Self-Regulatory Organizations; Municipal Securities Rulemaking Board; Notice of Filing of a Proposed Rule Change To Amend MSRB Rule G-12 To Promote the Completion of Allocations, Confirmations, and Affirmations by the End of Trade Date

The U.S. Securities and Exchange Commission, SEC, has published in the Federal Registered proposed rule change of the MSRB (Municipal Securities Rulemaking Board) in connection with the SEC’s amendments to Exchange Act Rule 15c6-1(5) to shorten the settlement process for most equity and corporate bond transactions, requiring the settlement of such transactions on a T+1 basis. The amendments aim to reduce operational risks and promote investor protection, helping to decrease the risk of counterparty default and the capital required to mitigate this risk.
In support of these objectives and to promote regulatory consistency, the MSRB is seeking to align its rules to accommodate the T+1 settlement cycle. Specifically, the MSRB is proposing to modify its G-12 Rule by adding new section (k) to the rule to establish same-day allocation, confirmation, and affirmation for all „regular-way“ transactions in municipal securities. Dealers would thereby have two options to comply with the same-day affirmation standard:
(1) Written agreement: Dealers may enter into a written agreement with all relevant parties to complete the allocation, confirmation, and / or affirmation process as soon as technologically practicable and no later than the end of the day on trade date. Relevant parties include investment advisers, custodians, or other agents involved in the allocation, confirmation, and affirmation process.
(2) Policies and procedures: Dealers could establish, maintain, and enforce written policies and procedures which are designed to ensure completion of the allocation, confirmation, and affirmation process for the transaction as soon as technologically practicable and no later than the end of the day on trade date.
The policies and procedures should thereby include:
– the identification and description of technology systems, operations, and processes used to coordinate with other relevant parties;
– the target time frames for completing the allocation, confirmation, and affirmation for the transaction;
– the procedures for prompt communication of trade information, investigation of discrepancies, and adjustment of trade information;
– the measures to identify and address delays in completing the allocation, confirmation, and/or affirmation process; and
– monitoring, measurement, and documentation of the rates of allocations, confirmations, and affirmations completed within the target time frames and as soon as technologically practicable.
The policies and procedures should be reasonably designed to consider the range of systems, tools, operations, and processes available to facilitate the same-day affirmation objective across different customer and commercial relationships. The dealer would be required to enforce its policies and procedures and ensure that an action fully within its control does not prevent the completion of the allocation, confirmation, or affirmation for the transaction within one business day.