WASHINGTON -- The Securities and Exchange Commission will probably defer consideration of its riskless principal transaction proposal at a meeting Thursday to give the MSRB's pilot program and industry initiatives on price transparency a chance to work.

That was the impression that Municipal Securities Rulemaking Board members got from SEC chairman Arthur Levitt last Thursday night at a dinner sponsored by the board in Washington.

"He gave us the sense that that was what they were going with," said one board member.

Levitt also discussed his concerns about minority participation in the bond industry and urged the MSRB to have as broad and diverse representation on the board as possible, board members said.

Some minority bond market participants have complained that they have not had adequate representation on the board.

Levitt praised the MSRB for the many bond initiatives it has undertaken over the last year and a half, members said.

Industry officials have been trying to convince Levitt and other SEC officials that a pending proposal to require dealers to disclose markups and markdowns in riskless principal transactions would have an adverse impact on the bond market without providing meaningful price information to the investor.

The officials say that investors need information about bond yields as well as prices -- something that the MSRB, in a pilot program on price transparency, and the Public Securities Association, in an effort to get bond pricing information published in newspapers, will provide.

The riskless principal transaction proposal would not uncover situations, for example, in which an unscrupulous dealer or trader sold bonds with no markup but at a yield below the going market yield for such securities, industry officials and board members say.

For customers to only look at the markup on a transaction, that just doesn't tell the whole story," an MSRB member said.

The MSRB pilot program would provide key information about the transaction and establish an audit trail for regulators and enforcement officials, board members and industry officials said.

MSRB chairman Robert Drysdale told reporters on Friday that the board sent a letter to the SEC "reaffirming and specifying our commitment" to the pilot program. The letter describes the four-phase program in detail, he said in a press briefing about the board's two-day meeting in Washington.

"We're of the opinion that the price transparency [program] is going to eclipse and go beyond this riskless principal markup question," he said. "We think this will do a lot more for the marketplace."

Drysdale said the price transparency pilot program will "take the municipal market out of the dark ages and into the light."

"You'll see what bonds are worth," he said.

The MSRB wants to begin its pilot program to improve price transparency in early January. In the first phase, the board expects to make daily prices and other transaction information publicly available for municipal bond issues that are traded four or more times a day between dealers. MSRB board members have estimated they will be reporting such information for between 50 and 350 bond issues in that phase.

The second phase of the program, which could also begin in 1995, would provide information for bond transactions between dealers and institutional investors. The third phase, which would probably not begin until 1996, would cover transactions between dealers and retail investors. A fourth phase would be aimed at getting pricing information more frequently than at the end of the trading day.

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