Broker-dealers buying back auction-rate securities from their customers must report the purchases under the Municipal Securities Rulemaking Board's Real-Time Transaction Reporting System, the MSRB stated in a notice issued yesterday.
In a footnote in the notice, the board also warned that users of the price transparency system should not view the ARS buybacks - many of which are resulting from settlement agreements in principle that have been reached between broker-dealer firms and federal and state regulators - as a sign that the ARS market is recovering.
"Users of the MSRB's price transparency reports produced from RTRS should be aware that ARS buybacks may result in a higher than normal volume of trade reports in ARS and should not use this volume as an indication that the market for ARS has fully recovered from the unprecedented number of failed auctions that have occurred in 2008," the board said in a one-page notice. "Further the prices at which ARS buybacks are executed may not reflect the actual market value for the security."
During the past two months, at least nine broker-dealers and banks have offered to buy back at par at least $47 billion of auction-rate securities under separate settlement agreements in principle with state and federal regulators.
The MSRB said that it has received questions from dealers about whether the ARS buybacks must be reported under the RTRS and whether the M9c0 special condition indicator, which means "away from market - other reason," should be used for the reports.
The board said the purchases should be reported like other purchases without the M9c0 indicator because that indicator is reserved for transactions containing information that could be misleading to users of the price transparency reports.
"The MSRB does not believe that trade reports of ARS buybacks would provide misleading information relating to the market value of ARS because the price at which ARS buybacks are executed has been publicly announced," the board said.
