Smaller banks and securities firms are urging the Municipal Securities Rulemaking Board not to shorten its current 15-minute trade reporting deadline or make changes to current trade reporting procedures.
In recent days, Bond Dealers of America and a Texas-based firm filed letters in response to a January concept proposal in which the MSRB asked market participants if faster reporting or other changes to its online information systems would improve the timeliness, fairness and efficiency of the muni market.
The board said its concept proposal was an effort to collect comments before implementing its new "Central Transparency Platform," or CTP, which will replace the current Real-time Transaction Reporting System.
BDA's letter, signed by chief executive officer Michael Nicholas, said the group "respectfully request[s] that the MSRB fully contemplate the added burden that would disproportionately fall on middle-market broker dealer firms should a new system need to be implemented."
The Securities Industry and Financial Markets Association had not filed its letter as of Friday afternoon, but planned to submit it Friday evening, said Leslie Norwood, SIFMA's co-head of municipal securities.
Norwood told The Bond Buyer that SIFMA supports transparency but wants the MSRB to ensure that any new systems and new rules are developed without imposing undue costs on dealers.
The MSRB's proposal asked market participants what changes dealers would have to make in order to report trades within five or ten minutes of execution, and to estimate associated costs and burdens.
Currently, MSRB Rule G-14 requires most trades to be reported within 15 minutes of execution.
Though 99% of trades are reported on time, the proposal noted that dealers tend to report larger trades later than smaller trades. For instance, only 97% of trades with par amounts of more than $1 million were reported within 15 minutes.
The MSRB also asked market participants if it should eliminate some of G-14's "end of day exceptions."
These exceptions allow dealers to report, at the end of the day, certain types of trades made on the first day of trading of a new issue. Such trades include "list offering price transactions," which are between underwriters or syndicate members and customers, and "RTRS takedown transactions," which are sales of discounted munis between underwriters and other syndicate or selling-group members.
BDA's letter said one of the group's top priorities is improving transparency, but that the cost of developing a new central transparency system "far outweigh the benefit to the customer."
BDA urged the board not to shorten its current 15-minute deadline, noting that the middle-market dealers who are BDA members "will be most affected by any increased costs and burdens."
BDA's members must take a number of steps, some of them time-consuming, between the time a security is traded and when it is reported electronically to the MSRB, the group said.
For instance, a trader must take the order from a salesperson and enter the trade into the computer. Then employees in another office must process the trade in the clearing or reporting system.
CUSIPs that have never been traded by the firm must be found in a database and set up in the clearing system, BDA said.
"In order for this process to happen while minimizing human error in entering the information into the system, we believe that the current 15-minute timeframe should be maintained," the letter said.
SIFMA agrees. Shortening the 15-minute requirement would not result in significant additional transparency and would be particularly burdensome to smaller broker dealers, said Norwood.
BDA and SIFMA also want the board to maintain end-of-day exceptions for list offering price transactions and RTRS takedown transactions.
BDA noted that firms sometimes must write hundreds of tickets for new orders of list offerings, making it difficult to report list offering price transactions or RTRS takedown transactions in less time.
Norwood added that exceptions for short-term securities should also be maintained.
The groups noted that list offering prices and prices of short-term securities, which trade at par, are already known to the market.
BDA also said the MSRB should not require dealers to use new trade reporting systems.
The group noted that its members spent time and money to be able to report through the current RTRS portal and the Real-Time Trade Matching System web portal, both operated by the National Securities Clearing Corporation.
"It is of great concern to us that the MSRB might now be considering an alternative system for direct reporting, especially since the MSRB has not identified the existing problems with the current system they purport to fix," said the BDA's letter. "In our view, the new CTP system will only duplicate what currently exists in the market."
Norwood said there are valid reasons why larger trades are reported later than smaller trades. She noted that larger trades have higher regulatory risk, need more approvals and require more manual work to process.
A letter from Robert Jacobs, assistant vice president and compliance officer at San Antonio, Texas-based Frost Bank, said small- and mid-sized banks and dealer firms, unlike larger firms, lack the trade volume needed to the support system upgrades that would be needed to comply with faster reporting requirements.
Jacobs said Frost Bank currently reports using a dial-up system offered by the MSRB.
"This dial-up system allows us to comply with the existing requirements during normal trade volumes," Jacobs wrote. "However, if we are asked to process a large underwriting transaction or if we experience an unexpected spike in trade volumes, an accelerated reporting requirement would be difficult to meet."
