MSRB Announces Effective Date for Mandatory “Close-out” Requirements (MSRB Reg. Notice 16-21)
The MSRB notified member firms that the SEC approved its proposal to amend MSRB Rule G-12 to mandate inter-dealer failed transactions be closed out. The amendment requires the purchasing dealer to complete a close-out on an open transaction within ten calendar days, except that the purchasing dealer may grant the seller a one-time ten calendar day extension.
The amendments to Rule G-12(h)(i)(B) will continue to provide the purchasing dealer with three options to close out a failed transaction:
(1) purchase ("buy-in") at the current market all or any part of the securities necessary to complete the transaction for the account and liability of the seller;
(2) accept from the seller in satisfaction of the seller’s obligation under the original contract (which shall be concurrently cancelled) the delivery of replacement municipal securities that are comparable to those originally bought in quantity, quality, yield or price, and maturity, with any additional expenses or any additional cost of acquiring such substituted securities being borne by the seller; or
(3) require the seller to repurchase the securities on terms which provide that the seller: (i) pay an amount which includes accrued interest, and (ii) bear the burden of any change in market price or yield.
The final amendments are effective on November 16, 2016; however, the MSRB has provided a 90-calendar-day period after the amendments become effective for members to resolve all outstanding inter-dealer fails.
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The MSRB filed a partial amendment in order to (i) shorten the amount of time in which a firm may resolve an inter-dealer fail from 20 calendar days to 10 and (ii) permit the buyer to grant a one-time ten-calendar-day extension to the seller.
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The SEC solicited comments on the MSRB's proposed amendments concerning close-out procedures for municipal securities. The SEC request for comments was published in the Federal Register.
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The MSRB proposed amendments to its uniform practice rule on close-out procedures for municipal securities.
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