NOTICE CONCERNING DRAFT AMENDMENT TO RULE G-32

Attention! Attention!

NOTICE CONCERNING DRAFT AMENDMENT TO RULE G-32

BACKGROUND

In September 1996, the Board published a notice requesting comment on a draft amendment to rule G-32, on disclosures in connection with new issues. The draft amendment would have moved up the time that a customer receives a final official statement in primary offerings subject to Securities and Exchange Commission ("Commission" or "SEC") Rule 15c2-12 from delivery by settlement to a requirement that the dealer send the final official statement no later than the time the final money confirmation is sent to the customer, or delivery of the final official statement by settlement, whichever is earlier. It also would have reorganized the rule to address separately those offerings that are subject to Rule 15c2-12 and those that are not. For all primary offerings, the draft amendment would have added a requirement for managing underwriters and selling dealers to send official statements to purchasing dealers 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. In addition, the draft amendment would have adopted certain definitions from SEC Rule 15c2-12.

As explained in the notice requesting comments, the purpose of the draft amendment to rule G-32 was to make technical adjustments to conform the official statement delivery requirements in the rule to the timing requirements of SEC Rule 15c2-12. Rule 15c2-12 requires, among other things, that dealers contract to receive sufficient copies of the final official statement within seven business days after any final agreement to purchase, offer, or sell the municipal securities and in sufficient time to accompany any confirmation that requests payment from any customer.[1] The draft amendment to rule G-32 was based, in part, on the requirement in Rule 15c2-12 for the underwriter to contract to receive the final official statement no later than the time final money confirmations are sent to customers. It appeared to the Board to be an appropriate time to conform rule G-32 and Rule 15c2-12, since Rule 15c2-12 had been in effect for nearly eight years, and dealers have had an opportunity to revise their underwriting procedures in accordance with the timing requirements of Rule 15c2-12.

The Board received letters from eight commentators, all of whom opposed the major element of the draft amendment to move up the time of delivery of final official statements. Many of the commentators noted that there are often delays in obtaining the final official statement from the issuer. Many of the commentators also stated that they have not revised their procedures to send the final official statement with the final money confirmation. These commentators stated that compliance with the draft amendment would require them to delay sending final money confirmations. Some dealers also noted that the need to send interim confirmations (without final monies) followed by final money confirmations would impose significant additional costs.

DISCUSSION

Based on the information provided by the commentators, the Board has decided to withdraw the draft amendment at this time. The Board is taking this opportunity to emphasize again the importance of timely preparation and dissemination of official statements and the rules that relate to this subject. Dealers should be particularly aware of SEC Rule 15c2-12. As mentioned above, this Rule requires the underwriter to obtain a contractual obligation from the issuer to ensure that quantities of final official statements sufficient to meet the requirements of Board rules will be available no later than seven business days after the date of sale of the issue and in time for sending the final official statements with final money confirmations. As also noted above, Board rule G-32 currently requires that official statements be delivered to new issue customers no later than settlement date with the customer. In addition, Board rule G-36 requires that, for issues subject to Rule 15c2-12, the underwriter send copies of the final official statement to the Board within one business day after receipt of the final official statement from the issuer, but no later than ten business days after the final agreement to purchase, offer, or sell the municipal securities.

In connection with its consideration of the draft amendment to rule G-32 and recent enforcement activity regarding rule G-36, it has come to the Board's attention that compliance problems continue to exist with respect to these rules. In a notice published in September 1996, the Board noted that some dealers are not sending official statements to the Board in a timely manner.[2] At that time, the Board reminded dealers of their obligations under rule G-36 and of the necessity to provide official statements within the time frames set forth in the rule so that official statements will be accessible to market participants as soon as possible after the date of sale of each issue. In addition, the Board has been informed by several institutional investors that their experience with receiving official statements by settlement is very unsatisfactory. These investors stated that they typically receive official statements by settlement less than half the time. For the official statements that are late, it may take days, weeks, or even months to receive them.

The Board continues to emphasize the need for dealers to examine their procedures with respect to Rule 15c2-12, rule G-32 and rule G-36 and to improve the timeliness with which official statements are prepared and made available to investors. Although the Board has withdrawn the draft amendment to rule G-32 at this time, the Board will continue to monitor this area and may respond with additional rulemaking if necessary to ensure timely dissemination of official statements.

March 10, 1997

ENDNOTES

[1] The Commission has stated that the "final agreement to purchase, offer, or sell the municipal securities" is the date the bond purchase agreement is signed. Sec. Exch. Act Rel. No. 26985 (June 28, 1989); 43 S.E.C. Docket 1880, 1889-90. For competitive issues the "final agreement" is the date of award.

[2] See "Reminder to Dealers Regarding Delivery of Official Statements to the Board: Rule G-36," MSRB Reports, Vol. 16, No. 3 (Sept. 1996) at 37.