The Municipal Securities Rulemaking Board (MSRB) is speeding ahead with its January plans to shift from end-of-the-day batch to real-time transaction reporting, though a handful of high-volume dealers aren't signed up for certification.
All municipal dealers must test their real-time transaction reporting systems (RTRS) and gain certification with the MSRB by Dec. 15.
As of Oct. 1, 1,100 municipal dealers had signed up to test or were in the testing process, representing about 80 percent of trading volume by number of trades. Another 215 dealers were certified, representing about 11.5 percent of trading volume.
However, just a few weeks away from the deadline, 150 high volume municipal dealers had yet to sign up for testing. "It would be hard to speculate why [some dealers] haven't signed up," says Hal Johnson, Deputy General Counsel, MSRB. "All I can say is that we have sent a number of communications requesting it, and we're anxious to hear from them."
The shift -- and certification requirement -- isn't a surprise to anyone in the municipal securities market. The MSRB has been pushing for more price transparency in the municipal bond market since 2003. In June 2003, the MSRB published two documents in order to prepare municipal bond dealers for the system switch from end-of-the day batch processing to real-time reporting (see "MSRB Preps Muni Dealers for Real-Time Shift", WS&T, June 12, 2003). Over a year later, in August, the Securities and Exchange Commission approved a proposed rule change relating to the MSRB's implementation of real-time transaction reporting.
Two rules were amended. Rule G-14, effective in January, requires dealers to report transactions in municipal securities within 15 minutes of the time of trade execution instead of by midnight on trade date, as is currently required. Rule G-12(f), also effective in January, requires dealers to submit inter-dealer transactions to the central comparison system within the same time frame.
Harrell Smith, a senior analyst at Celent Communications, offers a two-prong theory for municipal dealers' reluctance to sign up for certification: a general opposition to transparency in a market where dealers and broker/dealers have had an informational advantage, and a lack of infrastructure to automatically submit trades. "Given the fact that munis and corporates were traditionally the most opaque part of the bond industry, it was high time for some increased regulation, and I think there's going to be some resistance to it," Smith says.