysis in MSRB Rulemaking
is available at https://www.msrb.org/Policy-Use-Economic-Analysis-MSRB-Rulemaking. In evaluating whether there was a burden on
competition, the MSRB was guided by its principles that require the
MSRB to consider costs and benefits of a rule change, its impact on
capital formation and the main reasonable alternative regulatory
approaches.
---------------------------------------------------------------------------
The MSRB previously shortened the trade reporting timeframe from
the end of day to 15 minutes from the Time of Trade in January 2005
with the creation of RTRS. Since the 2005 change, the MSRB's analysis
shows that most trades are indeed reported much sooner than the current
15-minute trade reporting deadline, potentially due at least in part to
the advancement in technology. Specifically, as illustrated in Table 1
below, approximately 73.7 percent of trades in 2022 were reported
within one minute after a trade execution, with another approximately
23.3 percent of trades reported between one minute and five minutes
after the Time of Trade.\64\ As presently reported, due in part to
technological advancements, most trades already satisfy a shorter than
15-minute reporting requirement. A shorter reporting timeframe is
intended to provide more immediate transparency to a market that
historically has been associated with low trading volume for a majority
of Committee on Uniform Securities Identification Procedures
(``CUSIP'') numbers, relatively few securities that trade compared to
the number of outstanding securities and sometimes has been associated
with information opacity.
---------------------------------------------------------------------------
\64\ The analysis in this rule filing only includes trades
reportable within 15 minutes and excludes trades that are exempt
from the current 15-minute reporting time including, for example,
trades flagged as being executed at the List Offering or Takedown
Transactions, trades in short-term instruments maturing in nine
months or less, Auction Rate Securities, Variable Rate Demand
Obligations, trades in commercial paper, as well as trades ``away
from market,'' among other exceptions. See also Rule G-14 RTRS
Procedures Sections (a)(ii)(A) and (B). For purposes of the analysis
in this section, if an initially reported trade was corrected later,
the later timestamp was used for calculating the trade reporting
time more conservatively. All figures are approximate.
---------------------------------------------------------------------------
Trade Reporting Analysis
Table 1 summarizes the MSRB's analysis comparing Time of Trade to
trade reporting time for all trades required to be reported within 15
minutes in 2022.\65\ Out of all reportable municipal securities trades
\66\ that are not subject to another end of day reporting exception or
a post-trade day reporting exception, approximately 73.7 percent were
reported within one minute, while 97.0 percent were reported within
five minutes and 98.9 percent were reported in 15 minutes or less.\67\
The MSRB observed a noticeable difference in the speed of trade
reporting by different trade size groups, with the reporting time
increasing with trade size. While 76.2 percent of trades with trade
size of $100,000 par value or less (approximately 84.2 percent of all
trades) were reported within one minute, only 38.4 percent of trades
with trade size between $1,000,000 and $5,000,000 par value and 23.1
percent of trades with trade size above $5,000,000 par value were
reported within one minute. A possible explanation is that larger
institutional-sized trades are more likely to be executed via non-
electronic means and may rely upon more manual processing steps.\68\
However, smaller-sized trades are more likely executed and processed
electronically, which could facilitate faster trade reporting.
---------------------------------------------------------------------------
\65\ In 2022, RTRS had the highest number of trades on record
since its implementation in 2005. The record is likely attributable
to interest rate rallying and volatility throughout the year, though
the amount of par value traded was not a record high. The heightened
level of trading persisted through 2023, with the number of trades
reported to RTRS exceeding the previous record in 2022.
\66\ See proposed Rule G-14 RTRS Procedures Sections (a)(ii)(A)
and (B) for lists of existing end of trade day reporting exceptions
and post-trade day reporting exceptions.
\67\ By comparison, in 2021, a year with much lower overall
trading volume than 2022, 76.7 percent of trades subject to the 15-
minute standard were reported within one minute, 97.3 percent of
such trades were reported within five minutes and 99.5 percent of
trades were reported within 15 minutes.
\68\ MSRB staff conducted oral interviews with dealers and data
providers in the fall of 2022 and the winter and spring of 2023 and
was informed that larger institutional-sized trades are more likely
to be executed via negotiations and involve manual processes.
[GRAPHIC] [TIFF OMITTED] TN26JA24.007
Table 2 illustrates a variation in trade reporting time in 2022
between dealers with 1,800 trades or more annually during both prior
two calendar years (``Active Dealers''), and dealers with less than
1,800 trades annually during at least one of the prior two calendar
years (``Dealers with Limited Trading
[[Page 5395]]
Activity'').\69\ A threshold of 1,800 trades a year was selected to
demonstrate that Dealers with Limited Trading Activity as a whole had a
relatively small impact on the entire market and transparency, with
approximately 98.5 percent of trades in 2022 conducted by Active
Dealers collectively and only 1.5 percent of trades conducted by all
Dealers with Limited Trading Activity. When calculating the market
share by par value traded, Active Dealers conducted 98.2 percent of par
value traded in 2022 while Dealers with Limited Trading Activity
conducted only 1.8 percent of par value traded.\70\ In 2022, out of 647
dealers conducting at least one transaction in municipal securities 474
were Dealers with Limited Trading Activity and 173 were Active
Dealers.\71\ This difference in trade reporting time was pronounced for
the one-minute trade reporting percentages where Active Dealers had
77.2 percent of trades reported within one minute while only 47.5
percent of trades conducted by Dealers with Limited Trading Activity
were reported within one minute.
---------------------------------------------------------------------------
\69\ See infra ``Self-Regulatory Organization's Statement on
Burden on Competition--Trade Reporting Analysis'' in Table 2.
\70\ The proportion of trades in municipal securities conducted
by Dealers with Limited Trading Activity is aligned with the
proportion of aggregate trades conducted by dealers with limited
trading volume in TRACE-eligible securities subject to the 2024
FINRA Proposed Rule Change when using FINRA's annual transactions
threshold. See supra n.30.
\71\ While low in terms of the trading volume, these Dealers
with Limited Trading Activity may still serve many underserved
investors, especially retail and institutional investors with a
regional focus.
[GRAPHIC] [TIFF OMITTED] TN26JA24.008
Benefits, Costs, and Effect on Competition
The MSRB considers the likely costs and benefits of a proposed rule
change when the proposal is fully implemented against the context of
the economic baselines. The baseline is the current iteration of Rule
G-14 RTRS Procedures (a)(ii) that requires transactions to be reported
within 15 minutes after the Time of Trade with limited exceptions,
while the future state would be following the conclusion of the second
calendar year from the effective date of the proposed rule change, with
the full implementation of the gradual reduction in reporting timeframe
for trades with a manual component.
In performing this economic analysis and related cost-benefit
estimates, the MSRB has made a number of assumptions based on 2022 RTRS
data as explained in more detail below. For instance, there are few
publicly available sources of information about revenue and expense
data for relevant business lines of a dealer, especially in relation to
potential spending on acquiring or upgrading technology and
infrastructure for some dealers. The effort is further hampered by the
fact that some dealers are privately-owned, who are not required to
disclose business operation data in public filings. Therefore, the MSRB
conducted interviews with select dealers and vendors who provide
electronic trade reporting services as well as dealer subscribers of
these services to gauge the likely impact from the proposed rule
change.\72\ The MSRB believes the analysis provides a useful projection
on the scale of benefits and costs relative to the current baseline
irrespective of whether an assumption changes the absolute estimated
costs and benefits.
---------------------------------------------------------------------------
\72\ See supra n.68.
---------------------------------------------------------------------------
Benefits
The primary benefit of the proposed rule change on accelerated
trade reporting would be improved transparency in the municipal
securities market. Historically, the municipal securities market has
been considered less liquid and more opaque when compared to other
securities markets, with only about 1 percent of all municipal
securities trading on a given trading day, and pre-trade quotes are not
widely available to all market participants, especially retail
investors who may not pay for vendor pricing tools and may be more
reliant on trade data.\73\ Therefore, post trade data is important
information available to all market participants, including
particularly to retail investors and the market professionals that
service retail accounts. By implementing the proposed rule change,
investors would receive greater advantages on trade pricing information
through the reporting of more contemporaneous transactions.\74\ This
emphasis on contemporaneous trades as opposed to distant trades would
help ensure that the pricing information remains vital, potentially
decreasing trading costs and increasing liquidity. In addition, since
only about 1 percent of municipal securities trade on a given trading
day,
---------------------------------------------------------------------------
\73\ See Wu, Simon Z., John Bagley and Marcelo Vieira,
``Analysis of Municipal Securities Pre-Trade Data from Alternative
Trading Systems,'' Research Paper, Municipal Securities Rulemaking
Board, October 2018; Government Accountability Office (``GAO''),
``Municipal Securities: Overview of Market Structure, Pricing, and
Regulation,'' Report to Congressional Committees, January 2012, page
6; Green, Richard C., Burton Hollifield, and Norman Sch[uuml]rhoff.
``Financial intermediation and the costs of trading in an opaque
market.'' The Review of Financial Studies 20.2 (2007): 275-314.
\74\ As an illustration, in its 2022 Request for Comment, the
MSRB's economic analysis showed that out of the universe of 251,635
``analyzed trades'' with same-CUSIP-number-matched trades in 2021,
where a matched trade was executed before the analyzed trade's
execution but was reported after the analyzed trade's execution,
approximately 27.9 percent of those analyzed trades had at least one
matched trade executed more than a minute before the analyzed
trade's execution. This suggests those analyzed trades would have
benefited from the matched trades' execution information if matched
trades were required to be reported no later than one minute after
their execution times.
---------------------------------------------------------------------------
[[Page 5396]]
information on trades in other comparable municipal securities would
also be valuable in pricing a security. Lowering the reporting time
would make more contemporaneous trades in comparable securities
transparent for other transactions.\75\ Finally, with far fewer trades
in municipal securities when compared to equity securities, Treasury
and corporate bonds, each additional data point from post trade
reporting in municipal securities would potentially be more valuable to
investors and other market participants than a data point from these
other markets. According to established economic literature, investors,
especially retail investors, benefit from transparency (more and/or
better information) by enhancing their negotiation power with dealers
as well as reducing dealer's own search and intermediation costs,
therefore reducing customer trades' transaction costs, also known as
bid-ask spread or effective spread. The MSRB believes additional data
points from more contemporaneous trades in the same and/or comparable
securities would increase an investor's negotiating power.
Specifically, regarding trade reporting time, two research papers
scrutinized the transition in 2005 from reporting trades at the end of
a trading day to 15 minutes after trade execution. Both studies
revealed a statistically significant decrease in the average effective
spreads for customer trades. When comparing the period before and the
period after January 2005, the reduction in average customer trade
effective spread ranged between 11 to 28 basis points, all else being
equal.\76\ In addition, more timely reporting has also been shown to
increase dealer market-making activities in the municipal markets,
potentially enhancing market liquidity.\77\
---------------------------------------------------------------------------
\75\ A 2012 report issued by the GAO stated ``Broker-dealers we
spoke with said that the price of a recently reported interdealer
trade for a security was a particularly good indication of its value
for that segment of the market. However, if a security has not
traded recently, they said they instead look for recent trades in
comparable securities.'' See GAO, ``Municipal Securities: Overview
of Market Structure, Pricing, and Regulation,'' Report to
Congressional Committees, January 2012, page 12.
\76\ See Sirri, Erik, ``Report on Secondary Market Trading in
the Municipal Securities Market,'' Research Paper, Municipal
Securities Rulemaking Board, July 2014, and Chalmers, John, Liu, Yu
(Steve) and Wang, Z. Jay, ``The Difference a Day Makes: Timely
Disclosure and Trading Efficiency in the Muni Market,'' Journal of
Financial Economics, 2021. Sirri (2014) estimated that following the
implementation of RTRS in January 2005, the average customer trade
spread was reduced, all other relevant factors being equal, by 11
basis points within the first six-month period and up to 20 basis
points within the one-year period. Chalmers, Wang and Liu (2021)
found that dealer markups across all trade sizes declined by 28
basis points (14 percent reduction) in a ten-month period (March
2005 through December 2005). The authors concluded that the improved
timeliness of the market resulted in large reductions in the costs
of trading municipal bonds.
\77\ As indicated by an increase in the overnight and over-the-
week dealer capital committed to inventory, an increase in the
number of dealers involved in completing a round-trip transaction,
and more round-trip transactions that involve inventory taking. See
Erik Sirri, Report on Secondary Market Trading in the Municipal
Securities Market, July 2014 (Research Paper, Municipal Securities
Rulemaking Board); John Chalmers, Yu (Steve) Liu, & Z. Jay Wang, The
Difference a Day Makes: Timely Disclosure and Trading Efficiency in
the Muni Market, 139(1) Journal of Financial Economics, 313-335
(2021).
---------------------------------------------------------------------------
Recent MSRB analyses show that effective spreads for customer
trades continued to decline in the last decade.\78\ However, while the
difference in effective spreads between smaller retail-sized customer
trades and larger institutional-sized customer trades shrank over the
past decade, the shrinkage has stopped, and the gap may have started to
widen again since early 2022.\79\ Therefore, as of September 2023,
retail-sized customer trades continue to have significantly higher
effective spreads than institutional-sized customer trades as shown in
Chart 1, about three times as large.\80\
---------------------------------------------------------------------------
\78\ See Wu, Simon Z., ``Transaction Costs for Customer Trades
in the Municipal Bond Market: What is Driving the Decline?''
Research Paper, Municipal Securities Rulemaking Board, July 2018,
Page 15; and Wu, Simon Z., and Ostroy, Nicholas J., ``What Has
Driven the Surge in Transaction Costs for Municipal Securities
Investors Since 2022?'' Research Paper, Municipal Securities
Rulemaking Board, August 2023.
\79\ Wu and Ostroy (2023). The reduction was mostly due to the
steadily declining effective spreads for retail-sized customer
trades, as institutional-sized customer trades (par value more than
$1,000,000) had a relatively stable level of effective spreads
between 2005 and 2023.
\80\ Id.
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[[Page 5397]]
[GRAPHIC] [TIFF OMITTED] TN26JA24.009
Based on available economic literature and the MSRB's own analysis
of trade data, the MSRB believes that the proposed rule change would
further reduce customer trade effective spreads due to the benefit of
more immediate transparency, especially for retail-sized trades. The
MSRB acknowledges the difference in the potential impact, due to the
different scale of the changes, between the launch of RTRS in January
2005 with the introduction of a 15-minute reporting window in place of
end-of-day reporting, on the one hand, and the proposed shortening of
the trade reporting requirement from 15 minutes to one minute, on the
other hand. Nevertheless, while the anticipated positive effect of the
proposed one-minute trade reporting with two new exceptions may not
match the magnitude of the 2005 RTRS transition, it is expected to
yield valuable advantages for investors through the inclusion of more
contemporaneous trade data points in the same and/or comparable
securities. This holds particularly true for retail investors, who have
historically paid higher effective spreads than institutional investors
and derived greater benefits from post-trade transparency compared to
institutional investors.\81\ For illustration purposes, hypothetically
if a shortening of trade reporting time to one minute for Active
Dealers (except for manual trades) would reduce the effective spread by
an average of five basis points \82\ for customer trades with $1
million or less par value, this would result in the annual savings
(benefits) for investors of approximately $126.2 million based on the
2022 trading volume (see Hypothetical Scenario 1 in Table 3).\83\ Table
3 also shows a more conservative scenario when limiting the
hypothetical effective spread reduction to a trade size of $100,000 par
value or less only, commonly known as a proxy for retail-sized trades.
A reduction of five basis points in effective spreads from the proposed
rule change applicable to these trades would result in the annual
savings of approximately $49 million to retail investors (see
[[Page 5398]]
Hypothetical Scenario 2 in Table 3).\84\ On the other hand, while the
MSRB believes dealers would earn less from investors as a result of
narrowing effective spreads, the shortfall would be partially offset by
gains in market efficiency, potential reduction in dealer search and
intermediation costs, and potentially increased revenue from higher
customer trading activity as a result of lower transaction costs. This
is in line with the economic theory on the law of demand that a
reduction in price would generally encourage more purchasing by
consumers, all else being equal.\85\ In the case of secondary market
trading, the expectation is that a reduction in trading costs would
encourage more trading by existing investors and/or bring in new
investors to the municipal securities market over the long term. The
MSRB assumes a reduction of five basis points in the effective spreads
for the $1 million par value or lower customer trades would generate an
additional 0.2 percent in total customer trading volume for that trade
size group, while a reduction of five basis points in the effective
spreads for the $100,000 par value or lower customer trades would
generate an additional 0.2 percent in total customer trading volume for
that trade size group.\86\ The MSRB therefore estimates dealers would
gain between approximately $1 million to $3 million from projected
additional annual customer trading volume.
---------------------------------------------------------------------------
\81\ Id.
\82\ To be conservative, the MSRB uses five basis points as an
illustration, where a five-basis point reduction in price value of a
$100 par value bond is equivalent to $0.50 per bond. This estimate
is less than half of the estimated lower-bound reduction from the
2005 changeover from end-of-day trade reporting to 15 minutes from
Time of Trade reporting, and is only applicable to non-
institutional-sized customer trades (either sub-$1,000,000 par value
or $100,000 or lower par value customer trades). No change in
effective spread for other customer trades is included in the
analysis, as larger-size institutional customers are assumed to be
sophisticated and already have pricing information.
\83\ In 2022, $504.8 billion annual par value traded from all
customer purchase and sell trades with trade size below $1,000,000
par value x 0.05 percent/2 = $126.2 million. Since the five basis
points are the difference between the average customer purchase and
customer sell trades, when measuring each customer purchase or
customer sell trade, the amount is divided by two.
\84\ In 2022, $196.1 billion annual par value traded from all
customer trades with trade size at $100,000 par value or less x 0.05
percent/2 = $49 million.
\85\ Davenant, Charles, An Essay upon the Probable Methods of
Making People Gainers in the Balance of Trade (London: James
Knapton, 1699).
\86\ The 0.2 percent volume increase would be about half of the
lower-bound estimate for the 2005 change over (see Chalmers, Wang
and Liu, 2021).
[GRAPHIC] [TIFF OMITTED] TN26JA24.010
While five basis points are used as an illustration in Table 3,
even if the reduction in effective spread was only half of the amount,
or 2.5 basis points, the total annual savings would still amount to
between $24.5 million and $63.1 million approximately.
In addition to investors benefiting from more immediate market
transparency, other market participants would also benefit from the
proposed rule change, including underwriters and issuers who determine
evaluated pricing of a new issuance, dealers in the primary and
secondary markets who participate in competitive bidding activities,
and yield curve providers that rely upon market transactions to update
curves or to supply intra-day price and yield movement for the market.
Lastly, any trade that meets the definition of a manual trade would
be required to append a new trade indicator to such trade when reported
to the MSRB, regardless of when the trade is reported. This trade
indicator would help the MSRB identify the extent to which the market
still operates manually and could help determine whether the proposed
gradual reduction in timeframes proposed would be feasible to maintain
or to continue reducing in the future.
Costs
The MSRB acknowledges that dealers would likely incur additional
costs, relative to the current state, to meet the new one-minute
transaction reporting time of one minute outlined in the proposed
amendments to Rule G-14 RTRS Procedures though the compliance costs
would be mitigated by the fact that nearly 73.7 percent of all trades
were already reported within one minute of an execution in 2022. These
additional costs would likely include: (a) one time or upfront costs
(e.g., setting up and/or revising policies and procedures, education
and training and implementing the newly required manual trades flag);
(b) ongoing costs related to subscription(s) to electronic trade
reporting technologies to speed up the trade reporting process for some
Active Dealers; and (c) other ongoing costs related to ensuring
compliance with the new proposed requirements.
Upfront Costs
For the upfront costs, it is possible dealers may need to seek
appropriate advice of in-house or outside legal and compliance
professionals to revise policies and procedures in compliance with the
proposed amendments to Rule G-14 RTRS Procedures. Dealers may also
incur upfront costs related to education and/or standards of training
in preparation for the implementation of these proposed amendments, as
well as establishing the newly required manual trades flag. The MSRB
believes the upfront costs as related to updating policies and
procedures, training and education would be relatively minor, perhaps
about $6,720 for Dealers with Limited Trading Activity and up to
$11,200 for Active Dealers for a total of
[[Page 5399]]
about $5.1 million (see Table 3).\87\ In addition, there would be a
one-time upfront cost for software or compliance system upgrade to flag
manual trades and to reprogram the system to comply with the shorter
reporting timeframe, though the amount would depend on how this new
requirement is implemented by the industry. While the MSRB does not
have sufficient data and information presently to estimate the cost,
the MSRB believes the upfront cost for implementing the manual trade
flag would likely be more substantial than the other upfront cost
components.
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\87\ The hourly rate data was gathered from the Commission's
Amendments to Exchange Act Rule 3b-16. See Exchange Act Release No.
94062 (Sep. 20, 2022), 17 CFR parts 232, 240, 242, 249 (Jan. 26,
2022) (File No. S7-02-22), p. 477 n.1102 (citing the original source
of the data from SIFMA Management & Professional Earnings in the
Securities Industry--2013. The data reflects the 2023 hourly rate
level after adjusting for the annual wage inflation between 2013 and
2023, using the Federal Reserve Bank of St. Louis Employment Cost
Index: Wages and Salaries: Private Industry Workers (available at:
https://fred.stlouisfed.org/series/ECIWAG). The MSRB uses a blended
hourly rate of $560 for tasks that could be performed by in-house
attorneys, outside counsel, compliance managers and chief compliance
managers, and estimates a total of 12 hours for Dealers with Limited
Trading Activity to update policies and procedures, and implement
training and education, and 20 hours for Active Dealers. As shown in
Table 4, the one-time upfront costs are estimated to be $5.1 million
($11,200 x 173 + $6,720 x 474 = $5.123 million).
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Ongoing Costs: Annual Technology Subscription
By comparison, the annual ongoing technology subscription costs for
electronic trade reporting would likely be more significant for some
Active Dealers, as these dealers may need to obtain assistance from
outside vendors or increase in-house programming costs. It should be
noted that some dealers may be able to fulfill the new trade reporting
time requirement without any upgrade to their technology. While the
MSRB is not aware of any evidence that dealers are intentionally
delaying trade reporting, the current Rule G-14 provides a 15-minute
reporting window without the ``as soon as practicable'' requirement. As
a result, some dealers may not have reported their trades as soon as
practicable in the absence of a regulatory obligation. In addition, it
is possible that, instead of upgrading existing technologies, some
dealers, especially those with relatively few trades in municipal
securities, may augment their workforce to ensure a shorter reporting
lag after a trade execution. Finally, dealers executing voice trades
and secondary market trades in newly issued securities may not be able
to speed up the trade reporting process due to the manual nature of
these trades, even with the electronic trade reporting technology in
place.\88\
---------------------------------------------------------------------------
\88\ For example, in 2022, approximately 59 percent of the
secondary market transactions executed within the first three days
of a new issuance were reported within one minute, as compared to 77
percent of other secondary market trades. This may be largely due to
the additional time involved in setting up a new CUSIP for the
secondary market trading. The MSRB anticipates that such trades
requiring manual intervention would be subject to the phased-in
reporting requirement down to five minutes.
---------------------------------------------------------------------------
For the ongoing cost estimate, the MSRB assumes that Active Dealers
would not need to acquire electronic trade reporting technology if 90+
percent of the dealer's trades are currently reported between one and
two minutes after the Time of Trade,\89\ as those dealers are assumed
to be able to report the trades within the proposed one-minute trade
reporting requirement without resorting to an additional technology
subscription. However, if a dealer reports 90+ percent of trades by
more than two minutes, the MSRB assumes the dealer would need to
upgrade its technology to achieve the one-minute requirement. The MSRB
believes the proposed rule change would provide an incentive to adjust
internal policies and procedures or to improve reporting time without
resorting to additional technology subscription, especially with the
new one-minute trade reporting requirement for non-excepted trades as
well as the new ``as soon as practicable'' requirement that harmonizes
with the current analogous FINRA rules. As to the MSRB's usage of the
90+ percent threshold as opposed to a 100 percent threshold, the
proposed rule change provides an exception for manual trades for these
Active Dealers, meaning that a 100 percent compliance rate with the
baseline one-minute timeframe may not be required. The MSRB believes
that many of the trades that took longer than one minute to report
likely had a manual component; therefore, it may be that a threshold
lower than the 90 percent threshold would still satisfy the new
requirements in the proposed rule change, providing Active Dealers
additional time to report by using the new exception for manual trades.
However, because the MSRB does not know the actual share of manual
trades for each dealer at this time, to be aggressive (i.e.,
conservative) in estimating the costs, the MSRB includes these Active
Dealers in the ongoing technology subscription cost calculation.
---------------------------------------------------------------------------
\89\ For each dealer, the MSRB calculated the nearest minute(s)
(rounded up) to report at least 90 percent of its trades in 2022.
---------------------------------------------------------------------------
Chart 2 below illustrates the estimated technology subscription
cost of acquiring the electronic trade reporting technology for these
dealers. From the industry outreach effort, the MSRB learned it would
cost a dealer approximately up to an additional $60,000 annually, which
includes a bundle of services in addition to the electronic trade
reporting.\90\ The MSRB believes, however, this cost estimate may be on
the high side because: (1) dealers may not need to purchase the bundle
simply to speed up the trade reporting depending on their existing
subscription services; \91\ and (2) some dealers may have more than 10
percent of their trades having a manual component, and since the
proposed rule change would use a phase-in period for these trades, with
the requirement of as soon as practicable but no later than five
minutes after the Time of Trade after the second year, it may reduce
the need or the scale to pay for the technology subscription costs.
Furthermore, since the requirement for the one-minute trade reporting
would likely be applicable to other TRACE-eligible fixed-income
securities such as corporate bonds under the 2024 FINRA Proposed Rule
Change, dealers that trade both municipal securities and corporate
bonds may only need to pay the subscription cost once, or at least not
need to pay double the amount. Still, to be aggressive in the cost
estimate, the MSRB would use the $60,000 as the minimum annual cost for
dealers who would need the new technology subscription. In addition, it
is possible that some dealers, especially larger dealers, may need more
than one vendor for automated trade reporting when executing orders on
multiple
[[Page 5400]]
electronic platforms. Therefore, the MSRB estimates, among Active
Dealers who would need new technology subscription to comply with the
proposed rule change, such Active Dealers would incur approximately
$100,000 annually to adopt the electronic trade reporting to comply
with the proposed rule change,\92\ while a dealer with less than 12,000
trades annually \93\ would incur $60,000 annually.\94\
---------------------------------------------------------------------------
\90\ Some comment letters also cited Bloomberg's Trade Order
Management Solutions (``TOMS'') system, which would cost $250,000
per year. See Letter from Matthew Kamler, President, Sanderlin
Securities LLC, dated September 27, 2022, at 1. Another commenter
estimated the cost at $500,000 per year. See Letter from John Isaak,
Senior Vice President, Isaak Bond Investments, dated August 16,
2022, at 1. The MSRB understands that TOMS can be used for many
purposes, such as sales, trading, risk management, compliance and
operations, and not just for electronic trade reporting. TOMS can
also be used for many fixed-income products and not just for
municipal securities. See https://www.bloomberg.com/professional/product/trade-order-management-solutions/. Thus, the cost associated
with TOMS would generally appropriately be allocated among the
various uses that a dealer is likely to make of it.
\91\ For example, one vendor informed the MSRB that it charges
up to $1,000 per month for straight-through processing of trades, or
$12,000 annually. Some other dealers mentioned $2,000 monthly, or
about $24,000 annually to incorporate electronic trade reporting.
\92\ The MSRB assumes these dealers would need a second vendor,
but instead of doubling the amount from $60,000 to $120,000, the
MSRB estimates the amount to be approximately $100,000 assuming
there would be some efficiency gain.
\93\ A market share of between 0.01 percent and 0.1 percent
based on the 2022 data.
\94\ Of the 173 Active Dealers, 82 dealers had 12,000 trades or
more in 2022 and 91 had less than 12,000 trades. For Dealers with
Limited Trading Activity, the MSRB assumes there is no need for
technology subscription since they would be able to utilize one or
both new exceptions, and therefore the proposed new requirement is
similar to the present requirement in Rule G-14 for these dealers.
[GRAPHIC] [TIFF OMITTED] TN26JA24.011
Table 4 provides an estimated total cost of approximately $5.1
million for the one-time policies and procedures revision for all 647
dealers. As to the annual ongoing costs, MSRB staff estimated a total
of $6.6 million for the annual technology subscription for the 88
Active Dealers who would need the subscription.
[GRAPHIC] [TIFF OMITTED] TN26JA24.012
Note: There would also be upfront costs for system upgrade to flag
manual trades as well as ongoing costs for ensuring compliance. The
MSRB cannot provide an estimate for these costs presently because of
insufficient information.
Other Ongoing Compliance Costs
The MSRB anticipates ongoing costs of ensuring the compliance of
relevant trades to be reported within one minute, and manual trades to
be reported within the timeframes as proposed during and after the
phase-in period, with a new trade indictor for such trades.
Comparatively speaking, these ongoing compliance costs would be
relatively minor and may not significantly exceed the costs in the
current baseline, as all dealers should already have compliance
programs in place in relation to the current trade reporting
requirement.
[[Page 5401]]
Proposed Supplementary Material .02 would require all manual trades
from Active Dealers to be reported within five minutes eventually,
following the conclusion of the second calendar year from the effective
date. While the RTRS database currently does not flag manual trades,
assuming all trades currently reported more than one minute after the
Time of Trade are ``manual'' trades, Table 5 illustrates that 90.4
percent of all trades from Active Dealers were already reported within
five minutes in 2022. Hence, the MSRB believes a five-minute trade
reporting requirement is achievable for manual trades from Active
Dealers, with a three-year phase-in period, which provides ample time
for them to prepare and for the industry to create solutions.
[GRAPHIC] [TIFF OMITTED] TN26JA24.013
Effect on Competition, Efficiency and Capital Formation
The MSRB believes the proposed change to Rule G-14 RTRS Procedures
would improve market efficiency by providing more immediate trade
reporting transparency to the market. If indeed there would be a
reduction in customer transaction costs, as illustrated by the 2005
RTRS transition, even if on a smaller scale, the benefits to customers
would accrue over a longer period that would offset the investment in
upgrading technologies by select dealers. In addition, it is possible
that lower transaction costs may increase investor participation and
stimulate market activities by encouraging more trading by existing
investors and/or bringing in new investors to the municipal securities
market over the long term, therefore contributing to an overall
increase in capital formation. Finally, the harmonization of MSRB rule
requirements for municipal securities with FINRA requirements for other
TRACE-eligible fixed-income markets, as proposed in the 2024 FINRA
Proposed Rule Change, would create consistency for dealers who have
trading operations in all these markets, and, thus, would increase
efficiency in terms of their compliance burdens. Therefore, the MSRB
believes that the proposed rule change would facilitate capital
formation.
Some dealers may be impacted by the proposed rule change more than
other dealers to meet the new reporting time. However, the broader
impact on competition in the municipal securities market is expected to
be minor. The proposed change to Rule G-14 RTRS Procedures provides a
two-tier system (one-minute trade reporting requirement for Active
Dealers with an exception for manual trades and 15-minute trade
reporting requirement for Dealers with Limited Trading Activity) to
mitigate any potential unfavorable financial impact for Dealers with
Limited Trading Activity because of a lower revenue base. Therefore,
the MSRB does not believe the proposed change to Rule G-14 RTRS
Procedures would result in any burden on competition that is not
necessary or appropriate in furtherance of the purposes of the Exchange
Act.
Identifying and Evaluating Reasonable Alternative Regulatory Approaches
The MSRB has considered and evaluated several reasonable regulatory
alternatives. One alternative the MSRB reviewed was to introduce a
five-minute trade reporting period for Active Dealers. According to the
MSRB's estimates, as shown in Table 1 above, 23.3 percent (97-73.7
percent) of all reported trades in municipal securities would have
satisfied the five-minute reporting requirement but not the one-minute
reporting requirement in 2022. If the MSRB instituted a five-minute
trade reporting period, most of the industry would already satisfy the
obligations of a five-minute requirement and it would likely be less of
a burden for dealers to comply. In effect, MSRB rulemaking would merely
align with current market practices. However, considering that most
trades (97 percent) already took five minutes or less to be reported to
RTRS, the MSRB believes the five-minute reporting requirement, while
easier for dealers to comply with, would not have advanced the
immediacy of information transparency by a meaningful amount that would
make a difference for investors, especially retail investors, and other
market participants.
Another alternative would be for the MSRB to change the trade
reporting time by trade size. The MSRB was informed by comments
received in response to the 2022 Request for Comment described below
that large-sized trades are in many instances still negotiated
telephonically and require more dealer attention, and therefore would
be considered as trades with a manual component during the trading
reporting process.\95\ Table 1 above
[[Page 5402]]
shows a noticeable difference in the speed of trade reporting by
different trade size groups, with the reporting time increasing with
trade size. The MSRB could propose that small and medium-sized trades,
i.e., trades with par value below $1,000,000 which constitute about
97.3 percent of all trades, be reported within one minute while
proposing a longer threshold, for example, a five-minute threshold for
larger-sized trades which constitute about 2.7 percent of all trades.
However, trades with a manual component are already excepted from the
one-minute requirement under the proposed rule change, regardless of
the trade size, which would be superior to this alternative method
because the length of time to report a trade is heavily influenced by
the trade reporting process rather than the size of the trade per se.
In addition, anecdotal evidence suggests that large-sized trades do
have more of an impact on the direction of the market, as many market
participants weigh larger trades more heavily in determining market
movements and many of the existing market produced yield curves either
exclude small-sized trades from their analysis or weigh them much less
than larger-sized trades.\96\ While there may be both benefits and
costs for large-sized trades to be reported sooner where possible,\97\
adding a trade size-based reporting regime with delayed reporting by
large-sized trades on top of the manual component exception may cause
additional complication in trade reporting, potentially resulting in
increased trade reporting errors and/or trade cancellations and
corrections.
---------------------------------------------------------------------------
\95\ See Letter from Michael Decker, Senior Vice President for
Public Policy, Bond Dealers of America, dated October 3, 2022, at 2-
3 (``Trades negotiated and executed by phone, still the predominant
execution method for block-sized trades in municipals . . . require
human involvement and data entry, delaying the reporting process
easily past one minute.''); Letter from Seth A. Miller, General
Counsel, President, Advocacy and Administration, Cambridge
Investment Research, Inc., dated October 3, 2022, at 4; Letter from
Howard Meyerson, Managing Director, Financial Information Forum,
dated October 3, 2022, at 4; Letter from Edward J. Smith, General
Counsel and Chief Compliance Officer, Hartfield, Titus & Donnelly,
LLC, dated September 14, 2022, at 4; Letter from Robert D.
Bullington, Vice President, Compliance Officer, InspereX LLC, dated
October 3, 2022, at 4-5; Letter from John Isaak, Senior Vice
President, Isaak Bond Investments, dated August 16, 2022, at 1;
Letter from Robert Blum, President, Robert Blum Municipals, Inc.,
dated September 16, 2022 at 1; Letter from Christopher Ferreri,
President, RW Smith & Associates, LLC, dated September 13, 2022, at
4; Letter from Lee Maverick, Chief Compliance Officer, SAMCO Capital
Markets, Inc., dated September 30, 2022, at 2; Letter from Kenneth
E. Bentsen, Jr., President and Chief Executive Officer, Securities
Industry and Financial Markets Association and the SIFMA Asset
Management Group, dated October 3, 2022, at 8-9; Letter from Nyron
Latif, Head of Operations, Wells Fargo Wealth and Investment
Management, and Todd Primavera, Head of Operations, Wells Fargo
Corporate and Investment Bank, Wells Fargo & Company, dated October
3, 2022, at 3; Email from Glenn Burnett, Zia Corporation, dated
September 6, 2022, at 1. See also MSRB Notice 2013-02 (Request for
Comment on More Contemporaneous Trade Price Information Through a
New Central Transparency Platform) (Jan. 17, 2013) (eliciting
similar comments), available at https://www.msrb.org/Request-Comment-More-Contemporaneous-Trade-Price-Information-Through-a-New-Central-Transparency.
\96\ For example, the most widely used curve is the
Refinitiv[supreg] Municipal Market Data (MMD) AAA benchmark yield
curve that only includes institutional block size trades of $2
million par amount or more in the secondary or primary market. For
additional information regarding the MMD AAA curve, see Cameron
Marcus Arial, ``Public Administrator Choice Idaho School District
Finance Policy Observed'' (May 2019). Boise State University Theses
and Dissertations, File No. 1516, page 68, available at https://scholarworks.boisestate.edu/cgi/viewcontent.cgi?article=2639&context=td. This is in addition to the
IHS Markit AAA Curve and Bloomberg BVAL municipal AAA curves
displayed on the MSRB's EMMA website, which exclude small-sized
trades from their methodologies.
\97\ While more immediate transparency is beneficial to the
market in general, there has been some concerns about information
leakage if large-sized trades were reported and disseminated sooner.
See Letter from Sarah A. Bessin, Associate General Counsel,
Investment Company Institute, dated October 3, 2022, at 11.
---------------------------------------------------------------------------
A slight variation of the above alternative on divergent trade
reporting requirements would consider trades on Alternative Trading
System (``ATS'') platforms and other non-ATS trades differently, since
the speed of reporting differs between these two groups of inter-dealer
trades, with 79.7 percent of inter-dealer trades on an ATS platform
being reported within one minute in 2022 while only 69 percent of non-
ATS inter-dealer trades being reported within one minute. However,
variation of requirements could similarly cause confusion and may
further add burden on dealers who may have to maintain policies and
procedures with multiple exception paths. In addition, there is a
possibility that this alternative may impact the competition between
ATS platforms and other non-ATS platforms. Finally, ATS platforms also
report trades differently, with some ATS platforms being the reporting
party while other ATS platforms let participants on the ATS platforms
report trades directly to RTRS. Hence, not all ATS platforms have the
same reporting procedures.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
On August 2, 2022, the MSRB published the 2022 Request for Comment
to solicit comment on a potential amendment to Rule G-14 to require
that, absent an exception, dealers report transactions to an RTRS
Portal as soon as practicable, but no later than within one minute
following the Time of Trade (the ``Proposal'').\98\ The MSRB also
published a memorandum during the comment period for the 2022 Request
for Comment providing supplemental data regarding counts of trade
volume and time of reporting.\99\
---------------------------------------------------------------------------
\98\ See MSRB Notice 2022-07 (Request for Comment on Transaction
Reporting Obligations under MSRB Rule G-14) (Aug. 2, 2022),
available at https://www.msrb.org/sites/default/files/2022-09/2022-07.pdf.
\99\ Memorandum from John Bagley, Chief Market Structure
Officer, MSRB (Supplemental Data with respect to MSRB Notice 2022-07
Request for Comment on Transaction Reporting Obligations under MSRB
Rule G-14) (``MSRB Memorandum'') (providing supplemental trade
report time data), (Sep. 12, 2022), available at https://www.msrb.org/sites/default/files/2022-09/2022-07-MSRB.pdf.
---------------------------------------------------------------------------
In response to the 2022 Request for Comment, the MSRB received 53
comment letters from 51 commenters.\100\
[[Page 5403]]
Following consideration of the comments received and in light of
ongoing engagement with affected market participants, FINRA, the
Commission and other stakeholders, the MSRB determined to file the
proposed rule change, which incorporates certain key modifications to
the Proposal designed to address many of the key concerns expressed by
commenters and other market participants, including the establishment
of the two new intra-day exceptions \101\ to the baseline reporting
requirement.
---------------------------------------------------------------------------
\100\ See Letter from Kelli McMorrow, Head of Government
Affairs, American Securities Association (``ASA'') dated September
30, 2022; Letter from Mike Petagna, President, Amuni Financial, Inc.
(``AMUNI''), dated August 23, 2022; Email from Bill Bailey
(``Bailey''), dated August 4, 2022; Letter from Matt Dalton, Chief
Executive Officer, Belle Haven Investments, L.P. (``Belle Haven''),
dated October 3, 2022; Letter from Ronald P. Bernardi, President and
Chief Executive Officer, Bernardi Securities, Inc. (``BSI''), dated
September 30, 2022; Letter from Will Leahey, Head of Regulatory
Compliance, BetaNXT Inc. (``BetaNXT''), dated October 3, 2022;
Letter from Michael Decker, Senior Vice President for Public Policy,
Bond Dealers of America (``BDA''), dated October 3, 2022; Letter
from David Long, Executive Vice President, Correspondent Banking/
Capital Markets, and Vincent Webb, Managing Director, Bryant Bank
Capital Markets, Bryant Bank (``BB''), dated September 28, 2022;
Letter from Seth A. Miller, General Counsel, President, Advocacy and
Administration, Cambridge Investment Research, Inc. (``Cambridge''),
dated October 3, 2022; Email from Jay Lanstein, Chief Executive
Officer and Chief Technology Officer, Cantella & Co., Inc.
(``C&C''), dated September 16, 2022; Email from Maryann Cantone,
Cantone Research, Inc. (``CRI''), dated August 2, 2022; Letter from
J.D. Colwell (``Colwell''), dated September 9, 2022; Email from
Raymond DeRobbio (``DeRobbio''), dated August 3, 2022; Letter from
Gerard O'Reilly, Co-Chief Executive Officer and Chief Investment
Officer, and David A. Plecha, Global Head of Fixed Income,
Dimensional Fund Advisors LP (``Dimensional''), dated September 26,
2022; Letter from Robert A. Estrada, Esq., Chairman (Emeritus),
Estrada Hinojosa & Co., Inc. (``EH&C''), dated October 3, 2022;
Letter from Melissa P. Hoots, Chief Executive Officer and Chief
Compliance Officer, Falcon Square Capital, LLC (``Falcon Square''),
dated October 3, 2022; Letter from Howard Meyerson, Managing
Director, Financial Information Forum (``FIF I''), dated October 3,
2022; Supplemental Letter from Howard Meyerson, Managing Director,
Financial Information Forum (``FIF II''), dated April 27, 2023;
Letter from Jonathan W. Ford, Senior Vice President, Ford &
Associates, Inc. (``F&A''), dated September 9, 2022; Letter from
Edward J. Smith, General Counsel and Chief Compliance Officer,
Hartfield, Titus & Donnelly, LLC (``HTD''), dated September 14,
2022; Letter from Melissa Messina, Executive Vice President,
Associate General Counsel, R. Jeffrey Sands, Managing Principal,
General Counsel, and William Sims, Managing Principal, Herbert J.
Sims & Co., Inc. (``HJS''), dated October 3, 2022; Email from
Deborah Higgins, Higgins Capital Management, Inc. (``HCM''), dated
September 19, 2022; Letter from Lana Calton, Executive Managing
Director, Head of Clearing, Hilltop Securities (``Hilltop''), dated
October 3, 2022; Letter from Joe Lee, Chief Executive Officer, Honey
Badger Investment Securities, Inc. (``Honey Badger''), dated
September 30, 2022; Letter from Robert Laorno, General Counsel, ICE
Bonds Securities Corporation (``ICE Bonds''), dated September 30,
2022; Letter from Robert D. Bullington, Vice President, Compliance
Officer, InspereX LLC (``InspereX''), dated October 3, 2022; Letter
from Scott Hayes, President and Chief Executive Officer, and Chris
Neidlinger, Chief Compliance Officer, Institutional Securities
Corporation (``ISC''), dated September 30, 2022; Letter from Sarah
A. Bessin, Associate General Counsel, Investment Company Institute
(``ICI''), dated October 3, 2022; Email from Darius Lashkari,
Investment Placement Group (``IPG''), dated August 2, 2022; Letter
from John Isaak, Senior Vice President, Isaak Bond Investments
(``IBI I''), dated August 16, 2022; Letter from Donald J. Lemek,
Vice President--Operations and Chief Financial Officer, Isaak Bond
Investments, Inc. (``IBI II''), dated October 3, 2022; Email from
Mike Kiley, Owner, Kiley Partners, Inc. (``KPI''), dated September
27, 2022; Letter from Gary Herschitz, Chief Executive Officer,
Madison Paige Securities (``MPS''), dated September 30, 2022; Email
from Christopher Mayes (``Mayes''), dated September 27, 2022; Letter
from Kathy Miner (``Miner''), dated October 2, 2022; Letter from
Randy Nitzsche, President and Chief Executive Officer, Northland
Securities Inc. (``NSI''), dated October 3, 2022; Letter from James
W. Oberweis, President, Oberweis Securities, Inc. (``OSI''), dated
September 28, 2022; Letter from H. Deane Armstrong, Chief Compliance
Officer, and Joseph A. Hemphill III, Chief Executive Officer,
Regional Brokers, Inc. (``RBI''), dated October 3, 2022; Letter from
Robert Blum, President, Robert Blum Municipals, Inc. (``RBMI''),
dated September 16, 2022; Letter from F. Gregory Finn, Chief
Executive Officer, Roosevelt & Cross, Inc. (``R&C''), dated October
3, 2022; Letter from Christopher Ferreri, President, RW Smith &
Associates, LLC (``RWS''), dated September 13, 2022; Letter from Lee
Maverick, Chief Compliance Officer, SAMCO Capital Markets, Inc.
(``SAMCO''), dated September 30, 2022; Letter from Matthew Kamler,
President, Sanderlin Securities LLC (``Sanderlin''), dated September
27, 2022; Letter from Kenneth E. Bentsen, Jr., President and Chief
Executive Officer, Securities Industry and Financial Markets
Association and the SIFMA Asset Management Group (collectively,
``SIFMA''), dated October 3, 2022; Letter from Joseph Lawless, Chief
Executive Officer, Sentinel Brokers Company, Inc. (``SBC''), dated
September 30, 2022; Email from Edward Sheedy (``Sheedy''), dated
August 2, 2022; Letter from Glen Essert, Stern Brothers & Co.
(``Stern''), dated October 3, 2022; Letter from Jesy LeBlanc and Kat
Miller, TRADEliance, LLC (``TRADEliance''), dated September 28,
2022; Email from William Tuma (``Tuma''), dated August 8, 2022;
Letter from Nyron Latif, Head of Operations, Wells Fargo Wealth and
Investment Management, and Todd Primavera, Head of Operations, Wells
Fargo Corporate and Investment Bank, Wells Fargo & Company (``Wells
Fargo''), dated October 3, 2022; Letter from Keener Billups,
Managing Director, Municipal Bond Department, Wiley Bros.-Aintree
Capital (``Wiley''), dated September 20, 2022; Email from Thomas
Kiernan, Wintrust Investments, LLC (``Wintrust''), dated August 2,
2022; Email from Glenn Burnett, Zia Corporation (``Zia''), dated
September 6, 2022. All comments are available at: https://www.msrb.org/sites/default/files/2023-03/All-Comments-to-Notice-2022-07.pdf.
\101\ See supra ``Purpose--Proposed Rule Change--Exceptions to
the Baseline Reporting Requirement.''
---------------------------------------------------------------------------
While two commenters expressed support for the Proposal,\102\ and
several other commenters expressed some support for the overall goal
and certain specific aspects of the Proposal,\103\ most commentors
objected to shortening the timeframe for reporting from 15 minutes to
one minute after the Time of Trade. The comments received in response
to the 2022 Request for Comment are summarized below by topic and the
corresponding MSRB responses are provided.\104\
---------------------------------------------------------------------------
\102\ See Dimensional; Tuma.
\103\ See ICE Bonds at 1; ICI at 2; SIFMA at 2; Wells Fargo at
1.
\104\ Simultaneously with the MSRB's publication of the 2022
Request for Comment, FINRA published a request for comment on a
proposal to similarly shorten FINRA's TRACE trade reporting
timeframe for transactions in TRACE-eligible securities (the ``FINRA
TRACE Proposal''). See FINRA Regulatory Notice 22-17 (FINRA Requests
Comment on a Proposal to Shorten the Trade Reporting Timeframe for
Transactions in Certain TRACE-Eligible Securities From 15 Minutes to
One Minute) (Aug. 2, 2022); see also 2024 FINRA Proposed Rule
Change. Many commenters responding to the 2022 Request for Comment
also commented on the FINRA TRACE Proposal. The discussion of
comments herein is mostly confined to those comments addressing the
Proposal or the MSRB.
---------------------------------------------------------------------------
As Soon as Practicable Requirement
The MSRB sought comment on the Proposal's addition of a requirement
that trades must be reported as soon as practicable. Section (a)(ii) of
the Rule G-14 RTRS Procedures does not currently include the
requirement to report trades as soon as practicable. Adding this
requirement would harmonize this provision with FINRA Rule 6730(a),
which currently requires that, with certain exceptions, trades in
TRACE-eligible securities be reported as soon as practicable.
One commenter suggested that the MSRB more closely harmonize its
trade reporting requirements with FINRA's requirements by adopting the
existing ``as soon as practicable'' provision of FINRA Rule
6730(a),\105\ and most commenters addressing this aspect of the
Proposal supported this change or viewed it as consistent with current
practices.\106\ No commenter that opposed the Proposal noted that the
addition of the ``as soon as practicable'' language was the basis for
such opposition.\107\ Several commenters noted that the market already
effectively reports trades as soon as practicable.\108\ Another
commenter, while not explicitly supporting the ``as soon as
practicable'' language, supported the notion of examining and
investigating dealers to ensure compliance with such standard as an
alternative to shortening the timeframe for reporting.\109\ One
commenter also recommended that the MSRB provide supervisory guidance
that parallels the provisions of Supplementary Material .03 of FINRA
Rule 6730 with respect to the obligation to report trades as soon as
practicable.\110\
---------------------------------------------------------------------------
\105\ See SIFMA at 4, 7, 17, 21-22. BetaNXT, HJS, Hilltop and
R&C expressed general support for SIFMA's comment letter.
\106\ See Dimensional; EH&C at 2; SIFMA at 4, 7, 17, 21-22.
\107\ Rather, commenters opposing the Proposal, as discussed
herein, focused on the shortening of the deadline from 15 minutes to
one minute.
\108\ See BDA at 1-2; HJS at 5; SBC at 2. Hilltop and R&C
expressed general support for BDA's comment letter.
\109\ See Belle Haven at 7.
\110\ See SIFMA at 21-22.
---------------------------------------------------------------------------
In light of the comments received, the MSRB proposes to incorporate
the requirement that trades be reported as soon as practicable into the
proposed rule change for trades subject to an intra-day reporting
deadline, as well as to require the establishment of policies and
procedures for complying with the as soon as practicable reporting
requirement in proposed new Supplementary Material .03. As discussed in
``Purpose--Proposed Rule Change--New Requirement to Report Trades ``as
Soon as Practicable'' above, where a dealer has reasonably designed
policies, procedures and systems in place to comply with this standard,
and does not purposely withhold trade reports if it would have been
practicable to report such trades more rapidly, 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 purposely intend to delay the reporting of the trade (e.g., due to
a systems outage).
One Minute Timeframe for Reporting
The MSRB sought comment on shortening the timeframe for reporting
transactions currently required to be reported within 15 minutes after
the Time of Trade to one minute after the Time of Trade under the
Proposal.\111\
---------------------------------------------------------------------------
\111\ Transactions would also be required to be reported as soon
as practicable, as described above.
---------------------------------------------------------------------------
As noted above, most commenters objected to shortening the
timeframe for reporting from 15 minutes to one minute after the Time of
Trade, raising a number of issues regarding the merits of shortening
the reporting timeframe,
[[Page 5404]]
specific operational aspects of implementing a shortened timeframe, the
range of transactions and dealers subject to the new timeframe, and the
speed and manner of transitioning to a general one-minute reporting
requirement.
Operational Issues Relating To Reporting Within One Minute
Time of Trade
In the 2022 Request for Comment, the MSRB noted that the time to
report a trade is triggered at the time at which a contract is formed
for a sale or purchase of municipal securities at a set quantity and
set price. The 2022 Request for Comment asked whether ``Time of
Trade,'' as currently defined, is the appropriate trigger and, if not,
what other elements of the trade should be established before the
reporting obligation is triggered.
One commenter agreed that the definition of ``Time of Trade''
referenced in the 2022 Request for Comment is the appropriate trade
reporting trigger.\112\ Several other commenters expressed a desire for
greater clarity regarding the definition of ``Time of Trade.'' \113\
---------------------------------------------------------------------------
\112\ See Colwell at 3.
\113\ See BSI at 2; Colwell at 2; ISC at 2; ICI at 3; IBI II at
1; SIFMA at 14, 20-21; TRADEliance at 1.
---------------------------------------------------------------------------
A few commenters discussed certain trading scenarios in which they
believed that the ``Time of Trade,'' as defined by the MSRB, would not
be the appropriate trigger for trade reporting. One commenter noted
that manual trade entry does not necessarily begin at the time of
execution, particularly for firms that manually report trades to the
RTRS Web Portal.\114\ This commenter noted that a number of issues may
arise that can result in a delay of the manual trade entry process,
including information gaps due to new or unfamiliar securities or
having to wait to receive necessary information from the other side of
the transaction.
---------------------------------------------------------------------------
\114\ See Belle Haven at 5.
---------------------------------------------------------------------------
Two commenters acknowledged that while personalized negotiation
effectively occurs prior to the formal time of execution that marks the
beginning of the trade reporting process, the two stages are
inextricably linked.\115\ These commenters were concerned that
mandating one-minute trade reporting across the board would require a
de-linking of these two processes, which could introduce artificiality
into the broker-client relationship and hinder execution until adequate
technological advances are developed. Another commenter argued that the
primary consideration should be the business method used in trade
execution, such as in the case of the business model of a voice broker.
This commenter provided an example of a one-on-one transaction created
between a buyer and seller when a dealer executes a trade with a
customer, and contrasted this with an intermediated trade by a voice
dealer that includes multiple components. For these types of
intermediated trades, the commenter noted that perhaps an appropriate
trigger would be when the intermediate transaction is complete (e.g.,
when all underlying trades of the intermediate transaction are
executed).\116\
---------------------------------------------------------------------------
\115\ See HJS at 4 (quoting SIFMA at 9).
\116\ See HTD at 4.
---------------------------------------------------------------------------
One commenter noted that if dealers are not permitted 15 minutes to
report manually executed trades, a firm that wants to continue to
execute trades manually might need to reach an agreement or
understanding with its customers that the execution time for a trade
agreed to by telephone, instant messaging or chat communication is the
time that the firm inputs the trade into the firm's books and records
in a systematized format for reporting to RTRS without manual
input.\117\
---------------------------------------------------------------------------
\117\ See FIF I at 4. BetaNXT expressed general support for
FIF's comment letter.
---------------------------------------------------------------------------
Another commenter noted that current fixed income trade matching
processes are not keyed off of time of execution, which would naturally
have an impact on the degree of precision of the time of trade
execution data when looking at finer time gradations, such as within a
single minute.\118\
---------------------------------------------------------------------------
\118\ See SIFMA at 7.
---------------------------------------------------------------------------
The MSRB is not seeking to amend the definition of ``Time of
Trade'' in conjunction with the proposed one-minute reporting
requirement. However, the MSRB has provided a discussion of certain
factors that may be relevant to determining the Time of Trade that
should address many of the concerns that the shorter reporting
timeframe would create greater pressure and require greater precision
in determining the Time of Trade.\119\ The MSRB believes that its use
of the term ``Time of Trade'' is appropriate and consistent with how
that term is understood by FINRA in connection with the reporting of
TRACE-eligible securities to TRACE under applicable FINRA rules, and
that the guidance provided herein would provide more assurance for
dealers in determining the Time of Trade with greater clarity and
precision.
---------------------------------------------------------------------------
\119\ See supra ``Purpose--Proposed Rule Change--Time of Trade
Discussion'' for a discussion of and related guidance on the
definition of Time of Trade under Rule G-14 RTRS Procedures Section
(d)(iii).
---------------------------------------------------------------------------
Automation of Trade Execution and Reporting
The 2022 Request for Comment noted that 76.9 percent of trades in
2021 subject to the existing 15-minute reporting requirement were
reported within one minute and requested input on whether there are any
commonalities with the trades that were reported within one minute or
reported after one minute. The 2022 Request for Comment also noted
that, based on the MSRB's analysis, trades conducted on ATS platforms
in 2021 were reported in less time than trades not conducted on ATS
platforms (``non-ATS trades''), with 84.4 percent of inter-dealer
trades conducted on an ATS platform being reported within one minute
while only 74.9 percent of non-ATS trades were reported within one
minute. The 2022 Request for Comment sought information on the
reason(s) it takes more time to report non-ATS trades.
Commenters generally noted that the commonalities in the trades
reported within one minute or after one minute depend on the extent of
human intervention required to execute and report a trade.\120\ In
general, these commenters acknowledged that faster reporting may be
achieved for the remaining approximately 20-25 percent of trades
depending on the level of automation of trades with more straight-
through processing and progressively reduced human intervention.
---------------------------------------------------------------------------
\120\ See BB at 1; Colwell at 2; Falcon Square at 1-2; FIF I at
2; HTD passim; OSI at 1; TRADEliance at 2.
---------------------------------------------------------------------------
Commenters generally agreed that the shorter reporting times of ATS
trades are the result of those trades being executed on a fully
automated and connected trading venue.\121\ They acknowledged that in a
connected system, trades flow automatically and timing is almost
instantaneous, with little to no manual intervention.\122\ In contrast,
these commenters acknowledged that trades executed away from an ATS
take more time to report due to higher levels of human intervention.
---------------------------------------------------------------------------
\121\ See HTD at 5; RWS at 5; Sanderlin at 6.
\122\ See Baily at 1.
---------------------------------------------------------------------------
The MSRB understands that automated processes currently play a
significant role in facilitating rapid reporting of trade information
to RTRS. The MSRB is aware, both through its own statistics and from
input from commenters, as more fully discussed below, that trades that
involve full automation through the trade execution and reporting
process typically achieve near instantaneous trade reporting that is
already consistent with the proposed
[[Page 5405]]
one-minute timeframe, but that other trades face higher challenges to
achieving one-minute reporting. As discussed previously, the MSRB
reminds dealers seeking to comply with the proposed rule change--
including the one-minute reporting requirement and new or existing
exceptions from such requirement--that they should consider the extent
to which they can automate their trade reporting and related execution
processes, consistent with their clients' needs and the dealers' best
execution and other regulatory obligations.\123\
---------------------------------------------------------------------------
\123\ See supra ``Purpose--Proposed Rule Change--Exceptions to
the Baseline Reporting Requirement--Exception for Trades with a
Manual Component'' for a discussion of and related guidance on
trades having a manual component.
---------------------------------------------------------------------------
Manual Steps in the Negotiation, Execution and Reporting Process
Several commenters raised issues about the potential impact of the
proposed rule change on trades that are negotiated by voice and/or
where the reporting process includes one or more manual components in
execution or trade reporting, such as in the case of large block trades
that require subsequent allocation, portfolio trades or other types of
complex trades that require some form of human intervention.\124\ These
commenters generally agreed that while manual trades represent a
relatively small percentage of trades by trade count, for the types of
trades identified above, a dealer may not be able to input and verify
trade data within one minute if that process involves human
intervention. These commenters further asserted that the proposed rule
change would disproportionately impact firms that accept orders that
are not electronically entered into an order management system
(including orders received via telephone or instant message) and would
effectively prohibit, by trade reporting rule, an entire category of
transactions that are otherwise customary industry practice. These
commenters also noted that this practice was particularly important to
the municipal securities industry where large institutional trades or
block trades are more likely to be negotiated and executed by voice and
processed manually.
---------------------------------------------------------------------------
\124\ See e.g., ASA at 4-5; Bailey at 2; C&C at 1; and FIF I at
1-2; HTD passim; HJS at 2-4; ISC at 2; IBI I at 1; KPI at 1; Mayes
at 1; RBMI at 1; RWS at 1-5; SAMCO at 1-2; SIFMA at 8-12, 24; SBC at
1-2; TRADEliance at 2; Wells Fargo at 3; Wintrust at 1. Hilltop,
Honey Badger, MPS and RBI expressed general support for ASA's
comment letter.
---------------------------------------------------------------------------
Another commenter argued that in most cases, it is not financially
feasible for a firm to report a trade to RTRS or TRACE within one
minute if the trade has been executed manually. This commenter noted
that manual trading is common in the very large universe of fixed
income securities for various reasons.\125\ One commenter noted that
the only way for a trade to be entered within 60 seconds is if two
opposing traders are on the phone at the same time and they agree to
drop their tickets at that very moment and input the data
immediately.\126\
---------------------------------------------------------------------------
\125\ See FIF at 2.
\126\ ISC at 2.
---------------------------------------------------------------------------
The MSRB recognizes that for some trades in the municipal
securities market, the trade details are entered manually due to the
inherent nature and characteristics of such trades. The MSRB also
understands that voice and electronic communications as a means of
trade execution that are not utilizing straight-through processing or
are not part of an automated trade execution and reporting process are
common for the municipal securities market. For these trades, the trade
reporting process might be difficult or impossible to complete within
one minute following the time of trade, even where the dealer has
established efficient reporting processes and commences reporting the
trade without delay.
As outlined below, commenters discussed a number of specific
scenarios involving such communications or other manual steps in the
process of executing and reporting trades for which shortening the
trade reporting timeframe could, in their view, potentially result in
adverse consequences.
To address these concerns, including the specific aspects raised by
commenters outlined in subparagraphs below, the MSRB has included in
the proposed rule change an exception from the proposed one-minute
trade reporting timeframe for trades with a manual component, which
would retain the existing 15-minute deadline for the first year in
which the proposed rule change is effective and then provide for a
measured decline in the timeframe to five minutes beginning two years
after such effectiveness, as discussed in greater detail herein.\127\
This phased approach would provide dealers effecting trades with a
manual component with a phased approach to achieving compliance that,
the MSRB believes, appropriately addresses the concerns that commenters
expressed.\128\
---------------------------------------------------------------------------
\127\ See supra ``Purpose--Proposed Rule Change--Exceptions to
the Baseline Reporting Requirement--Exception for Trades with a
Manual Component'' discussing the proposed exception for trades with
a manual component.
\128\ While the MSRB believes that the exception for trades with
a manual component effectively addresses the core issues raised in
the comments described in Subsections (1) through (6) below, the
MSRB also addresses certain other related comments not fully
resolved by such exception in ``One Minute Timeframe for Reporting--
Potential Negative Consequences of the One Minute Requirement.''
---------------------------------------------------------------------------
Voice and Negotiated Trading
Many commenters expressed concern about the potential impact of the
Proposal specifically on voice and negotiated trading, asserting that,
unlike equity markets, business in fixed income markets is often
conducted through voice negotiations, for institutional customers as
well as certain retail investors.\129\
---------------------------------------------------------------------------
\129\ See e.g., ASA at 3-4; AMUNI at 1; Bailey at 1; BDA at 2;
Cambridge at 4; Colwell at 3; HTD passim; FIF at 3, 4; HJS 2, 5;
InspereX at 3-5; ICI at 3, 4, 7, 9, 11; IBI I at 1; RBMI at 1; RWS
at 1-5; SAMCO at 1-2, 4; SIFMA at 5, 8, 11, 15, 24; SBC at 2; Wells
Fargo at 3; Wintrust at 1.
---------------------------------------------------------------------------
One commenter that is a dual registrant as a dealer and investment
advisor noted that an accelerated trade reporting regime would
negatively impact market participants that continue to prefer manually
negotiated trades for some portion of their fixed income trading
activity. While acknowledging that the volume of fixed income trades
executed electronically has risen, this commenter stated that many
investors still prefer to trade with dealers by voice or electronic
message (manually negotiated trades) rather than on an electronic
platform to benefit from receiving input on market color, including
credit information and information about comparable bonds trading in
the market. The commenter stated that some investors may also prefer to
negotiate on price directly because they are executing block-size
trades or portfolio trades. This commenter stated that trades
negotiated and executed manually (by voice or electronic message) take
longer to input and report in comparison to trades executed
electronically. This commenter further noted that a one-minute
reporting requirement would present a variety of process-oriented,
timing, and operational challenges, especially for a trading desk
engaging with multiple clients simultaneously and, therefore, the
proposed acceleration of reporting could alter the efficiency of fixed
income markets.\130\
---------------------------------------------------------------------------
\130\ See Wells Fargo at 3.
---------------------------------------------------------------------------
One commenter noted that the issue is not that dealers that execute
larger trades are using inefficient processes but that such trades are
typically executed by institutions using voice brokers. This commenter
also noted that there is a difference between institutional, voice
brokered fixed income markets and retail fixed income markets with
respect
[[Page 5406]]
to the manner in which trades in these markets are negotiated, executed
and processed. This commenter expressed concern that one-minute
reporting would effectively eliminate voice trading.\131\
---------------------------------------------------------------------------
\131\ See SAMCO at 1-2.
---------------------------------------------------------------------------
Larger-Sized Trades
The 2022 Request for Comment noted that larger-sized trades take
longer to report than smaller-sized trades and requested input on the
reason(s) it takes a firm that reports larger-sized trades more time to
report a trade (e.g., voice trades). The MSRB also asked if dealers and
investors would need process changes for executing and/or reporting
larger-sized trades in a shorter timeframe and if so, how.
A commenter stated that many small trades are executed on
electronic platforms and require minimal, if any, manual intervention,
allowing many smaller trades to be executed and reported almost
instantly. In contrast, the commenter stated that larger trades
typically require traders to negotiate and confirm details with a
client and manually enter the transaction into risk and reporting
systems. This commenter noted that large trades generally require
greater focus on risk management to promptly source and accurately
hedge the transaction in question, and an inability for firms to manage
their risk could hamper firms' willingness to incur risk, which could
dampen liquidity, increase systemic risk if dealers become less capable
of hedging on a timely basis and reduce execution quality for the
institutional investor.\132\
---------------------------------------------------------------------------
\132\ See SIFMA at 14-16.
---------------------------------------------------------------------------
A trade association commenter representing regulated investment
funds with members that are participants in the municipal securities
market noted that many of its members send large trades to dealers that
are worked throughout the day, which may have implications for dealers'
ability to report transactions within one minute or an otherwise
shortened timeframe.\133\ This commenter also noted that certain
characteristics of trades, particularly large trades and trades in less
liquid securities, are often done via ``high touch'' methods such as
voice protocol, often involving negotiation as to prices and size of
the trade.\134\
---------------------------------------------------------------------------
\133\ See ICI at 13 n.41.
\134\ Id. at 9 n.30.
---------------------------------------------------------------------------
Mediated Transactions
One commenter identified itself as a broker's broker that engages
in mediated transactions with other dealers to facilitate anonymity. It
noted that these mediated trades are often voice negotiated and require
manual intervention and processing from the point of execution through
the clearance and settlement processes. The commenter stated that these
trades are not reported within five minutes of execution, especially
for trades involving multiple counterparties, but that dealers use
their best efforts to report their trades as soon as practicable. The
commenter noted that processing of such trades is typically manual
given the complexities of mediated institutional transactions.\135\
---------------------------------------------------------------------------
\135\ See RWS at 1; see also SIFMA at 15.
---------------------------------------------------------------------------
This commenter further asserted that broker's brokers and other
inter-dealer brokers often are tasked by their dealer clients to
anonymously facilitate trades in numerous different credits as part of
the clients' trading needs on behalf of their own customers, requiring
reports of a large number of trades executed at the same time. The
commenter added that in some cases a transaction involves the
simultaneous purchase of a security and a hedge or other corresponding
security with multiple counterparties (e.g., buyer and seller is
intermediated by a broker's broker). The commenter stated that, to the
extent that all of these securities have a one-minute reporting
requirement, both set of trades would need to be reported within the
same minute, which may be functionally impossible.\136\
---------------------------------------------------------------------------
\136\ See RWS at 1.
---------------------------------------------------------------------------
Block Trades and Trade Allocations
A few commenters expressed concerns about large block trades
executed by firms that are dual registrants as dealers and investment
advisers, noting that these large trades must be further allocated to
their advisory customers. They noted that large block trades may be
executed contemporaneously with one or more counterparties, usually
through voice negotiation and a coordinated effort, and the allocation
may involve several additional smaller transactions with multiple
customers to fully reflect the deal and may potentially involve
multiple systems.\137\
---------------------------------------------------------------------------
\137\ See AMUNI at 2; BSI at 3; BetaNXT at 5; HJS at 4; ICI at
6, NSI at 1, RWS at 3; SIFMA at 10, 15, 19, Wells Fargo at 2-4.
---------------------------------------------------------------------------
Specifically, one commenter noted that a trade reporting exception
is necessary for block trades executed by a dealer and allocated to
client accounts of a registered investment adviser that is part of the
same legal entity. This commenter noted that as a dual registered
dealer and investment adviser, it regularly executes and reports block
trades and allocates portions of those trades to individual advisers'
client accounts and the sub-account allocations are executed at the
same price as the initial block trade.\138\ Another commenter noted
that when a dually-registered dealer/investment adviser purchases a
large block from the secondary market, it must report the block trade
to RTRS and also report each allocation to the sub-accounts held in its
investment adviser capacity, including managed retail customer
accounts.\139\ This commenter stated that the reporting issues
presented by such allocations are similar to those for the reporting of
portfolio trades, particularly the difficulty of reporting potentially
thousands of portfolio trades or allocations within a one-minute
reporting paradigm, as described below.\140\
---------------------------------------------------------------------------
\138\ See Wells Fargo at 2-3.
\139\ See SIFMA at 15.
\140\ Id.
---------------------------------------------------------------------------
Portfolio Trades and Trade Lists
Multiple commenters noted that dealers may receive large orders and
trade lists that involve rapid execution and frequent communications on
multiple transactions with multiple counterparties. They stated that
these trades may be executed as a series of trades that then must be
entered into the system one-by-one and could be difficult to report
within one minute following the Time of Trade.\141\ In addition,
several commenters noted that some transactions including large blocks
of transactions such as portfolio transactions may be subject to a
firm's internal approval processes for risk and regulatory compliance
and additional due diligence by way of, for example, a second review to
ensure accuracy.\142\
---------------------------------------------------------------------------
\141\ See BSI at 2; BB at 1; ICI at 13 n.41; FIF I at 4; SIFMA
at 14-15; Wells Fargo at 4.
\142\ See BSI at 2; BB at 1; FIF I at 4; HJS at 6; SIFMA at 14-
15; Wells Fargo at 4.
---------------------------------------------------------------------------
One trade association commenter noted that its members execute and
report their portfolio trades electronically because of the challenges
presented by manually inputting a large number of trades within a
limited time period.\143\ In contrast, another trade association
commenter stated that many customers engaging in portfolio trades seek
to do so through personalized negotiation rather than through
electronic venues, due in part to the complexity of counterparties
assessing potentially thousands of different securities without the
targeted interactions that occur in personalized negotiation, and
because of concerns about potential pre-execution leakage of
[[Page 5407]]
information regarding the nature of the investor's positions and
trading strategies from electronic trading venues.\144\
---------------------------------------------------------------------------
\143\ See FIF I at 4.
\144\ See SIFMA at 14.
---------------------------------------------------------------------------
One commenter noted that dealers often provide liquidity for
portfolios of bonds, including portfolios with more than one hundred
individual bonds. This commenter asserted that under a one-minute
reporting rule, dealers may not be able to execute these types of
portfolio trades at one point in time and report the trades in a timely
manner. The commenter advocated for an exception for portfolio trades
and for instances where market participants solicit actionable bids or
offers on multiple securities, such as a portfolio trade or a ``bid
wanted'' list.\145\
---------------------------------------------------------------------------
\145\ See Wells Fargo at 4.
---------------------------------------------------------------------------
Another trade association commenter representing regulated
investment funds with members that are participants in the municipal
securities market noted that some of its members engage in portfolio
trades, which require members to give certain information to dealers,
and that this may have implications for those dealers' ability to
report transactions within one minute or an otherwise shortened
timeframe and encouraged the MSRB to fully explore potential
operational issues.\146\
---------------------------------------------------------------------------
\146\ See ICI at 13 n.41.
---------------------------------------------------------------------------
Trading a Bond for the First Time/Security Master Issues
The 2022 Request for Comment sought information on any necessary
process(es) a dealer needs to complete before trading a bond for the
first time that could impact the ability to report a trade within a
reduced timeframe (e.g., querying an information service provider to
obtain indicative data on the security).
Many commenters were concerned about delays introduced by trades of
newly issued or infrequently traded securities where the security
reference information or indicative data is not already available
within the firm's or the clearing firm's security master.\147\ One
trade association commenter advocated that the MSRB provide an
exception for a security that may not be in a firm's security master at
the time the trade is executed. It also maintained that this exception
should extend to instances where a firm maintains separate security
masters for different customers.\148\ Another trade association
commenter noted that one-minute reporting may raise practical
challenges for certain asset classes, citing as an example, the
municipal securities market as being characterized by a large number of
individual security references, many of which are infrequently
traded.\149\
---------------------------------------------------------------------------
\147\ See ASA at 5; Bailey at 1; BetaNXT at 4; Colwell at 2, 4;
ISC at 2, RWS at 4; SAMCO at 3; Sanderlin at 6-7.
\148\ See FIF I at 8.
\149\ See ICI at 4 n.9.
---------------------------------------------------------------------------
Relatedly, some commenters noted that the absence of a centralized
global security master for municipal securities introduces delays in
the trade execution and reporting process and advocated for the MSRB to
consider hosting a security master for municipal securities.\150\ A few
commenters suggested that a one-minute trade reporting deadline would
be more practicable if the MSRB hosted a security master or hosted a
securities master jointly with FINRA.\151\ One commenter stated that
most market participants, including large clearing firms, do not have
the entire municipal securities market reference information in their
database, with new security references created daily and old securities
maturing. This commenter noted that, in general, if a security is not
set up in a security master, it is because there has not been a past
transaction at the dealer or clearing firm, and the time necessary to
process the set-up of a security in the security master greatly exceeds
one minute.\152\ A trade association commenter observed that its
members state that it takes almost all of the allotted 15 minutes to
query an information service provider to upload the missing security
master information and indicative data to refresh their securities
master, then submit the trade report.\153\ Another commenter stated
that some back-office systems that provide the connection to the MSRB
for reporting of corresponding trades also require the security master
update to be performed manually and therefore cannot report a received
trade within one minute.\154\
---------------------------------------------------------------------------
\150\ See Bailey at 1; BetaNXT at 3-4; BB at 1-2; Cambridge at
2; ISC at 2; RWS at 5; Sanderlin at 6; SIFMA at 11-12; TRADEliance
at 2.
\151\ See FIF I at 8; SAMCO at 3; SIFMA at 22-23; Wells Fargo at
4; Zia at 1.
\152\ See SAMCO at 3.
\153\ See SIFMA at 22.
\154\ See Zia at 1.
---------------------------------------------------------------------------
The exception for trades with a manual component is designed to
address these concerns as described above. While the MSRB acknowledges
the suggestion that it host a global security master for use by dealers
in reporting trades to RTRS, and while the MSRB continues to focus on
making its market transparency systems more useful for market
participants, the MSRB would not at this time be instituting such a
global security master in connection with the proposed rule change.
Multiple Layers in Reporting Process
A commenter opined that the current RTRS workflow is not suitable
for reporting trades within a one-minute time frame due to multiple
layers (i.e., third-party vendors and systems) that trade reports often
pass through before they are received by RTRS. This commenter
identified the various layers, including submission of the trade by the
executing firm to RTTM; if an executing firm is not a clearing firm,
the need to have the clearing firm report the executing firm's trade to
RTTM; and, if the clearing firm outsources the trade reporting function
to a service provider, such provider must make the submission in the
format accepted by RTRS. To address limitations faced by some vendors,
this commenter advocated for allowing trade submissions of municipal
securities to be made directly to TRACE using FIX, rather than RTRS, or
that the implementation period for the RTRS reporting changes be
postponed until a reasonable period after the TRACE reporting changes
proposed in the FINRA TRACE Proposal have been implemented to avoid
dealers being overburdened with implementing reporting changes for two
different systems at the same time.\155\ Other commenters expressed
similar concerns regarding the reliance on a third party for clearing
and trade reporting.\156\
---------------------------------------------------------------------------
\155\ See FIF I at 6-7 nn.25-28.
\156\ See BSI at 2; Colwell at 2; Falcon Square at 1-2; HTD at
6; Hilltop at 1; RBMI at 1; Wells Fargo at 4.
---------------------------------------------------------------------------
One commenter noted that while many firms use semi-automated
systems, many others use a manual system to execute trades with their
clearing firm, and that converting to a fully automated system is far
too expensive and therefore an impractical solution for many
firms.\157\ Another commenter stated that it relies on a third party
for clearing and trade reporting to RTRS, and such clearing firm
performs the trade reporting within one minute of the time the trade is
submitted by the dealer using the clearing firm's order entry system.
However, this commenter states it does not have an automated order
entry system, indicating the trade may be input into the clearing
firm's order entry system after the time of trade and entails manual
steps.\158\ A third commenter noted that the industry generally
fulfills the regulatory trade reporting obligation further downstream
in the trade
[[Page 5408]]
management process, and that industrywide processes may need further
rearchitecting and significant re-engineering of systems to move trade
reporting upstream. This commenter noted that this problem is of
particular concern for firms that rely on third parties for trade
reporting or for firms that employ systems that, by design, report
trades through their respective back-end systems.\159\
---------------------------------------------------------------------------
\157\ See BSI at 2.
\158\ See Sanderlin at 6.
\159\ See SIFMA at 20-21.
---------------------------------------------------------------------------
Trades Reported Through RTRS Web Interface
The MSRB noted that submitting transactions to RTRS directly
through the RTRS Web interface takes longer. The 2022 Request for
Comment sought information regarding the average amount of time
required to report a trade through the RTRS Web interface, how the MSRB
could improve the process for reporting through the RTRS Web interface
and the instance(s) in which a dealer might choose to or need to use
the RTRS Web interface.
A few commenters noted that their trades are reported
electronically by their clearing firms and that they do not normally
report trades via the RTRS Web interface.\160\ One commenter noted
that, at least until alternative methods of reporting trades are
developed to allow dealers to efficiently and effectively report the
types of trades that they currently report manually, retaining but
considerably improving the existing web interfaces is necessary.\161\
The commenter requested greater transparency in system outages and
performance degradations, heightened service level agreements and
emphasized that dealers should not be penalized for MSRB system
outages. Similarly, some commenters noted that there may be issues
external to MSRB systems, including internet and other types of broad-
based or localized outages or degradations outside the control of
dealers that may sometimes interfere with their ability to make timely
trade reports through the SRO web interfaces, which would be
increasingly problematic with any potential shortening of the trade
reporting window.\162\
---------------------------------------------------------------------------
\160\ See Colwell at 4; SAMCO at 1; HTD at 6; RWS at 5.
\161\ See Colwell at 2.
\162\ See id.; FIF I at 6-7; FIF II at 1-2; SIFMA at 23-24.
---------------------------------------------------------------------------
The RTRS Web interface is one of three available RTRS Portals under
Rule G-14 RTRS Procedures Section (a)(i)(B) (RTRS Web Portal or RTRS
Web) and would be maintained as such under the proposed rule change.
The MSRB will continue to explore ways in which to assure RTRS Web's
reliability and efficiency for use. With regard to systems outages, the
MSRB maintains a Systems Status Page on the MSRB website,\163\ which
indicates the current operational status of each of the MSRB's market
transparency systems and related supporting systems and provides any
then-applicable status updates. In addition, users are able to access a
historical catalogue of past MSRB systems outages through the Systems
Status Page.
---------------------------------------------------------------------------
\163\ See https://www.msrb.org/System-Status.
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Potential Negative Consequences of the One Minute Requirement
Accuracy of Information Reported and Potential Data Entry Errors
The MSRB requested input on whether reducing the timeframe to as
soon as practicable, but no later than within one minute after the Time
of Trade, would affect the accuracy of information reported and/or the
likelihood of potential data entry errors and if so, the reason for
such impact.
A number of commenters predicted that a rapid transition to a one-
minute standard would result in increased errors and corrections in
trade reporting as well as late trade reporting that would lead to
increased enforcement action.\164\ One commenter observed that the
current 15-minute reporting timeframe allows for traders to adequately
review trade tickets for errors in settlement, price, amount, and
similar data fields. This commenter stated that, even with the current
15-minute reporting window, human errors in completing trade tickets
often lead to trade cancellations and modifications.\165\ Some
commenters noted that reducing the trade reporting time to one minute
would likely have a detrimental effect on reporting accuracy because
market participants would be far more concerned with timely reporting
than reviewing for accurate trade information.\166\ Other commenters
expressed the concern that, if the Proposal were to be adopted, firms
may not have sufficient time to correct errors and would therefore be
in violation of trade reporting requirements.\167\
---------------------------------------------------------------------------
\164\ See ASA at 5; BB at 1; Cambridge at 3; Colwell at 2; EH&C
at 1-2; HJS at 2-3; ICI at 12-13; IBI II at 1-2; Miner at 1; SIFMA
at 15-17.
\165\ InspereX at 5.
\166\ Id. at 5-6. Accord. Cambridge at 3; HTD at 6; RWS at 5;
SAMCO at 2.
\167\ ASA at 5. See also SIFMA at 17.
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One commenter expressed concern that portfolio trades with
potentially thousands of unique securities might overwhelm the error
and correction process, or result in a surge of late trade reports, if
placed under a one-minute reporting standard. This commenter stated
that, depending on the nature of an adjustment or other small change in
terms in the context of a portfolio trade, that single adjustment might
result in the need for trade reporting correction for all the reported
trades for the basket of securities within the portfolio.\168\
---------------------------------------------------------------------------
\168\ See SIFMA at 16.
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Additional commenters felt that the dissemination of inaccurate
data caused by rushed reporting would be detrimental to the MSRB's goal
of increased market transparency.\169\ One of these commenters stated
that, if a sizable percentage of trades must be revised or are reported
late due to practical limitations regarding dealer operational
workflow, this could result in inaccurate data being reported to the
MSRB and disseminated publicly, thus undercutting a key purpose of
adopting the shortened reporting timeframes.\170\
---------------------------------------------------------------------------
\169\ See Colwell at 2; HJS at 2-3; ICI at 12-13; InspereX at 6;
Miner at 1.
\170\ ICI at 12-13.
---------------------------------------------------------------------------
A commenter noted that large trades require a higher level of
review than other trades and, as a result, large trades could land in
error queues or other queues for manual reviews for margin or credit
issues. The commenter stated that it would be extraordinarily difficult
to engage in these types of reviews in an effectively instantaneous
manner as would be required under a one-minute reporting regime. This
commenter further stated that ensuring that large trades are executed
accurately is critically important not only because of the higher
financial stakes inherent in large trades, but also because the larger
trades are often viewed by the market as the most informative, as to
current price levels, have the greatest influence on market indices and
generally set market tone. The commenter believed that the Proposal, if
adopted, could significantly curtail parties' ability to engage in
manual handling of trades and would have negative impacts on risk
management and liquidity, with, at best, little to no actual benefit to
the overall quality of market data.\171\
---------------------------------------------------------------------------
\171\ See SIFMA at 16.
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The MSRB believes that the degree to which a shortened trade
reporting timeframe might result in a greater prevalence of the
reporting of inaccurate information is significantly ameliorated by the
inclusion of the two new reporting exceptions under the proposed rule
change since the most likely circumstances where the risk of errors
could be heightened would be in the case of trades with a manual
component or trades by dealers that
[[Page 5409]]
only engage in limited municipal securities trading activities. Under
the exception for trades with a manual component, the existing 15-
minute deadline would be retained for the first year in which the
proposed rule change is effective and then decline in phases to five
minutes beginning two years after such effectiveness to provide dealers
adequate time to adjust their processes and systems. The exception for
dealers with limited trading activity would retain the current 15-
minute timeframe and therefore there would be no appreciable impact on
the accuracy of trade reports for such dealers' transactions.
Impact on Risk Management and Hedging
Several commenters articulated concern that one-minute trade
reporting would result in a decreased ability of dealers to manage
risks through timely hedging activity. These commenters noted that
unlike securities that are purchased and sold to customers almost
immediately, securities that are held in a firm's own inventory may
require additional coordination and diligence to hedge those positions
or take down a hedge when the position is unwound.\172\ One commenter
noted that institutional clients and/or dealers trading in blocks often
need to simultaneously take action to hedge their risk on such trades,
particularly during periods of volatility. This commenter expressed
concern that the need for dealers to attend to trade reporting to meet
a one-minute requirement on their fixed income trades in lieu of
immediately focusing on hedging or assisting institutional clients with
their own hedging would have an adverse impact on such efforts.\173\
---------------------------------------------------------------------------
\172\ See Hilltop at 1; ICI at 10; R&C at 1; SIFMA at 11, 15-16.
\173\ See SIFMA at 11, 15-16.
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Based on the comments received on the 2022 Request for Comment, the
MSRB believes that such risk management or other hedging activities
typically occur during the course of the types of municipal securities
transactions that commenters identified as requiring manual or other
human intervention. Such trades would, in many cases, qualify for the
exception for trades with a manual component, thereby providing dealers
with a phased approach to reducing the reporting timeframe to an
eventual five minutes in a manner that should allow such dealers to put
in place appropriate process or systems changes that would
significantly mitigate these concerns.
Impact on Best Execution Obligations
Many commenters also expressed concern that compliance with the
proposed rule change would negatively impact some firms' best execution
obligations.\174\ For example, one commenter noted that it built out a
semi-automated system to incorporate the human element, purposely
relying on a person to check and verify several factors before trade
execution, so that its process protocol reduces trade error frequency
and helps ensure compliance with due diligence, best execution and
other obligations.\175\ Another commenter noted that, due to the human
factor of voice brokerage activities and the impracticability, if not
impossibility, of automating these modes of trading, any attempt to
decrease reporting time would require additional personnel to
essentially shadow traders, preparing tickets and performing accuracy
checks, best execution checks and suitability checks, while the trader
is verbally negotiating the terms of the transaction with the
counterparty or broker. This commenter expressed concern about the
ongoing costs as well as the practicality of such shadowing of
traders.\176\ One commenter noted that the Proposal could create an
incentive for firms to ``auto-route'' more orders to help with
compliance, resulting in fewer individuals at such firms being involved
with handling orders with the potential consequences for price
improvement and best execution obligations.\177\
---------------------------------------------------------------------------
\174\ See ASA at 5; AMUNI at 1; BSI at 2; HJS at 5; ISC at 2;
IBI II at 1-2; SAMCO at 2; SIFMA at 9; SBC at 2.
\175\ See BSI at 2.
\176\ See HJS at 5.
\177\ See ASA at 5.
---------------------------------------------------------------------------
While it is likely that many dealers fulfill their best execution
obligations under MSRB Rule G-18 using processes that would not
normally have an impact on the timing of trade reporting of individual
transactions, the MSRB understands from commenters that some dealers
may have instituted processes with respect to their best execution
obligations that include manual steps or require other human
intervention occurring after the Time of Trade and therefore could have
an impact on the timing of trade reporting. The MSRB believes that the
exception for trades with a manual component would provide dealers that
use such a post-trade best execution process with a phased approach to
reducing the reporting timeframe to an eventual five minutes in a
manner that should allow them to make any appropriate adjustments to
such process that would significantly mitigate these concerns.
Burden on Dealers That Report a Small Number of Trades
The MSRB noted that, on average, dealers that report a smaller
number of trades per year take longer to report trades than dealers
that report a larger number of trades and requested information on the
reason(s) it takes a firm that reports a small number of trades more
time to report a trade and if and how their processes need to change to
report trades in a shorter timeframe.
Commenters generally agreed that many small dealers manually input
their trades into RTRS because their trade volume does not warrant the
cost to employ automated solutions and that manually inputting trades
means the reporting process takes longer because all of the required
information must be keyed in by a human.\178\ Commenters argued that a
significant increase in costs would disproportionately impact small
dealers.\179\ One commenter noted that shortening the reporting
deadline would eliminate manual entry and human intervention and force
small firms to use expensive front-end trade order management
systems.\180\ Another commenter stated that the municipal securities
market lacks a cost-effective software solution for all dealers to
comply with the Proposal and any new system would have to be
implemented over existing technology. It stated that the prohibitive
cost would reduce participation and efficiency in the market.\181\
Commenters noted that this would impose a disproportionate financial
burden on small- and medium-sized dealers, as they would have to invest
a significant amount of capital to comply with the Proposal. As a
result, these commenters expressed concern that many small dealers
including those with regional knowledge may exit fixed income secondary
trading. The commenters noted that this exit would lead to a further
concentration of municipal bond trading among the largest dealers in
the industry.\182\ A commenter opined that this would, in turn, reduce
competition, concentrate
[[Page 5410]]
risk among fewer dealers and give the remaining dealers more power over
prices.\183\
---------------------------------------------------------------------------
\178\ See ASA at 3-4; AMUNI at 1; Belle Haven at 2-7; BSI at 1;
BDA at 3-4; Cambridge at 3-4; CRI at 1; DeRobbio at 1; EH&C at 1-2;
Falcon Square at 1; F&A at 1; HCM at 1; HBIS at 1; ICE Bonds at 1;
InspereX at 1-2; ISC at 2-3; IPG at 1; IBI I at 1; IBI II at 1-2;
KPI at 1; Miner at 1-2; NSI at 1; OSI at 1-2; RBMI at 1; SAMCO at 3-
4; Sanderlin passim; SIFMA at 4-8, 12-13; SBC at 1-2; TRADEliance at
1-2; Wiley at 1-2; Wintrust at 1; Zia at 1.
\179\ See SBC at 1; see also ASA at 1.
\180\ See BDA at 3.
\181\ See NSI at 1.
\182\ See ISC at 1; NSI at 1.
\183\ See BDA at 3-4.
---------------------------------------------------------------------------
Two commenters argued that while small dealers may presently have
the technology or personnel to handle trades within 15 minutes, the
move to one minute may be beyond the reach of many due to the fact that
they likely lack the necessary resources to implement the requisite
technological changes and acquire any other necessary resources.\184\
One commenter explained that smaller dealers may not just struggle with
the upfront costs related to the implementation of technologies
necessary to speed up their trade reporting, which it estimated to be
upwards of half a million dollars, but would also face ongoing costs
associated with third-party reporting systems.\185\
---------------------------------------------------------------------------
\184\ See SIFMA at 12; see also Belle Haven at 5.
\185\ See Belle Haven at 5.
---------------------------------------------------------------------------
One commenter noted that without the bids placed by small and mid-
sized dealers the efficiency of the market and quality of best
execution would deteriorate. This commenter noted that the bids made by
small and mid-sized dealers contribute to a more dynamic bid-ask
process and optimization of prices.\186\ Another commenter emphasized
the critical role played by smaller, specialized or other subsets of
dealers trading particular products and representing historically
underserved communities and retail investors.\187\ Two commenters
stated that the Proposal would have a negative impact on minority-,
women- and veteran-owned dealers, which tend to be smaller firms.\188\
One of these commenters further stated that many issuers and
institutional buyers seek or require that minority-, women- or veteran-
owned dealers participate in the municipal securities business they
undertake, noting that such dealers' ability to participate in the
secondary market is vital to their ability to be relevant to both buy
side and borrower clients.\189\
---------------------------------------------------------------------------
\186\ See ISC at 2.
\187\ See SIFMA at 12.
\188\ See Stern at 1; SIFMA at 12.
\189\ See Stern at 1.
---------------------------------------------------------------------------
To address these concerns, the MSRB has included in the proposed
rule change an exception from the proposed one-minute trade reporting
timeframe for dealers with limited trading activity in municipal
securities, which would retain the existing 15-minute deadline, as
discussed in greater detail herein.\190\ Thus, such dealers would not
have to comply with a shorter deadline, although they would be subject
to the new ``as soon as practicable'' requirement included in the
proposed rule change.
---------------------------------------------------------------------------
\190\ See supra ``Purpose--Proposed Rule Change--Exceptions to
the Baseline Reporting Requirement--Exception for Dealers with
Limited Trading Activity'' discussing the proposed exception for
dealers with limited trading activity.
---------------------------------------------------------------------------
Alternatives to One Minute Requirement
One commenter, while expressing support for the MSRB's efforts to
provide more timely and informative data to enhance the value of
disseminated transaction data and stating that shortening the trade
reporting timeframe is an important step in these efforts, cautioned
that the industry is not prepared at this time to report all trades in
municipal securities within one minute after the Time of Trade. This
commenter acknowledged that based on MSRB data all but 2.7 percent of
trades are reported by the five-minute mark and therefore the industry
is prepared to report most trades within five minutes of
execution.\191\ Other commenters also suggested that the MSRB should
target five minutes as the appropriate shortened timeframe.\192\
---------------------------------------------------------------------------
\191\ See ICE Bonds at 1.
\192\ See Bailey at 1; BSI at 2-3; Colwell at 3; TRADEliance at
2.
---------------------------------------------------------------------------
Other commenters emphasized that not all types of trades must have
the same timeframe for reporting. For example, one commenter noted that
the heterogenous nature of the securities that fall within the MSRB's
jurisdiction makes a ``one-size-fits-all'' approach (or ``one-minute-
fits-all'' approach) inappropriate.\193\ A few commenters recommended
that, if the MSRB proceeds to shorten the reporting timeframe, trades
with a manual component should be excluded from that shortened
timeframe and continue to be subject to the current 15-minute
timeframe.\194\ One commenter suggested exceptions from an accelerated
trade reporting timeframe for internal allocations at dually-registered
dealers/investment advisers, trades in securities not in a firm's
security master, certain reverse inquiries and portfolio trades.\195\
Comments regarding existing and specific potential exceptions to the
proposed one minute timeframe and the MSRB's responses are discussed
below.
---------------------------------------------------------------------------
\193\ See HJS at 2; see also ICI at 10.
\194\ See, e.g., BDA at 4; FIF I at 2; HJS at 2.
\195\ See Wells Fargo at 2, 4.
---------------------------------------------------------------------------
The MSRB believes that the proposed rule change would establish
appropriate timeframes for the submission of trade reports to RTRS that
avoid establishing a one-size-fits-all approach while requiring that
all such trades be reported as soon as practicable. While most trades
subject to the current 15-minute timeframe would become subject to the
new baseline one-minute timeframe, trades with a manual component
would, under a phased approach that provides dealers with time to
adjust their processes and systems, eventually become subject to a
five-minute timeframe through measured steps, and trades by dealers
with limited trading activity in municipal securities would remain
subject to the existing 15-minute timeframe.
Exceptions to the One Minute Timeframe
Continuation of Current Exceptions
In the 2022 Request for Comment, the MSRB noted that Rule G-14
currently provides exceptions for certain trades to be reported at end
of day and requested input on if these exceptions are still necessary
and if so, whether end of day is still the appropriate timeframe for
reporting these transactions.
The MSRB received two comment letters requesting existing end-of-
day trade reporting exceptions to be preserved.\196\ One commenter
described the complexity of trade reporting for new issue transactions
and voiced concern that if the current end-of-day reporting exception
for List Offering Price/Takedown Transactions is eliminated, then large
transactions with up to 100 syndicate members and thousands of trades
would need to be pushed through a firm's systems much faster than in
today's environment. This commenter advocated that the MSRB should
maintain the other current end-of-day and non-immediate reporting
standards and potentially broaden such exemptions if a one-minute trade
reporting requirement is instituted.\197\ This commenter acknowledged
that these trades are required to be reported to ensure completeness
for regulatory audit trail purposes but they do not add relevant price
information to the marketplace since the prices for these transactions
are either known to the market or are off market.\198\
---------------------------------------------------------------------------
\196\ See SIFMA at 17-18; FIF I at 7-8.
\197\ See SIFMA at 17. In addition to primary market
transactions, these exceptions relate to trades in short-term
instruments and ``away from market trades'' (including customer
repurchase agreement transactions, unit investment trust related
transactions, and tender option bond related transactions).
\198\ Id.
---------------------------------------------------------------------------
The proposed rule change would preserve all existing end-of-day
trade reporting and other non-immediate exceptions without change.
[[Page 5411]]
Additional Trade Reporting Exceptions
The 2022 Request for Comment inquired if reducing the reporting
timeframe to one minute would require additional trade reporting
exceptions, other than end of day exceptions, to allow for certain
trades to be reported at a different time (e.g., three minutes). If so,
the MSRB requested commenters to identify the types of trades that
would require an exception and why such are believed to be necessary.
The MSRB has included two proposed new exceptions to the proposed
one-minute reporting timeframe in the proposed rule change to address
comments received from commenters regarding other potential trade
reporting exceptions that could be included in the Proposal. Commenters
also suggested other potential new exceptions from the reporting
timeframe, which the MSRB did not include in the proposed rule change.
These comments and the MSRB's responses are discussed below.
Proposed New Exception for Dealers With Limited Trading Activity
Several commentors stated that requiring all dealers, regardless of
size, to report within one minute of the Time of Trade might harm the
market by pricing smaller firms out of the industry.\199\ One commenter
predicted that the proposed rule change would necessarily require a
fully integrated and automated trading system, requiring almost no
manual input. This commenter stated that this constituted an unfair
burden and would likely lead to fewer small-firm market makers.\200\
Commenters identified trade volume or trading activity as a metric that
might indicate which firms were likely to be significantly negatively
impacted by the proposed rule change.\201\
---------------------------------------------------------------------------
\199\ See OSI at 1; RWS at 2; Wiley at 1.
\200\ See OSI at 1.
\201\ See RWS at 2; Wiley at 1.
---------------------------------------------------------------------------
The MSRB recognizes that, absent any exceptions, dealers that
report a smaller number of trades may be more affected if they are
required to report trades by no later than one minute after the Time of
Trade. As discussed above, the proposed rule change includes an
exception for a ``dealer with limited trading activity.'' \202\ A
dealer with ``limited trading activity'' would be excepted from the
one-minute reporting requirement pursuant to new exception described in
``Purpose--Proposed Rule Change--Exceptions to the Baseline Reporting
Requirement--Exception for Dealers with Limited Trading Activity'' 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.
---------------------------------------------------------------------------
\202\ See supra ``Purpose--Proposed Rule Change--Exceptions to
the Baseline Reporting Requirement--Exception for Dealers with
Limited Trading Activity.''
---------------------------------------------------------------------------
The MSRB believes that this new exception in the proposed rule
change would address commenters concerns regarding the potential
negative impact on smaller dealers under the Proposal. In effect,
dealers with limited trading activity would continue to be subject to
the same 15-minute reporting deadline as under the current rule
provisions, although they would also be subject to the new overarching
obligation to report trades as soon as practicable.
Proposed New Exception for Trades With a Manual Component
As described above, except for two commenters \203\ that expressed
support, all other commenters expressed the general view that reporting
all trades within one minute after the Time of Trade, particularly
those having a manual component, is not always possible. One commenter
argued that the Proposal, absent an exception from the 15-minute
reporting timeframe for manual trades, would severely impair the
ability of firms to continue to trade manually and, as a result, could
result in less liquidity and wider spreads that could negatively impact
investors. The commenter further stated that the lack of such an
exception could adversely impact smaller dealers and their customers.
This commenter recommended that electronic trade executions would be
reportable as soon as practicable and no later than within one minute
of the trade time while manual trade executions would continue to be
reportable within 15 minutes after the trade time.\204\ The commenter
noted that this would require adding a field to the RTRS systems for an
executing dealer to report whether a trade was executed manually or
electronically.\205\
---------------------------------------------------------------------------
\203\ See generally Dimensional; Tuma.
\204\ See FIF I at 2; see also BDA at 4; HJS at 2.
\205\ FIF I at 2. The proposed rule change would require that
trades with a manual component be reported with a new manual trade
indicator, consistent with this comment.
---------------------------------------------------------------------------
At least two commentors pointed to the need for an exception to
address unpredictable technological/operational issues, and one
proposed a permanent enforcement exception for trades reported late due
to a lag in reporting, outage, or other disruption directly caused by
the third-party.\206\ One commenter suggested that enforcement actions
should consider only the dealer's conduct during the reporting
timeframe, and perhaps independently review the conduct of any third-
party reporting entities.\207\
---------------------------------------------------------------------------
\206\ InspereX at 6; ICI at 13-14.
\207\ InspereX at 6.
---------------------------------------------------------------------------
The MSRB recognizes that not all trades in municipal securities
currently are executed and reported through straight-through processes
or other electronic means, and while the proportion of trades executed
and reported in that manner appears to be growing over time, it is not
likely that certain segments of the marketplace or trades conducted
under certain circumstances would migrate to fully electronic processes
in the immediate future. The commenters raised many scenarios,
described above, where dealers currently would face significant
challenges to completing the trade reporting process within one minute
following the Time of Trade, and in some cases it might not be possible
at all at this time unless significant technology and/or process
changes are first undertaken by dealers and the overall industry that
could entail considerable costs or cause material impacts to
counterparties in transactions with such dealers. The MSRB believes
that, depending on the specific facts and circumstances, and based on
many of the situations highlighted by commenters where human
intervention occurs in the course of reporting a trade to RTRS, such
trades could be viewed as a trade with a manual component.\208\
---------------------------------------------------------------------------
\208\ See supra ``Purpose--Proposed Rule Change--Exceptions to
the Baseline Reporting Requirement--Exception for Trades with a
Manual Component'' regarding scenarios where, depending on facts and
circumstances, a dealer may consider a trade as a trade having a
manual component.
---------------------------------------------------------------------------
For example, the MSRB acknowledges commenters' views that voice
brokerage and negotiated trading continue to be legitimate means of
executing fixed income securities transactions that may require the
manual entry of data or other human intervention after the Time of
Trade to report trade details to RTRS. The MSRB also acknowledges
commenters' views that dealers and their customers may have legitimate
reasons for preferring to execute larger-sized trades or trades in
portfolios of securities manually rather than through electronic
execution, and in many cases such manual processes may include steps to
address regulatory compliance or risk management issues. In addition,
the MSRB acknowledges commenters' descriptions of individual trades
that may be part of a more complex set of inter-dependent transactions,
such as
[[Page 5412]]
certain mediated transactions undertaken by broker's brokers,
transactions among multiple parties (including simultaneous allocations
to multiple advisory clients of dually-registered dealers/investment
advisers). Furthermore, the MSRB understands that individual trades may
require information necessary for reporting that may not be immediately
available to the executing dealer, such as in the case of a security
that has not been recently traded and therefore may not be included in
the dealer's or its clearing firm's security master.\209\
---------------------------------------------------------------------------
\209\ Once the appropriate indicative data is initially set up
in the security master, this issue would abate with respect to such
security and the dealer would thereafter be able to report the trade
within the required timeframes for subsequent trades absent other
manual factors.
---------------------------------------------------------------------------
For many trades facing the foregoing and other circumstances, the
MSRB realizes that a dealer's trade reporting process might not always
be completed within one minute following the Time of Trade, even where
the dealer has established efficient reporting processes and commences
to report the trade without delay. Accordingly, in response to the
commenters' concerns, the MSRB is proposing to adopt a new exception
for trades with a manual component. The new exception in Rule G-14 RTRS
Procedures and Supplementary Material .02 to Rule G-14 provides an
additional year from the effective date of the proposed rule change for
firms reporting transactions with a manual component to continue to
report their trades by no later than 15 minutes after the Time of
Trade. This time would gradually phase down to ten minutes for the
subsequent year and five minutes beginning the following year,
providing additional transitional time for dealers to plan for and
adjust their systems and processes to the new reporting requirements.
The MSRB notes that some commenters had suggested that the MSRB
establish a baseline five-minute timeframe for trade reporting, rather
than the 15-minute timeframe included in the Proposal. Transactions
with a manual component would have a trade reporting deadline that
matches the proposed eventual five-minute reporting timeframe.\210\
---------------------------------------------------------------------------
\210\ Furthermore, since a trade that is reported through the
RTRS Web Portal may be considered a trade with a manual component
and subject to an exception to the one-minute trade reporting
requirement, the MSRB believes that concerns regarding the ability
to enter trade reports through this portal are addressed by the
proposed exception. Therefore, the MSRB does not believe that
additional technological changes to the RTRS Web interface to
address this concern are necessary for this proposed rule change.
---------------------------------------------------------------------------
In addition, proposed amendments to Rule G-14 RTRS Procedures
Section (a)(iv) would provide that a pattern or practice of late
reporting without exceptional circumstances or reasonable justification
may be considered a violation of Rule G-14. The determination of
whether exceptional circumstances or reasonable justifications exist
for late trade reporting is dependent on the particular facts and
circumstances. The MSRB has provided guidance regarding scenarios that
generally would constitute exceptional circumstances such as incidents
that are outside the reasonable control of the dealer or where
reasonable justification exists depending on the specific facts and
circumstances, and based on many of the situations highlighted by
commenters where human intervention occurs in the course of reporting a
trade to RTRS.\211\
---------------------------------------------------------------------------
\211\ See supra ``Purpose--Proposed Rule Change--Pattern or
Practice of Late Trade Reporting'' for a discussion regarding
pattern or practice of late reporting.
---------------------------------------------------------------------------
Potential Incorporation of Certain FINRA Exceptions
A commenter suggested that the MSRB adopt FINRA's approach to not
require the reporting of customer repurchase agreement transactions,
stating that such transactions do not provide price information with
value to market participants.\212\ The MSRB notes that such
transactions are required to be reported to RTRS with the ``away from
market'' indicator, which results in transaction information not being
disseminated to the public but is made available to the regulatory
authorities charged with enforcing MSRB rules for oversight purposes.
The MSRB does not believe that it should reduce the information
currently made available for such oversight purposes as part of the
proposed rule change and therefore has not made the suggested change.
---------------------------------------------------------------------------
\212\ See SIFMA at 18.
---------------------------------------------------------------------------
This commenter also observed that FINRA does not require reporting
of list offering price transactions and takedown transactions for
TRACE-eligible securities until the next business day and suggested
that the MSRB harmonize its current end-of-trade-day reporting
requirement for List Offering Price/Takedown Transactions in municipal
securities to this FINRA reporting deadline.\213\ Relatedly, another
commenter suggested that all secondary market trades occurring on the
first day of trading of a municipal securities offering be provided
with the same end-of-trade day reporting deadline as for List Offering
Price/Takedown Transactions.\214\
---------------------------------------------------------------------------
\213\ Id.
\214\ See FIF I at 9.
---------------------------------------------------------------------------
The MSRB is not aware of any existing issues regarding the
reporting of List Offering Price/Takedown Transactions by the end of
the trade day and does not believe the market would benefit by delaying
the public dissemination of such information until the next day. The
MSRB also notes that if secondary market transactions that occur on the
first day of trading is at a price that is different from the list
offer price and is permitted to be reported on the next business day,
all market participants may not have access to the prevailing market
price of those secondary market transactions on the date the trade is
executed. Such secondary market trades would, in many cases, have
prices reflecting then-current market conditions rather than list
offering prices that may have been set one or more days prior. Delaying
dissemination of such price information would significantly reduce
real-time transparency in the municipal securities market precisely on
the day on which many securities experience their highest level of
trading. Thus, the MSRB has determined not to include these suggested
changes in the proposed rule change as they would reduce market
transparency.
Other Operational Considerations
Trades Executed When System is Not Open
Two commenters advocated for the continuation of a next-business
day 15-minute reporting standard for trades executed when the
respective trade reporting system is not open. These commenters
supported the continuation of the current MSRB standard for
transactions effected with a Time of Trade outside the hours of the
RTRS Business Day to be reported no later than 15 minutes after the
beginning of the next RTRS Business Day.\215\ One trade association
commenter noted that the FINRA rules for equity trade reporting and
TRACE reporting currently provide a 15-minute reporting period after
the facility opens the next business day for trades executed when the
reporting facilities are not open.\216\ This commenter stated that its
members have found the 15-minute period for reporting overnight trades
to be important in ensuring that an appropriate review of overnight
trades is being performed by U.S.-based staff prior to submission. The
commenter also noted that its members are concerned about technical
challenges with reporting within one minute after
[[Page 5413]]
the opening of a reporting system due to potential connectivity lags,
which could in turn mean that connectivity and reporting must occur
within one minute at the same time as many other industry members are
seeking connectivity to the reporting system. Thus, this commenter
expressed support for maintaining a 15-minute reporting requirement for
transactions effected with a Time of Trade outside the hours of the
RTRS Business Day.
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\215\ See FIF I at 7; SIFMA at 18.
\216\ See FIF I at 7-8.
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The other commenter argued that given the lapse of time between
execution and reopening inherent in a situation where trades are
executed when the system is not open, there is no value in changing
this deadline. It further stated that even for National Market System
stocks and Over the Counter equity securities, which have been subject
to a 10-second trade reporting timeframe for many years, trades
occurring after normal trading hours are required to be reported within
the first 15 minutes after the applicable FINRA equity trade reporting
facility re-opens the next trading day.\217\
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\217\ See SIFMA at 18.
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The MSRB is not proposing a change to the current reporting
standard for trades executed when the RTRS system is not open, which
will continue to be reportable within 15 minutes after the start of the
RTRS Business Day.\218\
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\218\ However, a proposed technical amendment to Rule G-14 RTRS
Procedures Section (a)(iii) would clarify and make explicit in the
text thereof that inter-dealer trades on an ``invalid RTTM trade
date'' are also not required to be reported until 15 minutes after
the next RTRS Business Day. This provision currently is set out in
Section 4.3.2 of the Specifications for Real-Time Reporting of
Municipal Securities Transactions.
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More Rapid Dissemination and Masking of Trades
Two commenters expressed concerns about the potentially more rapid
dissemination of trade prices that they believed could result in a
negative outcome under a one-minute reporting requirement and advocated
for the continuation of the practices related to dissemination caps by
FINRA or masking of certain trades by the MSRB.\219\ One commenter
noted that in connection with the Proposal, the MSRB should provide
firms the option to report non-disseminated data elements on an end-of-
day basis or in some cases, on a next day basis.\220\ The other
commenter expressed concern that more rapid dissemination of trade data
for block trades would raise the risk of significant negative liquidity
impacts. The commenter suggested that MSRB action would be needed to
address the heightened ability that one-minute dissemination would
provide opportunistic market participants to use such data on larger
trades to further advantage themselves and reduce the ability of such
blocks to achieve favorable levels of liquidity.\221\
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\219\ See FIF I at 4; SIFMA at 6, 17-19.
\220\ See FIF I at 4.
\221\ See SIFMA at 19.
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The MSRB notes that currently transaction information disseminated
from RTRS includes exact par value on all transactions with a par value
of $5 million or less but includes an indicator of ``MM+'' in place of
the exact par value on transactions where the par value is greater than
$5 million. The exact par value of transactions having a par value
greater than $5 million is disseminated from RTRS five business days
later. The MSRB implemented this approach in response to concerns that,
given the prevalence of thinly traded securities in the municipal
securities market, it is sometimes possible to identify institutional
investors and dealers by the exact par value included on trade
reports.\222\ While the MSRB would continue to evaluate whether this
threshold is appropriate, the MSRB is not proposing a change to its
masking practices at this time. The MSRB notes that, based on the
comments, many larger trades likely would qualify for the exception for
trades with a manual component and therefore would be subject to the
measured phased approach to shortening the reporting timeframe to five
minutes, thereby giving the market time to adjust to any incremental
changes in behavior resulting in the masked trades being made publicly
available on a shorter timeframe.
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\222\ See Exchange Act Release No. 68081 (Oct. 22, 2012); 77 FR
65433 (Oct. 26, 2012), File No. SR-MSRB-2012-07, available at
https://www.govinfo.gov/content/pkg/FR-2012-10-26/pdf/2012-26340.pdf.
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Examination and Enforcement
One commenter noted that FINRA and SEC examination staff should
take the opportunity, when they are at their closest interaction with
dealer personnel during the examination process, to provide appropriate
feedback to firms they believe are not reporting trades as soon as
practicable to assist in achieving more fully compliant trade
reporting.\223\ Another commenter noted that violations for late trade
reporting are black and white and that there are no other evidentiary
measures necessary in order for a regulator to bring examination or an
enforcement action against the late-reporting firm.\224\
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\223\ See SIFMA at 22.
\224\ See InspereX at 4.
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As noted in ``Purpose--Proposed Rule Change--Pattern or Practice of
Late Trade Reporting,'', the proposed rule change would incorporate
pattern or practice language, similar to the existing pattern or
practice language included in FINRA's equity trade reporting
rules,\225\ and has noted that this should be the focus of examining
authorities as opposed to individual outlier late trade reports, absent
extenuating circumstances.\226\ The MSRB already produces a series of
report cards accessible to dealers that describe the dealer's
transaction reporting data with regard to status, match rate,
timeliness of reporting, and the number of changes or corrections to
reported trade data. For most statistics, the industry rate is also
provided for comparison. The Lateness Breakout portion of the report
has a category for each type of reporting deadline, showing how many
trades were reported timely and late relative to the applicable
deadline. Such reports are available in both single-month and twelve-
month formats. The MSRB expects to make certain enhancements to the
report cards in connection with the implementation of the proposed rule
change if approved.
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\225\ See FINRA Regulatory Notice 13-19 (May 23, 2013),
available at https://www.finra.org/rules-guidance/notices/13-19.
\226\ See supra ``Purpose--Proposed Rule Change--Pattern or
Practice of Late Trade Reporting'' for a discussion on pattern or
practice of late trade reporting and related expectations for
regulatory authorities that enforce and examine dealers for
compliance with Rule G-14.
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Phased Implementation
Several commentors advocated for a phased implementation of new
requirements, the appropriate assessment of market impacts, and the
leveraging of lessons learned and technology or process innovations for
use at the next step.\227\ One trade association commenter noted that
its members also could face challenges with reporting electronic
executions within one minute after execution because some trades are
transmitted across multiple layers of systems, meaning multiple firm
and vendor systems before they are reported, and that some of these
firms and reporting vendors would need to implement system and workflow
changes to ensure that they can report all electronic executions within
one minute.\228\
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\227\ See Bailey at 1; ICE Bonds at 2; ICI at 4-7; InspereX at
4; SIFMA at 2-6.
\228\ See FIF I at 2 and 6. See also ASA at 1-2; ICE Bonds at 2.
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The MSRB recognizes that sudden and substantial changes to
reporting deadlines would require some dealers to make potentially
significant changes to
[[Page 5414]]
processes and technology. Therefore, if the proposed rule change is
approved by the Commission, the MSRB would announce an effective date
(for example, approximately within 18 months from such Commission
approval) in a notice published on the MSRB website, and the proposed
rule change also includes a phased standard for manual trades to
provide dealers time to adjust to the proposed rule change.\229\ The
MSRB acknowledges the need for maintaining regulatory harmonization
between the MSRB with respect to the proposed rule change and FINRA
with respect to its similar planned changes to TRACE reporting pursuant
to the 2024 FINRA Proposed Rule Change, and the MSRB's effective date
for the proposed rule change would be intended to maintain
implementation thereof on substantially the same implementation
timeframe as the 2024 FINRA Proposed Rule Change.
---------------------------------------------------------------------------
\229\ See discussion supra ``Purpose--Proposed Rule Change--
Exceptions to the Baseline Reporting Requirement--Exception for
Trades with a Manual Component'' and ``Purpose--Effective Date and
Implementation.''
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Potential Benefits, Costs and Burdens
Benefits
The 2022 Request for Comment sought to understand the benefits to
investors, dealers, municipal advisors, issuers and other market
participants (i.e., yield curve providers, evaluated pricing services
etc.) and if those benefits would be different for institutional
investors than individual investors, whether the benefits would differ
among dealers and if the benefits to dealers differ from benefits to
investors.
Two commenters strongly supported the Proposal to amend Rule G-14
to require that transactions be reported as soon as practicable, but no
later than within one minute of the time of trade.\230\ One commenter
agreed with the MSRB that the municipal securities market historically
has been considered less liquid and more opaque than other securities
markets, consequently making post-trade data the most important source
of information for market participants. This commenter believed that
the proposed shortening of the reporting timeframe would enhance
transparency and reduce information asymmetries in the municipal
securities market. It asserted that the enhanced transparency also
enhances investors' power to negotiate with dealers, leading to reduced
transaction costs.\231\ The other commenter noted the importance of
being able to see all sides of the trades in a particular bond--
purchase from customer, inter-dealer, and sale to customer--as soon as
possible to accurately evaluate bonds.\232\
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\230\ See Dimensional at 1; Tuma at 1.
\231\ See Dimensional at 1.
\232\ See Tuma at 1.
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One commenter noted that the Proposal's stated benefits are
improved transparency, price relevance, and immediate impact on market
direction, which are relevant to large block trades, large issue sizes
and ubiquitously viewed credits. This commenter further noted that
these ``relevant'' trades can be market leading, telling, and important
for comparison.\233\
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\233\ See NSI at 1.
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Some commenters expressed concern that the Proposal would
disproportionately benefit certain segments of the market such as
algorithmic trading entities and other market participants positioned
to take advantage of information arbitrage,\234\ large wire house firms
and the vendors \235\ who provide automated reporting services and
applications at the expense of others including retail and traditional
institutional investors, while others believe the market is operating
as intended and further changes are not necessary.\236\
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\234\ See SIFMA at 3, 13; see also Colwell at 1.
\235\ See ISC at 1.
\236\ See NSI at 1.
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Costs and Burdens
The 2022 Request for Comment sought to understand if a one-minute
trade reporting requirement would have any undue compliance burdens on
dealers with certain characteristics or business models and if so,
requested suggestions on how to alleviate the undue burdens. The 2022
Request for Comment also requested input on the likely direct and
indirect costs associated with the one-minute requirement and who might
be affected by these costs and in what way. The MSRB asked for data on
these costs and if firms would have to make system changes to meet a
new timeframe for trade reporting, how long would firms need to
implement such changes.
Regarding these questions, the majority of commenters in turn
questioned whether the potential benefits of a one-minute reporting
requirement for all fixed income trades, absent appropriate exceptions,
outweighed the costs to market participants and the impact to the
fixed-income market structure.\237\
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\237\ See ASA at 3-4; AMUNI at 1; Belle Haven at 2-7; BSI at 1;
BDA at 3-4; Cambridge at 3-4; CRI at 1; DeRobbio at 1; EH&C at 1-2;
Falcon Square at 1; F&A at 1; HC at 1; HBIS at 1; ICE Bonds at 1;
InspereX at 1-2; ISC at 2-3; IPG at 1; IBI I at 1; IBI II at 1-2;
KPI at 1; Miner at 1-2; NSI at 1; OSI at 1-2; RBMI at 1; SAMCO at 3-
4; Sanderlin passim; Sheedy at 1; SIFMA at 4-8, 12-13; SBC at 1-2;
TRADEliance at 1-2; Wiley at 1-2; Wintrust at 1; Zia at 1.
---------------------------------------------------------------------------
These concerns appear to primarily stem from concerns regarding the
potential impact on certain types of trades requiring additional time
to report. Examples include trades executed by dealers that utilize a
third-party clearing firm, situations where trade reporting occurs
further downstream or involves multiple layers and trades that involve
manual steps in the negotiation, execution and reporting process; on
large-sized trades including voice and negotiated trades and the
corresponding impact on best execution obligations; and on dealers that
report a small number of trades.\238\ Commenters generally agreed that
certain types of transactions may be reported successfully with a one-
minute reporting requirement, depending on the level of
automation.\239\
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\238\ See supra ``One Minute Timeframe for Reporting--
Operational Issues Relating to Reporting Within One Minute--Manual
Steps in the Negotiation, Execution and Reporting Process''
generally.
\239\ See Bailey at 4; Oberweis at 1; SIFMA at 21.
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One trade association commenter stated some of its members were
concerned that shortening the reporting timeframe might most benefit
algorithmic trading firms or other market participants positioned to
take advantage of information arbitrage to the potential detriment of
retail investors and more traditional institutional investors.\240\
This commenter further noted that the retail market therefore is
unlikely to observe a positive liquidity effect from automated trading
methodologies that could leverage the immediacy of trade data under the
Proposal.
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\240\ See SIFMA at 13.
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One commenter asserted that the size of a dealer's market share
should not dictate whether the burdens such dealer bears are acceptable
or not and stated that a failure to engage in a fulsome cost-benefit
analysis that incorporates the needs and barriers such dealers face
would be inconsistent with recent initiatives undertaken by regulators
in support of small enterprises.\241\
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\241\ See Stern at 1.
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Many commenters described how the potential issues they identified
might lead to a broader negative impact by way of, for example,
increased compliance costs that may force many firms out of the
industry, thereby reducing competition, liquidity, and market
accessibility for certain types of issuers and investors.\242\ One
[[Page 5415]]
commenter stated that the Proposal would have an unreasonable impact on
smaller dealers, which likely lack the technological systems available
to large firms, and to the extent the small firms exit the market or
limit trading in response to new or amended regulation, issuers and
investors suffer.\243\ This commenter further stated that, to the
extent that the Proposal makes participating in the market more
difficult and costly for regulated entities, it would negatively impact
local governments.\244\
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\242\ See BSI at 4; BDA at 4-5; BB at 2; C&C at 1; Falcon Square
at 2-3; HJS 3-5; Honey Badger at 1; ISC at 3; ICI at 4; IBI II at 1-
2; Miner at 1; NSI at 1; OSI at 1-2; RBMI at 1; SAMCO at 3-4; Wiley
at 1-2.
\243\ See F&A.
\244\ Id.
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Some commenters asserted that the Proposal appears to make fixed
income markets operate more like the equity markets although they are
different.\245\ One commenter observed that there are innate
differences between the municipal marketplace and the equity
marketplace,\246\ and another commenter noted that equity securities
can trade thousands of shares in seconds, making the need for price
transparency in an extremely short period of time a necessity but that,
in contrast, municipal securities rarely trade twice in the same day or
multiple times in one, five or 15 minutes.\247\ Both commenters
questioned whether municipal securities would benefit from the
shortening of the reporting timeframe to one minute, in contrast to the
equity markets, noting the lack of cost-effective technology solutions
for municipal securities and the likely prohibitive costs of the
Proposal, particularly to small and medium-sized dealers.\248\ Another
commenter noted that there are some 70,000 different issuers of
municipal securities unlike the less than 5,000 equity issuers and that
the market is not there yet technologically to do one-minute
trading.\249\
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\245\ See ISC at 3; NSI at 1. See also SIFMA at 5.
\246\ See NSI at 1.
\247\ See ISC at 3.
\248\ See id.; NSI at 1.
\249\ See Bailey at 1.
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The MSRB believes that it has engaged in a fulsome cost-benefit
analysis that incorporates the needs and barriers dealers would face
upon implementation of the proposed rule change, as described in
``Self-Regulatory Organization's Statement on Burden on Competition''
above. Specifically, the MSRB recognizes that meeting the new one-
minute transaction reporting requirement under Rule G-14 RTRS
Procedures may result in additional costs for certain dealers.
Additionally, the MSRB understands that the trade reporting process for
certain types of trades, including trades with a manual component, may
take longer to report than a trade for which an automated execution and
reporting system was used.
The MSRB has taken into consideration the various operational
considerations raised by commenters and identified through subsequent
outreach. As a result of this industry input, the proposed rule change
introduces two new exceptions to address the concerns related to the
balance of costs and benefits and to alleviate potential compliance
burdens: (1) an exception for firms with limited trading activity, and
(2) an exception for transactions with a manual component, which
includes a phased approach to an eventual five-minute reporting
requirement.\250\ The two exceptions created by the proposed rule
change are designed to reduce potential costs and compliance burdens to
less active dealers and on certain transactions that are most likely to
realize a negative impact by shortening of the timeframe,\251\ and
these proposed exceptions were taken into consideration in the MSRB's
economic analysis included in ``Self-Regulatory Organization's
Statement on Burden on Competition'' above.
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\250\ For a detailed discussion of the two exceptions created by
the proposed rule change, see supra ``Purpose--Proposed Rule
Change--Exceptions to the Baseline Reporting Requirement.''
\251\ These two exceptions should provide considerable relief
from potentially higher compliance costs for smaller dealers that
may in many cases constitute dealers with limited trading activity
and may primarily engage in transactions with a manual component,
thereby potentially qualifying for both exceptions.
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III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period of up to 90 days (i) as
the Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) by order approve or disapprove such proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or Send an email to [email protected]. Please include File Number SR-MSRB-2024-01 on the
subject line.
Paper Comments
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 (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
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. Do not include
personal identifiable information in 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 February 16, 2024.
For the Commission, pursuant to delegated authority.\252\
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\252\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-01394 Filed 1-25-24; 8:45 am]
BILLING CODE 8011-01-P