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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