Final Answer:
MSRB (Municipal Securities Rulemaking Board) rules require the notice of close-out when transactions in municipal securities fail to settle by their intended settlement date. It mandates that if a participant does not receive securities that should have been delivered or does not receive payment for securities that should have been sold, they must notify their contra-party and, if necessary, take appropriate action to close out the transaction.
Explanation:
According to MSRB rules, a notice of close-out is triggered when a trade in municipal securities fails to settle by its designated settlement date. The rules specify that if a party involved in the trade does not receive the securities that were supposed to be delivered or does not obtain payment for the securities that were sold, they are required to inform the contra-party about the failure to settle. This notification is crucial as it prompts necessary actions to rectify the failed transaction, ensuring that the trade is appropriately closed out.
Failure of timely settlement can occur due to various reasons such as administrative errors, discrepancies in trade details, or liquidity issues. The notice of close-out provision aims to maintain market integrity by promptly addressing settlement failures and mitigating associated risks. It ensures that parties involved in municipal securities transactions are aware of any settlement discrepancies and take necessary steps to rectify them, thereby promoting transparency and stability within the market.