Reporting of Transactions Arising From Customer Repurchase Agreements: Rule G-14

On January 2, 2008, changes to MSRB Rule G-14, on transaction reporting, relating to reporting special condition indicators for certain trading situations become effective.[1]  These changes include, among other things, a requirement to report to the MSRB’s Real-Time Transaction Reporting System (RTRS) transactions arising from customer repurchase agreements.  Questions have arisen about whether this procedure also would require “general collateral repurchase transactions” to be reported.

Some dealers have programs allowing customers to enter into repurchase and reverse repurchase agreements involving specific municipal securities (“customer repos”).  Typically, a bona fide customer repo consists of two linked transactions whereby a dealer will purchase securities from a customer and agree to resell the securities to the customer on a future date at a pre-determined price that will produce an agreed-upon differential.[2]  Under the procedure that becomes effective on January 2, 2008, both the purchase and sale transactions resulting from a customer repo would be required to be reported to RTRS using the M9c0 special condition indicator.

General collateral repurchase transactions are typically used by dealers to finance municipal securities inventories.  In a general collateral repurchase transaction, a customer will transfer money to a dealer against the transfer of a specified amount of municipal securities.  In contrast to a customer repo, general collateral repurchase transactions are executed at the asset class level and not at a specific CUSIP or security level.  Since general collateral repurchase transactions are not executed for specific municipal securities, such transactions are not currently required to be reported to RTRS and would not be required to be reported using the procedure that becomes effective on January 2, 2008.[3]                  

Questions about this notice may be directed Justin R. Pica, Uniform Practice Policy Advisor, at 703-797-6716 or Sara K. Pranio, Uniform Practice Assistant, at 703-797-6714.

December 21, 2007

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[1] See "SEC Approval Relating to Reporting Special Condition Indicators for Certain Special Trading Situations," MSRB Notice 2007-25 (August 13, 2007).

[2] Dealers should be aware of any potential tax consequences that may arise when a repurchase agreement is formed for a tax-exempt security.

[3] The MSRB reminds dealers that books and records are required to be maintained for all repurchase agreements under MSRB Rule G-8(a)(v) or corollary SEC recordkeeping requirements in SEC Rule 17a-3.