Self-Regulatory Organizations; Municipal Securities Rulemaking Board; Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change Consisting of Proposed Rule Change To Amend MSRB Rule G-14 To Shorten the Timeframe for Reporting Trades in Municipal Securities to the MSRB, 32485-32491 [2024-08943]
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Federal Register / Vol. 89, No. 82 / Friday, April 26, 2024 / Notices
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.34
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024–08807 Filed 4–25–24; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–100003; File No. SR–
MSRB–2024–01]
Self-Regulatory Organizations;
Municipal Securities Rulemaking
Board; Order Instituting Proceedings
To Determine Whether To Approve or
Disapprove a Proposed Rule Change
Consisting of Proposed Rule Change
To Amend MSRB Rule G–14 To
Shorten the Timeframe for Reporting
Trades in Municipal Securities to the
MSRB
April 22, 2024.
I. Introduction
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On January 12, 2024, the Municipal
Securities Rulemaking Board (‘‘MSRB’’)
filed with the Securities and Exchange
Commission (‘‘SEC’’ or ‘‘Commission’’),
pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (‘‘Act’’
or ‘‘Exchange Act’’) 1 and Rule 19b–4
thereunder,2 a proposed rule change to
(1) amend MSRB Rule G–14 (‘‘Rule G–
14’’), on reports of sales or purchases, to
(i) shorten the amount of time within
which brokers, dealers, and municipal
securities dealers (collectively,
‘‘dealers,’’ and each individually, a
‘‘dealer’’) must report most transactions
to the MSRB; and (ii) require dealers to
report certain transactions with a new
trade indicator, and make certain
clarifying amendments, and (2) make
conforming amendments to MSRB Rule
G–12, on uniform practice (‘‘Rule G–
12’’), and the MSRB’s Real-Time
Transaction Reporting System (‘‘RTRS’’)
Information Facility (‘‘IF–1’’) to reflect
the shortened reporting timeframe
(collectively, the ‘‘proposed rule
change’’).3 The proposed rule change
was published for comment in the
Federal Register on January 26, 2024.4
The Commission received comments in
response to the proposed rule change.5
34 17
CFR 200.30–3(a)(12), (59).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 Securities Exchange Act Release No. 34–99402
(Jan. 19, 2024), 89 FR 5384 (Jan. 26, 2024)
(‘‘Notice’’).
4 Notice, 89 FR at 5384.
5 Comment letters received by the Commission
are available on our website at https://www.sec.gov/
comments/sr-msrb-2024-01/srmsrb202401.htm.
1 15
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This order institutes proceedings under
Section 19(b)(2)(B) of the Act 6 to
determine whether to approve or
disapprove the proposed rule change.
II. Description of the Proposed Rule
Change
Rule G–14 on reports of sales or
purchases requires dealers to report
their transactions to RTRS within 15
minutes of the Time of Trade,7 absent
an exception,8 in accordance with Rule
G–14, the Rule G–14 RTRS Procedures,
and the RTRS Users Manual.9 Since the
current 15-minute requirement went
into effect in 2005, the fixed income
markets have changed dramatically,
including a significant increase in the
use of electronic trading platforms or
other electronic communication
protocols to facilitate the execution of
transactions. As described in more
detail in the Notice, the proposed rule
change is intended to bring about
greater market transparency through
more timely disclosure and
dissemination of information to market
participants and market-supporting
vendors so that the information better
reflects current market conditions on a
real-time basis, while carefully
balancing the considerations raised by
commenters throughout the rulemaking
process.10 Additionally, the proposed
rule change would also make certain
conforming technical changes to Rule
G–12(f)(i) and IF–1. The MSRB has
stated that it will review the available
trade reporting information and data
arising from implementation of the
changes to trade reporting introduced by
the proposed rule change, including but
not limited to the two exceptions to the
one-minute reporting requirement,11 to
inform any further potential changes by
the MSRB, through future rulemaking,
to the trade reporting requirements due
to increasing marketplace and
technology efficiencies, process
improvements, continuing or new
barriers to accelerated reporting,
unanticipated market impacts, or other
factors.12
6 15
U.S.C. 78s(b)(2)(B).
G–14 RTRS Procedures Section (d)(iii)
defines ‘‘Time of Trade’’ as the time at which a
contract is formed for a sale or purchase of
municipal securities at a set quantity and set price.
8 See Notice, 89 FR at 5384 n.5 (describing
transactions currently exempt from the reporting
requirements under Rule G–14(b)(v)).
9 The RTRS Users Manual is available at https://
www.msrb.org/RTRS-Users-Manual.
10 Id.
11 Id.
12 Id.
7 Rule
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A. New Baseline Reporting
Requirement: One Minute After the
Time of Trade
The proposed amendments to Rule G–
14 RTRS Procedures Section (a)(ii)
generally would provide that
transactions effected with a Time of
Trade during the hours of an RTRS
Business Day 13 must be reported to an
RTRS Portal 14 ‘‘as soon as practicable,
but no later than one minute’’ (rather
than within the current 15-minute
standard) after the Time of Trade,
subject to several existing reporting
exceptions, which would be retained in
the amended rule,15 and two new 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.16 Except for those trades that
would qualify for a reporting exception,
all trades currently required to be
reported within 15 minutes after the
Time of Trade would, under the
proposed rule change, be required to be
reported no later than one minute after
the Time of Trade.
i. New Requirement To Report Trades
‘‘as Soon as Practicable’’
Section (a)(ii) of the proposed
amendment to Rule G–14 RTRS
Procedures adds a new requirement
that, absent an exception, trades must be
reported as soon as practicable (but no
later than one minute after the Time of
Trade).17 This ‘‘as soon as practicable’’
requirement would also apply to trades
subject to longer trade reporting
deadlines under the two new exceptions
for dealers with limited trading activity
pursuant to Rule G–14 RTRS Procedures
Section (a)(ii)(C)(1) and Supplementary
Material .01, or trades with a manual
component pursuant to Rule G–14 RTRS
Procedures Section (a)(ii)(C)(2) and
Supplementary Material .02.18 Although
Rule G–14 RTRS Procedures do not
currently explicitly prohibit a dealer
from waiting until the existing 15minute deadline to report a trade
notwithstanding the fact that the dealer
could reasonably have reported such
13 Rule G–14 RTRS Procedures Section (d)(ii)
defines ‘‘RTRS Business Day’’ as 7:30 a.m. to 6:30
p.m., Eastern Time, Monday through Friday, unless
otherwise announced by the MSRB.
14 See Notice, 89 at 5385 n.13 (discussing the
various portals).
15 See Notice, 89 FR at 5385 n.14 (describing the
existing exceptions).
16 The two new intra-day reporting exceptions,
consisting of trades by dealers with limited trading
activity and trades with a manual component,
would be designated as Rule G–14 RTRS
Procedures Sections (a)(ii)(C)(1) and (2),
respectively. See Notice, 89 FR at 5385 n.15.
17 Notice, 89 FR at 5386.
18 Id.
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trade more rapidly, the MSRB notes that
under the proposed rule change a dealer
could not simply await the deadline to
report a trade if it were practicable to
report such trade more rapidly.19
As provided in more detail in the
Notice, proposed Supplementary
Material .03 would provide guidance
relating to policies and procedures for
complying with the ‘‘as soon as
practicable’’ reporting requirement.20
The MSRB noted that dealers must not
purposely withhold trade reports, for
example, by programming their systems
to delay reporting until the last
permissible minute or by otherwise
delaying reports to a time just before the
deadline if it would have been
practicable to report such trades more
rapidly.21 For trades with a manual
component, and consistent with
Supplementary Material .03(b) of FINRA
Rule 6730, the MSRB recognized that
the trade reporting process may not be
completed as quickly as, for example,
where an automated trade reporting
system is used.22 The MSRB explained
that it expected that the regulatory
authorities that examine dealers and
enforce compliance with this
requirement would take into
consideration the manual nature of the
dealer’s trade reporting process in
determining whether the dealer’s
policies and procedures are reasonably
designed to report the trade ‘‘as soon as
practicable’’ after execution.23
ii. Time of Trade Discussion
The ‘‘Time of Trade’’ is the time at
which a contract is formed for a sale or
purchase of municipal securities at a set
quantity and set price.24 For transaction
reporting purposes, the Time of Trade is
the same as the time that a trade is
‘‘executed’’ and, generally, is consistent
with the ‘‘time of execution’’ for
recordkeeping purposes.25
iii. Valid Contract Discussion
In general, to form a valid contract,
there must be at least an offer and
acceptance of that offer. As a result, the
MSRB noted that dealers should
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19 Id.
20 Id. Where a dealer has reasonably designed
policies, procedures and systems in place, the
dealer generally would not be viewed as violating
the ‘‘as soon as practicable’’ requirement because of
delays in trade reporting due to extrinsic factors
that are not reasonably predictable and where the
dealer does not intend to delay the reporting of the
trade (for example, due to a systems outage).
21 Id.
22 Id.
23 Id.
24 See current Rule G–14 RTRS Procedures
Section (d)(iii).
25 See Notice, 89 FR at 5386 for a discussion on
time of execution and note 22 for additional
guidance material on the time of execution.
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consider the point in time at which an
offer to buy or sell municipal securities
was met with an acceptance of that
offer. This ‘‘meeting of the minds,’’ 26
cannot occur before the final material
terms, such as the exact security, price
and quantity, have been agreed to and
such terms are known by the parties to
the transaction.27 The MSRB further
explained that dealers should be clear in
their communications regarding the
final material terms of the trade and
how such terms would be conveyed
between the parties 28 to ensure that
such a valid trade contract has been
formed.29
iv. Exceptions to the Baseline Reporting
Requirement
Proposed amendments to Rule G–14
RTRS Procedures Section (a)(ii) add two
new exceptions to the proposed oneminute reporting requirement: (a) New
Section (C)(1) provides an exception for
a dealer with ‘‘limited trading activity,’’
and (b) new Section (C)(2) provides an
exception for a dealer reporting a ‘‘trade
with a manual component.’’ 30
a. Exception for Dealers With Limited
Trading Activity
New Section (a)(ii)(C)(1) would except
a dealer with ‘‘limited trading activity’’
from the one-minute reporting
requirement and would instead be
required to report its trades as soon as
practicable, but no later than 15 minutes
after the Time of Trade for so long as the
dealer remains qualified for the limited
trading activity exception, as further
specified in new Supplementary
Material .01.31 Proposed Section (d)(xi)
26 See generally FINRA Regulatory Notice 16–30
(Trade Reporting and Compliance Engine (TRACE):
FINRA Reminds Firms of their Obligation to Report
Accurately the Time of Execution for Transactions
in TRACE-eligible Securities) (Aug. 2016); MSRB
Notice 2016–19 (MSRB Provides Guidance on
MSRB Rule G–14, on Reports of Sales or Purchases
of Municipal Securities (Aug. 9, 2019) (the ‘‘2016
RTRS FAQs’’) at questions 1 and 2.
27 See generally MSRB Notice 2004–18 (Notice
Requesting Comment on Draft Amendments to Rule
G–34 to Facilitate Real-Time Transaction Reporting
and Explaining Time of Trade for Reporting New
Issue Trades) (June 18, 2004); 2016 RTRS FAQs at
question 1.
28 Notice, 89 FR at 5386 n.26.
29 See Notice 89 FR at 5387 (discussing the
particulars for when transactions have been
executed, confirmed, and reported).
30 Notice, 89 FR at 5387 (explaining how these
exceptions have a narrowly tailored purpose).
31 The MSRB noted that transactions effected by
such a dealer with a Time of Trade outside the
hours of an RTRS Business Day would be permitted
to be reported no later than 15 minutes after the
beginning of the next RTRS Business Day pursuant
to Rule G–14 RTRS Procedures Section (a)(iii). The
MSRB also noted that, as is the case today,
transactions for which an end-of-trade-day or posttrade-day reporting exception is available under
redesignated Sections (A) and (B) would continue
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of Rule G–14 RTRS Procedures would
define a dealer with limited trading
activity as a dealer that, during at least
one of the prior two consecutive
calendar years, reported to an RTRS
Portal fewer than 1,800 transactions,
excluding transactions exempted under
Rule G–14(b)(v) and transactions
specified in Rule G–14 RTRS
Procedures Sections (a)(ii)(A) and (B)
(i.e., transactions having an end-oftrade-day reporting exception).32 A
dealer relying on this exception to
report trades within the 15-minute
timeframe, rather than the new standard
one-minute timeframe, would have to
confirm that it meets the criteria for a
dealer with limited trading activity for
each year during which it continues to
rely on the exception (e.g., the dealer
could confirm its eligibility based on its
internal trade records and by checking
MSRB compliance tools which would
indicate a dealer’s transaction volume
for a given year).33 Notwithstanding the
foregoing, the MSRB reminded dealers
with limited trading activity of the new
overarching obligation to report trades
as soon as practicable.34
b. Exception for Trades With a Manual
Component
Rule G–14 RTRS Procedures Section
(a)(ii)(C)(2) would except a ‘‘trade with
a manual component’’ as defined in new
Section (d)(xii) of Rule G–14 RTRS
Procedures from the one-minute
reporting requirement. Dealers with
such trades would be required to report
such trades as soon as practicable and
within the time periods specified in
new Supplementary Material .02, unless
another exception from the one-minute
reporting requirement applies under
proposed Rule G–14 RTRS Procedures
Sections (a)(ii)(A) and (B) (i.e.,
transactions having an end-of-trade-day
or post-trade-day reporting exception) or
(a)(ii)(C)(1) (i.e., transactions by dealers
with limited trading activity).35 Section
(d)(xii) of Rule G–14 RTRS Procedures
would define a ‘‘trade with a manual
component’’ as a transaction that is
to have that exception available. Notice, 89 FR at
5387 n.29.
32 This number of transactions is expected to
capture approximately 1.5 percent of the trades in
the municipal securities markets in a given calendar
year. Notice, 89 FR at 5387 n.30.
33 See Notice, 89 FR at 5387–5388 (using a
hypothetical to illustrate variations in dealer
eligibility for the limited trading exception).
34 See Notice, 89 FR at 5386 discussing the new
requirement to report trades as soon as practicable.
35 As explained by the MSRB, transactions
effected with a Time of Trade outside the hours of
an RTRS Business Day would be permitted to be
reported no later than 15 minutes after the
beginning of the next RTRS Business Day pursuant
to Rule G–14 RTRS Procedures Section (a)(iii).
Notice, 89 FR at 5387 n.38.
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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 thirdparty system) to an RTRS Portal. As
described below and in the Notice, a
dealer reporting to the MSRB a trade
meeting the definition for a ‘‘trade with
a manual component’’ would be
required to append a new trade
indicator so that the MSRB can identify
manual trades.36
As explained by the MSRB, this
‘‘manual’’ exception would apply
narrowly, and would normally
encompass any human participation,
approval or other intervention necessary
to complete the initial execution and
reporting of trade information after
execution, regardless of whether
undertaken by electronic means (e.g.,
keyboard entry), physical signature or
other physical action. To qualify as a
trade with a manual component, the
manual aspect(s) of the trade generally
would occur after the relevant Time of
Trade (i.e., the time at which a contract
is formed for the transaction). As further
explained by the MSRB, any manual
aspects that precede the time of trade
(e.g., phone calls to locate bonds to be
sold to a customer before the dealer
agrees to sell such bonds to a
purchasing customer) would normally
not be relevant for purposes of the
exception unless they have a direct
impact on the activities that must be
undertaken post-execution to enter
information necessary to report the
trade.37
The MSRB provided the following
non-exhaustive list of situations in
which trades would be considered to
have a manual component: where a
dealer executes a trade by manual or
hybrid means, such as voice or
negotiated trading by telephone, email,
or through a chat/messaging function,
and subsequently must manually enter
into a system that facilitates trade
reporting all or some of the information
required to book the trade and report it
to RTRS; where a dealer executes a trade
36 Such new indicator would be required for any
trade with a manual component, whether the dealer
reports such trade within the new one-minute
timeframe or the dealer seeks to take advantage of
the longer timeframes permitted for trades with a
manual component. Notice, 89 FR at 5388 n.39.
37 The MSRB provided various scenarios to
illustrate application of the manual exception
would apply. See generally Notice, 89 FR at 5389
n.40 and 5390 n.50.
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(typically a larger-sized trade) that
requires additional steps to negotiate
and confirm details of the trade with a
client and manually enters the trade
into risk and reporting systems; where
a dually-registered broker-dealer/
investment adviser executes a block
transaction that requires allocations of
portions of the block trade to the
individual accounts of the firm’s
advisory clients that must be manually
inputted in connection with a trade;
where an electronically or manually
executed trade is subject to manual
review by a second reviewer for risk
management (e.g., transactions above a
certain dollar or par amount or other
transactions meriting heightened risk
review) and, as part of or following the
review, the trade must be manually
approved, amended or released before
the trade is reported to RTRS; where a
dealer’s trade execution processes may
entail further diligence following the
Time of Trade involving a manual step
(e.g., manually checking another market
to confirm that a better price is not
available to the customer); 38 where a
dealer trades a municipal security,
whether for the first time or under other
circumstances where the security master
information may not already be
populated (e.g., information has been
removed or archived due to a long lapse
in trading the security), and additional
manual steps are necessary to set up the
security and populate the associated
indicative data in the dealer’s systems
prior to executing and reporting the
trade; where a dealer receives a large
order or a trade list resulting in a
portfolio of trades with potentially
numerous unique securities involving
rapid execution and frequent
communications on multiple
transactions with multiple
counterparties, and the dealer must then
book and report those transactions
manually, one by one; 39 where a
broker’s broker engages in mediated
transactions that involve multiple
transactions with multiple
38 The MSRB noted that dealers experiencing
significant levels of post-Time of Trade price
adjustments due to such post-trade best execution
processes should consider whether these processes
are well suited to the dealer’s obligations under
MSRB Rule G–18 and whether the dealer is
appropriately evaluating when a contract has in fact
been formed with its customer. Notice, 89 FR at
5389 n.41.
39 The MSRB explained that in instances where
a dealer trades a basket of securities at a single price
for the full basket, rather than individual prices for
each security based on its then-current market
price, such price likely would be away from the
market, requiring inclusion of the ‘‘away from
market’’ special condition indicator and qualifying
for an end-of-trade-day reporting exception under
proposed Rule G–14 RTRS Procedures Section
(a)(ii)(A)(3). Notice, 89 FR at 5389 n.42.
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32487
counterparties; and where a dealer
reports a trade manually through the
RTRS Web Portal.
The MSRB stated that the
appropriateness of treating any step in
the trade execution and reporting
process as being manual must be
assessed in light of the 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.40 New
Supplementary Material .02(a) would
require all trades with a manual
component to be reported as soon as
practicable and would specify that in no
event may a dealer purposely delay the
execution of an order, introduce any
manual steps following the Time of
Trade, or otherwise modify any steps
prior to executing or reporting a trade
for the purpose of utilizing the
exception for manual trades.41
New Supplementary Material .03
would require that dealers adopt
policies and procedures for complying
with the as soon as practicable reporting
requirement, including by
implementing systems that commence
the trade reporting process without
delay upon execution and provides for
additional guidance for regulatory
authorities that enforce and examine
dealers for compliance with this
requirement to take into consideration
the manual nature of the dealer’s trade
reporting process.42
The MSRB also noted that dealers
should consider the types of
transactions in which they regularly
engage and whether they can reasonably
reduce the time between a transaction’s
Time of Trade and its reporting, and
more generally should make a good faith
effort to report their trades as soon as
practicable.43 The MSRB currently
collects and analyzes data regarding
dealers’ historic reporting of
transactions to RTRS under various
scenarios and such data will continue to
be available to the regulators for
analysis under the proposed one-minute
40 See Notice, 89 FR at 5390 (discussing the
prohibition on purposeful insertion of manual steps
in trade reporting process).
41 Id.
42 For trades with a manual component, the
MSRB explained that it recognized that the trade
reporting process may not be completed as quickly
as, for example, where an automated trade reporting
system is used. The MSRB further explained that
in these cases, the MSRB expects that the regulatory
authorities that examine dealers and enforce
compliance with this requirement would take into
consideration the manual nature of the dealer’s
trade reporting process in determining whether the
dealer’s policies and procedures are reasonably
designed to report the trade ‘‘as soon as practicable’’
after execution. Notice, 89 FR at 5388.
43 Id. at 5389.
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apply to any steps that are taken prior
to the time of trade that do not have the
effect of delaying the subsequent
reporting of such trade.47
standard. Subject to Commission
approval of the proposed rule change,
the MSRB explained that it would be
reviewing the use of the manual
exception and would share with the
examining authorities any analyses
resulting from such reviews.44
3. Manual Trade Indicator
ddrumheller on DSK120RN23PROD with NOTICES1
1. Phase-In Period for Trades With a
Manual Component
New Supplementary Material .02(b)
would subject trades with a manual
component to a phase-in period for
timely reporting over three years
(‘‘phase-in period’’). During the first
year of effectiveness of the exception,
trades meeting this definition would be
required to be reported as soon as
practicable, but no later than 15 minutes
after the Time of Trade.45 During the
second year, such trades would be
required to be reported as soon as
practicable, but no later than 10 minutes
after the Time of Trade. After the second
year and thereafter, such trades would
be required to be reported as soon as
practicable, but no later than five
minutes after the Time of Trade. Dealers
should remember that the ‘‘as soon as
practicable’’ reporting obligation may,
depending on the facts and
circumstances, require quicker reporting
than the applicable outer reporting
obligation during and after the phase-in
period.
The MSRB explained that it would be
reviewing the available trade reporting
information and data arising from
implementation of the proposed rule, as
well as marketplace developments,
feedback from market participants, and
examination or enforcement findings
from the Commission, FINRA and the
other appropriate regulatory agencies to
inform any further potential changes to
the trade reporting requirements.46
2. Prohibition on Purposeful Insertion of
Manual Steps in Trade Reporting
Process
New Supplementary Material .02(a)
would specifically prohibit dealers from
purposely delaying the execution of an
order, introducing any manual steps
following the Time of Trade, or
otherwise purposefully modifying any
steps to execute or report a trade to
utilize the exception for manual trades.
This requirement would not prohibit
reasonable manual steps that are taken
for legitimate purposes and would not
44 Id.
at 5390.
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 Notice, 89 FR
at 5390 n.48.
46 Notice, 89 FR at 5390.
45 While
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Proposed amendments to Rule G–14
RTRS Procedures Section (b)(iv) would
require the report of a trade meeting the
MSRB’s definition for a ‘‘trade with a
manual component,’’ as defined in
proposed Section (d)(xii) of Rule G–14
RTRS Procedures,48 to append a new
trade indicator 49 to such a trade report.
This indicator would be mandatory for
every trade that meets the standard to
append the indicator,50 regardless of
whether the trade is actually reported
within one minute after the Time of
Trade, is reported within the applicable
timeframe under the manual trade
exception or is otherwise subject to
another reporting exception.
v. Pattern or Practice of Late Trade
Reporting
Current Rule G–14 RTRS Procedures
Section (a)(iv) requires that transaction
data that is not submitted in a timely
and accurate manner must be submitted
or corrected as soon as possible—even
when a dealer is late in reporting a
trade, the dealer remains obligated to
report such trade as soon as possible.
The proposed amendments further
provide that any transaction that is not
reported within the applicable time
period shall be designated as ‘‘late.’’ 51
The MSRB stated that a pattern or
practice of late reporting without
exceptional circumstances or reasonable
justification may be considered a
violation of Rule G–14. The MSRB
further noted that the determination of
whether exceptional circumstances or
reasonable justifications exist for late
trade reporting is dependent on the
particular facts and circumstances and
whether such circumstances are
addressed in the dealer’s systems and
47 Notice,
89 FR at 5890.
generally Notice, 89 FR at 5388–90.
49 See Notice, 89 FR at 5391 n.51 (discussing how
the manual trade indicator would be used for
regulatory purposes).
50 Current Rule G–14 RTRS Procedures Section
(a)(iv) requires that transaction data that is not
submitted in a timely and accurate manner must be
submitted or corrected as soon as possible. The
manual trade indicator is not intended to be used
to reflect the manual nature of any correction to a
prior trade report. Notice, 89 FR at 5390 n.50.
51 See generally id. at 5391 n.52 (MSRB
explaining that late trade designations are currently,
and would continue to be, available to regulators
and, through the MSRB compliance tool described
below in the Notice under ‘‘Purpose—Proposed
Rule Change—Compliance Tools,’’ to the dealer
submitting the late trade).
48 See
PO 00000
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procedures.52 The MSRB explained that
it expected that the regulatory
authorities that examine dealers and
enforce compliance with the reporting
timeframes established under Rule G–14
RTRS Procedures would focus their
examination for and enforcement of the
rule’s timing requirements on the
consistency of timely reporting and the
existence of effective controls to limit
late reporting to exceptional
circumstances or where reasonable
justifications exist for a late trade report,
rather than on individual late trade
report outliers.53 Notwithstanding such
expectation, where facts and
circumstances indicate that an
individual late report was intentional or
otherwise egregious, or could
reasonably be viewed as potentially
giving rise to an associated fair practice,
fair pricing, best execution or other
material regulatory concern under
MSRB or Commission rules with respect
to that or a related transaction, the
MSRB noted that the regulatory
authorities could reasonably determine
to take action with respect to such late
trade in the examination or enforcement
context.54
vi. Compliance Tools
The MSRB explained that it would
continue to provide various compliance
tools to assist dealers with compliance
and for examining authorities to
monitor for compliance.55
vii. Proposed Technical Amendments
a. Non-Substantive Amendments
Non-substantive amendments to Rule
G–14 RTRS Procedures Section (a)(ii)
regroup and renumber its current
Sections (A) through (C) to new Sections
(A)(1) through (A)(3), renumber current
Sections (D) and (E) to new Sections
(B)(1) and B(2), and correct a crossreference in Section (b)(iv) to certain of
these Sections to be consistent with
such renumbering.56 In addition, a
technical amendment to Rule G–14
RTRS Procedures Section (a)(ii) changes
the word ‘‘of’’ to ‘‘after’’ and omits the
word ‘‘within’’ in the phrase ‘‘within 15
minutes of Time of Trade’’ for clarity
and consistency of usage throughout the
Rule G–14 RTRS Procedures as
amended.57
52 See Notice, 89 FR at 5391 for non-exhaustive
list of factors that would be considered in
determining whether a rule violation has occurred.
53 Id.
54 Id.
55 Id. (discussing the various compliance tools).
56 Id. at 5392.
57 Id.
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b. Clarifying Amendments—Special
Condition Indicators and Trades on an
Invalid RTTM Trade Date
Rule G–14 RTRS Procedures Section
(b)(iv) currently sets forth information
regarding certain existing special
condition indicators while also
referencing the existence of other
special condition indicators in Section
4.3.2 of the Specifications for Real-Time
Reporting of Municipal Securities
Transactions. The proposed clarifying
amendments to Section (b)(iv) of Rule
G–14 RTRS Procedures would
incorporate into the language thereof
reference to all applicable special
condition indicators, including the new
trade with a manual component
indicator and existing special condition
indicators previously adopted by the
MSRB but that are currently only
documented explicitly in the
Specifications for Real-Time Reporting
of Municipal Securities Transactions.58
Other than the addition of the new trade
with a manual component indicator, the
proposed clarifying amendments to this
provision would not make any changes
to the types or usage of existing special
condition indicators.59 Rule G–14 RTRS
Procedures Section (a)(iii) would be
amended to reflect that, in addition to
trades effected outside the hours of the
RTRS Business Day, inter-dealer trades
may be executed on certain holidays
(other than those recognized as 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.60 The
proposed clarifying amendment to this
provision would not make any changes
to the circumstances or timing of
reporting of such trades.61
c. Proposed Conforming Amendments to
Rule G–12 and RTRS Information
Facility
Proposed amendments to Rule G–12,
on uniform practice, would make
conforming changes to Section (f)(i)
thereof to require that each transaction
effected during the RTRS Business Day
shall be submitted for comparison as
soon as practicable, but no later than
one minute after the Time of Trade
58 See
generally Notice, 89 FR at 5392 n.55.
at 5392.
60 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.
61 Notice, 89 FR at 5392.
59 Id.
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unless an exception applies. The
proposed rule change would also
modify the IF–1 to clarify lateness
checking against the applicable
reporting deadline(s) provided for in
proposed amendments to Rule G–14
RTRS Procedures, as opposed to the
current 15-minute requirement.62
III. Summary of Comments Received
The Commission received thirteen
comment letters on the proposed rule
change.63 Commenters generally
supported the MSRB’s goal of
facilitating equal access to information
and market transparency.64 However,
many commenters expressed concern
that the MSRB failed to demonstrate
how a one-minute reporting
requirement would clearly and
substantially benefit the municipal
securities market.65 To this end, several
commenters raised concern that the oneminute reporting requirement would
increase costs of new technology
infrastructure which, commenters
argued, could impair municipal market
liquidity by putting small and mid-size
62 Id.
63 See letters to Vanessa A. Countryman,
Secretary, Commission, from Michael Noto, FINRA
Registered Representative dated Jan. 31, 2024
(‘‘Noto’’); J. Ben Watkins, Director, Division of Bond
Finance, State of Florida dated Feb. 13, 2024 (‘‘State
of Florida’’); Matthew Kamler, President, Sanderlin
Securities LLC dated Feb. 14, 2024 (‘‘Sanderlin
Securities’’); Gerard O’Rielly, Co-Chief Executive
Officer and Co-Chief Investment Officer and David
A. Plecha, Global Head of Fixed Income,
Dimensional Fund Advisors LP dated Feb. 15, 2024
(‘‘Dimensional Fund Advisors’’); Michael Decker,
Senior Vice President, Bond Dealers of America
dated Feb. 15, 2024 (‘‘BDA’’); Sarah A. Bessin,
Deputy General Counsel, Investment Company
Institute dated Feb. 15, 2024 (‘‘ICI’’); Kenneth E.
Bentsen, Jr., President and CEO, Securities Industry
and Financial Markets Association dated Feb. 15,
2024 (‘‘SIFMA’’); Howard Meyerson, Managing
Director, Financial Information Forum dated Feb.
15, 2024 (‘‘FIF I’’); Gregory Babyak, Global Head of
Regulatory Affairs, Bloomberg L.P. dated Feb. 16,
2024 (‘‘Bloomberg’’); Melissa P. Hoots, CEO/COO,
Falcon Square Capital, LLC dated Feb. 16, 2024
(‘‘Falcon Square Capital’’); Matt Dalton, Chief
Executive Officer, Belle Haven Investments, LP
dated Feb. 16, 2024 (‘‘Belle Haven’’); Christopher A.
Iacovella, President & Chief Executive Officer,
American Securities Association dated Feb. 16,
2024 (‘‘ASA’’). Also, after the close of the comment
period, one commenter submitted a supplemental
letter. See letter from Financial Information Forum
dated Feb. 26, 2024 (‘‘FIF II’’). The Commission’s
Office of Municipal Securities held a meeting with
a representative from the State of Florida on Feb.
13, 2024, and the Commission’s Offices of
Municipal Securities and Trading and Markets held
a meeting with representatives from the BDA. See
Memoranda from the Office of Municipal Securities
regarding 2024 meetings.
64 See, e.g., letters from SIFMA; BDA; ICI;
Dimensional Fund Advisors; Belle Haven.
65 See, e.g., BDA Letter at 1; Noto Letter; State of
Florida Letter at 1–2; Sanderlin Securities Letter at
2–4; SIFMA Letter at 2; ASA Letter at 1 and 5–6;
Falcon Square Capital Letter at 1–2; Belle Haven
Letter at 3–6; ICI Letter at 2, FN4.
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32489
firms out of business.66 Commenters
maintained that the exceptions to the
one-minute reporting requirement were
requisite to implementing the proposed
rule change.67 Otherwise, commenters
asserted that a general one-minute
reporting requirement would be
unworkable.68 One commenter,
however, strongly encouraged the MSRB
to fully phase-out the exceptions.69
Another commenter noted a similar
proposal 70 by the Financial Industry
Regulatory Authority, Inc. (‘‘FINRA’’),
and requested that the MSRB and
FINRA harmonize the scope of the
manual trade exception.71
Commenters offered several views
relating to the exceptions. Some
commenters noted that the manual trade
exception balances shortening reporting
requirements while avoiding undue
disruptions to the municipal securities
market.72 However, one commenter
argued that the MSRB had not provided
any data to support a reduction in
reporting time for manual trades or any
evidence that firms that are currently
reporting manually are not already
reporting as soon as practicable.73 This
commenter also maintained that the
phase-in period could eliminate small
firms which are incapable of meeting
the phased-in time periods.74 Another
commenter remained troubled by the
language of the manual trade exception
as it suggested the possibility of leading
to further reductions or even the
elimination of the manual trade
exception.75 As a potential solution,
commenters noted that the MSRB could
collect data and conduct impact
assessments prior to each phase-in
period to ensure continued market
integrity.76 Some commenters stated
that the proposed use of the manual
trade indicator could not be effectively
implemented or monitored for
compliance and proposed that trades
subject to the one-minute reporting
requirement should be flagged
66 See, e.g., BDA Letter at 3–4; State of Florida
Letter at 2; Sanderlin Securities Letter at 1–3;
Falcon Square Capital Letter at 2.
67 See, e.g., BDA Letter at 1; ICI Letter at 3; SIFMA
Letter at 2; FIF I Letter at 2.
68 See generally BDA Letter; ICI Letter, SIFMA
Letter; FIF I Letter; Belle Haven Letter.
69 Dimensional Fund Advisors Letter at 2.
70 See Securities Exchange Act Release No. 99404
(Jan. 19, 2024), 89 FR 5034 (Jan. 24, 2024) (‘‘FINRA
Notice’’).
71 See FIF I Letter at 3.
72 See, e.g., ICI Letter at 3; SIFMA Letter at 3–4
(noting that the proposed manual trade exception
is an attempt to promote continued liquidity of the
subject fixed-income markets).
73 Belle Haven Letter at 7.
74 Id. at 5.
75 ASA Letter at 2.
76 See, e.g., SIFMA Letter at 6–7; ICI Letter at 3–
4; BDA Letter at 3.
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Federal Register / Vol. 89, No. 82 / Friday, April 26, 2024 / Notices
instead.77 Commenters generally viewed
the limited trading activity exception
favorably.78 One commenter, however,
argued that the proposed 1,800-trade
threshold was far too low and requested
that the MSRB either significantly
expand the threshold or conduct further
analysis to justify the 1,800 threshold.79
Some commenters addressed the
proposed implementation period. Two
commenters requested a two-year
implementation and requested that the
MSRB and FINRA remain open to the
creation of FAQs or the provision of
implementation guidance to achieve
greater compliance.80 One commenter
requested an eighteen-month
implementation period from the date
the MSRB and FINRA publish updated
technical specifications and guidance.81
Commenters also challenged the
proposed rule change as circumventing
regulatory obligations pursuant to the
Exchange Act and requested that the
MSRB conduct further analysis before
implementing the proposed rule
change.82
IV. Proceedings To Determine Whether
To Approve or Disapprove SR–MSRB–
2024–01 and Grounds for Disapproval
Under Consideration
The Commission is instituting
proceedings pursuant to Section
19(b)(2)(B) of the Act 83 to determine
whether the proposed rule change
should be approved or disapproved.
Institution of proceedings is appropriate
at this time in view of the legal and
policy issues raised by the proposed
rule change. Institution of proceedings
does not indicate, however, that the
Commission has reached any
conclusion with respect to any of the
issues involved. Rather, as described
below, the Commission seeks and
encourages interested persons to
comment on the proposed rule change.
Pursuant to Section 19(b)(2)(B) of the
Act,84 the Commission is providing
notice of the grounds for disapproval
under consideration. The Commission
believes it is appropriate to institute
proceedings at this time in view of the
legal and policy issues raised by the
proposal. In particular, Section
77 See,
e.g., SIFMA Letter at 9; BDA Letter at 3.
e.g., SIFMA Letter at 9; BDA Letter at 2;
Falcon Square Capital Letter at 3; Belle Haven
Letter at 6; FIF I Letter at 2.
79 Falcon Square Capital Letter at 3.
80 See BDA Letter at 4; SIFMA Letter at 10.
81 See FIF I Letter at 5–7 (commenter also
requested a free testing period of 90-days instead of
the standard 30-days).
82 See, e.g., Belle Haven Letter at 2; ASA Letter
at 3; Falcon Square Capital Letter at 6.
83 15 U.S.C. 78s(b)(2)(B).
84 Id.
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78 See,
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15B(b)(2) of the Act 85 requires that the
MSRB propose and adopt rules to effect
the purposes of the Act with respect to
transactions in municipal securities
effected by brokers, dealers, and
municipal securities dealers and advice
provided to or on behalf of municipal
entities or obligated persons by brokers,
dealers, municipal securities dealers,
and municipal advisors with respect to
municipal financial products, the
issuance of municipal securities, and
solicitations of municipal entities or
obligated persons undertaken by
brokers, dealers, municipal securities
dealers, and municipal advisors. In
addition, Section 15B(b)(2)(C) of the
Act 86 requires, among other things, that
the MSRB’s rules be designed to prevent
fraudulent and manipulative acts and
practices, to promote just and equitable
principles of trade, to foster cooperation
and coordination with persons
facilitating transactions in municipal
securities and municipal financial
products, to remove impediments to and
perfect the mechanisms of a free and
open market in municipal securities and
municipal financial products, and, in
general, to protect investors, municipal
entities, obligated persons, and the
public interest. The Commission asks
that commenters address the sufficiency
of MSRB’s statements in support of the
proposed rule change, which are set
forth in the Notice, in addition to any
other comments they may wish to
submit about the proposed rule change.
In particular, the Commission is
instituting proceedings to allow for
additional analysis of, and input from
commenters with respect to, the scope
and implementation of the proposed
exceptions to the one-minute reporting
timeframe.
V. Procedure: Request for Written
Comments
The Commission requests that
interested persons provide written
submissions of their data, views, and
arguments with respect to the issues
identified above, as well as any others
concerns they may have with the
proposed rule change. In particular, the
Commission invites the written views of
interested persons concerning whether
the proposed rule change is inconsistent
with the Exchange Act and the rules and
regulations thereunder. Although there
do not appear to be any issues relevant
to approval or disapproval which would
be facilitated by an oral presentation of
views, data, and arguments, the
Commission will consider, pursuant to
85 15
86 15
PO 00000
U.S.C. 78o4–(b)(2).
U.S.C. 78o–4(b)(2)(C).
Frm 00100
Fmt 4703
Sfmt 4703
Rule 19b–4 under the Act,87 any request
for an opportunity to make an oral
presentation.88
Interested persons are invited to
submit written data, views, and
arguments regarding whether the
proposed rule change should be
approved or disapproved by May 17,
2024. Any person who wishes to file a
rebuttal to any other person’s
submission must file that rebuttal by
May 31, 2024.
Comments may be submitted by any
of the following methods:
Electronic Comments
• 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 statements with
respect to the proposed rule change that
are filed with the Commission, and all
written communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the MSRB. All comments
received will be posted without change;
87 17
CFR 240.19b–4.
19(b)(2) of the Act, as amended by the
Securities Act Amendments of 1975, Public Law
94–29 (June 4, 1975), grants the Commission
flexibility to determine what type of proceeding—
either oral or notice and opportunity for written
comments—is appropriate for consideration of a
particular proposal by a self-regulatory
organization. See Securities Act Amendments of
1975, Senate Comm. on Banking, Housing & Urban
Affairs, S. Rep. No. 75, 94th Cong., 1st Sess. 30
(1975).
88 Section
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the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. We may redact in
part or withhold entirely from
publication submitted material that is
obscene or subject to copyright
protection.
All submissions should refer to File
Number SR–MSRB–2024–01 and should
be submitted on or before May 17, 2024.
Rebuttal comments should be submitted
May 31, 2024.
For the Commission, pursuant to delegated
authority.89
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024–08943 Filed 4–25–24; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–99996; File No. SR–MIAX–
2024–23]
Self-Regulatory Organizations; MIAX
Exchange LLC; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend Exchange
Rule 404, Series of Option Contracts
Open for Trading To Amend the Short
Term Option Series Program
April 19, 2024.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on April 18,
2024, Miami International Securities
Exchange, LLC (‘‘MIAX’’ or ‘‘Exchange’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I and II below, which Items have
been prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
ddrumheller on DSK120RN23PROD with NOTICES1
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange is filing a proposal to
amend the Short Term Option Series
Program.
The text of the proposed rule change
is available on the Exchange’s website at
https://www.miaxglobal.com/markets/
us-options/miax-options/rule-filings, at
MIAX’s principal office, and at the
Commission’s Public Reference Room.
89 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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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
Exchange 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
Exchange 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
The Exchange proposes to amend
Interpretations and Policies .02 of
Exchange Rule 404, ‘‘Series of Options
Contracts Open for Trading.’’ The
Exchange proposes to expand the Short
Term Option Series program to permit
the listing and trading of options series
with Tuesday and Thursday expirations
for options on iShares Russell 2000 ETF
(‘‘IWM’’), specifically permitting two
expiration dates for the proposed
Tuesday and Thursday expirations in
IWM. These proposed rule changes are
based on a similar proposal submitted
by Nasdaq ISE, LLC (‘‘ISE’’) and
approved by the Commission.3 MIAX
notes that Exchange Rule 404 as
proposed to be amended by this filing,
is incorporated by reference into the
MIAX Emerald, LLC (‘‘MIAX Emerald’’)
rulebook, and is thus a MIAX Emerald
rule applicable to MIAX Emerald
members.
Currently, Table 1 in Interpretations
and Policies .02 of Exchange Rule 404
specifies each symbol that qualifies as a
Short Term Option Daily Expiration.4
3 See Securities Exchange Act Release No. 99946
(April 11, 2024), File No. SR–ISE–2024–06 (Order
Approving a Proposed Rule Change to Amend the
Short Term Option Program).
4 The Exchange may open for trading on any
Thursday or Friday that is a business day series of
options on that class that expire at the close of
business on each of the next five Fridays that are
business days and are not Fridays in which
standard expiration options series, Monthly
Options Series, or Quarterly Options Series. Of
these series of options, the Exchange may have no
more than a total of five Short Term Option
Expiration Dates. In addition, the Exchange may
open for trading series of options on certain
symbols that expire at the close of business on each
of the next two Mondays, Tuesdays, Wednesdays,
and Thursdays, respectively, that are business days
beyond the current week and are not business days
in which standard expiration options series,
Monthly Options Series, or Quarterly Options
Series expire (‘‘Short Term Option Daily
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32491
Today, Table 1 permits the listing and
trading of Monday Short Term Option
Daily Expirations and Wednesday Short
Term Option Daily Expirations for IWM.
At this time, the Exchange proposes to
expand the Short Term Option Series
Program to permit the listing and
trading of no more than a total of two
IWM Short Term Option Daily
Expirations beyond the current week for
each of Monday, Tuesday, Wednesday,
and Thursday expirations at one time.5
The listing and trading of Tuesday and
Thursday Short Term Option Daily
Expirations would be subject to
Interpretations and Policies .02 of
Exchange Rule 404.
Today, Tuesday Short Term Option
Daily Expirations in SPDR S&P 500 ETF
Trust (‘‘SPY’’) and Invesco QQQ TrustSM
(‘‘QQQ’’) may open for trading on any
Monday or Tuesday that is a business
day series of options on the symbols
provided in Table 1 that expire at the
close of business on each of the next
two Tuesdays that are business days and
are not business days in which standard
expiration options series, Monthly
Options Series, or Quarterly Options
Series expire (‘‘Tuesday Short Term
Option Expiration Date’’).6 Also, today,
Thursday Short Term Option Daily
Expirations in SPY and QQQ may open
for trading on any Tuesday or
Wednesday that is a business day series
of options on the symbols provided in
Table 1 that expire at the close of
business on each of the next two
Wednesdays that are business days and
are not business days in which standard
expiration options series, Monthly
Options Series, or Quarterly Options
Expirations’’). See Interpretations and Policies .02
of Exchange Rule 404.
5 The Exchange would amend the Tuesday and
Thursday expirations for IWM in Table 1 in
Interpretations and Policies .02 of Exchange Rule
404 from ‘‘0’’ to ‘‘2’’ to permit Tuesday and
Thursday expirations for options on IWM listed
pursuant to the Short Term Option Series. The
Exchange notes that Cboe Exchange, Inc. (‘‘Cboe’’)
began listing Tuesday and Thursday expirations in
the Russell 2000 Index Weeklys® (‘‘RUTW’’) and
Mini-Russell 2000 Index Weeklys® (‘‘MRUT’’) on
January 8, 2024. See Securities Exchange Act
Release No. 98621 (September 28, 2023), 88 FR
68896 (October 4, 2023) (SR–CBOE–2023–054) (a
Proposed Rule Change To Amend Rule 4.13);
Securities Exchange Act Release No. 98957
(November 15, 2023), 88 FR 81130 (November 21,
2023) (SR–CBOE–2023–054) (Order Approving a
Proposed Rule Change To Amend Rule 4.13 To
Expand the Nonstandard Expirations Program To
Include P.M.-Settled Options on Broad-Based
Indexes That Expire on Tuesday or Thursday); See
also Cboe Global Markets, Inc., Cboe To Offer Daily
Expiries For Russell 2000 Index Options Suite,
Beginning January 8, 2024, available at https://
ir.cboe.com/news/news-details/2023/Cboe-TOOFFER-DAILY-EXPIRIES-FOR-RUSSELL-2000INDEX-OPTIONS-SUITE-BEGINNING-JANUARY-82024/default.aspx (last visit February 14, 2024).
6 See Interpretations and Policies .02 of Exchange
Rule 404.
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Agencies
[Federal Register Volume 89, Number 82 (Friday, April 26, 2024)]
[Notices]
[Pages 32485-32491]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-08943]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100003; File No. SR-MSRB-2024-01]
Self-Regulatory Organizations; Municipal Securities Rulemaking
Board; Order Instituting Proceedings To Determine Whether To Approve or
Disapprove a Proposed Rule Change Consisting of Proposed Rule Change To
Amend MSRB Rule G-14 To Shorten the Timeframe for Reporting Trades in
Municipal Securities to the MSRB
April 22, 2024.
I. Introduction
On January 12, 2024, the Municipal Securities Rulemaking Board
(``MSRB'') filed with the Securities and Exchange Commission (``SEC''
or ``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'' or ``Exchange Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to (1) amend MSRB Rule G-14
(``Rule G-14''), on reports of sales or purchases, to (i) shorten the
amount of time within which brokers, dealers, and municipal securities
dealers (collectively, ``dealers,'' and each individually, a
``dealer'') must report most transactions to the MSRB; and (ii) require
dealers to report certain transactions with a new trade indicator, and
make certain clarifying amendments, and (2) make conforming amendments
to MSRB Rule G-12, on uniform practice (``Rule G-12''), and the MSRB's
Real-Time Transaction Reporting System (``RTRS'') Information Facility
(``IF-1'') to reflect the shortened reporting timeframe (collectively,
the ``proposed rule change'').\3\ The proposed rule change was
published for comment in the Federal Register on January 26, 2024.\4\
The Commission received comments in response to the proposed rule
change.\5\ This order institutes proceedings under Section 19(b)(2)(B)
of the Act \6\ to determine whether to approve or disapprove the
proposed rule change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Securities Exchange Act Release No. 34-99402 (Jan. 19,
2024), 89 FR 5384 (Jan. 26, 2024) (``Notice'').
\4\ Notice, 89 FR at 5384.
\5\ Comment letters received by the Commission are available on
our website at https://www.sec.gov/comments/sr-msrb-2024-01/srmsrb202401.htm.
\6\ 15 U.S.C. 78s(b)(2)(B).
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II. Description of the Proposed Rule Change
Rule G-14 on reports of sales or purchases requires dealers to
report their transactions to RTRS within 15 minutes of the Time of
Trade,\7\ absent an exception,\8\ in accordance with Rule G-14, the
Rule G-14 RTRS Procedures, and the RTRS Users Manual.\9\ Since the
current 15-minute requirement went into effect in 2005, the fixed
income markets have changed dramatically, including a significant
increase in the use of electronic trading platforms or other electronic
communication protocols to facilitate the execution of transactions. As
described in more detail in the Notice, the proposed rule change is
intended to bring about greater market transparency through more timely
disclosure and dissemination of information to market participants and
market-supporting vendors so that the information better reflects
current market conditions on a real-time basis, while carefully
balancing the considerations raised by commenters throughout the
rulemaking process.\10\ Additionally, the proposed rule change would
also make certain conforming technical changes to Rule G-12(f)(i) and
IF-1. The MSRB has stated that it will review the available trade
reporting information and data arising from implementation of the
changes to trade reporting introduced by the proposed rule change,
including but not limited to the two exceptions to the one-minute
reporting requirement,\11\ to inform any further potential changes by
the MSRB, through future rulemaking, to the trade reporting
requirements due to increasing marketplace and technology efficiencies,
process improvements, continuing or new barriers to accelerated
reporting, unanticipated market impacts, or other factors.\12\
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\7\ Rule G-14 RTRS Procedures Section (d)(iii) defines ``Time of
Trade'' as the time at which a contract is formed for a sale or
purchase of municipal securities at a set quantity and set price.
\8\ See Notice, 89 FR at 5384 n.5 (describing transactions
currently exempt from the reporting requirements under Rule G-
14(b)(v)).
\9\ The RTRS Users Manual is available at https://www.msrb.org/RTRS-Users-Manual.
\10\ Id.
\11\ Id.
\12\ Id.
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A. New Baseline Reporting Requirement: One Minute After the Time of
Trade
The proposed amendments to Rule G-14 RTRS Procedures Section
(a)(ii) generally would provide that transactions effected with a Time
of Trade during the hours of an RTRS Business Day \13\ must be reported
to an RTRS Portal \14\ ``as soon as practicable, but no later than one
minute'' (rather than within the current 15-minute standard) after the
Time of Trade, subject to several existing reporting exceptions, which
would be retained in the amended rule,\15\ and two new intra-day
reporting exceptions relating to dealers with limited trading activity
and trades with a manual component that would be added by the proposed
rule change.\16\ Except for those trades that would qualify for a
reporting exception, all trades currently required to be reported
within 15 minutes after the Time of Trade would, under the proposed
rule change, be required to be reported no later than one minute after
the Time of Trade.
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\13\ Rule G-14 RTRS Procedures Section (d)(ii) defines ``RTRS
Business Day'' as 7:30 a.m. to 6:30 p.m., Eastern Time, Monday
through Friday, unless otherwise announced by the MSRB.
\14\ See Notice, 89 at 5385 n.13 (discussing the various
portals).
\15\ See Notice, 89 FR at 5385 n.14 (describing the existing
exceptions).
\16\ The two new intra-day reporting exceptions, consisting of
trades by dealers with limited trading activity and trades with a
manual component, would be designated as Rule G-14 RTRS Procedures
Sections (a)(ii)(C)(1) and (2), respectively. See Notice, 89 FR at
5385 n.15.
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i. New Requirement To Report Trades ``as Soon as Practicable''
Section (a)(ii) of the proposed amendment to Rule G-14 RTRS
Procedures adds a new requirement that, absent an exception, trades
must be reported as soon as practicable (but no later than one minute
after the Time of Trade).\17\ This ``as soon as practicable''
requirement would also apply to trades subject to longer trade
reporting deadlines under the two new exceptions for dealers with
limited trading activity pursuant to Rule G-14 RTRS Procedures Section
(a)(ii)(C)(1) and Supplementary Material .01, or trades with a manual
component pursuant to Rule G-14 RTRS Procedures Section (a)(ii)(C)(2)
and Supplementary Material .02.\18\ Although Rule G-14 RTRS Procedures
do not currently explicitly prohibit a dealer from waiting until the
existing 15-minute deadline to report a trade notwithstanding the fact
that the dealer could reasonably have reported such
[[Page 32486]]
trade more rapidly, the MSRB notes that under the proposed rule change
a dealer could not simply await the deadline to report a trade if it
were practicable to report such trade more rapidly.\19\
---------------------------------------------------------------------------
\17\ Notice, 89 FR at 5386.
\18\ Id.
\19\ Id.
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As provided in more detail in the Notice, proposed Supplementary
Material .03 would provide guidance relating to policies and procedures
for complying with the ``as soon as practicable'' reporting
requirement.\20\ The MSRB noted that dealers must not purposely
withhold trade reports, for example, by programming their systems to
delay reporting until the last permissible minute or by otherwise
delaying reports to a time just before the deadline if it would have
been practicable to report such trades more rapidly.\21\ For trades
with a manual component, and consistent with Supplementary Material
.03(b) of FINRA Rule 6730, the MSRB recognized that the trade reporting
process may not be completed as quickly as, for example, where an
automated trade reporting system is used.\22\ The MSRB explained that
it expected that the regulatory authorities that examine dealers and
enforce compliance with this requirement would take into consideration
the manual nature of the dealer's trade reporting process in
determining whether the dealer's policies and procedures are reasonably
designed to report the trade ``as soon as practicable'' after
execution.\23\
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\20\ Id. Where a dealer has reasonably designed policies,
procedures and systems in place, the dealer generally would not be
viewed as violating the ``as soon as practicable'' requirement
because of delays in trade reporting due to extrinsic factors that
are not reasonably predictable and where the dealer does not intend
to delay the reporting of the trade (for example, due to a systems
outage).
\21\ Id.
\22\ Id.
\23\ Id.
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ii. Time of Trade Discussion
The ``Time of Trade'' is the time at which a contract is formed for
a sale or purchase of municipal securities at a set quantity and set
price.\24\ For transaction reporting purposes, the Time of Trade is the
same as the time that a trade is ``executed'' and, generally, is
consistent with the ``time of execution'' for recordkeeping
purposes.\25\
---------------------------------------------------------------------------
\24\ See current Rule G-14 RTRS Procedures Section (d)(iii).
\25\ See Notice, 89 FR at 5386 for a discussion on time of
execution and note 22 for additional guidance material on the time
of execution.
---------------------------------------------------------------------------
iii. Valid Contract Discussion
In general, to form a valid contract, there must be at least an
offer and acceptance of that offer. As a result, the MSRB noted that
dealers should consider the point in time at which an offer to buy or
sell municipal securities was met with an acceptance of that offer.
This ``meeting of the minds,'' \26\ cannot occur before the final
material terms, such as the exact security, price and quantity, have
been agreed to and such terms are known by the parties to the
transaction.\27\ The MSRB further explained that dealers should be
clear in their communications regarding the final material terms of the
trade and how such terms would be conveyed between the parties \28\ to
ensure that such a valid trade contract has been formed.\29\
---------------------------------------------------------------------------
\26\ See generally FINRA Regulatory Notice 16-30 (Trade
Reporting and Compliance Engine (TRACE): FINRA Reminds Firms of
their Obligation to Report Accurately the Time of Execution for
Transactions in TRACE-eligible Securities) (Aug. 2016); MSRB Notice
2016-19 (MSRB Provides Guidance on MSRB Rule G-14, on Reports of
Sales or Purchases of Municipal Securities (Aug. 9, 2019) (the
``2016 RTRS FAQs'') at questions 1 and 2.
\27\ See generally MSRB Notice 2004-18 (Notice Requesting
Comment on Draft Amendments to Rule G-34 to Facilitate Real-Time
Transaction Reporting and Explaining Time of Trade for Reporting New
Issue Trades) (June 18, 2004); 2016 RTRS FAQs at question 1.
\28\ Notice, 89 FR at 5386 n.26.
\29\ See Notice 89 FR at 5387 (discussing the particulars for
when transactions have been executed, confirmed, and reported).
---------------------------------------------------------------------------
iv. Exceptions to the Baseline Reporting Requirement
Proposed amendments to Rule G-14 RTRS Procedures Section (a)(ii)
add two new exceptions to the proposed one-minute reporting
requirement: (a) New Section (C)(1) provides an exception for a dealer
with ``limited trading activity,'' and (b) new Section (C)(2) provides
an exception for a dealer reporting a ``trade with a manual
component.'' \30\
---------------------------------------------------------------------------
\30\ Notice, 89 FR at 5387 (explaining how these exceptions have
a narrowly tailored purpose).
---------------------------------------------------------------------------
a. Exception for Dealers With Limited Trading Activity
New Section (a)(ii)(C)(1) would except a dealer with ``limited
trading activity'' from the one-minute reporting requirement and would
instead be required to report its trades as soon as practicable, but no
later than 15 minutes after the Time of Trade for so long as the dealer
remains qualified for the limited trading activity exception, as
further specified in new Supplementary Material .01.\31\ Proposed
Section (d)(xi) of Rule G-14 RTRS Procedures would define a dealer with
limited trading activity as a dealer that, during at least one of the
prior two consecutive calendar years, reported to an RTRS Portal fewer
than 1,800 transactions, excluding transactions exempted under Rule G-
14(b)(v) and transactions specified in Rule G-14 RTRS Procedures
Sections (a)(ii)(A) and (B) (i.e., transactions having an end-of-trade-
day reporting exception).\32\ A dealer relying on this exception to
report trades within the 15-minute timeframe, rather than the new
standard one-minute timeframe, would have to confirm that it meets the
criteria for a dealer with limited trading activity for each year
during which it continues to rely on the exception (e.g., the dealer
could confirm its eligibility based on its internal trade records and
by checking MSRB compliance tools which would indicate a dealer's
transaction volume for a given year).\33\ Notwithstanding the
foregoing, the MSRB reminded dealers with limited trading activity of
the new overarching obligation to report trades as soon as
practicable.\34\
---------------------------------------------------------------------------
\31\ The MSRB noted that transactions effected by such a dealer
with a Time of Trade outside the hours of an RTRS Business Day would
be permitted to be reported no later than 15 minutes after the
beginning of the next RTRS Business Day pursuant to Rule G-14 RTRS
Procedures Section (a)(iii). The MSRB also noted that, as is the
case today, transactions for which an end-of-trade-day or post-
trade-day reporting exception is available under redesignated
Sections (A) and (B) would continue to have that exception
available. Notice, 89 FR at 5387 n.29.
\32\ This number of transactions is expected to capture
approximately 1.5 percent of the trades in the municipal securities
markets in a given calendar year. Notice, 89 FR at 5387 n.30.
\33\ See Notice, 89 FR at 5387-5388 (using a hypothetical to
illustrate variations in dealer eligibility for the limited trading
exception).
\34\ See Notice, 89 FR at 5386 discussing the new requirement to
report trades as soon as practicable.
---------------------------------------------------------------------------
b. Exception for Trades With a Manual Component
Rule G-14 RTRS Procedures Section (a)(ii)(C)(2) would except a
``trade with a manual component'' as defined in new Section (d)(xii) of
Rule G-14 RTRS Procedures from the one-minute reporting requirement.
Dealers with such trades would be required to report such trades as
soon as practicable and within the time periods specified in new
Supplementary Material .02, unless another exception from the one-
minute reporting requirement applies under proposed Rule G-14 RTRS
Procedures Sections (a)(ii)(A) and (B) (i.e., transactions having an
end-of-trade-day or post-trade-day reporting exception) or
(a)(ii)(C)(1) (i.e., transactions by dealers with limited trading
activity).\35\ Section (d)(xii) of Rule G-14 RTRS Procedures would
define a ``trade with a manual component'' as a transaction that is
[[Page 32487]]
manually executed or where the dealer must manually enter any of the
trade details or information necessary for reporting the trade directly
into an RTRS Portal (for example, by manually entering trade data into
the RTRS Web Portal) or into a system that facilitates trade reporting
(for example, by transmitting the information manually entered into a
dealer's in-house or third-party system) to an RTRS Portal. As
described below and in the Notice, a dealer reporting to the MSRB a
trade meeting the definition for a ``trade with a manual component''
would be required to append a new trade indicator so that the MSRB can
identify manual trades.\36\
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\35\ As explained by the MSRB, transactions effected with a Time
of Trade outside the hours of an RTRS Business Day would be
permitted to be reported no later than 15 minutes after the
beginning of the next RTRS Business Day pursuant to Rule G-14 RTRS
Procedures Section (a)(iii). Notice, 89 FR at 5387 n.38.
\36\ Such new indicator would be required for any trade with a
manual component, whether the dealer reports such trade within the
new one-minute timeframe or the dealer seeks to take advantage of
the longer timeframes permitted for trades with a manual component.
Notice, 89 FR at 5388 n.39.
---------------------------------------------------------------------------
As explained by the MSRB, this ``manual'' exception would apply
narrowly, and would normally encompass any human participation,
approval or other intervention necessary to complete the initial
execution and reporting of trade information after execution,
regardless of whether undertaken by electronic means (e.g., keyboard
entry), physical signature or other physical action. To qualify as a
trade with a manual component, the manual aspect(s) of the trade
generally would occur after the relevant Time of Trade (i.e., the time
at which a contract is formed for the transaction). As further
explained by the MSRB, any manual aspects that precede the time of
trade (e.g., phone calls to locate bonds to be sold to a customer
before the dealer agrees to sell such bonds to a purchasing customer)
would normally not be relevant for purposes of the exception unless
they have a direct impact on the activities that must be undertaken
post-execution to enter information necessary to report the trade.\37\
---------------------------------------------------------------------------
\37\ The MSRB provided various scenarios to illustrate
application of the manual exception would apply. See generally
Notice, 89 FR at 5389 n.40 and 5390 n.50.
---------------------------------------------------------------------------
The MSRB provided the following non-exhaustive list of situations
in which trades would be considered to have a manual component: where a
dealer executes a trade by manual or hybrid means, such as voice or
negotiated trading by telephone, email, or through a chat/messaging
function, and subsequently must manually enter into a system that
facilitates trade reporting all or some of the information required to
book the trade and report it to RTRS; where a dealer executes a trade
(typically a larger-sized trade) that requires additional steps to
negotiate and confirm details of the trade with a client and manually
enters the trade into risk and reporting systems; where a dually-
registered broker-dealer/investment adviser executes a block
transaction that requires allocations of portions of the block trade to
the individual accounts of the firm's advisory clients that must be
manually inputted in connection with a trade; where an electronically
or manually executed trade is subject to manual review by a second
reviewer for risk management (e.g., transactions above a certain dollar
or par amount or other transactions meriting heightened risk review)
and, as part of or following the review, the trade must be manually
approved, amended or released before the trade is reported to RTRS;
where a dealer's trade execution processes may entail further diligence
following the Time of Trade involving a manual step (e.g., manually
checking another market to confirm that a better price is not available
to the customer); \38\ where a dealer trades a municipal security,
whether for the first time or under other circumstances where the
security master information may not already be populated (e.g.,
information has been removed or archived due to a long lapse in trading
the security), and additional manual steps are necessary to set up the
security and populate the associated indicative data in the dealer's
systems prior to executing and reporting the trade; where a dealer
receives a large order or a trade list resulting in a portfolio of
trades with potentially numerous unique securities involving rapid
execution and frequent communications on multiple transactions with
multiple counterparties, and the dealer must then book and report those
transactions manually, one by one; \39\ where a broker's broker engages
in mediated transactions that involve multiple transactions with
multiple counterparties; and where a dealer reports a trade manually
through the RTRS Web Portal.
---------------------------------------------------------------------------
\38\ The MSRB noted that dealers experiencing significant levels
of post-Time of Trade price adjustments due to such post-trade best
execution processes should consider whether these processes are well
suited to the dealer's obligations under MSRB Rule G-18 and whether
the dealer is appropriately evaluating when a contract has in fact
been formed with its customer. Notice, 89 FR at 5389 n.41.
\39\ The MSRB explained that in instances where a dealer trades
a basket of securities at a single price for the full basket, rather
than individual prices for each security based on its then-current
market price, such price likely would be away from the market,
requiring inclusion of the ``away from market'' special condition
indicator and qualifying for an end-of-trade-day reporting exception
under proposed Rule G-14 RTRS Procedures Section (a)(ii)(A)(3).
Notice, 89 FR at 5389 n.42.
---------------------------------------------------------------------------
The MSRB stated that the appropriateness of treating any step in
the trade execution and reporting process as being manual must be
assessed in light of the anti-circumvention provision included in the
proposed rule change with regard to the delay in execution or insertion
of manual tasks for the purpose of meeting this new exception.\40\ New
Supplementary Material .02(a) would require all trades with a manual
component to be reported as soon as practicable and would specify that
in no event may a dealer purposely delay the execution of an order,
introduce any manual steps following the Time of Trade, or otherwise
modify any steps prior to executing or reporting a trade for the
purpose of utilizing the exception for manual trades.\41\
---------------------------------------------------------------------------
\40\ See Notice, 89 FR at 5390 (discussing the prohibition on
purposeful insertion of manual steps in trade reporting process).
\41\ Id.
---------------------------------------------------------------------------
New Supplementary Material .03 would require that dealers adopt
policies and procedures for complying with the as soon as practicable
reporting requirement, including by implementing systems that commence
the trade reporting process without delay upon execution and provides
for additional guidance for regulatory authorities that enforce and
examine dealers for compliance with this requirement to take into
consideration the manual nature of the dealer's trade reporting
process.\42\
---------------------------------------------------------------------------
\42\ For trades with a manual component, the MSRB explained that
it recognized that the trade reporting process may not be completed
as quickly as, for example, where an automated trade reporting
system is used. The MSRB further explained that in these cases, the
MSRB expects that the regulatory authorities that examine dealers
and enforce compliance with this requirement would take into
consideration the manual nature of the dealer's trade reporting
process in determining whether the dealer's policies and procedures
are reasonably designed to report the trade ``as soon as
practicable'' after execution. Notice, 89 FR at 5388.
---------------------------------------------------------------------------
The MSRB also noted that dealers should consider the types of
transactions in which they regularly engage and whether they can
reasonably reduce the time between a transaction's Time of Trade and
its reporting, and more generally should make a good faith effort to
report their trades as soon as practicable.\43\ The MSRB currently
collects and analyzes data regarding dealers' historic reporting of
transactions to RTRS under various scenarios and such data will
continue to be available to the regulators for analysis under the
proposed one-minute
[[Page 32488]]
standard. Subject to Commission approval of the proposed rule change,
the MSRB explained that it would be reviewing the use of the manual
exception and would share with the examining authorities any analyses
resulting from such reviews.\44\
---------------------------------------------------------------------------
\43\ Id. at 5389.
\44\ Id. at 5390.
---------------------------------------------------------------------------
1. Phase-In Period for Trades With a Manual Component
New Supplementary Material .02(b) would subject trades with a
manual component to a phase-in period for timely reporting over three
years (``phase-in period''). During the first year of effectiveness of
the exception, trades meeting this definition would be required to be
reported as soon as practicable, but no later than 15 minutes after the
Time of Trade.\45\ During the second year, such trades would be
required to be reported as soon as practicable, but no later than 10
minutes after the Time of Trade. After the second year and thereafter,
such trades would be required to be reported as soon as practicable,
but no later than five minutes after the Time of Trade. Dealers should
remember that the ``as soon as practicable'' reporting obligation may,
depending on the facts and circumstances, require quicker reporting
than the applicable outer reporting obligation during and after the
phase-in period.
---------------------------------------------------------------------------
\45\ While the deadline for reporting during this first year
would remain the same as the current 15-minute timeframe, such trade
reports would also be subject to the new requirement that they be
reported as soon as practicable. See Notice, 89 FR at 5390 n.48.
---------------------------------------------------------------------------
The MSRB explained that it would be reviewing the available trade
reporting information and data arising from implementation of the
proposed rule, as well as marketplace developments, feedback from
market participants, and examination or enforcement findings from the
Commission, FINRA and the other appropriate regulatory agencies to
inform any further potential changes to the trade reporting
requirements.\46\
---------------------------------------------------------------------------
\46\ Notice, 89 FR at 5390.
---------------------------------------------------------------------------
2. Prohibition on Purposeful Insertion of Manual Steps in Trade
Reporting Process
New Supplementary Material .02(a) would specifically prohibit
dealers from purposely delaying the execution of an order, introducing
any manual steps following the Time of Trade, or otherwise purposefully
modifying any steps to execute or report a trade to utilize the
exception for manual trades. This requirement would not prohibit
reasonable manual steps that are taken for legitimate purposes and
would not apply to any steps that are taken prior to the time of trade
that do not have the effect of delaying the subsequent reporting of
such trade.\47\
---------------------------------------------------------------------------
\47\ Notice, 89 FR at 5890.
---------------------------------------------------------------------------
3. Manual Trade Indicator
Proposed amendments to Rule G-14 RTRS Procedures Section (b)(iv)
would require the report of a trade meeting the MSRB's definition for a
``trade with a manual component,'' as defined in proposed Section
(d)(xii) of Rule G-14 RTRS Procedures,\48\ to append a new trade
indicator \49\ to such a trade report. This indicator would be
mandatory for every trade that meets the standard to append the
indicator,\50\ regardless of whether the trade is actually reported
within one minute after the Time of Trade, is reported within the
applicable timeframe under the manual trade exception or is otherwise
subject to another reporting exception.
---------------------------------------------------------------------------
\48\ See generally Notice, 89 FR at 5388-90.
\49\ See Notice, 89 FR at 5391 n.51 (discussing how the manual
trade indicator would be used for regulatory purposes).
\50\ Current Rule G-14 RTRS Procedures Section (a)(iv) requires
that transaction data that is not submitted in a timely and accurate
manner must be submitted or corrected as soon as possible. The
manual trade indicator is not intended to be used to reflect the
manual nature of any correction to a prior trade report. Notice, 89
FR at 5390 n.50.
---------------------------------------------------------------------------
v. Pattern or Practice of Late Trade Reporting
Current Rule G-14 RTRS Procedures Section (a)(iv) requires that
transaction data that is not submitted in a timely and accurate manner
must be submitted or corrected as soon as possible--even when a dealer
is late in reporting a trade, the dealer remains obligated to report
such trade as soon as possible. The proposed amendments further provide
that any transaction that is not reported within the applicable time
period shall be designated as ``late.'' \51\ The MSRB stated that a
pattern or practice of late reporting without exceptional circumstances
or reasonable justification may be considered a violation of Rule G-14.
The MSRB further noted that the determination of whether exceptional
circumstances or reasonable justifications exist for late trade
reporting is dependent on the particular facts and circumstances and
whether such circumstances are addressed in the dealer's systems and
procedures.\52\ The MSRB explained that it expected that the regulatory
authorities that examine dealers and enforce compliance with the
reporting timeframes established under Rule G-14 RTRS Procedures would
focus their examination for and enforcement of the rule's timing
requirements on the consistency of timely reporting and the existence
of effective controls to limit late reporting to exceptional
circumstances or where reasonable justifications exist for a late trade
report, rather than on individual late trade report outliers.\53\
Notwithstanding such expectation, where facts and circumstances
indicate that an individual late report was intentional or otherwise
egregious, or could reasonably be viewed as potentially giving rise to
an associated fair practice, fair pricing, best execution or other
material regulatory concern under MSRB or Commission rules with respect
to that or a related transaction, the MSRB noted that the regulatory
authorities could reasonably determine to take action with respect to
such late trade in the examination or enforcement context.\54\
---------------------------------------------------------------------------
\51\ See generally id. at 5391 n.52 (MSRB explaining that late
trade designations are currently, and would continue to be,
available to regulators and, through the MSRB compliance tool
described below in the Notice under ``Purpose--Proposed Rule
Change--Compliance Tools,'' to the dealer submitting the late
trade).
\52\ See Notice, 89 FR at 5391 for non-exhaustive list of
factors that would be considered in determining whether a rule
violation has occurred.
\53\ Id.
\54\ Id.
---------------------------------------------------------------------------
vi. Compliance Tools
The MSRB explained that it would continue to provide various
compliance tools to assist dealers with compliance and for examining
authorities to monitor for compliance.\55\
---------------------------------------------------------------------------
\55\ Id. (discussing the various compliance tools).
---------------------------------------------------------------------------
vii. Proposed Technical Amendments
a. Non-Substantive Amendments
Non-substantive amendments to Rule G-14 RTRS Procedures Section
(a)(ii) regroup and renumber its current Sections (A) through (C) to
new Sections (A)(1) through (A)(3), renumber current Sections (D) and
(E) to new Sections (B)(1) and B(2), and correct a cross-reference in
Section (b)(iv) to certain of these Sections to be consistent with such
renumbering.\56\ In addition, a technical amendment to Rule G-14 RTRS
Procedures Section (a)(ii) changes the word ``of'' to ``after'' and
omits the word ``within'' in the phrase ``within 15 minutes of Time of
Trade'' for clarity and consistency of usage throughout the Rule G-14
RTRS Procedures as amended.\57\
---------------------------------------------------------------------------
\56\ Id. at 5392.
\57\ Id.
---------------------------------------------------------------------------
[[Page 32489]]
b. Clarifying Amendments--Special Condition Indicators and Trades on an
Invalid RTTM Trade Date
Rule G-14 RTRS Procedures Section (b)(iv) currently sets forth
information regarding certain existing special condition indicators
while also referencing the existence of other special condition
indicators in Section 4.3.2 of the Specifications for Real-Time
Reporting of Municipal Securities Transactions. The proposed clarifying
amendments to Section (b)(iv) of Rule G-14 RTRS Procedures would
incorporate into the language thereof reference to all applicable
special condition indicators, including the new trade with a manual
component indicator and existing special condition indicators
previously adopted by the MSRB but that are currently only documented
explicitly in the Specifications for Real-Time Reporting of Municipal
Securities Transactions.\58\ Other than the addition of the new trade
with a manual component indicator, the proposed clarifying amendments
to this provision would not make any changes to the types or usage of
existing special condition indicators.\59\ Rule G-14 RTRS Procedures
Section (a)(iii) would be amended to reflect that, in addition to
trades effected outside the hours of the RTRS Business Day, inter-
dealer trades may be executed on certain holidays (other than those
recognized as non-RTRS Business Days) that are not valid RTTM trade
dates (``invalid RTTM trade date''), and in either case such trades are
to be reported no later than within 15 minutes after the beginning of
the next RTRS Business Day. Such invalid RTTM trade date transactions
are already subject to this same next RTRS Business Day reporting
requirement.\60\ The proposed clarifying amendment to this provision
would not make any changes to the circumstances or timing of reporting
of such trades.\61\
---------------------------------------------------------------------------
\58\ See generally Notice, 89 FR at 5392 n.55.
\59\ Id. at 5392.
\60\ See Section 4.3.2 of the Specifications for Real-Time
Reporting of Municipal Securities Transactions; Exchange Act Release
No. 55957 (June 26, 2007), 72 FR 36532 (July 3, 2007), File No. SR-
MSRB-2007-01.
\61\ Notice, 89 FR at 5392.
---------------------------------------------------------------------------
c. Proposed Conforming Amendments to Rule G-12 and RTRS Information
Facility
Proposed amendments to Rule G-12, on uniform practice, would make
conforming changes to Section (f)(i) thereof to require that each
transaction effected during the RTRS Business Day shall be submitted
for comparison as soon as practicable, but no later than one minute
after the Time of Trade unless an exception applies. The proposed rule
change would also modify the IF-1 to clarify lateness checking against
the applicable reporting deadline(s) provided for in proposed
amendments to Rule G-14 RTRS Procedures, as opposed to the current 15-
minute requirement.\62\
---------------------------------------------------------------------------
\62\ Id.
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III. Summary of Comments Received
The Commission received thirteen comment letters on the proposed
rule change.\63\ Commenters generally supported the MSRB's goal of
facilitating equal access to information and market transparency.\64\
However, many commenters expressed concern that the MSRB failed to
demonstrate how a one-minute reporting requirement would clearly and
substantially benefit the municipal securities market.\65\ To this end,
several commenters raised concern that the one-minute reporting
requirement would increase costs of new technology infrastructure
which, commenters argued, could impair municipal market liquidity by
putting small and mid-size firms out of business.\66\ Commenters
maintained that the exceptions to the one-minute reporting requirement
were requisite to implementing the proposed rule change.\67\ Otherwise,
commenters asserted that a general one-minute reporting requirement
would be unworkable.\68\ One commenter, however, strongly encouraged
the MSRB to fully phase-out the exceptions.\69\ Another commenter noted
a similar proposal \70\ by the Financial Industry Regulatory Authority,
Inc. (``FINRA''), and requested that the MSRB and FINRA harmonize the
scope of the manual trade exception.\71\
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\63\ See letters to Vanessa A. Countryman, Secretary,
Commission, from Michael Noto, FINRA Registered Representative dated
Jan. 31, 2024 (``Noto''); J. Ben Watkins, Director, Division of Bond
Finance, State of Florida dated Feb. 13, 2024 (``State of
Florida''); Matthew Kamler, President, Sanderlin Securities LLC
dated Feb. 14, 2024 (``Sanderlin Securities''); Gerard O'Rielly, Co-
Chief Executive Officer and Co-Chief Investment Officer and David A.
Plecha, Global Head of Fixed Income, Dimensional Fund Advisors LP
dated Feb. 15, 2024 (``Dimensional Fund Advisors''); Michael Decker,
Senior Vice President, Bond Dealers of America dated Feb. 15, 2024
(``BDA''); Sarah A. Bessin, Deputy General Counsel, Investment
Company Institute dated Feb. 15, 2024 (``ICI''); Kenneth E. Bentsen,
Jr., President and CEO, Securities Industry and Financial Markets
Association dated Feb. 15, 2024 (``SIFMA''); Howard Meyerson,
Managing Director, Financial Information Forum dated Feb. 15, 2024
(``FIF I''); Gregory Babyak, Global Head of Regulatory Affairs,
Bloomberg L.P. dated Feb. 16, 2024 (``Bloomberg''); Melissa P.
Hoots, CEO/COO, Falcon Square Capital, LLC dated Feb. 16, 2024
(``Falcon Square Capital''); Matt Dalton, Chief Executive Officer,
Belle Haven Investments, LP dated Feb. 16, 2024 (``Belle Haven'');
Christopher A. Iacovella, President & Chief Executive Officer,
American Securities Association dated Feb. 16, 2024 (``ASA''). Also,
after the close of the comment period, one commenter submitted a
supplemental letter. See letter from Financial Information Forum
dated Feb. 26, 2024 (``FIF II''). The Commission's Office of
Municipal Securities held a meeting with a representative from the
State of Florida on Feb. 13, 2024, and the Commission's Offices of
Municipal Securities and Trading and Markets held a meeting with
representatives from the BDA. See Memoranda from the Office of
Municipal Securities regarding 2024 meetings.
\64\ See, e.g., letters from SIFMA; BDA; ICI; Dimensional Fund
Advisors; Belle Haven.
\65\ See, e.g., BDA Letter at 1; Noto Letter; State of Florida
Letter at 1-2; Sanderlin Securities Letter at 2-4; SIFMA Letter at
2; ASA Letter at 1 and 5-6; Falcon Square Capital Letter at 1-2;
Belle Haven Letter at 3-6; ICI Letter at 2, FN4.
\66\ See, e.g., BDA Letter at 3-4; State of Florida Letter at 2;
Sanderlin Securities Letter at 1-3; Falcon Square Capital Letter at
2.
\67\ See, e.g., BDA Letter at 1; ICI Letter at 3; SIFMA Letter
at 2; FIF I Letter at 2.
\68\ See generally BDA Letter; ICI Letter, SIFMA Letter; FIF I
Letter; Belle Haven Letter.
\69\ Dimensional Fund Advisors Letter at 2.
\70\ See Securities Exchange Act Release No. 99404 (Jan. 19,
2024), 89 FR 5034 (Jan. 24, 2024) (``FINRA Notice'').
\71\ See FIF I Letter at 3.
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Commenters offered several views relating to the exceptions. Some
commenters noted that the manual trade exception balances shortening
reporting requirements while avoiding undue disruptions to the
municipal securities market.\72\ However, one commenter argued that the
MSRB had not provided any data to support a reduction in reporting time
for manual trades or any evidence that firms that are currently
reporting manually are not already reporting as soon as
practicable.\73\ This commenter also maintained that the phase-in
period could eliminate small firms which are incapable of meeting the
phased-in time periods.\74\ Another commenter remained troubled by the
language of the manual trade exception as it suggested the possibility
of leading to further reductions or even the elimination of the manual
trade exception.\75\ As a potential solution, commenters noted that the
MSRB could collect data and conduct impact assessments prior to each
phase-in period to ensure continued market integrity.\76\ Some
commenters stated that the proposed use of the manual trade indicator
could not be effectively implemented or monitored for compliance and
proposed that trades subject to the one-minute reporting requirement
should be flagged
[[Page 32490]]
instead.\77\ Commenters generally viewed the limited trading activity
exception favorably.\78\ One commenter, however, argued that the
proposed 1,800-trade threshold was far too low and requested that the
MSRB either significantly expand the threshold or conduct further
analysis to justify the 1,800 threshold.\79\
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\72\ See, e.g., ICI Letter at 3; SIFMA Letter at 3-4 (noting
that the proposed manual trade exception is an attempt to promote
continued liquidity of the subject fixed-income markets).
\73\ Belle Haven Letter at 7.
\74\ Id. at 5.
\75\ ASA Letter at 2.
\76\ See, e.g., SIFMA Letter at 6-7; ICI Letter at 3-4; BDA
Letter at 3.
\77\ See, e.g., SIFMA Letter at 9; BDA Letter at 3.
\78\ See, e.g., SIFMA Letter at 9; BDA Letter at 2; Falcon
Square Capital Letter at 3; Belle Haven Letter at 6; FIF I Letter at
2.
\79\ Falcon Square Capital Letter at 3.
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Some commenters addressed the proposed implementation period. Two
commenters requested a two-year implementation and requested that the
MSRB and FINRA remain open to the creation of FAQs or the provision of
implementation guidance to achieve greater compliance.\80\ One
commenter requested an eighteen-month implementation period from the
date the MSRB and FINRA publish updated technical specifications and
guidance.\81\
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\80\ See BDA Letter at 4; SIFMA Letter at 10.
\81\ See FIF I Letter at 5-7 (commenter also requested a free
testing period of 90-days instead of the standard 30-days).
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Commenters also challenged the proposed rule change as
circumventing regulatory obligations pursuant to the Exchange Act and
requested that the MSRB conduct further analysis before implementing
the proposed rule change.\82\
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\82\ See, e.g., Belle Haven Letter at 2; ASA Letter at 3; Falcon
Square Capital Letter at 6.
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IV. Proceedings To Determine Whether To Approve or Disapprove SR-MSRB-
2024-01 and Grounds for Disapproval Under Consideration
The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Act \83\ to determine whether the proposed rule
change should be approved or disapproved. Institution of proceedings is
appropriate at this time in view of the legal and policy issues raised
by the proposed rule change. Institution of proceedings does not
indicate, however, that the Commission has reached any conclusion with
respect to any of the issues involved. Rather, as described below, the
Commission seeks and encourages interested persons to comment on the
proposed rule change.
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\83\ 15 U.S.C. 78s(b)(2)(B).
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Pursuant to Section 19(b)(2)(B) of the Act,\84\ the Commission is
providing notice of the grounds for disapproval under consideration.
The Commission believes it is appropriate to institute proceedings at
this time in view of the legal and policy issues raised by the
proposal. In particular, Section 15B(b)(2) of the Act \85\ requires
that the MSRB propose and adopt rules to effect the purposes of the Act
with respect to transactions in municipal securities effected by
brokers, dealers, and municipal securities dealers and advice provided
to or on behalf of municipal entities or obligated persons by brokers,
dealers, municipal securities dealers, and municipal advisors with
respect to municipal financial products, the issuance of municipal
securities, and solicitations of municipal entities or obligated
persons undertaken by brokers, dealers, municipal securities dealers,
and municipal advisors. In addition, Section 15B(b)(2)(C) of the Act
\86\ requires, among other things, that the MSRB's rules be designed to
prevent fraudulent and manipulative acts and practices, to promote just
and equitable principles of trade, to foster cooperation and
coordination with persons facilitating transactions in municipal
securities and municipal financial products, to remove impediments to
and perfect the mechanisms of a free and open market in municipal
securities and municipal financial products, and, in general, to
protect investors, municipal entities, obligated persons, and the
public interest. The Commission asks that commenters address the
sufficiency of MSRB's statements in support of the proposed rule
change, which are set forth in the Notice, in addition to any other
comments they may wish to submit about the proposed rule change. In
particular, the Commission is instituting proceedings to allow for
additional analysis of, and input from commenters with respect to, the
scope and implementation of the proposed exceptions to the one-minute
reporting timeframe.
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\84\ Id.
\85\ 15 U.S.C. 78o4-(b)(2).
\86\ 15 U.S.C. 78o-4(b)(2)(C).
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V. Procedure: Request for Written Comments
The Commission requests that interested persons provide written
submissions of their data, views, and arguments with respect to the
issues identified above, as well as any others concerns they may have
with the proposed rule change. In particular, the Commission invites
the written views of interested persons concerning whether the proposed
rule change is inconsistent with the Exchange Act and the rules and
regulations thereunder. Although there do not appear to be any issues
relevant to approval or disapproval which would be facilitated by an
oral presentation of views, data, and arguments, the Commission will
consider, pursuant to Rule 19b-4 under the Act,\87\ any request for an
opportunity to make an oral presentation.\88\
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\87\ 17 CFR 240.19b-4.
\88\ Section 19(b)(2) of the Act, as amended by the Securities
Act Amendments of 1975, Public Law 94-29 (June 4, 1975), grants the
Commission flexibility to determine what type of proceeding--either
oral or notice and opportunity for written comments--is appropriate
for consideration of a particular proposal by a self-regulatory
organization. See Securities Act Amendments of 1975, Senate Comm. on
Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st
Sess. 30 (1975).
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Interested persons are invited to submit written data, views, and
arguments regarding whether the proposed rule change should be approved
or disapproved by May 17, 2024. Any person who wishes to file a
rebuttal to any other person's submission must file that rebuttal by
May 31, 2024.
Comments may be submitted by any of the following methods:
Electronic Comments
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
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the MSRB. All comments received
will be posted without change;
[[Page 32491]]
the Commission does not edit personal identifying information from
submissions. You should submit only information that you wish to make
available publicly. We may redact in part or withhold entirely from
publication submitted material that is obscene or subject to copyright
protection.
All submissions should refer to File Number SR-MSRB-2024-01 and
should be submitted on or before May 17, 2024. Rebuttal comments should
be submitted May 31, 2024.
For the Commission, pursuant to delegated authority.\89\
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\89\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-08943 Filed 4-25-24; 8:45 am]
BILLING CODE 8011-01-P