[Federal Register Volume 60, Number 130 (Friday, July 7, 1995)]
[Notices]
[Pages 35442-35443]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-16655]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35917; File No. SR-MSRB-95-03]
Self-Regulatory Organizations; Municipal Securities Rulemaking
Board; Order Approving Proposed Rule Change Relating to the Submission
of Transaction Information for Confirmation, Clearance, and Settlement
of Transactions with Customers
June 28, 1995.
On March 23, 1995, the Municipal Securities Rulemaking Board
(``MSRB'') filed with the Securities and Exchange Commission
(``Commission'') a proposed rule change (File No. SR-MSRB-95-3) under
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\
to amend MSRB rule G-15 regarding the confirmation, clearance, and
settlement of transactions with customers. Notice of the proposal was
published in the Federal Register on May 10, 1995.\2\ No comment
letters were received. For the reasons discussed below, the Commission
is approving the proposed rule change to become effective thirty days
from the date of approval by the Commission.
\1\ 15 U.S.C. 78(b)(1) (1988).
\2\ Securities Exchange Act Release No. 35675 (May 4, 1995), 60
FR 24950.
---------------------------------------------------------------------------
I. Description
On October 6, 1993, the Commission adopted Rule 15c6-1 under the
Act, which establishes three business days after the trade date
(``T+3'') instead of five business days (``T+5'') as the standard
settlement time frame for most broker-dealer transactions.\3\
Recognizing the differences between the corporate and municipal
securities markets and the unique role the MSRB has in overseeing the
municipal securities market, the Commission did not include municipal
securities within the scope of Rule 15c6-1.\4\ The Commission, however,
did formally request that the MSRB undertake a commitment to T+3
settlement for municipal securities to ensure consistency in settlement
cycles in the corporate and municipal markets.
\3\ Securities Exchange Act Release No. 33023 (October 6, 1993),
58 FR 52891 (release adopting Rule 15c6-1). On November 16, 1994,
the Commission changed the effective date of Rule 15c6-1 from June
1, 1995, to June 7, 1995. Securities Exchange Act Release No. 34952
(November 9, 1994), 59 FR 59137.
\4\ Securities Exchange Act Release No. 33023 (October 6, 1993),
58 FR 52891.
---------------------------------------------------------------------------
On February 28, 1995, the Commission approved amendments to MSRB
rules G-12 on uniform practice and rule G-15 on confirmation,
[[Page 35443]]
clearance, and settlement of transactions with customers. These
amendments established three business days as the standard settlement
time frame for regular-way transactions in municipal securities.\5\ The
MSRB reviewed its rules to determine whether or not additional rule
changes were necessary to facilitate the movement to T+3 settlement and
determined that additional amendments to rule G-15 are necessary to
facilitate T+3 settlement for municipal securities transactions.
\5\ Securities Exchange Act Release No. 35427 (February 28,
1995), 60 FR 12798 [File No. SR-MSRB-94-10].
---------------------------------------------------------------------------
Currently, rule G-15(d) states that a dealer shall give to send to
a DVP/RVP customer a confirmation with respect to an execution of an
order no later than the close of business on the next business day
after execution (``T+1'').\6\ The rule does not specify the timing for
the submission of transaction data to an automated confirmation/
acknowledgement system although it did require that nearly all
municipal securities transactions with institutional customers be
processed in such a system.\7\ As amended, rule G-15(d) now will
require dealers to give or send the confirmation and to submit
transaction data on an automated confirmation/acknowledgement system on
the trade date rather than on T+1.\8\
\6\ The terms ``DVP/RVP customer'' and ``institutional
customer'' both refer to customers whose transactions with dealers
are settled on a delivery versus payment or receipt versus payment
basis.
\7\ The automated clearance and settlement process includes
several steps. Initially, dealers submit transaction information to
an automated confirmation/acknowledgement system followed by the
institutional customer receiving notification requesting
acknowledgement of the transaction through the automated system.
Once the institutional customer acknowledges the transaction, the
transaction is then ready for automated settlement to occur at the
depository on settlement date.
\8\ Rule G-15(a) states that a confirmation containing certain
information must be given or sent to each customer. Some dealers use
an automated confirmation/acknowledgement system as the exclusive
mechanism for confirmation transactions to DVP/RVP customers (i.e.,
no paper confirmation is sent). The MSRB has stated that use of an
automated confirmation/acknowledgement system to deliver a
confirmation meeting the information requirements of rule G-15(a) is
permissible as long as all information required by rule G-15(a) is
included on the electronic confirmation generated by that system.
The MSRB, however, has not specified that an automated confirmation/
acknowledgement system is the exclusive mechanism for sending
confirmation information required by rule G-15(a) to DVP/RVP
customers. Some dealers continue to use both the automated
confirmation/acknowledgement system and also send paper
confirmations.
---------------------------------------------------------------------------
II. Discussion
Section 15B(b)(2)(C) of the Act provides that the MSRB has the
authority to adopt rules to foster cooperation and coordination with
persons engaged in regulating, clearing, settling, processing
information with respect to, and facilitating transactions in municipal
securities.\9\ The Commission believes the proposed rule change is
consistent with Section 15B(b)(2)(C) of the Act because the proposal
will foster cooperation and coordination with persons engaged in the
clearance and settlement of municipal securities by providing a
standard, specific time (i.e., on the date of execution) for broker/
dealers extending DVP/RVP privileges to institutional customers to
submit transaction information to an automated confirmation/
acknowledgement system of a registered clearing agency and to give or
send confirmation to those customers. The Commission believes the
proposal also fosters cooperation and coordination with persons engaged
in the processing of information with respect to municipal securities
transactions because the success of the proposed Phase II of the MSRB's
Transaction Reporting Program will depend on timely and accurate
submission of institutional customer transaction data on trade date to
the automated confirmation/acknowledgement system.\10\
\9\ 15 U.S.C. 78o-3(b)(2)(C) (1988).
\10\ For a complete description of Phase II of the MSRB's
Transaction Reporting Program, refer to ``Transaction Reporting
Program for Municipal Securities: Phase II,'' MSRB Reports, Vol. 15,
No. 1 (April 1995).
---------------------------------------------------------------------------
Furthermore, in a T+3 settlement environment the proposal should
help to ensure more timely confirmation and acknowledgement of DVP/RVP
customer transactions. With a T+3 settlement cycle, less time will
exist for the communications between dealers and institutional
customers necessary to clear and settle transactions. Accordingly, by
requiring the transaction data to be submitted to an automated
confirmation/acknowledgement system on trade date, the likelihood that
trades between municipal dealers and institutional customers will fail
to settlement on T+3 is greatly reduced.
The Commission has requested and the MSRB has agreed to monitor the
abilities of municipal securities broker-dealers to meet the new
deadline set forth in amended Rule G-15(d) and to report the results of
its findings to the Commission six months from the date of
implementation of the rule change.\11\
\11\ Conversation between Judith A. Somerville, Uniform Practice
Specialist, MSRB, and Peggy Robb Blake, Attorney, Division of Market
Regulation, Commission (June 29, 1995).
III. Conclusion
The Commission finds that the MSRB's proposal is consistent with
the requirements of the Act and particularly with Section 15B(b)(2)(C).
It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that the proposed rule change (File No. SR-MSRB-95-03) be, and hereby
is approved and will become effective thirty days from the date of
approval by the Commission.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\12\
\12\ 17 CFR 200.300-3(a)(12) (1994).
---------------------------------------------------------------------------
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-16655 Filed 7-6-95; 8:45 am]
BILLING CODE 8010-01-M