Notice of Filling of Amendment to Rule G-8, on Books and Records, Relating to Auction Rate Securities and Variable Rate Demand Obligations

On April 28, 2009, the Municipal Securities Rulemaking Board (MSRB) filed with the Securities and Exchange Commission (SEC), for immediate effectiveness, a proposed rule change to amend Rule G-8, books and records.[1]  The proposed rule change would provide organizations responsible for inspecting and enforcing MSRB rules with information that would assist in the enforcement of compliance with Rule G-34(c), on variable rate security market information, by requiring brokers, dealers and municipal securities dealers (collectively “dealers”) to maintain certain records relating to municipal Auction Rate Securities (ARS) and Variable Rate Demand Obligations (VRDO).  The MSRB has set an effective date for the proposed rule change of June 1, 2009. 

SUMMARY OF AMENDMENT

The MSRB operates a facility for the collection and public dissemination of information about securities bearing interest at short-term rates (the Short-term Obligation Rate Transparency System, or SHORT System).  MSRB Rule G-34(c) requires dealers to report, or ensure the reporting of, interest rate and descriptive information to the SHORT System about ARS and VRDO following an ARS auction or VRDO interest rate reset.

The proposed rule change would require those dealers for which Rule G-34(c) applies to retain for a period of three years records that would show that the requirement in Rule G-34 to submit information to the SHORT System applies to the dealer and that the dealer has submitted accurate information to the SHORT System.  For ARS, dealers would be required to retain a record of all of the ARS for which the dealer acts as a Program Dealer as defined in Rule G-34(c)(i)(A), a record of all information submitted to and received from an Auction Agent as defined in Rule G-34(c)(i) with respect to an auction, and all information required to be submitted to the SHORT System.  For VRDO, dealers would be required to retain a record of all of the VRDO for which the dealer acts as a Remarketing Agent as defined in Rule G-34(c)(ii), and all information required to be submitted to the SHORT System.  These records would provide organizations responsible for inspecting and enforcing MSRB rules with information that would assist in the enforcement of compliance with MSRB Rule G-34(c).

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Questions about this notice may be directed to Justin R. Pica, Director, Uniform Practice Policy, at 703-797-6716.

April 28, 2009

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TEXT OF AMENDMENT[2]

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

(a)  Description of Books and Records Required to be Made.  Except as otherwise specifically indicated in this rule, every broker, dealer and municipal securities dealer shall make and keep current the following books and records, to the extent applicable to the business of such broker, dealer or municipal securities dealer:

(i) through (xxi)  No change.

(xxii)  Records Concerning Compliance with Rule G-34(c). 

(A) A broker, dealer or municipal securities dealer that acts as a Program Dealer, as defined in Rule G-34(c)(i)(A), for an Auction Rate Security shall maintain:

(1) a record of the name of and CUSIP number or numbers for all such Auction Rate Securities for which the broker, dealer or municipal securities dealer acts as a Program Dealer;

(2) a record of all information submitted to and received from an Auction Agent as defined in Rule G-34(c)(i) with respect to an auction; and

(3) all information required to be submitted to the Board by the broker, dealer or municipal securities dealer under Rule G-34(c).

(B)  A broker, dealer or municipal securities dealer that acts as a Remarketing Agent, as defined in Rule G-34(c)(ii), for a Variable Rate Demand Obligation shall maintain:

(1) a record of the name of and CUSIP number or numbers for all such Variable Rate Demand Obligations for which the broker, dealer or municipal securities dealer acts as a Remarketing Agent; and

(2) all information required to be submitted to the Board by the broker, dealer or municipal securities dealer under Rule G-34(c).

(xxiii)  Records Concerning Compliance with Rule G-34(a)(ii)(C).  A broker, dealer or municipal securities dealer that acts as an underwriter in a primary offering of municipal securities subject to Rule G-34(a)(ii)(C)(1) shall maintain:

(A)  through (C)  No change.

(b) through (g) No change.