Securities control. Your letter dated February 24, 1978, has been referred to me for response. In addition, I understand that you have had several subsequent telephone conversations about your question. In these conversations, you describe the procedures for securities control followed by your bank's dealer department.

Briefly, as we understand your procedures, the dealer department records all certificate numbers of municipal securities received or delivered by the department. This information is recorded in a manner which relates the physical receipt and delivery of specific certificates to specific transactions. Once in safekeeping, the certificates are kept in a vault, and filed by issue, rather than filed separately by account, chronologically, or by transaction. In your letter, you inquired whether this system of filing in the vault raises problems of compliance with Board rule G-8.

Since your bank records in records of original entry the certificate numbers upon receipt and delivery of municipal securities by your dealer department, it appears that your system satisfies the requirement under rule G-8(a)(i) that such information be recorded on the "record of original entry." The safekeeping procedures used by the bank are specifically excluded from the scope of the rule under the provisions of paragraph G-8(a)(iii), which requires

[r]ecords showing...all positions (including, in the case of a municipal securities broker or municipal securities dealer other than a bank dealer, securities in safekeeping)...

Therefore, based on the information you have provided, we believe that your system is in compliance with the applicable provisions of rule G-8. MSRB interpretation of April 10, 1978.

Securities record. In your letter, you question the application of Board rule G-8(a)(iii) and, in particular, the requirement that "such [securities] records shall consist of a single record system," to a situation in which a securities firm maintains such records organized by ownership of the securities. It is my understanding that the firm in question maintains records showing securities in the firm's trading account, and offsetting positions long and short, and separate records showing securities owned by customers and the offsetting location for those securities.

Rule G-8(a)(iii) requires, in part

[r]ecords showing separately for each municipal security all positions ... carried by such municipal securities broker or municipal securities dealer for its account or for the account of a customer...

Therefore, securities records should be maintained by security, although this can be accomplished by separate sheets showing positions in that security held for trading or investment purposes and positions owned by customers. A record organized by customer, showing several securities and offsetting positions held by that customer, is not acceptable for purposes of rule G-8(a)(iii).

With respect to your question regarding the multiple maturity provision of rule G-8(a)(iii), the relevant position of the rule states

multiple maturities of the same issue of municipal securities, as well as multiple coupons of the same maturity, may be shown on the same record, provided that adequate secondary records exist to identify separately such maturities and coupons.

Therefore, the securities to be shown on a single securities record must be identical as to issue date or maturity date. Securities which are identical as to issuer may be shown on a single securities record only if the securities have either the same issue date or the same maturity date, and if adequate secondary records exist to identify separately the securities grouped on the record. MSRB interpretation of April 8, 1978.

Fully disclosed broker. I refer to your letter of March 24, 1978 in which you request a determination concerning whether as a broker who passes all of his business through a dealer on a fully disclosed basis you are subject to the Municipal Securities Rulemaking Board's rules A-12 and A-14 which impose an initial and annual fee on municipal securities brokers and municipal securities dealer.

I note that the term "broker" as defined in section 3(a)(4) of the Securities Exchange Act of 1934 (the "Act") is not restricted to securities firms that directly effect transactions in securities for the account of others. I call your attention to various rules of the Securities and Exchange Commission governing the activities of "brokers" and "dealers" that recognize introducing brokers as "brokers" under the Act. See e.g., rules 15c-3-1 1(a)(2) and 15c3-3(k)(2). The definition of the term "municipal securities broker" set forth in section 3(a)(31) of the Act incorporates the statutory definition of "broker" and therefore appears similarly not limited to firms directly effecting transactions in municipal securities for the account of others.

Pursuant to rule D-1 of the Board, which incorporates the definition of terms used in the Act for purposes of the Board's rules, the term "municipal securities broker" as used in rules A-12 and A-14 has the same meaning as set forth in section 3(a)(31) of the Act.

Accordingly, we are unable to conclude that the fees imposed by the Board are inapplicable to your situation. MSRB interpretation of April 4, 1978.

Underwriting assessment: intrastate underwriting. This will acknowledge receipt of your letter dated March 3, 1978 requesting that [Company name deleted] be granted an exemption from rule A-13 of the Municipal Securities Rulemaking Board (the "Board"). Rule A-13 requires municipal securities brokers and municipal securities dealers to pay a fee to the Board based on their municipal securities underwriting activity. In your letter, you suggest that "the Company" should not be subject to the underwriting assessment imposed by the rule because it engages only in intrastate sales of municipal securities "to registered broker-dealers or institutional investors."

As a technical matter, although the Board has the authority to interpret its rules and to amend them through prescribed statutory procedures, the Board does not have the authority to grant exemptions from the rules. The authority to grant exemptions is vested in the Securities and Exchange Commission by section 15B(a)(4) of the Securities Exchange Act of 1934, as amended (the "Act").

In considering whether "the Company" should request an exemption from the Commission, the following information concerning rule A-13 may be helpful. The purpose of rule A-13 is to provide a reasonable and equitable means of defraying the costs and expenses of operating and administering the Board, as contemplated by section 15B(b)(2)(J) of the Act. The rule applies to all municipal securities dealers, with respect to their municipal securities underwriting activities, and covers situations in which new issue municipal securities are sold by or through a municipal securities professional to other securities professionals and institutional customers, as well as to individuals.

With respect to the intrastate character of "the Company's" underwriting activity, we note that certain provisions of the Securities Acts Amendments of 1975 (Pub. L. 94-29) had the effect of including within the scope of municipal securities dealer regulation the intrastate activities of municipal securities dealers. (See sections 3(a)(17), 15(a)(1) and 15B(a)(1) of the Act.) Rule A-13 makes no distinction between interstate and intrastate offerings. MSRB interpretation of March 27, 1978.

Delivery requirements: coupons and coupon checks. This letter is to confirm the substance of conversations you had with the Board’s staff concerning the application of certain provisions of rule G-12, the uniform practice rule, to deliveries of securities bearing past-due coupons. You inquire whether, in the case where a transaction is effected for a settlement date prior to the coupon payment date, a delivery of securities with this past-due coupon attached constitutes "good delivery" for purposes of the rule.

Rule G-12(e)(vii)(C) provides that a seller may, but is not required to, deliver a check in lieu of coupons if delivery is made within thirty calendar days prior to an interest payment date. Thus, in the circumstances you set forth, the seller would have the option to detach the coupons and provide a check, but is under no obligation to do so. A delivery with these coupons still attached would constitute "good delivery," and a rejection of the delivery for this reason would be an improper rejection. MSRB interpretation of March 9, 1978.

Delivery requirements: partials. I am writing to confirm the substance of our telephone conversation concerning the provision of rule G-12(e)(iv) on partial deliveries. In our discussion, you posed a specific example of a single purchase of securities in which half are of one maturity and half of another maturity and inquired whether or not delivery of only one of the maturities would constitute a "partial" under the terms of the rule.

As I stated to you, if the transaction is effected on an "all or none" basis, and your confirmation is marked "all or none" or "AON," this would suffice to indicate that the purchase of both maturities constitutes a single transaction, and that both maturities must be delivered to effect good delivery. MSRB interpretation of February 23, 1978.

This will acknowledge receipt of your letter dated February 2, 1978 in which you request a clarification of Board rule G-16 relating to periodic compliance examinations.

In your letter you express your understanding that rule G-16 does not apply to bank dealers. This understanding is incorrect. Rule G-16 applies to all municipal securities brokers and municipal securities dealers and requires that all such organizations be examined at least once each [two calendar years] to determine compliance with, among other things, rules of the Board. Under section 15B(c)(7) of the Securities Exchange Act of 1934, as amended (the “Act”), such examinations of bank dealers will be conducted by the appropriate federal bank regulatory agency. The Office of the Comptroller of the Currency is designated by the Act as the appropriate agency for national banks. MSRB interpretation of February 17, 1978.
NOTE: revised to reflect subsequent amendments.

Apprenticeship. This will acknowledge receipt of your letter dated January 30, 1978 and will confirm our recent telephone conversation.

In your letter you seek clarification of the applicability of the requirements of rule G-3(i)[*]relating to apprenticeship periods to a municipal securities representative who has previously qualified as a general securities representative. As I indicated in our conversation, an individual who was previously qualified as a general securities representative is not required to serve the 90-day apprenticeship period. MSRB interpretation of February 17, 1978.

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[*] [Currently codified at rule G-3(a)(iii)]

Agency transactions: remuneration. This will acknowledge receipt of your letter dated November 1, 1977 in which you request an interpretation concerning the provision in Board rule G-15(b)(ii)[*] which requires that "the source and amount of any commission or other remuneration" received by a municipal securities dealer in a transaction in which the municipal securities dealer is acting as agent for a customer be disclosed on the confirmation to the customer.

The reference to the "amount of any commission or other remuneration" requires that an aggregate dollar amount be shown, in a purchase transaction on behalf of an equivalent of the dealer concession, and, if applicable, any additional charge to the customer above the price paid to the seller of the securities. In a sale transaction on behalf of a customer, this would normally be the difference between the net price paid by the purchaser of the securities and the proceeds to the customer. If a percentage of par value or unit profit were shown it would be difficult for many customers to relate this information to the "total dollar amount of [the] transaction" required by rule G-15(a)(xi)[†] to be shown on the confirmation.

The reference in rule G-15(b)(ii)[*] to the "source" of remuneration would not require you to differentiate between the concession and any additional charge. Standard language could be included on the confirmation to indicate that your remuneration may include dealer concessions and other charges. MSRB interpretation of November 10, 1977.

 

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[†] [Currently codified at rule G-15(a)(i)(A)(6)(a)]

[*] [Currently codified at rule G-15(a)(i)(A)(1)(e)]

Callable securities: "catastrophe" calls. This will acknowledge receipt of your letter dated October 20, 1977 which has been referred to me for reply. In your letter you request an interpretation of the provisions in rules G-12 and G-15 requiring that the dollar price for transactions in callable securities effected on a yield basis be priced to the lower of price to call or price to maturity. (See rules G-12(c)(v)(I) and G-15(a)(viii))[*].

At its meeting held October 25-26, 1977, the Board confirmed that the requirements in rules G-12 and G-15 relating to pricing to call do not include "catastrophe" calls, that is, calls which occur as a result of events specified in the bond indenture which are beyond the control of the issuer. MSRB interpretation of November 7, 1977.

 

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[*] [Currently codified at rule G-15(a)(i)(A)(5)]

Quotation of municipal securities. This will acknowledge receipt of your letter dated February 9, 1977 concerning the Board’s proposed rule G-13 on quotations relating to municipal securities. In your letter you raise certain questions concerning the intent and application of paragraph (b)(ii) of proposed rule G-13, which prohibits a municipal securities professional from distributing or publishing a municipal securities quotation, or causing such a quotation to be distributed or published, unless the quotation is based upon the professional’s best judgment as to the fair market value of the security.

While the provision in question would undoubtedly apply to situations involving outright fraud, the Board believes the rule to have appropriate application in other circumstances as well.  Thus, the Board has attempted in paragraph (b)(ii) to proscribe conduct which, in the Board’s opinion, constitutes bad business practice but may not, depending on the circumstances, constitute fraud. The Board firmly believes that as a matter of just and equitable principles of trade in the municipal securities industry and with a view to promoting free and open markets in municipal securities, certain practices should not be condoned, even though they do not necessarily rise to the level of fraud or cannot be proven to constitute fraud.

Some examples of how paragraph (b)(ii) would operate may be useful.  First, assume that a dealer submits a bid for bonds, knowing that they have been called by the issuer.  The bonds are not general market bonds and the fact that they have been called is not widely known. While called bonds ordinarily trade at a premium, the dealer’s bid is based on the value of the bonds as though they had not been called and is accepted by the dealer on the other side of the trade who is unaware of the called status of the bonds.  In these circumstances, the bid clearly would not have been based upon the best judgment of the dealer making it as to the fair market value of the bonds. While one might argue that the dealer accepting the bid should have known of the called status of the bonds, the dealer making the bid acted unethically and in a manner not conducive to free and open markets in municipal securities. In the Board’s view, the actions of the dealer making the bid should not be condoned, although a charge of fraud might be difficult to sustain in dealings between professionals and might be inappropriate. The improper nature of the dealer’s conduct would be exacerbated, of course, if the person on the other side of the transaction is a non-professional.  However, difficulties in proof that the conduct of the dealer was fraudulent suggest that the best judgment rule would provide an appropriate alternative basis for enforcement action.

Another situation that would be covered by the best judgment rule is one in which a dealer submits a bid for bonds based on valuations obtained from independent sources, which in turn are based on mistaken assumptions concerning the nature of the securities in question.  The circumstances indicate that the dealer submitting the bid knows that the securities have a substantially greater market value than the price bid, but the fact that independent valuations were obtained, albeit based on mistaken facts, clouds the dealer’s culpability.

A third situation to which the best judgment rule would apply is one in which a dealer makes a bid for or offer of a security without any knowledge as to the value of the security or the value of comparable securities. While the Board does not intend that the best judgment of a dealer as to the fair market value of a security be second-guessed for purposes of the proposed rule, the Board does intend that the dealer be required to act responsibly and to exercise some judgment in submitting a quotation.  In other words, a quotation which has been “pulled out of the air” is not based on the best judgment of the dealer and, in the interests of promoting free and open markets in municipal securities, should not be encouraged.

Given the manner in which the Board intends the “best judgment” rule to operate, the Board concluded that it would not have an anti-competitive impact on the municipal markets. The proposed rule is not intended to prohibit legitimate price discounts or mark-ups, as the case may be, based upon a dealer’s anticipation of the direction of the movement of the markets and other factors. The Board does not intend to interfere with legitimate pricing mechanisms and recognizes that there may be a variety of quotations with respect to a given security, each of which would comply with the terms of the proposed rule.

While it is not possible to anticipate all of the specific fact situations that might run afoul of the “best judgment” rule, I would like to make some general observations concerning the operation of the proposed rule. As you know, one of Congress’ principal purposes in calling for the establishment of the Board was to promote the development of a body of rules for the municipal securities industry that would furnish quidelines for good business conduct. The Senate Committee on Banking, Housing and Urban Affairs observed in its Report on the Securities Acts Amendments of 1975 that prior to the legislation, the conduct of municipal market professionals could be controlled only after the fact through enforcement by the Commission of the fraud prohibitions of the federal securities laws.  The Senate Committee expressed hope that a self-regulatory body like the Board would develop prophylactic rules for the industry which would deter unethical and fraudulent practices in the first instance. See Senate Report 94-75, 94th Cong., 1st Sess., 42-43. MSRB interpretation of February 24, 1977.

Previously registered entitites. Thank you for your letter [name and date deleted] which has been referred to me for response. The letter relates to the Municipal Securities Rulemaking Board's rule A-12, which imposes an initial fee of $100 on municipal securities brokers and municipal securities dealers.

We note that the terms "municipal securities broker" and "municipal securities dealer" are not restricted under the Securities Acts Amendments of 1975 (the "1975 Amendments") to securities firms and banks effecting transactions exclusively in municipal securities. Many municipal securities brokers and municipal securities dealers (other than bank dealers) were registered with the Securities and Exchange Commission (the "Commission") as brokers or dealers prior to the 1975 Amendments. Municipal securities brokers and municipal securities dealers already registered with the Commission were not required to re-register with respect to their municipal securities activities, but nevertheless are subject to payment of the Board's initial fee. In addition, many municipal securities brokers and municipal securities dealers have been and are members of the national securities exchanges and the National Association of Securities Dealers, Inc.

We are unable to conclude from the information set forth in your letter that the initial fee imposed by the Board's rule A-12 is inapplicable to your firm. MSRB interpretation of June 16, 1976.

Separately identifiable department or division of a bank. This will acknowledge receipt of your letter of November 12, 1975, in which you request, on behalf of the Dealer Bank Association, an interpretative opinion with respect to the rule of the Municipal Securities Rulemaking Board (the "Board") defining the term "separately identifiable department or division of a bank," as used in section 3(a)(30) of the Securities Exchange Act of 1934, as amended (the "Act"). Such rule was originally numbered rule 4 of the Board and became effective on October 15, 1975. The rule is presently numbered rule G-1 of the Board.

In your letter you pose a series of questions concerning rule G-1, as follows: 

1. A bank has an operations department that performs processing and clearance activities, and maintains records, with respect to the bank's underwriting, trading and sales of municipal securities, as well as with respect to certain other bank activities. Can this bank have a "separately identifiable department or division" as defined in rule G-1?
2. In a bank with numerous branches, an employee or officer in a branch will on occasion accept or solicit an order from a customer for municipal securities. Does this preclude a finding that the bank has a "separately identifiable department or division"?
3. Mr. X is a senior vice president of a bank. He is not a director. Mr. X's only relationship to the bank's municipal securities dealer activities is that he is a member of a management committee within the bank that determines the amount of the bank's funds that will be made available for the bank's municipal securities dealer activities, as well as for other bank activities. The bank has a separately identifiable department or division that otherwise meets the requirements of rule G-1. Is Mr. X a person who must be designated by the board of directors of the bank under rule G-1(a)(1)?
4. A bank has a corporate trust department that, among other things, serves as paying agent for certain municipal securities and performs clearing functions in municipal securities, in addition to the processing and clearance activities performed in connection with the bank's underwriting, trading and sales of municipal securities. Are the persons in the bank's corporate trust department who engage solely in activities that do not relate to the underwriting, trading and sales of municipal securities by the bank performing municipal securities dealer activities?

With respect to question (1) above, paragraph (d) of rule G-1 contemplates that the municipal securities dealer activities of a bank, as such activities are defined in paragraph (b) of the rule, may be conducted in more than one organizational or operational unit of the bank, for example, underwriting, trading and sales activities in the bond department, and processing and clearance activities in the operations department of the bank. Under the rule, all such units can be aggregated to constitute a separately identifiable department or division within the meaning of section 3(a)(30) of the Act, provided that each such unit is identifiable and under the direct supervision of an officer designated by the board of directors of the bank as responsible for the day-to-day conduct of the bank's municipal securities dealer activities. The officer so designated need not be the same for all such units. For example, the senior officer of the bank's bond department may be designated as responsible for the municipal securities dealer activities conducted by that department, while the senior officer of the bank's operations department may be designated as responsible for the municipal securities dealer activities conducted by that department. In addition, the records of each such unit relating to municipal securities dealer activities must be separately maintained or separately extractable so as to permit independent examination of such records and enforcement of applicable provisions of the Act, the rules and regulations of the Commission thereunder and the rules of the Board. Finally, each such unit comprising the separately identifiable department or division may be engaged in activities other than those relating to municipal securities dealer activities. For example, the bond department may also engage in activities relating to United States government obligations, while the operations department may perform processing and clearance functions for departments of the bank other than the bond department.

With respect to question (2) above, paragraph (d) of rule G-1 also contemplates that the municipal securities dealer activities of a bank may be conducted at more than one geographic location. However, in order for such a bank to have a separately identifiable department or division, the branch employees who accept or solicit orders for municipal securities must, with respect to acceptance or solicitation of such orders, be affiliated with one of the identifiable units of the bank comprising such department or division and must, with respect to acceptance or solicitation of such orders, be responsible to an officer designated by the board of directors of the bank as responsible for the day-to-day conduct of the bank's municipal securities dealer activities. Further, the bank's records relating to the transactions effected by such branch employees must meet the criteria of paragraph (a) of rule G-1 with respect to separate maintenance and accessibility.

With respect to question (3) above, paragraph (c) of rule G-1 recognizes that senior officers of a bank may make determinations affecting bank policy as a whole which have an indirect effect on the municipal securities dealer activities of the bank. For example, determinations with respect to the deployment of the bank's funds may affect the size of the bank's inventory of municipal securities or volume of underwriting. Ordinarily such determinations would not directly relate to the day-to-day conduct of the bank's municipal securities dealer activities and senior officers making such determinations need not be designated by the board of directors of the bank as responsible for the conduct of such activities. However, if the determinations of senior officers have a direct and immediate impact on the day-to-day conduct of the bank's municipal securities dealer activities, whether by reason of the scope of such determinations, the frequency with which such determinations are made, or by reason of other factors, such officers may be considered to be directly engaged in the conduct of the bank's municipal securities dealer activities and required to be designated by the board of directors of the bank as responsible for the day-to-day conduct of such activities.

With respect to question (4) above, the regulatory focus of section 15B(b)(2)(H) of the Act is on the dealer activities of a bank. Accordingly, subparagraph (b)(2) of rule G-1 was intended to relate to such dealer activities, and not to describe other activities of the bank which might involve municipal securities. Employees of a bank's corporate trust department who perform clearance and other functions with respect to municipal securities, but which do not relate to the underwriting, trading and sales activities of the bank, do not perform municipal securities dealer activities within the meaning of rule G-1.

This opinion is rendered on behalf of the Board, pursuant to authority delegated by the Board. Copies of this opinion are being sent to the Securities and Exchange Commission, the bank regulatory agencies and the National Association of Securities Dealers, Inc. MSRB interpretation of November 17, 1975.

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Archive 2009

MSRB Notice 2009-64 (December 21, 2009)
Amendment Filed to Pending Proposal on Underwriter Submission of Information About Continuing Disclosure Undertakings to EMMA

MSRB Notice 2009-63 (December 21, 2009)
Amendment Filed to Pending Proposal on Additional Voluntary Submissions by Issuers and Obligated Persons to EMMA

MSRB Notice 2009-62 (December 4, 2009)
Amendments Filed to Rule G-37 Regarding Contributions to Bond Ballot Campaigns

MSRB Notice 2009-61 (December 1, 2009)
Reminder of December 1, 2009 Effective Date of Amendments to Rule A-13 on Underwriting Assessments

MSRB Notice 2009-60 (November 24, 2009)
MSRB Primary Market and Continuing Disclosure Submission Services - Reminder of Upcoming Word-Searchable Document Requirement and Update on Other Submission-Related Matters

MSRB Notice 2009-59 (November 18, 2009)
Rule Amendments and Interpretive Notice Filed Regarding Priority of Orders in Primary Offerings

MSRB Notice 2009-58 (November 5, 2009)
Proposed Rule A-16 on Examination Fees

MSRB Notice 2009-57 (October 21, 2009)
Upcoming Changes to the Real-Time Transaction Reporting System

MSRB Notice 2009-56 (September 30, 2009)
Amendments to Rule A-13 on Underwriting Assessments

MSRB Notice 2009-55 (September 30, 2009)
Amendments Approved to Rules G-11 and G-12 Regarding Settlement Dates and Payments of Designations

MSRB Notice 2009-54 (September 29, 2009)
Reminder Notice on Fair Practice Duties to Issuers of Municipal Securities

MSRB Notice 2009-53 (September 22, 2009)
MSRB and SIFMA to Co-Host Regulatory and Compliance Seminars in New York and Chicago

MSRB Notice 2009-52 (September 22, 2009)
MSRB Hosts Webinar Series on Market Information Programs

MSRB Notice 2009-51 (September 16, 2009)
Request for Comment: Disclosure of Bank and Bank Holding Company Political Action Committee Contributions

Comments received are available for this notice.

MSRB Notice 2009-50 (September 15, 2009)
Use of Electronic Confirmations Produced By a Clearing Agency or Qualified Vendor to Satisfy the Requirements of Rule G-15(a)

MSRB Notice 2009-49 (August 25, 2009)
Build America Bonds: Reminder of Customer Confirmation Yield Disclosure Requirement

MSRB Notice 2009-48 (August 13, 2009)
Amendment to Rule A-14, on Annual Fee

MSRB Notice 2009-47 (August 11, 2009)
Request for Comment Regarding Priority of Orders in Primary Offerings

Comments received are available for this notice.

MSRB Notice 2009-46 (August 6, 2009)
Amendments to Rules G-11 and G-12 Filed with SEC

MSRB Notice 2009-45 (July 29, 2009)
Amendments Filed to Administrative Rules: Rules A-3, A-4, A-5 and A-6

MSRB Notice 2009-44 (July 15, 2009)
Proposals Filed to Provide for Additional Primary Market and Continuing Disclosure Information to Be Made Available Through EMMA

MSRB Notice 2009-43 (July 14, 2009)
Request for Comment on Additional Increases in Transparency of Municipal ARS and VRDO

Comments received are available for this notice.

MSRB Notice 2009-42 (July 14, 2009)
MSRB Issues Interpretive Guidance on Disclosure and Other Sales Practice Obligations to Individual and Other Retail Investors in Municipal Securities

MSRB Notice 2009-41 (July 10, 2009)
Applicability of MSRB Rules to California Registered Warrants

MSRB Notice 2009-40 (July 2, 2009)
Interpretive Letter Regarding Solicitation Activity on Behalf of an Affiliated Company Pursuant to Rules G-37 and G-38

MSRB Notice 2009-39 (July 1, 2009)
MSRB Launches the Continuing Disclosure Service of EMMA

MSRB Notice 2009-38 (June 30, 2009)
MSRB, FINRA Issue Joint Investor Education Notice

MSRB Notice 2009-37 (June 29, 2009)
Preparations by Issuers and Others for the July 1, 2009 Launch of the Continuing Disclosure Service of EMMA

MSRB Notice 2009-36 (June 25, 2009)
EMMA Dataport Submission System Outage on Friday, June 26, 2009 at 3:00 PM

MSRB Notice 2009-35 (June 22, 2009)
Comments Requested: Draft Amendments to Rule G-37 Regarding Bond Ballot Campaign Committee Contributions

Comments received are available for this notice.

MSRB Notice 2009-34 (June 18, 2009)
MSRB Announces Webinars for Issuers on Continuing Disclosure Registration

MSRB Notice 2009-33 ( June 11, 2009)
Final Specifications for the EMMA Continuing Disclosure Subscription Service

MSRB Notice 2009-32 (June 11, 2009)
Final Specifications for the EMMA Continuing Disclosure Automated Submission Interface

MSRB Notice 2009-31 (June 10, 2009)
MSRB to Accept Voluntary Continuing Disclosures to EMMA

MSRB Notice 2009-30 (June 9, 2009)
Build America Bonds: Application of Rule G-37 to Solicitations of Issuers

MSRB Notice 2009-29 (June 4, 2009)
Webinars About the Business-to-Business Submission and Subscription Process for the Primary Market Disclosure Service of EMMA

MSRB Notice 2009-28 (June 1, 2009)
MSRB Establishes Electronic Official Statement Dissemination Standard under Rule G-32 and Launches Permanent Primary Market Disclosure Service of EMMA

MSRB Notice 2009-27 (June 1, 2009)
MSRB Launches Continuing Disclosure Pilot of EMMA

MSRB Notice 2009-26 (May 29, 2009)
MSRB Files to Terminate its CDINet System Effective July 1, 2009

MSRB Notice 2009-25 (May 28, 2009)
Webinars About the Submission Process for Advance Refunding Documents and 529 College Savings Plan Documents to EMMA

MSRB Notice 2009-24 (May 27, 2009)
MSRB Discontinues e-OS System

MSRB Notice 2009-23 (May 22, 2009)
MSRB to Launch Continuing Disclosure Pilot Service on EMMA

MSRB Notice 2009-22 (May 22, 2009)
SEC Approves Primary Market Disclosure Service on EMMA for Electronic Dissemination of Official Statements

MSRB Notice 2009-21 (May 13, 2009)
Webinars About the Submission Process for the Primary Market Disclosure Service of EMMA

MSRB Notice 2009-20 (May 12, 2009)
Request for Comment Regarding Settlement of Syndicate Accounts and Secondary Market Trading Accounts

Comments received are available for this notice.

MSRB Notice 2009-19 (May 6, 2009)
Webinars About the Submission Process for the Continuing Disclosure Service of EMMA

MSRB Notice 2009-18 (May 6, 2009)
MSRB Updates Timing on Launch of New Services on EMMA

MSRB Notice 2009-17 (May 5, 2009)
Upcoming Enhancements to the SHORT System and Data Elements Clarification

MSRB Notice 2009-16 (April 28, 2009)
Notice of Filing of Amendment to Rule G-8, on Books and Records, Relating to ARS and VRDO

MSRB Notice 2009-15 (April 24, 2009)
MSRB Provides Guidance on Build America Bonds and Other Tax Credit Bonds

MSRB Notice 2009-14 (April 22, 2009)
MSRB Files EMMA Continuing Disclosure Subscription Service and Publishes Preliminary Specifications for Subscription and Document Submission Feeds

MSRB Notice 2009-13 (April 20, 2009)
MSRB and RBDA to Hold Municipal Securities Seminar on May 13, 2009

MSRB Notice 2009-12 (April 14, 2009)
MSRB Files to Allow Voluntary Continuing Disclosures on EMMA

MSRB Notice 2009-11 (March 27, 2009)
Reminder of April 1, 2009 Effective Date of MSRB Short System for Variable Rate Demand Obligations

MSRB Notice 2009-10 (March 25, 2009)
MSRB Files to Establish Pilot for EMMA’s Continuing Disclosure Service

MSRB Notice 2009-09 (March 24, 2009)
Final Specifications for the MSRB’s Electronic Municipal Market Access System (“EMMA”) Primary Market Subscription Service

MSRB Notice 2009-08 (March 24, 2009)
Final Specifications for the MSRB’s Electronic Municipal Market Access System (“EMMA”) Primary Market Automated Submission Interface

MSRB Notice 2009-07 (March 23, 2009)
MSRB Files for EMMA Primary Market Disclosure Service

MSRB Notice 2009-06 ( February 25, 2009)
MSRB Gateway Rollout and Training

MSRB Notice 2009-05 (January 28, 2009)
Reminder of January 30, 2009 Effective Date of MSRB SHORT System and New Location of SHORT System Web Service

MSRB Notice 2009-04 (January 9, 2009)
SEC Approves Proposal to Increase Transparency of Auction Rate Securities and Variable Rate Demand Obligations

MSRB Notice 2009-03 (January 7, 2009)
Recommendations Requested for Board Nominations

MSRB Notice 2009-02 (January 5, 2009)
MSRB Announces Availability of SHORT System Web User Interface

MSRB Notice 2009-01 (January 2, 2009)
MSRB Amends Proposal to Increase Transparency of Variable Rate Demand Obligations

 

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Amendment Approved Concerning Disclosure of Designation Information to Syndicate Members: Rule G-11(g)(iii)

On April 28, 1999, the Securities and Exchange Commission approved an amendment to rule G-11, on sales of new issue municipal securities during the underwriting period.¹ The amendment makes clear that all information about designations paid to syndicate and non-syndicate members is to be provided to each syndicate member and that the designation information must be expressed in total dollar amounts. The amendment became effective upon approval.

More information about the amendment can be found in the notice entitled "Amendment Filed to Rule G-11(g)(iii) Concerning the Disclosure of Designation Information to Syndicate Members."

April 30, 1999

 

TEXT OF AMENDMENT²

Rule G-11. Sales of New Issue Municipal Securities During the Underwriting Period

(a) – (f) No change.

(g) Designations and Allocations of Securities. The senior syndicate manager shall:

(i)–(ii) No change.
(iii) disclose, in writing, to the each members of the syndicate , in writing, all available information on designations paid to syndicate and non-syndicate members expressed in total dollar amounts designation information to members within 10 business days following the date of sale and all information about designations paid to syndicate and non-syndicate members expressed in total dollar amounts with the sending of the designation checks pursuant to rule G-12(k); and
(iv) No change.

(h) No change.

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ENDNOTES

1. Sec. Exch. Act Rel. No. 41338 (April 28, 1999).

2. Underlining indicates new language; strikethrough denotes deletions.

Copyright 2000 Municipal Securities Rulemaking Board. All Rights Reserved. Terms and Conditions of Use.

Notice regarding issuer selection of underwriters’ counsel

        In connection with the Board’s review of the underwriting process in 1997,¹ the Board expressed concern, and sought comment from the municipal securities community, regarding the practice of certain issuers in selecting the counsel to be used by underwriters in the offering of the issuer’s bonds. The Board emphasized that underwriters must be free to select counsel in whom they have confidence and who do not have conflicting allegiances that may compromise, or appear to compromise, their capacity to carry out their responsibilities. This is especially true in light of the special role of underwriters’ counsel in assisting underwriters with their due diligence responsibilities and in reviewing with a critical eye the disclosure information provided by issuers.²

        Comments and information received by the Board suggest that problems do exist in this area, but rulemaking does not appear to be an appropriate solution at this time.³ The Board recognizes, for example, that issuers often have a legitimate interest in the selection of underwriters’ counsel.⁴ An issuer may fairly object to the use of counsel where the issuer’s own experience has called into question the counsel’s conduct or competence. The issuer also may wish to promote the efficiencies gained by using counsel whose knowledge, location or prior experience will facilitate prompt and proper completion of the financing. It may encourage underwriters to consider the use of local firms or firms in which minorities and women undertake significant responsibilities. The fees of such counsel also are important since they are paid, directly or indirectly, by the issuer.⁵

        Ultimately, however, underwriters must be free to select their own counsel and to reject the imposition of counsel in circumstances where they lack the basis for placing their complete confidence in such counsel. In particular, underwriters should have a basis for concluding that counsel has the requisite experience and expertise in securities law matters, the resources to assist the underwriters in meeting their due diligence responsibilities and the independence to perform the critical role of such counsel in the disclosure process.⁶

        It is also important to remember the "counseling" role to be played by underwriters’ counsel. Underwriters often need to take their counsel into their confidence on difficult and sensitive questions. Underwriters and therefore their counsel are "adverse" to issuers on a variety of matters, including many related to investor protection. These include decisions regarding bond structure, security provisions, operating and reporting covenants and, above all, disclosure, especially in matters involving negative facts and circumstances. The potential for conflict of interest is inherent in the issuer’s selection of the counsel whose particular responsibilities may include advocating decisions that the issuer may oppose or may perceive as not in its best interest.

        The Board is aware of situations in which underwriters have retained counsel designated by an issuer where the underwriters lacked an adequate basis for placing their confidence in such counsel. The Board recognizes that pressure by issuers may be subtle and indirect and difficult to resist. It is also aware of situations where underwriters have had so little confidence in the designated underwriters’ counsel that they have privately consulted other lawyers regarding disclosure and other issues. While there may be circumstances where underwriters may wish to consult counsel other than their designated counsel for a transaction, such conduct suggests that the practices of some issuers have resulted in the selection of underwriters’ counsel who are not in fact fulfilling all of the obligations inherent in such role.

        In its March 1994 interpretive release on municipal disclosure,⁷ the Securities and Exchange Commission indicated that information "concerning financial and business relationships and arrangements among the parties involved in the issuance of municipal securities may be critical to an evaluation of an offering." Such information, the Commission pointed out, could indicate the "existence of actual or potential conflicts of interest" and "may reflect upon the qualifications, level of diligence and disinterestedness of financial advisors, underwriters, experts and other participants in an offering." The Commission listed selection of counsel as one of the issues to be considered and noted that investors reasonably expect participants in municipal securities offerings to follow appropriate standards and procedures. Any circumstances that might suggest that underwriters’ counsel – or any other party – might not perform its role in the expected and appropriate manner could be material.

        The Board reminds both issuers and underwriters that investors may be harmed in a variety of ways in any offering process that does not properly utilize the review, guidance and counseling of an independent, competent and appropriately critical underwriters’ counsel. The results may compromise the integrity of the securities market and undermine the ability of both issuers and underwriters to rely on the expertise and guidance of underwriters’ counsel.

        The Board urges both issuers and underwriters to ensure that underwriters select and utilize counsel in a manner that promotes investor protection.

September 3, 1998

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ENDNOTES

1. See "Board Review of Underwriting Process," MSRB Reports, Vol. 17, No. 2 (June 1997) at 3-16.

2.See National Association of Bond Lawyers and Section of Urban, State and Local Government Law, American Bar Association, Disclosure Roles of Counsel in State and Local Government Securities Offerings (2d ed. 1994) ("Disclosure Roles of Counsel") at 17-18.

3.Rulemaking in this area would be problematic because of the difficulty of determining what influence was brought to bear, whether it was improper and whether the underwriters in fact had the appropriate basis for accepting the suggested counsel and placing their confidence in such counsel’s advice and service.

4.See Government Finance Officers Association’s ("GFOA") draft Recommended Practice – Issuer’s Role in Selection of Underwriter’s Counsel (1998) ("Draft GFOA Recommended Practice"). The Draft GFOA Recommended Practice is subject to final approval by the GFOA’s board. See also Disclosure Roles of Counsel at 18-20.

5. Fees are a legitimate concern for both issuers and underwriters and may be subject to controls, caps and other agreements. The Board, however, is concerned that in some circumstances limits imposed directly by an issuer may either prevent the selection of appropriate underwriters’ counsel or pressure such counsel to limit their role. Underwriters, issuers and those who advise them (including financial advisors and in some cases bond counsel) should recognize the potential risks of fee arrangements that may undermine investor protection.

6. The Draft GFOA Recommended Practice recognizes that the underwriter has a reasonable need to rely on the competence and confidential advice of its counsel and that the potential for conflicts of interest exists if an issuer designates a firm to serve as underwriters’ counsel. See also Disclosure Roles of Counsel at 19.

7.Securities Act Release No. 7049, Exchange Act Release No. 33741, Statement of the Commission Regarding Disclosure Obligations of Municipal Securities Issuers and Others (March 9, 1994), 59 FR 12748 (March 17, 1994).

 

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PRESS RELEASE

September 9, 1997

BOARD ELECTS OFFICERS

The Municipal Securities Rulemaking Board is pleased to announce the election of its Chairman and Vice Chairman for its 1998 fiscal year. Mr. Terry L. Atkinson will serve as Chairman and Ms. Phyllis E. Currie as Vice Chairman. They will begin their terms on October 1, 1997.

Mr. Atkinson replaces Roger G. Hayes as Chairman. Mr.Hayes is Managing Director of Municipal Finance for NationsBanc Capital Markets, Inc. in Charlotte, North Carolina. Ms. Currie replaces Charles D. Mires as Vice Chairman. Mr. Mires is Assistant Vice President and Manager of the Municipal Bond Division for Allstate Insurance Company in Northbrook, Illinois.

Mr. Atkinson is Managing Director and Director of the Municipal Securities Group for PaineWebber Incorporated in New York and has held this position since 1989. He is a member of the Board of Directors of PaineWebber, Inc. and the PSA The Bond Market Trade Association and was the 1995 Chairman of the Municipal Division of PSA. Mr. Atkinson received a B.A. from San Diego State University and a J.D. from the University of San Diego School of Law.

Ms. Phyllis E. Currie is Chief Financial Officer for the Los Angeles Department of Water and Power. Prior to her current position, she was Assistant City Administrative Officer for the City of Los Angeles. Ms. Currie is a former member of the California Debt Advisory Commission; a member of Government Finance Officers Association; and National Forum of Black Public Administrators. She received her B.A. and MBA from UCLA.

The Board consists of 15 members -- five representatives of bank dealers, five representatives of securities firms, and five public members not associated with any bank dealer or securities firm. At least one public member must be a representative of issuers and one of investors to ensure that all perspectives of the municipal securities market are represented.

 

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ARBITRATION: RULE G-35

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On May 22, 1997, the Board filed with the Securities and Exchange Commission (SEC) a proposed amendment to rule G-35, the Board's Arbitration Code. [1] The amendment creates two new sections: Section 37 states that the Board will not accept any new arbitration claims filed on or after January 1, 1998; and Section 38 provides that, as of January 1, 1998, every bank dealer (as defined in rule D-8) shall be subject to the Code of Arbitration Procedure of the NASD for every claim, dispute or controversy arising out of or in connection with the municipal securities activities of the bank dealer acting in its capacity as such. New Section 38 further provides that each bank dealer shall be subject to, and shall abide by, the NASD's Code of Arbitration Procedure as if the bank dealer were a "member" of the NASD.

The Board's arbitration program, which is limited to the resolution of disputes involving municipal securities, has been in effect since December 1978. The Board's caseload grew steadily for a time (for example, 21 cases were received in 1980; 82 in 1986; and 115 in 1988). Between 1978 and 1993, the NASD automatically transferred to the Board's arbitration program any claims received involving municipal securities, and until approximately 1993 the majority of the Board's cases were received in this manner. [2] In 1993, the NASD amended its arbitration code to require a customer's consent before it could transfer a case to another SRO. The practical effect of this amendment has been to virtually halt the transfer of municipal cases to the Board's arbitration program because customers choose to remain at the NASD. Consequently, the Board's caseload has declined dramatically from 115 cases received in 1988, to 10 cases received in 1996. For 1997, the Board has thus far received one case.

In September 1996, the Board published a notice expressing its concern over the costs of operating the arbitration program in light of the decreasing number of cases filed with the Board.[3] The Board stated that the decline in its caseload makes it difficult to justify the cost of continuing to operate the arbitration program, and that it was considering discontinuing its arbitration program. The Board requested comment on the impact that such action would have on the public and the industry, and specifically requested comment on what effect, if any, the elimination of its arbitration program would have on bank dealers who are not NASD members.

In response to its request, the Board received a comment letter from a dealer and from an individual who serves as an arbitrator for the Board. The dealer expressed its concern that arbitrators serving in other SRO arbitration programs do not have sufficient knowledge of the municipal securities industry. In an attempt to address this concern, the Board, in the next few months, plans to forward its list of arbitrators to the NASD.

With regard to bank dealers, the dealer stated that the Board's program should not be eliminated until an arbitration forum is established for these dealers, and suggested that the Board require bank dealers to use the NASD's arbitration program for resolving disputes involving municipal securities. The proposed rule change accomplishes this.

The other commentator expressed his belief that elimination of the Board's program will not impair the industry's arbitral process.

Accordingly, the Board has determined that, effective January 1, 1998, it will no longer accept any new claims filed with its arbitration program. The Board will, however, continue to operate its program in order to administer its current, open cases and any new claims received prior to January 1, 1998, but will discontinue its arbitration program when all such cases have been closed.

The Board notes that, currently, any customer or securities dealer with a claim, dispute or controversy against a dealer involving its municipal securities activities may submit that claim to the arbitration forum of any SRO of which the dealer is a member, including the NASD. Bank dealers, however, are unique in that they are subject to the Board's rules but are not members of any other SRO. In light of the Board's decision not to accept any new arbitration claims on or after January 1, 1998, it is necessary to amend rule G-35 to state this and to provide an alternative forum for claims involving the municipal securities activities of bank dealers. The proposed rule change accomplishes this by subjecting every bank dealer, as of January 1, 1998, to the NASD's Code of Arbitration Procedure for every claim, dispute or controversy arising out of or in connection with the municipal securities activities of the bank dealer acting in its capacity as such. In addition, the proposed rule change requires that bank dealers abide by the NASD's Code just as if they were "members" of the NASD for purposes of arbitration.

May 22, 1997

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TEXT OF PROPOSED AMENDMENT (Language between *asterisks* is proposed new language : language between brackets is proposed deleted language)

Rule G-35. Arbitration Every broker, dealer and municipal securities dealer shall be subject to the Arbitration Code set forth herein.

Arbitration Code Section 1 though Section 36. No change. *Section 37. Arbitration Claims Filed On or After January 1, 1998. The Board will not accept any new arbitration claims filed on or after January 1, 1998.* *Section 38. Arbitration Involving Bank Dealers. As of January 1, 1998, every bank dealer (as defined in rule D-8) shall be subject to the Code of Arbitration Procedure of the National Association of Securities Dealers, Inc. ("NASD") for every claim, dispute or controversy arising out of or in connection with the municipal securities activities of the bank dealer acting in its capacity as such. For purposes of this rule, each bank dealer shall be subject to, and shall abide by, the NASD's Code of Arbitration Procedure as if the bank dealer were a "member" of the NASD.*

 

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ENDNOTES

[1] File No. SR-MSRB-97-4. Comments submitted to the SEC should refer to this file number.

[2] The NASD also transferred cases (other than those involving municipal securities) to other self-regulatory organizations (SROs), such as the New York Stock Exchange and the American Stock Exchange, if the particular claim arose out of a transaction in that SRO's market.

[3] MSRB Reports, Vol. 16, No. 3 (Sept. 1996) at 25.

 

 

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Archive 1997

Operational Start Date for Customer Transaction Reporting, December 29, 1997

The operational start date of the customer transaction phase of the Board's Transaction Reporting Program has been delayed from January 1, 1998 to March 1, 1998.

Proposed amendments to rules G-11, G-12, and G-8, December 23, 1997

The Board has filed with the SEC proposed amendments to rules G-11, on sales of new issue municipal securities, G-12, on uniform practice, and G-8, on books and records, in regard to syndicate practices.

Amendment filed to rule G-23, December 23, 1997

The Board has filed with the SEC an amendment to rule G-23 on activities of financial advisors. The amendment requires a financial advisor, prior to entering into a remarketing agreement for an issue on which it advised, to disclose, in writing, to the issuer the terms of the remuneration the financial advisor could earn as remarketing agent on such issue and that there may be a conflict of interest in changing from the capacity of financial advisor to remarketing agent.

Proposed amendments to rule G-32, December 22, 1997

The Board has filed proposed amendments to rule G-32, on disclosures in connection with new issues, relating to dissemination of official statements to purchasing dealers and initial offering prices of maturities not reoffered

Series 53 study outline, December 19, 1997

Effective date for revised Series 53 study outline changed to March 1, 1998.

Amendment filed, December 18, 1997

The Board has filed proposed amendments to rule G-37, on political contributions and prohibitions on municipal securities business, rule G-8, on recordkeeping, and rule G-38, on consultants

Notice of filing, December 16, 1997

The Board has established a fee relating to the public dissemination on CD-ROM of quarterly Form G-37/G-38 filings

Amendment Filed, revised forms G-36(OS) and G-36(ARD): December 2, 1997

The Board has filed revised Forms G-36(OS) and G-36(ARD) and an amendment to rule G-8(a)(xv), on recordkeeping. The revised Forms G-36(OS) and G-36(ARD) and amendment to rule G-8(a)(xv) become operative on January 1, 1998.

Consultants Rule G-38 November 25, 1997

The Board has filed an amendment to rule G-38, on consultants, that would give dealers the option of disclosing their consulting arrangements to issuers, pursuant to section (c) of the rule, on either an issue-specific or issuer-specific basis.

Arbitration Rule G-35 November 13, 1997

The Board has filed an amendment to its File No. SR-MSRB-97-4 relating to rule G-35.

The Board is publishing a third Question and Answer notice concerning consultants. November 13, 1997

Question and Answer notice concerning consultants.

Notice: October 1997

MSRB Transaction  Reporting Program Questions and Answers.

Amendments Filed: September 30, 1997

The Board has filed technical amendments to rule G-37, on political contributions and prohibitions on municipal securities bussiness, rule G-38, on consultants, and G-8, on recordkeeping.

Draft Amendments to Rules G-38 and G-8 and Draft Changes to Form G-37/G-38: September 11, 1997

The Board requests comment on a draft amendment to rule G-38, on consultants, that would require dealers to disclose their consultants' political contributions to officials of an issuer and payments to state and local political parties. The Board also is seeking comment on a related amendment to rule G-8, on recordkeeping, and revisions to Form G-37/G-38. Comments are due no later than December 15, 1997.

Additional Questions and Answers: Rule G-37 on Political Contributions and Prohibitions on Municipal Securities Business:

September 9, 1997

The Board has published an additional question-and-answer notice regarding rule G-37 on political contributions and prohibitions on municipal securities business. The questions and answers address the applicability of the rule to transition and inaugural expenses, the definition of issuer official, the definitions of municipal finance professional and executive officer, and reporting by syndicate members.

Rule G-35: Arbitration: May 22, 1997

The Board has filed an amendment to its Arbitration Code (rule G-35) to state that it will not accept any new arbitration claims filed on or after January 1, 1998, and that as of that date every bank dealer shall be subject to the NASD's Code of Arbitration Procedue.

Rule G-38: Consultants: May 21, 1997

The Board requests comment on a draft amendment to rule G-38 that would give dealers the option of disclosing information on their consulting arrangements to issuers on either an issue-specific or issuer-specific basis.

 

Text of Proposed Rule & Forms G-36 (OS) & G-36(ARD)

 

Proposed Change Filed to Establish a Fee Relating to the OS/ARD Subsystem: May 19, 1997

The Board has filed a proposed change to establish a fee relating to the operation of its OS/ARD subsystem of the MSIL system.

From the Chairman

The Board is publishing Chairman Roger Hayes' letter to the municipal securities industry

 

Rule G-32: Notice of the Draft Amendments

As announced after its February 1997 meeting, the MSRB has determined to withdraw the draft amendment to Rule G-32, on disclosure in connection with new issues.

Rule G-39: Telemarketing Rule Approved

Rule G-39 and amendments to rules G-21, G-8 and G-9 concern telemarketing requirements with respect to the municipal securities activities of brokers, dealers and municipal securities dealers.

 

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Arbitration: Rule G-35

Amendment to Filing

The Board has filed an amendment to its File No. SR-MSRB-97-4 relating to its Arbitration Code (rule G-35). The amendment will make publicly available the names of arbitrators on all customer awards rendered after May 10, 1989. The amendment is intended to conform this aspect of the Board's code to the arbitration codes of other self-regulatory organizations.

On May 22, 1997, the Board filed with the Commission a proposed amendment to

rule G-35, the Board's Arbitration Code, to create two new sections to the rule: new Section 37 provides that the Board will not accept any new arbitration claims filed on or after January 1, 1998; and new Section 38 provides that, as of January 1, 1998, every bank dealer (as defined in Board rule D-8) shall be subject to the Code of Arbitration Procedure of the National Association of Securities Dealers, Inc. ("NASD") for every claim, dispute or controversy arising out of or in connection with the municipal securities activities of the bank dealer acting in its capacity as such. Section 38 further provides that bank dealers shall abide by the NASD's Code just as if they were "members" of the NASD for purposes of arbitration. ⁽¹⁾

In response to its request for public comment on the Board's proposed amendment to rule G-35, the Commission received one comment letter from an individual whose company collects data on arbitration awards and stores the information in a database which it makes available to subscribers and others. The commentator noted that most of the information comes from awards issued subsequent to May 10, 1989. He also noted that in 1993, the NASD began making arbitrators' names available to the public, and retroactively supplied the names of arbitrators for its customer-related awards rendered after May 10, 1989. The commentator suggested that the Board similarly disclose the names of arbitrators on all customer-related awards rendered after May 10, 1989.

The Board has reviewed the commentator's suggestion and has determined to amend its arbitration code to make publicly available the names of arbitrators for all customer awards rendered after May 10, 1989. The Board believes that, upon SEC approval of its filing, this amendment will facilitate the NASD's administration of those arbitration claims received after January 1, 1998 involving the municipal securities activities of brokers, dealers and municipal securities dealers where an arbitrator appointed to such a case previously served as an aribtrator in the Board's program but has never served as an NASD arbitrator.

In its filing, the Board stated that its declining caseload makes it difficult to justify the cost of continuing to operate its arbitration program and, therefore, the Board has determined that, effective January 1, 1998, it will no longer accept any new claims filed with its arbitration program. The Board stated that it will continue to operate its program in order to administer its current, open cases and any new claims received prior to January 1, 1998, but will discontinue its arbitration program when all such cases have been closed.

November 13, 1997

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ENDNOTES

1. File No. SR-MSRB-97-4. See also MSRB Reports, Vol. 17, No. 2 (June 1997) at 19-20.

 

 

 

Copyright 2000 Municipal Securities Rulemaking Board. All Rights Reserved. Terms and Conditions of Use.

From The Chairman ,

In prior years, the Chairperson of the MSRB has written her or his letter to the industry in time for the January issue of MSRB Reports. This year, I waited until after the Board completed its review of the municipal industry's underwriting process so that I could share with you some observations on how and why we reached our conclusions and on rulemaking in general. The Board finished its review at its May meeting; the Board's proposals for rule changes in the municipal securities underwriting process are in this issue of MSRB Reports awaiting your comments.

The overall approach of these proposals is additional disclosure. I expect that various members of our industry may differ on the specifics of the rule proposals, but one thing stands out to me as crystal-clear: all of us underwriters, issuers, counsel, and financial advisors have a responsibility to see that the underwriting of a new issue is efficient and above reproach. Cities, towns, counties, and states, large and small, must raise money to build roads, schools and other public facilities necessary for our daily life. The cost of those improvements will only be at its lowest when we provide investors with a marketplace where they get fair treatment and assurance that all relevant aspects of the transactions are known to the parties involved.

To put these proposals into context, it is important that you understand how the process of rulemaking works in a self-regulating industry like ours. Of the fifteen Board members, five come from dealer firms and five are dealer bank representatives. Of its five public members, the Board currently has two issuers, two investors and one bond lawyer. The Board has large and small firm representatives and members from geographically diverse parts of the United States. Since all of the Board members are involved in the municipal market every working day, they see or hear of situations or activities that may be of concern.

When concerns of the industry are identified, the Board and the staff review current practices. The Board prioritizes the concerns for further discussion and study; it then instructs the staff to prepare options memorandum. The Board and staff have thorough discussions of the options. The Board may take several meetings to reach a consensus. The process is slow and deliberative because, while the Board is committed absolutely to protecting the integrity and fairness of the marketplace, it recognizes that non-essential regulation is burdensome and inefficient.

Once the Board approves proposed rule changes, they are released for your comment. Please take your opportunity to comment on the proposed rule changes seriously; the Board reviews every comment letter and will modify its proposals where better suggestions are made. After the comment period and review, the proposals are filed with the Securities and Exchange Commission (SEC). The SEC puts the proposed rule out for a second comment period. After the SEC reviews these comments, generally the rule is approved. At this point the rule has the force and effect of federal law.

Self-regulation has been the municipal industry's responsibility and privilege since 1975. As long as we act responsibly to protect the integrity of our marketplace and investors, I believe we will continue to enjoy that privilege. Our industry owes each Board member a debt of gratitude for their willingness to spend the time to become knowledgeable about the issues facing our industry and for their insights and thoughtful discussions throughout the process of creating the proposals. Now it is your turn to spend the time and effort to study the proposals for their effect on our marketplace. The Board will read and consider each of your comments.

The municipal securities industry and the MSRB have demonstrated a willingness to deal with tough issues. We have effectively dealt, I believe, with the influence of political contributions. We can take pride in the fact that we are the only industry in this country to have done so. With your help, the Board will continue to address vigorously any concern in this marketplace, a marketplace essential for the growth and development of this nation. Thank you for doing your part.

Roger G. Hayes Chairman, 1996-1997

 

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DATA ELEMENT AND FILE SPECIFICATIONS FOR REPORTING CUSTOMER TRANSACTIONS FOR REPORTING CUSTOMER

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The following file specification applies to customer trade data files submitted directly to the MSRB by means of a personal computer (PC). This is known as the MSRB standard specification. The PC method of file submission is intended for dealers with relatively few transactions who now submit inter-dealer trade data to NSCC exclusively by means of a personal computer dial-up facility.

Other dealers, who submit customer trade data to MSRB through NSCC, must produce files formatted according to NSCC's specifications as described in NSCC's notice entitled "The MSRB's Transaction Reporting Program for Municipal Bond Securities: NSCC Interface Requirement" (Notice No. A-4571 and P&S 4155) dated April 2, 1997.

All dealers, regardless of file submission method, must adhere to the requirements of Tables 1 and 4 below. Table 1 defines the meaning of the data elements to be reported. This should guide managers in selecting information from the dealer's recordkeeping system for use in customer transaction reporting. Table 4 also provides guidance in the MSRB's specifications for transaction control numbers.

The other tables specify the physical formats of files and records, for the guidance of programmers. Again, these specifications apply to files sent directly to the MSRB via a personal computer.

This document is a minor revision of the Notice that appeared in MSRB Reports, Vol. 16, No. 3 (September 1996) at 10-16.

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DATA ITEMS REQUIRED FOR REPORTING A TRANSACTION

Table 1 presents the data items required to report, amend or cancel a single customer transaction. Each item is briefly defined. Fuller definitions are found in the Notice of the proposed rule change (MSRB Reports Vol. 16, No. 3 (September 1996) at 3-16.)

TABLE 1

DATA ITEM DEFINITIONS

 

FILE SPECIFICATIONS

Three types of file are currently specified: (1) Submissions of customer transaction data, sent by dealers to the Customer Transaction Reporting Subsystem(CTRS): (2) Receipt and error message files, sent to dealers by CTRS: and (3) Test files, which may be sent in either direction.

Each file has a header and detail records. The header identifies the submitter, the submission date and time, the version, and the file (detail record) type. The header includes a count of the following detail records. All records in the file must be of the same type (transaction, receipt and error message, or test). A transaction file may contain records for several dealers, and it may include both "first reports" of trades and corrections to or cancellations of previously reported trades. A receipt/error message file will always include at least one receipt for a submission file: if no errors are detected in the submission, there will be no error records. Test files will be defined before the test period.

All data submitted by dial-in connection to the CTRS will be coded as ASCII. Each record will end with a carriage-return/line feed (CR/LF) symbol. Data submitted through NSCC will be coded according to NSCC specifications.

 

HEADER RECORD FORMAT

The header identifies the format version being used. Thus, if MSRB changes the version, both the old and new formats could be used by different dealers during a transition period. The version number applies to all the record types; a change in any record format will require a new version number.

TABLE 2

HEADER RECORD FORMAT

 

TRANSACTION RECORD FORMAT

 

The transaction record format applies to records of trades submitted to the Customer Transaction Reporting Subsystem. A record may be the "first report" of a trade to CTRS or a "cancel/amend" record relating to a previously reported trade.

Dealers should submit "amend" records only when there has been a change in the transaction data items required for customer transaction reporting. Rebills that change account number, etc., should not be reported to MSRB.

The meaning of each data item is described in Table 1 above. Items that may be omitted for a particular trade may be reported as zeroes or left blank.

TABLE 3

TRANSACTION RECORD FORMAT

 

GUIDELINES FOR REPORTING TRANSACTION CONTROL NUMBERS

All records pertaining to a transaction must share the same dealer-assigned control number. This allows the Transaction Reporting System to update the records of a transaction based on dealer input.

When the dealer submits a cancel/amend record (C/A record), it is recommended that the "dealer's transaction control number" field contain the same number as the record that first reported the trade to the system. In such a case, the "previous record reference" field is optional. However, to allow for different dealer practices - such as dealer systems that assign unique numbers to each record - the C/A record may contain a "new" control number, i.e., one not previously reported. In such a case, the "previous record reference" field must contain the control number of the record that first reported the trade. The table below shows valid and invalid input patterns. (Note that

the C/A record cannot be used to change the dealer's original number used in MSRB's database. If an incorrect control number was originally reported, that record must be changed and a new record with a different control number must be submitted.)

TABLE 4

VALID PATTERNS FOR REPORTING TRANSACTION CONTROL NUMBER

 

RECEIPT/ERROR MESSAGE FORMAT

The receipt/error message file is generated by CTRS after a file is received and processed. Normally one receipt record is generated per input file. It is preceded by a file header that indicates the file type is "receipt."

CTRS sends receipt/error message information by fax to the submitter, and in addition makes a receipt/error message file available for downloading to the submitter's computer, at the submitter's option.

The receipt/error message file has three record types. Type 1 is a fixed-length record identifying the input file and stating that the file was or was not received satisfactorily. Type 2 is a variable-length record containing text that describes an error. Type 3 is a fixed-length record containing a copy of the input record in which the error was found. A file of receipt/error messages contains: one header; one type 1 (receipt) record; and a pair of type 2 (text) and type 3 (transaction) records corresponding to each input transaction record that contains an error.

 

TABLE 5

RECEIPT/ERROR RECORD TYPE 1: RECEIPT

 

 

 

TABLE 6

RECEIPT/ERROR RECORD TYPE 2: DESCRIPTION OF ERROR

 

 

TABLE 7

RECEIPT/ERROR RECORD TYPE 3:

COPY OF TRANSACTION RECORD RECEIVED

 

 

SPECIFICATIONS FOR DATA SUBMISSION VIA DIAL-IN CONNECTION

 

Dealers may submit customer trade information to the MSRB in either of two ways: by uploading customer trade files to National Securities Clearing Corporation (NSCC) or by dialing in to the Customer Transaction Reporting Subsystem of the MSRB's Transaction Reporting System. NSCC will forward customer transaction files to the CTRS without making any change to the file contents. Procedures for uploading files to NSCC will be found in NSCC documentation.

 

Dealers with lower volumes of customer trades that choose to dial-in to the CTRS must use software provided, free of charge, by the MSRB for this purpose. The hardware/software requirements for the dealer's facility are:

 

• Software: Any version of Microsoft Windows that is supported by Microsoft Corporation.⁽¹⁾
• Hardware: A personal computer⁽²⁾ capable of running the above software; a modem (9600 baud or faster) and an analog telephone line.
  
  

The MSRB-provided software will include programs to make remote procedure calls with a minimum of dealer staff involvement. In ordinary operations the dealer staff will simply initiate the upload process and check that the process is successfully completed. Dealers will dial-in and transmit files using the Remote Procedure Call (RPC) features of Windows. RPC running on the dealer's computer and the CTRS will use standard protocols to communicate with one another.

The CTRS will send the receipt and any error messages to the submitting dealer by facsimile. Dealers wishing to download the receipt and error messages electronically will have the option to do so, using the MSRB-provided software.

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ENDNOTES

1. I.e., Windows 95, and Windows NT. Shortly after Microsoft discontinues support for an older product, the MSRB may discontinue use of that product for customer data submission.

2. Windows NT runs on workstations and other platforms that are not "personal computers." These are also suitable for file submission.

Copyright 2000 Municipal Securities Rulemaking Board. All Rights Reserved. Terms and Conditions of Use.

Operational Start Date for Customer Transaction Reporting

 

The operational start date of the customer transaction phase of the Board's Transaction Reporting Program has been delayed from January 1, 1998 to March 1, 1998. However, the Board's testing program is ongoing and dealers should ensure that they are testing their transaction reporting capabilities with the Board at this time or have scheduled a date to do so.

The Board's Transaction Reporting Program is designed to provide transparency and audit trail capabilities in the municipal securities market. Since 1995, the program has accepted dealer reports of inter-dealer transactions in municipal securities. Using these transaction reports, the Board publishes daily summaries of price and volume information about frequently traded municipal securities. The Board also maintains a surveillance database containing all transactions reported to the Board, and makes this database available to market regulators responsible for market surveillance and enforcement of Board rules.

During the next phase of the Transaction Reporting Program, dealers will report their dealer-customer transactions in municipal securities to the Board. This will allow information on customer transactions to be included in the daily price/volume summaries and in the surveillance database. Toward this end, the Securities and Exchange Commission in November 1996 approved amendments to Board rule G-14 on transaction reporting that require dealers to report their dealer-customer transactions to the Board.⁽¹⁾ When effective, these amendments will require that dealers send to the Board each day an electronic file containing the municipal securities transactions that were effected with customers on that day. An individual dealer may send the electronic file directly to the Board or may use an intermediary such as a clearing broker or a service bureau.⁽²⁾

At the time the amendments to rule G-14 were approved, the Board also announced a mandatory testing program. This program requires that dealers who will submit transactions to the Board under rule G-14 test their transaction reporting capabilities with the Board to ensure that their electronic files of transaction data are in the correct format and otherwise comply with the Board's requirements. The Board began the testing program with dealers in July 1997, and has received test data from over 40 service bureaus and clearing brokers on behalf of over 330 dealers. Most other dealers and service bureaus that will be submitting data to the Board are scheduled to begin testing before year-end.

Because of technical difficulties encountered in the development of computer systems that will operate Transaction Reporting Program, it is necessary for the Board to delay the operational start date for the customer transaction phase of the program -- originally scheduled for January 1, 1998 -- to March 1, 1998. This delay in the effective date for full operation of rule G-14 does not affect dealer obligations under the ongoing testing program. During December 1997, the Board will provide test dates to all dealers that have not yet been scheduled for testing. Dealers that plan to use the "PC dial-up" option for submitting data to the MSRB have now been sent necessary software and user manuals to submit test transactions to the MSRB. Dealers that plan to submit transactions via a clearing broker or service bureau may consider themselves as having tested if the clearing broker or service bureau is submitting (or is scheduled to submit) test data on their behalf. Dealers that plan to submit transactions via National Securities Clearing Corporation should have begun testing or have a test date scheduled and should contact the MSRB immediately if they do not have a test date.

As part of the testing program, dealers will continue to submit data reflecting their actual transactions once their initial test protocols have been successfully completed with the Board. Submission of the transaction data should be done by midnight of trade date -- the same deadline as will exist in the operational system. Testing in this manner will continue until the operational start date for the Program in March. Using live transaction data during the testing period will serve two purposes. It will assist the Board in designing the daily reports of price and volume information that will be provided to increase transparency in the municipal securities market and also will provide dealers and the Board with an opportunity to uncover and address problems that may arise in the reporting of specific types of transactions. This, in turn, will help the Board and the industry to ensure that system operations begin successfully in March 1998.

December 23, 1997

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ENDNOTES

1. Securities Exchange Act Release No. 37998 (November 29, 1996).

2. The format for these electronic files, data element definitions and other requirements concerning the details of customer transaction reporting may be found in MSRB Reports, Volume 16, No.3 (September 1996), at 3. The most current status of the Transaction Reporting Program, frequently asked questions, additional technical details, and other helpful explanatory material can be found on the Board's World Wide Web site at www.msrb.org.

 

Copyright 2000 Municipal Securities Rulemaking Board. All Rights Reserved. Terms and Conditions of Use.

 

The Board has filed an amendment to rule G-23, on activities of financial advisors.

 

On December 23, 1997, the Board filed with the Securities and Exchange Commission ("SEC") an amendment to rule G-23, on activities of financial advisors.⁽¹⁾ The amendment requires a financial advisor, prior to entering into a remarketing agreement for an issue on which it advised, to disclose, in writing, to the issuer the terms of the remuneration the financial advisor could earn as remarketing agent on such issue and that there may be a conflict of interest in changing from the capacity of financial advisor to remarketing agent. The proposed amendment will become effective upon approval by the SEC.

DISCUSSION

Rule G-23, on activities of financial advisors, establishes disclosure and other requirements for dealers that act as financial advisors to issuers of municipal securities. The rule is designed principally to minimize the prima facie conflict of interest that exists when a dealer acts as both financial advisor and underwriter with respect to the same issue. Specifically, rule G-23 requires a financial advisor to alert the issuer to the potential conflict of interest that might lead the dealer to act in its own best interest as underwriter rather than the issuer's best interest.⁽²⁾

The Board recently was made aware that, in certain instances, some financial advisors also have acted as remarketing agents for issues on which they advised the issuer. In May 1997, the Board published a notice (the "Notice") that, among other things, proposed for comment draft amendments to rule G-23 concerning this issue.⁽³⁾ The draft amendment to rule G-23 would have required a dealer acting as both financial advisor and remarketing agent for an issue to meet the same disclosure and other requirements as a dealer acting as financial advisor and later negotiating the underwriting or acting as placement agent for the issue (which includes terminating the financial advisory relationship with regard to the issue and making certain disclosures regarding the potential conflict of interest). The concern was that there may be a potential conflict of interest for the financial advisor because its advice regarding the type of issue (i.e., variable rate) and the issue's timing and terms may be colored by the fees it expects to receive as remarketing agent.

Many of the commentators were opposed to the draft amendment. Some of the commentators felt that issuers should not be precluded from selecting a financial advisor to also serve as a remarketing agent and that the decision should be left to the issuer as to whether there is a conflict of interest involved in this situation. Based upon the comments received, the Board determined not to adopt the draft amendment to rule G-23.

Instead of requiring a broker, dealer or municipal securities dealer to resign as financial advisor for an issue prior to acting as remarketing agent for that issue, the proposed amendment requires the financial advisor, prior to entering into a remarketing agreement, to disclose, in writing, to the issuer the terms of the remuneration the financial advisor could earn as remarketing agent on such issue and that there may be a conflict of interest in changing from the capacity of financial advisor to remarketing agent for the securities with respect to which the financial advisory relationship exists. The proposed amendment ensures that an issuer is made aware that there may be a conflict of interest for the financial advisor for an issue to change its capacity to that of remarketing agent for such issue and the issuer is made aware of the terms of the remuneration the dealer could earn as remarketing agent on such issue. The issuer can then decide whether to allow the financial advisor for an issue to act as remarketing agent for such issue.

The proposed amendment also requires that the financial advisor receive the issuer's acknowledgment in writing of receipt of such disclosures. The issuer's written acknowledgment of receipt can be accomplished by a variety of methods, including a signed statement from the issuer prepared by the dealer or issuer, or by the issuer signing or initialing the dealer's disclosure letter.

When the requirements contained in the proposed amendment are met, a dealer acting as financial advisor for an issue may also serve as remarketing agent for such issue.

December 23, 1997

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Text of Proposed Amendment⁽⁴⁾

Rule G-23. Activities of Financial Advisors

(a) - (d) No change.

(e) Remarketing Activities. No broker, dealer, or municipal securities dealer that has a financial advisory relationship with an issuer with respect to a new issue of municipal securities shall act as agent for the issuer in remarketing such issue, unless, prior to entering into a remarketing agreement, the broker, dealer, or municipal securities dealer has expressly disclosed in writing to the issuer that there may be a conflict of interest in changing from the capacity of financial advisor to remarketing agent for the securities with respect to which the financial advisory relationship exists and the terms of the remuneration the broker, dealer or municipal securities dealer could earn as remarketing agent on such issue. The issuer must expressly acknowledge in writing to the broker, dealer, or municipal securities dealer receipt of such disclosure.

[(e)] (f) No change.

[(f)] (g) Each broker, dealer, and municipal securities dealer subject to the provisions of sections (d), [or] (e) or (f) of this rule shall maintain a copy of the written disclosures, acknowledgments and consents required by these sections in a separate file and in accordance with the provisions of rule G-9.

[(g)] (h) No change.

[(h)] (i) No change.

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ENDNOTES

1. File No. SR-MSRB-97-16. Comments sent to the SEC should refer to the file number.

2. Rule G-23(d)(i) requires a financial advisor wishing to underwrite or place an issue of municipal securities on a negotiated basis to: (i) terminate in writing the financial advisory relationship with respect to such issue and the issuer has expressly consented in writing to such acquisition or participation; (ii) disclose in writing to the issuer at or before such termination that there may be a conflict of interest in changing from the capacity of financial advisor to purchaser of or placement agent for the securities with respect to which the financial advisory relationship exists and the issuer has expressly acknowledged in writing receipt of such disclosure; and (iii) expressly disclose in writing to the issuer at or before such termination the source and anticipated amount of all remuneration to the dealer with respect to such issue in addition to the compensation as financial advisor, and the issuer has expressly acknowledged in writing receipt of such disclosure. If such issue is to be sold by the issuer at competitive bid, the issuer must expressly consent in writing prior to the bid to the financial advisor's acquisition or participation.

3. "Board Review of Underwriting Process," MSRB Reports, Vol. 17, No. 2 (June 1997) at 3-16.

4. Underlining indicates new language; brackets denote deletions.

 

Copyright 2000 Municipal Securities Rulemaking Board. All Rights Reserved. Terms and Conditions of Use.

The Board has filed proposed amendments to rule G-32, on disclosures in connection with new issues

On December 22, 1997, the Board filed with the Securities and Exchange Commission ("SEC") proposed amendments to rule G-32, on disclosures in connection with new issues, that would strengthen the rule's existing requirements regarding dissemination of official statements to dealers purchasing new issue municipal securities during the underwriting period and would incorporate a longstanding Board interpretation regarding disclosure to customers of initial offering prices in negotiated underwritings.⁽¹⁾

Rule G-32 currently provides that no dealer shall sell any new issue municipal securities to a customer unless such dealer delivers to the customer no later than the settlement of the transaction, among other things, a copy of the official statement in final form and, in connection with a negotiated sale of new issue municipal securities, information regarding the initial offering price for each maturity in the new issue (the "Offering Price Disclosure Provision"). The rule also requires that managing underwriters and other dealers that sell new issue municipal securities to purchasing dealers furnish copies of the official statement to such purchasing dealers upon request (the "Dealer Dissemination Provisions"). The proposed amendments to rule G-32 would strengthen the Dealer Dissemination Provisions by requiring that official statements be sent to purchasing dealers within one business day of request and would make explicit in the Offering Price Disclosure Provision that the required disclosure to customers of the initial offering price of each maturity includes any maturities that have not been reoffered.

Amendments to Dealer Dissemination Provisions

All dealers selling new issue municipal securities to customers, not just dealers that participated in the underwriting of the new issue, are required to deliver official statements to their customers by no later than settlement of their transactions. As a result, the Dealer Dissemination Provisions were included in rule G-32 to make official statements for new issues available to all dealers so that they may fulfill their customer delivery obligation under the rule. Because dealers that are not part of the underwriting group have indicated from time to time that they have some difficulty in obtaining official statements from the managing underwriter or other selling dealers on a timely basis, the Board is proposing amendments to the Dealer Dissemination Provisions of rule G-32 to provide a specific time frame and method for delivery of official statements to purchasing dealers.

The proposed amendments would retain the existing responsibility of the managing underwriter under the rule to provide, upon request, one copy of the official statement to purchasing dealers, together with the disclosure information required for negotiated offerings, and one additional official statement per $100,000 par value purchased for resale to customers. The managing underwriter also would continue to be required to provide purchasing dealers, upon request, with instructions on how to order copies of the official statement from the printer.⁽²⁾ The amendments would add a requirement that the official statement be sent by the managing underwriter to the purchasing dealer no later than the business day after the request or, if the official statement has not been received from the issuer or its agent, the business day after receipt. The managing underwriters would be required to send official statements by first class mail or other equally prompt means unless the purchasing dealer arranges some other method of delivery at its own expense. These obligations of the managing underwriter would continue to apply with respect to all purchasing dealers, even where the managing underwriter did not sell the securities to the purchasing dealer.

In addition, the proposed amendments would retain the existing requirement that every dealer selling a new issue municipal security to another dealer must furnish the official statement to such purchasing dealer upon request. The amendments would add a requirement that the selling dealer send the official statement to the purchasing dealer within the same time frame and by the same means as would be required of the managing underwriter.

The Board believes that the proposed amendments to the Dealer Dissemination Provisions would help dealers to comply with their obligation to deliver official statements to their customers by settlement and would improve dissemination of official statements to the marketplace generally during the underwriting period.

Amendment to Offering Price Disclosure Provision

Since January 1983,⁽³⁾ the Board has interpreted the Offering Price Disclosure Provision to require that the initial offering price of all maturities of a new issue of municipal securities in a negotiated offering must be disclosed to customers, even for maturities that are not reoffered. The proposed amendment to the Offering Price Disclosure Provision of rule G-32 would incorporate into the rule language this longstanding Board interpretation. The Board believes that the application of the Offering Price Disclosure Provision to maturities that are not reoffered permits customers to determine whether the price they paid for a new issue municipal security is substantially different from the price being paid by presale purchasers.

December 22, 1997

 

Text of Amendments⁽⁴⁾

Rule G-32. Disclosures in Connection with New Issues

(a) Disclosure Requirements. No broker, dealer or municipal securities dealer shall sell, whether as principal or agent, any new issue municipal securities to a customer unless such broker, dealer or municipal securities dealer delivers to the customer no later than the settlement of the transaction:

(i) No change.

(ii) in connection with a negotiated sale of new issue municipal securities, the following information concerning the underwriting arrangements:

(A)-(B) No change.

(C) the initial offering price for each maturity in the issue that is offered or to be offered in whole or in part by the underwriters, including maturities that are not reoffered.

In the event an official statement in final form will not be prepared by or on behalf of the issuer, an official statement in preliminary form, if any, shall be sent to the customer with a notice that no final official statement is being prepared.

Every broker, dealer or municipal securities dealer shall send, upon request, promptly furnish the documents and information referred to in this section (a) to any broker, dealer or municipal securities dealer to which it sells new issue municipal securities , upon the request of such broker, dealer or municipal securities dealer. no later than the business day following the request or, if an official statement in final form is being prepared but has not been received from the issuer or its agent, no later than the business day following such receipt. Such items shall be sent by first class mail or other equally prompt means, unless the purchasing broker, dealer or municipal securities dealer arranges some other method of delivery and pays or agrees to pay for such delivery.

(b) Responsibility of Managing Underwriters, and Sole Underwriters and Financial Advisors. (i) Managing Underwriters and Sole Underwriters. When a final official statement is prepared by or on behalf of an issuer, the managing underwriter or sole underwriter, upon request, shall send to provide all brokers, dealers and municipal securities dealers that purchase the new issue municipal securities with an official statement and other information required by paragraph (a)(ii) of this rule and not less than one additional official statement in final form per $100,000 par value of the new issue purchased by the broker, dealer or municipal securities dealer and sold to customers. Such items shall be sent no later than the business day following the request or, if an official statement in final form is being prepared but has not been received from the issuer or its agent, no later than the business day following such receipt. Such items shall be sent by first class mail or other equally prompt means, unless the purchasing broker, dealer or municipal securities dealer arranges some other method of delivery and pays or agrees to pay for such delivery. In addition, the managing underwriter or sole underwriter, upon request and shall provide all purchasing brokers, dealers and municipal securities dealers with instructions on how to order additional copies of the final official statement directly from the printer. A managing underwriter or sole underwriter that prepares an official statement on behalf of an issuer shall print the final official statement and other information required by paragraph (a)(ii) of this rule and make them available promptly after the date of sale of the issue but no later than two business days before the date all securities are delivered by the syndicate manager to the syndicate members.

(ii) Finanicial Advisors. A broker, dealer or municipal securities dealer that, acting as financial advisor, prepares a final official statement on behalf of an issuer, shall make that official statement in final form available to the managing underwriter or sole underwriter promptly after the award is made. If the financial advisor is responsible for printing the final official statement, it shall make adequate copies of the final official statement available to the managing underwriter or sole underwriter promptly after the award is made but no later than two business days before the date all securities are delivered by the syndicate manager to the syndicate members to permit their compliance with paragraph (b)(i) of this rule.

(c) No change.

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ENDNOTES

1. File No. SR-MSRB-97-14. Comments sent to the SEC should refer to the file number.

2. Consistent with the position taken by the SEC in connection with its Rule 15c2-12, the Board recognizes that the official statement is the issuer's document. As a result, the proposed amendments would remove references in the existing rule to the preparation of official statements by underwriters and dealers that act as financial advisors.

3. See "Rule G-32 - Frequently Asked Questions Concerning Disclosures in Connection with New Issues," MSRB Reports, Vol. 3, No. 1 (Jan. 1983) at 25-27. See also "Disclosure Requirements for New Issue Securities: Rule G-32," MSRB Reports, Vol. 6, No.4 (Sept. 1986) at 17-20; and "Disclosures in Connection with New Issues: Rule G-32," MSRB Reports, Vol. 16, No. 3 (Sept. 1996) at 19-23.

4. Underlining indicates additions; strikethrough denotes deletions.

 

 

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