g14-not

Operational Start Date for Customer Transaction Reporting

The operational start date of the customer transaction phase of the Board's Transaction Reporting Program has been delayed from January 1, 1998 to March 1, 1998. However, the Board's testing program is ongoing and dealers should ensure that they are testing their transaction reporting capabilities with the Board at this time or have scheduled a date to do so.

The Board's Transaction Reporting Program is designed to provide transparency and audit trail capabilities in the municipal securities market. Since 1995, the program has accepted dealer reports of inter-dealer transactions in municipal securities. Using these transaction reports, the Board publishes daily summaries of price and volume information about frequently traded municipal securities. The Board also maintains a surveillance database containing all transactions reported to the Board, and makes this database available to market regulators responsible for market surveillance and enforcement of Board rules.

During the next phase of the Transaction Reporting Program, dealers will report their dealer-customer transactions in municipal securities to the Board. This will allow information on customer transactions to be included in the daily price/volume summaries and in the surveillance database. Toward this end, the Securities and Exchange Commission in November 1996 approved amendments to Board rule G-14 on transaction reporting that require dealers to report their dealer-customer transactions to the Board.⁽¹⁾ When effective, these amendments will require that dealers send to the Board each day an electronic file containing the municipal securities transactions that were effected with customers on that day. An individual dealer may send the electronic file directly to the Board or may use an intermediary such as a clearing broker or a service bureau.⁽²⁾

At the time the amendments to rule G-14 were approved, the Board also announced a mandatory testing program. This program requires that dealers who will submit transactions to the Board under rule G-14 test their transaction reporting capabilities with the Board to ensure that their electronic files of transaction data are in the correct format and otherwise comply with the Board's requirements. The Board began the testing program with dealers in July 1997, and has received test data from over 40 service bureaus and clearing brokers on behalf of over 330 dealers. Most other dealers and service bureaus that will be submitting data to the Board are scheduled to begin testing before year-end.

Because of technical difficulties encountered in the development of computer systems that will operate Transaction Reporting Program, it is necessary for the Board to delay the operational start date for the customer transaction phase of the program -- originally scheduled for January 1, 1998 -- to March 1, 1998. This delay in the effective date for full operation of rule G-14 does not affect dealer obligations under the ongoing testing program. During December 1997, the Board will provide test dates to all dealers that have not yet been scheduled for testing. Dealers that plan to use the "PC dial-up" option for submitting data to the MSRB have now been sent necessary software and user manuals to submit test transactions to the MSRB. Dealers that plan to submit transactions via a clearing broker or service bureau may consider themselves as having tested if the clearing broker or service bureau is submitting (or is scheduled to submit) test data on their behalf. Dealers that plan to submit transactions via National Securities Clearing Corporation should have begun testing or have a test date scheduled and should contact the MSRB immediately if they do not have a test date.

As part of the testing program, dealers will continue to submit data reflecting their actual transactions once their initial test protocols have been successfully completed with the Board. Submission of the transaction data should be done by midnight of trade date -- the same deadline as will exist in the operational system. Testing in this manner will continue until the operational start date for the Program in March. Using live transaction data during the testing period will serve two purposes. It will assist the Board in designing the daily reports of price and volume information that will be provided to increase transparency in the municipal securities market and also will provide dealers and the Board with an opportunity to uncover and address problems that may arise in the reporting of specific types of transactions. This, in turn, will help the Board and the industry to ensure that system operations begin successfully in March 1998.

December 23, 1997

ENDNOTES

1. Securities Exchange Act Release No. 37998 (November 29, 1996).

2. The format for these electronic files, data element definitions and other requirements concerning the details of customer transaction reporting may be found in MSRB Reports, Volume 16, No.3 (September 1996), at 3. The most current status of the Transaction Reporting Program, frequently asked questions, additional technical details, and other helpful explanatory material can be found on the Board's World Wide Web site at www.msrb.org.

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