If the Municipal Securities Rulemaking Board won't scrap a one-minute trade reporting initiative entirely, it should at least allow the timeframe for reporting manual trades to remain at 15 minutes, some broker-dealers believe, and they are hopeful that regulators will hear them.
The broker-dealer community is looking to the future following the MSRB's
Instead of setting an effective date for the SEC-approved amendments in their current form, the MSRB plans to file further amendments to Rule G-14 with the SEC, a March 7 MSRB press release said. The new amendments, once filed, will be published for public comment and will need SEC approval prior to becoming effective, the release said.
"While additional amendments to the Rule could make it more workable, a strong argument can be made that the entire one-minute reporting initiative should be fully abandoned," Michael Decker, senior vice president for research and public policy at the Bond Dealers of America, said.
The rulemaking won't yield "any notable improvement in price transparency," especially in the first year that the changes are in effect, despite what will be a significant investment in compliance programs by municipal dealers, Decker said.
"We are hopeful that all three regulators that participated in the one-minute rulemaking will recognize that it is unnecessary," he said, referring to the MSRB and the SEC as well as the Financial Industry Regulatory Authority.
In the March 7 release, MSRB CEO Mark Kim said the MSRB appreciates "the willingness of market participants to share with us their perspectives as MSRB remains committed to ongoing dialogue and ensuring that further amendments to Rule G-14 are coordinated with FINRA, which is contemplating similar changes to its own trade reporting rule."
The previously-approved proposal to amend Rule G-14 to shorten the timeframe for reporting trades in municipal securities to the MSRB indicates that trades generally should be reported within one minute. However, "there are two important exceptions to that," Decker said.
The first exception relates to dealers with limited trading activity, he said, noting that those dealers would remain subject to the current 15-minute reporting timeframe. However, the "bigger exception" relates to manual trades, which are those that require human intervention to be executed or processed, he said.
"The fully automated trades easily get reported within one minute," Decker said, "The ones that aren't often don't."
The phased-in exception for manual trades gradually shortens the transaction reporting timeframe. During the first calendar year of the exception's effectiveness, manual trades would need to be reported no later than 15 minutes after the time of trade, the SEC's order said. For the second and third calendar years, such trades would need to be reported within 10 minutes.
After the end of the third calendar year and thereafter, trades with a manual component would need to be reported within five minutes after the time of trade, according to the order.
"Nothing will change in the first year that the rule is in effect," Decker said. "The one-minute trades will continue to get reported within one minute, trades that take longer than one minute will continue to take longer than one minute, but the industry will have to build up a whole compliance scheme around the rule changes with no improvement in market transparency."
The MSRB board at its March 6 meeting also voted to withdraw its "pre-trade concept release," published in January, "to ensure stakeholders have adequate time and resources to focus on providing any additional comments or feedback regarding further amendments to Rule G-14," the MSRB release said.
"The MSRB's decision to revisit the amendments to Rule G-14 and pull the pre-trade concept release is past due, it's too bad it took ASA's lawsuit questioning the Board's constitutionality for it to reach that conclusion," American Securities Association President and CEO Chris Iacovella said in a statement. "The MSRB has been going in the wrong direction for a number of years now and it might be time for its leadership to change."
On Nov. 15, 2024, the ASA filed a petition in the U.S. Court of Appeals for the Eleventh Circuit seeking a review of the SEC's Sept. 20 order. In its Feb. 27 opening brief, the ASA asked the court to vacate the order.
"Petitioner argues that the Order must be set aside because the MSRB is unconstitutionally structured in violation of the private nondelegation doctrine, Article II and the separation of powers, and the Appointments Clause," the ASA's brief said.
The Securities Industry and Financial Markets Association "is pleased that the MSRB heard the industry's concerns about technical matters relating to the one-minute trade reporting proposal and is reopening the pending rule for additional comments," Leslie Norwood, managing director and associate general counsel, municipal securities, at SIFMA, said in a statement.
"While changes in technology have reduced trade reporting times organically, there are operational challenges if the pending rule were to be made effective," Norwood said.
In addition, SIFMA is "pleased that the MSRB recognized industry concerns that moving forward with pre-trade price transparency is premature at this time," her statement said.
"SIFMA's members continue to believe that the costs far outweigh the benefits of a pre-trade price reporting system, and have shared with the MSRB that we have significant concerns about liquidity in the market should that proposal move forward," Norwood said. "SIFMA looks forward to working with the MSRB on items such as its retrospective review of its rulebook, that will reduce burdens on broker dealers and increase clarity in the rule set."
An MSRB spokeswoman declined to comment.
