MSRB seeks comments on requiring reporting of proprietary desk trades

By Laura Lutz

Des Moines, April 11 - The Municipal Securities Rulemaking Board (MSRB) is seeking comments on whether a dealer's proprietary desk transactions should be reported to the board's Real-Time Transaction Reporting System (RTRS) as customer transactions under rule G-14.

The deadline for comments is May 30.

Rule G-14 requires information about each purchase and sale transaction in municipal securities to be reported to RTRS by each broker, dealer or municipal securities dealer.

Currently, internal movements of securities within a dealer organization do not have to be reported under the rule.

In some dealer firms, a proprietary desk may function like any other institutional customer from the point of view of a syndicate or trading desk, but it would currently be considered part of that dealer for reporting purposes.

On the other hand, when a proprietary desk interacts directly with another, external dealer, that transaction does have to be reported.

Under the proposed amendment, all transactions with proprietary desks - whether internal or external - would have to be reported under rule G-14.

The company asked for input on the following issues:

• To what extent are dealer proprietary desks separated from underwriting or trading desks? Is it possible for them to act in concert?

• Does the price in an internal transaction ever differ from the price that might have been received from an external customer? How should an "internal" customer be defined?

• Does the description of a proprietary desk transaction as a "customer trade" reflect the actual character of the trade from the point of view of a syndicate of trading desk that services a related proprietary desk account?

• Are proprietary desk transactions categorized separately from other municipal securities deals in a dealer's books and records?

• Are proprietary desk transactions treated as related portfolio trades under rule G-17, which says that customer orders must have priority of similar dealer orders or some dealer-related account orders? If proprietary desk transactions are treated as customer trades, how should they be distinguished from external trades to avoid running afoul of rule G-17?

• Are there any potential operation difficulties created by reporting of proprietary desk transactions as customer trades?

Comments can be submitted to Catherine A. Courtney, assistant general counsel, until May 30. More information is available at the MSRB website, www.mrsb.org.

Copies of the comment letters will be available for public inspection at the MSRB website.

The MSRB is based in Alexandria, Va., and makes rules regulating dealers who deal in municipal bonds, municipal notes and other municipal securities.

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