by Edward C. Kelleher

The Municipal Securities Rulemaking Board (MSRB) has issued a proposed rule change that will require broker/dealers, underwriters and other bond market participants to use DTCC's new underwriting system after its launch later this year. The effective date for the rule change is still under consideration, but companies may begin using the new system as early as September.

The MSRB issued the proposed rule changes in March and asked for comments by May 3, 2007.

For new issues
The system, called the New Issue Information Dissemination Service (NIIDS), will centralize and automate the electronic collection and distribution of information on new bond issues. It is part of DTCC's reengineering project, which entails redesigning the core systems for securities underwriting and corporate actions with a single new platform.

When NIIDS was first announced in 2006, The Bond Market Association (TBMA), now part of the Securities Industry and Financial Markets Association (SIFMA), said it would "revolutionize new issue information dissemination and make trade confirmation, clearing and reporting easier, faster and more accurate. The industry organization also said NIIDS represented a major step toward the industry's goal of straight-through processing.

"Our ultimate goal is to make sure dealers are able to report transactions in new issues timely and accurately, said Justin Pica, Uniform Practice Policy Advisor, MSRB. "Dealers are dependent on computerized systems, and those systems need to have descriptive information about new issues in order to process trades efficiently.

15-minute window
TBMA approached DTCC with the underwriting project in 2005 after municipal bond underwriters requested a system to automate and streamline the information distribution process. The system, which is being developed by The Depository Trust Company (DTC), a DTCC subsidiary, is designed to meet regulatory requirements that mandate, in most cases, that municipal securities dealers report transactions to the MSRB within 15 minutes of the time of the trade. This compares with the current three-hour deadline.

"Under present conditions, the 15-minute rule would be a pretty daunting task, said Denise Russo, DTCC director, Asset Services. "Current notification practices for bonds vary dramatically and most involve manual processes, including phone calls, faxes, e-mails and even messengers.

Getting up to speed
The underwriting design is on schedule, according to Russo, who is engaged in a campaign to ensure the industry as a whole will be ready to take advantage of the new system. "We're implementing a unified, end-to-end platform from issuance through the entire asset servicing lifecycle, and the changes are enormous. Firms need to make major changes in both their front and back offices if they want to use the new underwriting platform.

Taking responsibility
Some customers are also concerned about the implementation timeline. "We need major players in the market to ask the question, ‘Who in your firm is responsible for implementing NIIDS and how far along are they?' said Maggie Kugler, past chair of the Municipal Operations Committee of SIFMA. "We're not just automating one specific process here. This system involves a tremendous amount of information and a broad range of participants including vendors, dealers, banks, DTC and others - and all must be up to speed if the system is to work.

In its announcement on the rule change, MSRB said that its effective date "is in part dependent upon the implementation of NIIDS… But it added that "it would be possible to implement the…amendments immediately after the planned date for implementation… of the new system.

The 15-minute reporting deadline was originally scheduled to take effect in January 2006, but the existing three-hour deadline was extended to give the industry and DTC time to develop, implement and test the new system. @