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.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
