MSRB Proposes Shortening Time to Close out Fails
Commentary by Steven Lofchie
The MSRB solicited comments on proposed draft amendments to MSRB Rule G-12 ("Uniform Practice"). The amendments would update the close-out procedures provided under Rule G-12(h), and require specifically that municipal securities transactions be closed out no later than 30 calendar days after the settlement date.
The MSRB emphasized that the amendments would (i) reduce the number of inter-deal fails and shorten the period before they are resolved, (ii) reduce regulatory risk, (iii) reinforce investors' confidence in the market, and (iv) provide firms that wish to resolve inter-dealer fails with the ability to do so in a timely fashion.
The MSRB said that it is soliciting comments on estimates of costs stemming from the amendments' mandated close-outs and use of industry utilities, but also assumes that the "costs will be significantly less than the benefits that will accrue to dealers and the market as a whole."
Comments on the proposed draft amendments must be submitted by March 6, 2016.
Commentary
This proposal (contained in MSRB Reg. Notice 16-02) and the proposal to shorten the securities settlement cycle (contained in MSRB Reg. Notice 15-22), along with related requirements for margin to be posted on To-Be-Announced securities, reflect regulators' ongoing drive to decrease settlement risk in the securities markets.