Request for Comment on Draft Proposal to Collect 529 College Savings Plan Data

INTRODUCTION

The Municipal Securities Rulemaking Board (“MSRB”) is seeking comment on a plan (the “draft proposal”) to collect information about 529 college savings plans (“529 plans”) from brokers, dealers, and municipal securities dealers (“dealers”) that act in the capacity of underwriter (commonly known as “primary distributor”) of such plans.  The information proposed to be collected would include: basic identifying information about each 529 plan; total plan assets; total plan contributions; percentage of contributions derived from automatic contributions; total plan distributions; types of strategies and total assets in each strategy; types of underlying portfolios and total assets in each portfolio; fees and expenses for the plan and for each underlying strategy; and performance data for each strategy and underlying portfolio.

The MSRB would collect such information pursuant to draft new MSRB Rule G-45, on reporting of information on municipal fund securities, through draft new Form G-45, which would be submitted electronically on a quarterly basis by primary distributors through the MSRB’s Electronic Municipal Market Access (EMMA®) system.[1]  In addition, primary distributors would be required to retain records of such information pursuant to amendments to MSRB Rule G-8, on books and records, and MSRB Rule G-9, on preservation of records.

Comments should be submitted no later than September 14, 2012, and may be submitted in electronic or paper form.  Comments may be submitted electronically by clicking here.  Comments submitted in paper form should be sent to Ronald W. Smith, Corporate Secretary, Municipal Securities Rulemaking Board, 1900 Duke Street, Suite 600, Alexandria, VA 22314.  All comments will be available for public inspection on the MSRB’s website.[2] 

Questions about this notice should be directed to Lawrence P. Sandor, Deputy General Counsel, Regulatory Support, at 703-797-6600.

BACKGROUND

On July 19, 2011, the MSRB published a request for comment on an initial plan to collect information about 529 plans from the primary distributors of such plans (the “2011 Notice”).[3]  In the 2011 Notice, the MSRB explained that it was interested in creating a centralized system for the collection and dissemination of market information regarding 529 plans in order to increase the amount of information about such plans available to the MSRB, as the regulator of dealers in the 529 plan market, and to market participants.  In the 2011 Notice, the MSRB explained that it does not collect and disseminate relevant 529 plan market or program-specific data as it does for the municipal bond market, although the EMMA system serves as a centralized venue for the submission of 529 plan primary offering disclosure documents (“plan disclosure documents”) and continuing disclosures, such as annual financial reports submitted to EMMA by issuers of 529 plans or their agents.

The 2011 Notice sought input on a plan to require primary distributors to submit to the MSRB on a quarterly basis certain information about the 529 plans they distribute.  The information identified in the 2011 Notice included basic 529 plan information that the MSRB believed is readily available to primary distributors, such as total plan assets, quarterly contributions and distributions, total number of active accounts, and total rollover distributions.  In addition, the MSRB sought input as to whether primary distributors should submit aggregate information regarding the assets in underlying investment portfolios.  The MSRB noted that it would utilize this information to better understand the market for 529 plans and monitor the growth rate, composition, and size of individual plans and the industry as a whole, in order to inform its regulatory activities.

In the 2011 Notice, the MSRB asked a number of questions about the ability of primary distributors to gather and submit the information to the MSRB, the timing of the submissions, the nature of the information requested, and the use of EMMA to display some of the information.  In response, the MSRB received 10 comment letters[4] expressing varying levels of support or opposition to all or certain provisions of the plan.  Although commenters were generally supportive of the MSRB’s desire to collect some information about 529 plans, some commenters raised concerns that certain information might be duplicative, proprietary, or unavailable.  Moreover, some of the commenters questioned the utility of displaying certain information on EMMA.  Several of the commenters also requested to meet with MSRB staff to discuss their comments further.

In response to the requests, and in an effort to further consider the potential benefits and burdens of the plan, and to consider potential alternatives to collecting certain information discussed in the 2011 Notice, MSRB staff met with market participants, including some of the commenters, and further studied the issues raised in the comment letters.    Based on the feedback received on the 2011 Notice through the comment letters and subsequent discussions with various market participants, the MSRB has determined to seek comment on the draft proposal, including draft new Rule G-45, draft new Form G-45, and draft amendments to Rules G-8 and G-9.  Set forth below is a brief discussion of the comments received by the MSRB on the 2011 Notice, followed by a description of the draft proposal.

COMMENTS RECEIVED IN RESPONSE TO THE 2011 NOTICE

The principal comments pertaining to data collection and the MSRB’s responses are as follows:

• Support for the collection of 529 plan data and request to meet with the MSRB.

Commenters generally supported the collection of some 529 plan data.  In the 2011 Notice, the MSRB suggested that it might collect certain basic data elements concerning 529 plans, including total plan assets, total plan contributions, total plan distributions (withdrawals), total number of active accounts and total rollover distributions, and types of underlying portfolios and total assets in each underlying portfolio.  Some commenters suggested the MSRB collect other information, such as the percentage of contributions derived from automatic contributions or the average dollar amount of automatic contributions to a plan, fee and expense data, strategy and portfolio level data, performance and benchmark data, if a benchmark was used, and other data.  There were also suggestions that the MSRB define the terms used by the MSRB in collecting data, such as the terms contribution and distribution, apparently due to the number of different 529 plans and differences in terminology among the plans.  Other commenters suggested that certain information is proprietary and should not be displayed on EMMA – a concern disputed by other market participants who spoke with the MSRB, noting the public nature of the issuers.  Finally, a number of commenters expressed a desire to meet with MSRB staff to discuss the collection and dissemination of information by the MSRB.

• MSRB Response.

The MSRB believes the additional data would provide it with a more comprehensive view of the plans and could serve as the basis for future comparison charts on EMMA.  While the MSRB does not propose to collect all of the information proposed by the commenters, it does believe that certain items suggested by commenters would assist the MSRB in fulfilling its mission of investor protection by enabling it to analyze the 529 plan market, including risks and impact to investors and areas for potential rulemaking. 

As described more fully below, the MSRB proposes to collect basic identifying information for each plan, as well as fees and expenses, total assets, quarterly contributions, quarterly distributions, performance and benchmark information, and additional information at the strategy and portfolio level.  At present, the MSRB does not propose that the data to be collected be displayed on EMMA.  The MSRB appreciates the concerns raised by commenters about the publication of certain information on EMMA and is mindful of concerns about whether the general public would understand it and whether some of the information might be considered proprietary.  The MSRB only proposes to collect and use the data for regulatory purposes and not display it on EMMA at this time.

The MSRB contemplates that the data would be analyzed to determine what information would be appropriate to display on EMMA.  At this time, the MSRB has no plan to display any of the information described below on EMMA, and would do so only after issuing a new Request for Comment on amendments to the EMMA facility, in order to solicit comments regarding the benefit of displaying the information on EMMA, and after receiving approval of such changes from the Securities and Exchange Commission.  The MSRB does anticipate that some information collected would be of benefit to investors and, therefore, would be displayed on EMMA in the future.   

As for the suggestion that the MSRB meet with various commenters, the MSRB agreed that such meetings would assist the MSRB in understanding how data is collected by primary distributors and how often the data is reported to their issuer clients, as well as the challenges in producing information to the MSRB.  Consequently, the MSRB met with various commenters and other market participants to further discuss the concept of data collection and to understand the potential benefits, burdens, and alternatives.  As a result of those discussions, the MSRB is not proposing at this time to collect information on the total number of active accounts or total rollover distributions or certain other data.   

• The market information that the MSRB seeks to collect is already available to the industry.

Commenters said that much of the information the MSRB proposes to collect from primary distributors is already available from other sources, such as the College Savings Plans Network, an affiliate of the National Association of State Treasurers that maintains a website for the general public to learn about 529 plans and compare information regarding such plans.  They also said that a vendor provides “qualitative and quantitative” analyses and periodic studies regarding 529 plans and that reliance on these established sources for information would avoid duplication of effort and maximize the understanding of the data presented.  Finally, some commenters said that the audited financial statements already submitted to EMMA include some of the data described in the 2011 Notice and that the MSRB should utilize such data, rather than requiring submissions by primary distributors.

• MSRB Response.

The MSRB has reviewed the available data and has discussed the data with market participants, including trade groups, dealers, and vendors.  The MSRB believes that the data that is available publicly is useful to the marketplace but it is submitted to vendors and other market participants voluntarily by dealers, is submitted sporadically, and is at times incomplete.  An MSRB rule would require data to be reported regularly by dealers serving as primary distributors, to the extent such distributors have access to the data.  The data would also be reported in a uniform manner, which is a significant issue, given the variety of plans and underlying portfolios and assets.  Terminology in the industry is not consistent.  Some plans define their “age-based” alternative as a strategy; others define it as a portfolio or investment option.   Some plans define their underlying mutual funds as portfolios, while others define them as investment options.  In short, there is no consistent nomenclature.  An MSRB rule would establish definitions pertaining to the data and thereby promote consistency.  As for the information currently submitted to EMMA, although some information may be contained in plan disclosure documents or audited financial statements submitted to EMMA, the documents do not include all of the categories of information sought by the MSRB.  Moreover, the information is contained in documents submitted in portable document format (“PDF”), not in an electronic format that would permit the MSRB to easily extract the information, sort it, and analyze it for regulatory purposes.

• There are constraints to collecting 529 plan information and some of the requested information may not be of benefit to the market.

Commenters stated that, in order for data to be useful, it would need to be disclosed in a uniform manner, which would require primary distributors to modify the data in their possession.  Commenters also suggested that the data proposed to be collected, such as contributions, distributions, and fees, may not be of value to 529 plan investors because there are many reasons for contributions and distributions, and fees alone, without the detail in the fee tables, would provide incomplete disclosure. 

• MSRB Response.

The MSRB agrees with the concerns expressed by these commenters and believes that any data collected should be studied before a decision is made to display such information on EMMA.  The MSRB agrees that there could be a variety of reasons for changes in contribution or distribution levels, such as marketing campaigns as suggested by one commenter.  While such information without context may not be useful to the general public, it may be relevant to regulators that have an interest in ensuring compliance with MSRB rules, including rules on fair dealing and advertising.   

• The reporting cycle should be changed.

Certain commenters said that the MSRB should only require the submission of data on a semi-annual basis, consistent with the availability of data from 529 plans, so that primary distributors would not face an additional workload or additional financial burden in order to produce the data and that quarterly data collection for regulatory purposes would not provide any additional trend or marketplace information.

• MSRB Response.

After discussing the reporting cycle with various market participants, including primary distributors, the MSRB believes there is more value in receiving the information quarterly and that the information sought by the MSRB is readily available.  Primary distributors, in conjunction with program managers, regularly produce reports for internal use and for distribution to their state clients, vendors, and trade groups.  Much of the information is produced daily or weekly, and delivered to the issuers.  Primary distributors that spoke with the MSRB provided examples of daily, weekly and quarterly reports, some of which were prepared for state 529 plan boards or State Treasurers.  These primary distributors indicated that it would not be a burden to produce information quarterly, and some suggested that the MSRB simply provide them with a 30-day period from the end of the quarter to gather the information, validate it, and submit it.  The MSRB believes this timeframe is reasonable. 

• Only primary distributors should report information to the MSRB, and primary distributors may not be in possession of some of the information. 

Some commenters noted that, while they could support some reporting by primary distributors, they could not support reporting by selling dealers.  Commenters also noted that the information may not be available to primary distributors. 

• MSRB Response.

The MSRB does not propose that selling dealers submit data to the MSRB.  Rather, the MSRB would only require those dealers acting as primary distributors of 529 plans to submit the information discussed below.  Moreover, primary distributors would only be required to submit the information to the extent it is within their possession, custody or control.

• Compliance Date.

Commenters requested that any proposed MSRB rule requiring submission of information by primary distributors of 529 plans not be operative for at least one year after its effective date to accommodate a variety of competing priorities pursuant to recent Federal regulations, as well as to permit the development, testing, and implementation of systems, controls and procedures.

• MSRB Response.

The MSRB agrees that primary distributors should be given sufficient time to develop, test and implement systems for the submission of information to the MSRB and controls and procedures pertaining to such submissions.  The MSRB, therefore, requests comment on the amount of time needed by primary distributors to develop such systems and controls before the draft proposed rule would become effective. 

• Miscellaneous Comments.

A commenter requested that the MSRB conduct a cost-benefit analysis to examine the cumulative impact of recent rule changes on broker-dealers, specifically with regard to the potential increase in costs of additional reporting requirements, which might outweigh the benefits from such disclosure.

• MSRB Response.

The commenter recommends that the MSRB conduct a cost-benefit analysis on the proposal, and suggests that alternative data currently exists in the marketplace, which would render the MSRB’s collection proposal unnecessary.  Specifically, the commenter refers to data that is currently being collected by CSPN.  While CSPN does collect information regarding 529 plans, the information is submitted voluntarily by market participants.  By contrast, data collected by the MSRB would be more reliable because it would be required to be submitted by rule, at least as to those market participants subject to MSRB jurisdiction.  Furthermore, CSPN collects general information regarding 529 plans, but not detailed information needed by the MSRB for regulatory purposes.  The data would also be submitted in a prescribed format so that any display of data on EMMA would be consistent and of the most utility to investors in 529 plans if the MSRB were to later undertake rulemaking to make portions of such data public through EMMA.  For these reasons, the alternative data source is insufficient. 

As for the burdens and benefits, the MSRB mentioned above that it conducted a series of meetings with market participants, including trade groups, vendors, primary distributors and issuers and determined that much of the information described below is readily available and, in many cases, already reported to issuers on a quarterly basis.  Based on the MSRB’s need for reliable information in furtherance of its regulatory responsibilities and transparency goals and the modest burden that market participants have described as likely to result for primary distributors from the draft proposed rule, the MSRB currently believes the benefits of the proposal, including the anticipated use of the information by the MSRB and other regulators for the protection of investors, outweigh the burden that would be imposed on primary distributors.

Based on its further review, after receiving comments to the 2011 Notice, the MSRB believes primary distributors have ready access to basic information regarding the 529 plans they distribute and that much, if not all of such information is already gathered and produced regularly to their issuer clients.  Based on discussions with primary distributors, the MSRB believes that it would not be burdensome for primary distributors to submit the following information electronically to the MSRB by the last day of the month following the end of each calendar quarter.  Furthermore, the following information will assist the MSRB in better understanding the 529 plan market, including popular investment strategies and portfolios, thereby enabling the MSRB to focus its rulemaking on the strategies and portfolios with the highest risk and impact on the market.  Over time, this information would also assist the Financial Industry Regulatory Authority (“FINRA”), which conducts examinations of 529 plan dealers, and other regulators in their examination and enforcement activities.  Finally, any public display of data, under any potential future rulemaking by the MSRB, would enable investors to have access to more information about these plans with which to make more informed investment decisions.

The MSRB seeks further comment from market participants on any incremental additional burden to primary distributors, beyond the burden already borne in connection with existing reporting duties undertaken in connection with their role as primary distributors to 529 plans, to report the information included in the draft proposed rule.  To the extent that any commenters believe any such additional burdens are material, they should provide information describing, with particularity, the nature of such additional burden, an estimate of any additional cost they would incur to meet such requirement, and any other viable alternatives to meeting the objectives of the draft proposed rule in light of the discussion included in this request for comment regarding such alternatives.

SUMMARY OF INFORMATION TO BE COLLECTED UNDER DRAFT RULE G-45

Under the draft proposal, the MSRB would collect the following information quarterly by requiring primary distributors to submit the information in the manner prescribed in the Form G-45 Procedures and Manual, which would be published by the MSRB prior to the effective date of the rule:

• Basic Plan Information

The MSRB would collect basic plan information, in order to maintain the data listed below.  Such information would be reported once by primary distributors and then amended in the next quarterly report after a change in the information.  The information would include the names of the state, plan, program manager and primary distributor; the phone number of the primary distributor’s contact; the plan website address; the manner of distribution (such as direct-sold or advisor-sold); and other identifying information as may be required from time to time.

• Total Plan Assets

Under the draft proposal, MSRB-registered primary distributors, or those plans electing to make voluntary submissions, would deliver electronically to the MSRB information regarding total assets in the plan, as of the last day of the calendar quarter.  This would not require primary distributors to aggregate assets in each plan of a state.  Rather, primary distributors would report the assets of each plan within each state separately, to the extent such information is within the possession, custody or control of the MSRB-registered primary distributor or to the extent the plan elects to submit the information voluntarily.  It is important for the MSRB to collect such information so it has an accurate figure of the amount of money retail investors have invested in each plan.  Understanding the size of each plan will help the MSRB understand the risk to and impact on investors.  Additionally, the MSRB will use this information to aggregate asset data for all reporting plans and estimate the size of the entire market.   

• Total Plan Contributions

Under the draft proposal, MSRB-registered primary distributors, or those plans electing to make voluntary submissions, would deliver electronically to the MSRB information regarding total contributions to the plan for the calendar quarter.  Total plan contributions would mean all deposits into the plan whether by existing account owners or new account owners, but would not include withdrawal of funds from one strategy or portfolio and deposit of the same funds into another strategy or portfolio, such as where an account owner selects a different investment option or funds are moved from one age-band to another as beneficiaries approach college age.

Collecting information about total plan contributions will assist the MSRB in understanding the rate at which each plan is growing, relative to the other plans.  To the extent certain plans are growing more rapidly than others, the MSRB or FINRA might review the marketing activities and growth of such plans, in order to stay informed regarding any novel issues pertaining to such plans or the market in general.  Additionally, understanding the growth of each program will help the MSRB understand its risk to and impact on investors. 

• Percentage of Plan Contributions Derived from Automatic Contributions

Under the draft proposal, MSRB-registered primary distributors, or those plans electing to make voluntary submissions, would deliver electronically to the MSRB information regarding the percentage of total contributions to the plan for the calendar quarter made through automatic means established by account owners, such as through an ACH (Automated Clearing House) debit transfer from an account owner’s bank account.

Information about the percentage of plan contributions derived from automatic contributions will help the MSRB understand the percentage of families that are using periodic, automatic contributions, such as automated transfers from their bank accounts, to fund their 529 plans.  The MSRB believes it is important to obtain an accurate figure for such a funding mechanism, since plan disclosure documents are updated periodically, and dealers are required to deliver such updates to their clients, even if the customers utilize automatic contributions to fund their plans.   

• Total Plan Distributions

Under the draft proposal, MSRB-registered primary distributors, or those plans electing to make voluntary submissions, would deliver electronically to the MSRB information regarding total distributions from the plan for the calendar quarter.  Total plan distributions would mean all withdrawals from the plan by account owners, but would not include withdrawal of funds from one strategy or portfolio and deposit of the same funds into another strategy or portfolio, such as where an account owner selects a different investment option or funds are moved from one age-band to another as beneficiaries approach college age.

Information regarding total plan distributions will assist the MSRB in understanding the level of plan outflows relative to other plans.  While the MSRB is aware that such information may be indicative of nothing more than ordinary, qualified distributions necessary to pay higher education expenses, it may also signal issues with plan management or performance.  While such information without context might not be of benefit to the general public, it might be used by the MSRB and/or FINRA to further evaluate plan activities, in order to understand the reason for outflows.

• Fees and Expenses of the Plan

Under the draft proposal, MSRB-registered primary distributors, or those plans electing to make voluntary submissions, would deliver electronically to the MSRB information regarding the fee and expense structure, as of the end of each calendar quarter, for initial and on-going fees and costs directly or indirectly paid by account owners, including fees and expenses assessed at the strategy level.  A strategy would mean a combination of more than one portfolio through which funds of account owners are allocated to achieve a particular investment outcome (such as an age-based, conservative strategy), and a portfolio would mean the most basic legal entity into which account owner funds are deposited, such as a registered investment company (as opposed to the term portfolio, which is often used to describe a group of mutual fund portfolios).  To avoid additional expense, primary distributors would submit the information in the format suggested in Exhibit A to CSPN’s Disclosure Principles Statement No. 5 (May 3, 2011)[5] (example fee charts), which is a format adopted for use by many plans.

The MSRB will be able to use this data to analyze the fees and expenses of 529 plans and their underlying investment options and manipulate the data to compare the fees and costs of different plans.  While the information is typically available in each plan disclosure document and on various websites, the MSRB will be able to make more meaningful use of the information if it is required to be reported by primary distributors electronically, so that the MSRB and other regulators can perform comparisons and analysis on the data. The data would include fees and expenses directly or indirectly related to each strategy and might include, for example, a weighted average of each underlying mutual fund’s expense ratio based on the asset allocation of the strategy among the underlying portfolios.

• Types of Strategies and Total Assets in Each Strategy

Under the draft proposal, MSRB-registered primary distributors, or those plans electing to make voluntary submissions, would deliver electronically to the MSRB information regarding types of strategies and total assets in each strategy of the plan for the calendar quarter.  The information would include total assets in each strategy as of the last day of the calendar quarter. 

Information about the types of strategies and total assets in each strategy is needed to understand the types of strategies offered by each plan and the allocation of assets to each such strategy.  While the MSRB has been informed that investors are electing to invest in age-based strategies over other strategies due to their ease of use (e.g., plans rebalance to purportedly more conservative, fixed income assets as the beneficiary approaches college age without input or effort on the part of investors), the MSRB has no statistics on the investments in such strategies.  Moreover, the MSRB desires information on the asset class allocation of each strategy, so it can understand and compare differences between age-based strategies in the context of the manner in which the strategies are marketed. 

• Types of Underlying Portfolios and Total Assets in Each Portfolio

Under the draft proposal, MSRB-registered primary distributors, or those plans electing to make voluntary submissions, would deliver electronically to the MSRB information regarding types of underlying portfolios and total assets in each underlying portfolio of the plan for the calendar quarter.  The information would include total assets in each underlying portfolio in the plan, as of the last day of the calendar quarter, but would not include portfolio assets held outside of the plan, by, for example, mutual fund investors.  For example, if one underlying portfolio was a small cap growth fund in which investors can invest either through a 529 plan or directly as a mutual fund investment, the primary distributor would report the 529 plan assets in the small cap growth fund but not other assets in the fund owned by mutual fund investors.

As with the information regarding strategies, it is important to understand the size of investment in each underlying mutual fund or other product, as well as the asset class allocation within each portfolio.  These products vary, in terms of their risk characteristics, and it is important for regulators to understand the level of risk taken by investors in 529 plans and the underlying investment options.  Such information may better inform the MSRB with regard to disclosure guidance or other rulemaking. 

• Performance Data for Each Strategy and Underlying Portfolio

Under the draft proposal, MSRB-registered primary distributors, or those plans electing to make voluntary submissions, would deliver electronically to the MSRB information regarding the performance of each strategy and each underlying portfolio for each calendar quarter.  Performance would mean total return, net of fees.  The same information would be provided for any benchmark used by the plan.  A benchmark would mean an established index or unmanaged portfolio comprised of established indexes.

As with fees and expenses, performance is material to an investment decision.  While it is available publicly for some plans, disclosure is not uniform.  Moreover, not all plans identify the benchmark used, if any.  Under the proposal, the MSRB would require the primary distributor to report the benchmark name, if any, and performance quarterly.                     

SUMMARY OF DRAFT AMENDMENTS TO MSRB BOOKS AND RECORDS RULES

Draft Rule G-8(g)(iii) would require primary distributors to maintain the information described above and detailed in draft Rule G-45 below. 

Draft Rule G-9(a)(xii) would require primary distributors to preserve the records maintained pursuant to G-8(g)(iii) for a period of not less than six years.

August 6, 2012

* * * * *

TEXT OF DRAFT NEW RULE G-45

Rule G-45: Reporting of Information on Municipal Fund Securities

(a) Form G-45 Reporting Requirements.  Each underwriter of a primary offering of municipal fund securities that are not interests in local government investment pools shall report to the MSRB the information relating to such offering required by Form G-45 by no later than the last day of the month following the end of each calendar quarter and in the manner prescribed in the Form G-45 procedures below and as set forth in the Form G-45 Manual. 

(b) Form G-45 Reporting Procedures. 

(i) All submissions of information required under this rule shall be made by means of Form G-45 submitted in a designated electronic format to the MSRB in such manner, and including such items of information, as specified herein, in Form G-45 and in the Form G-45 Manual.

(ii) Form G-45 shall be submitted by the underwriter or by any submission agent designated by the underwriter pursuant to the procedures set forth in the Form G-45 Manual.  The failure of a submission agent designated by the underwriter to comply with any requirement of this rule shall be considered a failure by such underwriter to so comply.

(c) Form G-45 Manual.  The Form G-45 Manual is comprised of the specifications for reporting of information required under this rule, the user guide for submitting Form G-45, testing procedures, and other information relevant to reporting under this rule.  The Form G-45 Manual is located at www.msrb.org and may be updated from time to time with additional guidance or revisions to existing documents.

(d) Definitions.

(i) The term “asset class” shall mean a group of securities that have the same risk and return characteristics and, therefore, tend to react similarly in different market conditions.

(ii) The term “benchmark” shall mean an established index or unmanaged portfolio comprised of established indexes.

(iii) The term “contributions” shall mean all deposits into the plan, strategy or portfolio, whether by existing account owners or new account owners, but shall not include withdrawal of funds from one strategy or portfolio and deposit of the same funds into another strategy or portfolio, such as where an account owner selects a different investment option or funds are moved from one age-band to another as beneficiaries approach college age.

(iv) The term “designated electronic format” shall mean the format specified in the Form G-45 Manual.

(v) The term “distribution” shall mean the withdrawal of funds from a plan, strategy or portfolio, but shall not include withdrawal of funds from one strategy or portfolio and deposit of the same funds into another strategy or portfolio, such as where an account owner selects a different investment option or funds are moved from one age-band to another as beneficiaries approach college age.

(vi) The term “manner of distribution” shall mean the manner by which municipal fund securities are sold to the public, such as through a broker, dealer or municipal securities dealer that has a selling agreement with a primary distributor (commonly known as “advisor-sold”) or through a website or toll-free telephone number (commonly known as “direct-sold”).

(vii) The term “performance” shall mean total return, net of fees, expressed as a percentage.

(viii) The term “portfolio” shall mean the most basic legal entity into which account owner funds are deposited, such as a registered investment company.

(ix) The term “program manager” shall mean an entity that enters into a contract directly with the trustee of the plan to provide, directly or indirectly through service providers, investment advisory and management services, administration and accounting functions, and marketing and other services related to the day-to-day operation of the plan.

(x) The term “primary offering” shall mean an offering defined in Securities Exchange Act Rule 15c2-12(f)(7).

(xi) The term “strategy” shall mean a combination of more than one portfolio through which funds of account owners are allocated to achieve a particular investment outcome.

(xii) The term “underwriter” shall mean a broker, dealer or municipal securities dealer that is an underwriter as defined in Securities Exchange Act Rule 15c2-12(f)(8), including but not limited to a broker, dealer or municipal securities dealer that acts as a primary distributor of municipal fund securities that are not local government investment pools.

* * * * *

TEXT OF DRAFT AMENDMENTS TO RULES G-8 AND G-9 [6]

Rule G-8: Books and Records to be Made by Brokers, Dealers and Municipal Securities Dealers

(a) – (f) No change.

(g) Transactions in Municipal Fund Securities.

(i) - (ii) No change.

(iii) Underwriters of Municipal Fund Securities That Are Not Local Government Investment Pools.  An underwriter (as defined in Rule G-45(e)(xii)) shall maintain the information required to be reported on Form G-45.

* * * * *

Rule G-9: Preservation of Records

(a) Records to be Preserved for Six Years. Every broker, dealer and municipal securities dealer shall preserve the following records for a period of not less than six years:

(i) - (xi) No change.[7]

(xiv) the records required to be maintained pursuant to Rule G-8(g)(iii).

* * * * *

Form G-45

Each underwriter of a primary offering of municipal fund securities that are not interests in local government investment pools shall report to the Board the following information relating to such offering:

(i) Plan Descriptive Information:

(A) Name of State;

(B) Name of Plan;

(C) Name of Primary Distributor and contact information, including primary contact name, address, phone number, and email address;

(D) Name of Program Manager and contact information, including address and phone number;

(E) Plan website address, if any; and

(F) Manner of distribution.

(ii) Aggregate plan information:

(A) Total assets, as of the end of each quarter;

(B) Total contributions for the most recent quarter, and the percentage of those contributions derived from automatic contributions;

(C) Total distributions for the most recent quarter; and

(D) Fee and expense structure for fees and expenses directly or indirectly paid by account owners, as of the end of each quarter.

(iii) Information regarding each investment strategy:

(A) Name and type of strategy;

(B) Inception date of strategy;

(C) Total assets in each strategy as of the end of the most recent quarter;

(D) Asset classes in strategy;

(E) Asset class allocation as of the end of the most recent quarter;

(F) Name of each portfolio in each strategy and percentage allocation of each portfolio in each strategy;

(G) Performance for the most recent quarter;

(H) Name of benchmark, if any;

(I) Benchmark performance for the most recent quarter;

(J) Total contributions for the most recent quarter; and

(K) Total distributions for the most recent quarter.

(iv) Information regarding each individual portfolio:

(A) Name and type of portfolio;

(B) Inception date of portfolio;

(C) Total assets in each portfolio as of the end of the most recent quarter;

(D) Asset classes in portfolio;

(E) Asset class allocation as of the end of the most recent quarter;

(F) Performance for the most recent quarter;

(G) Name of benchmark, if any;

(H) Benchmark performance for the most recent quarter;

(I) Total contributions for the most recent quarter; and

(J) Total distributions for the most recent quarter. 

 

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