MSRB Rule G-14: Reports of Sales or Purchases

Instructor: Byron Yee

Byron has over 5 years of experience in banking and investments and is currently a Candidate for the Chartered Financial Analyst (CFA) Institute. He also is registered with FINRA Series 7 and 66 and has his Life & Disability Insurance producers license for WA state. Previous to his career in banking, he spent 2 years in West Africa as a Peace Corps Volunteer and 4 years in China as an English teacher and financial analyst. Byron double majored in Theatre Arts and Business Administration at Western Washington University. In his free time he enjoys hiking, cycling, running, and being in the great outdoors with his family.

This lesson briefly explains the municipal securities market before covering the requirements and reporting standards used for documenting the purchase and sale of these securities.

Lost Bond Records

Ashley invested in a municipal bond and lent $1,000 to a local city government in the State of New York, to be paid back in two years. She later moves to and is residing in Florida in the same calendar year that the bond matures. When filing taxes, she is trying to prove that she should be exempt from paying taxes on this bond since she was a New York resident. The IRS is requesting a copy of the bond transaction, however when she contacts the local government office that originally issued the bond, they respond that they recently switched operating systems and no longer have record of this transaction. If Ashley cannot find a record of this bond and match this with the dates of her residency in New York, she make need to pay full income taxes on this bond, which is something she was obviously hoping to avoid.

A Quick Overview of Municipal Bonds

Before we dive too deeply into this lesson, it is important to have a basic understanding of municipal bonds.

The U.S. government has offices and regulation at three basic levels:

  1. Federal government: This covers country-side laws and regulations. An example of a federal security is a Treasury Bill (T-Bill), which is when the U.S. Treasury borrows money from investors.
  2. State government: Each of the 50 states have their own governmental administration and laws that apply to their respective states. If the state of California issues a bond to build a new highway, this is an example of a state bond.
  3. Municipal government: This is the local governing office of a county, city, or town. If, for example, a city needs money to build a new school, they might issue municipal bonds, which are contracts issued by a municipality to borrow money from investors.

It is these municipal bonds, specifically the buying and selling of these bonds that is the focus of this lesson.

Reporting System for Municipal Bond Transactions

There are thousands of local municipalities throughout the U.S. that are raising funds for infrastructure and social projects by issuing municipal bonds. Since not every municipal office, nor the bonds they issue are exactly the same, the Municipal Securities Rulemaking Board (MSRB), which oversees and regulates the trading of any municipal security, developed a standardized reporting system to document these transactions. This reporting system is known as the Real-Time Transaction Reporting System (RTRS), and the purpose of this system is twofold:

  • Price transparency: Investors have accurate and up-to-date information on municipal bond markets to guide their investment decisions.
  • Market surveillance: The MSRB is more easily able to monitor the trade of municipal securities when reporting standards are enforced.

In the next section, we will discuss the details of reporting a municipal security transaction.

Municipal Bond Reporting Requirements

MSRB Rule G-14 lists the detailed requirements of timeliness and information to report in a purchase or sale of a municipal security. The rule requires brokers and dealers to report a trade in the RTRS within 15 minutes of the transaction. Below is a list of the key pieces of information needed in the RTRS report.

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