Volume 17, Number 2 -- JUNE 1997

        Comments Due By: September 5, 1997

Board Review of Underwriting Process

Comments on the draft amendments should be submitted no later than September 5, 1997, and may be directed to Ernesto A. Lanza, Assistant General Counsel, or Ronald W. Smith, Legal Associate. Written comments will be available for public inspection.

The Board's statutory mandate is to protect investors and the public interest with respect to municipal securities transactions effected by brokers, dealers, and municipal securities dealers. In 1988, the Board issued a list of priorities that it believed were necessary to achieve these goals. The priorities included providing market participants (investors, issuers and dealers) with more information about the characteristics of securities, the issuers of securities, and the value of securities; increasing the awareness of issuer agents (e.g., financial advisors, bond counsel, paying agents, transfer agents, etc.) to their responsibilities; and raising the ethical standards of the industry. The Board has taken a number of actions, discussed below, that seek to ensure that these goals and priorities are met in the municipal securities underwriting process.

The municipal securities underwriting process has undergone dramatic changes since the Board adopted its list of priorities. The Securities and Exchange Commission, in cooperation with the Board, the dealer community and issuer groups, has developed rules and mechanisms to assist investors in obtaining information about municipal securities and issuers. Underwriting participants are now more focused on their obligations under the federal securities laws in regard to official statements and continuing disclosure, as well as potential conflicts of interest. At a time when influence arising from political contributions is the subject of national debate, Board rules in regard to political contributions and consultants have sought to eliminate "pay-to-play" practices in the awarding of municipal securities business. Issuers have taken a greater role in the underwriting process and are now more likely to retain, in addition to bond counsel, financial advisors to assist them in the process. So, too, many issuers have instituted policies regarding how underwriters place their bonds and allocate

profits from these underwritings. The municipal securities market has incorporated these changes and, very successfully, continues to be a cost effective way for states and local governments to finance important projects and services.

The Board has completed its current review of the underwriting process and is proposing a number of additional steps to strengthen further the integrity of the process and to protect investors. This notice describes the changes that have occurred in the underwriting process and proposes for comment rule amendments in three areas: (1) primary market disclosure practices, (2) disclosure standards of financial advisors and underwriters, and (3) syndicate practices.

While Board rules apply only to dealers, many of the issues discussed also involve issuers and their agents. Thus, the Board seeks through this notice to bring these issues to the attention of all municipal market participants and to open a dialogue by which dealers, issuers and their agents, and investors can become aware of issues of concern and seek to change practices that may impede efforts to ensure an efficient underwriting process and investor protection. The Board recognizes that often new regulations entail costs to the dealer community but believes that dealers, as well as all market participants, benefit from reasonable standards of conduct. Greater confidence in the underwriting process by issuers and investors will help ensure the market's continued vitality.

PRIMARY MARKET DISCLOSURE PRACTICES

The Board has long sought to improve both new issue and secondary market disclosure and to ensure timely access to such information by municipal securities investors. Board rule G-32, first adopted in the 1970s, requires that a dealer deliver a final official statement to a new issue customer by settlement.

In the mid-1980s, the Board discovered that dealers and other market participants often were unable to obtain reliable and complete information about the features of municipal securities trading in the secondary market because of a lack of ready access to official statements. This led to correspondence with the SEC in 1987 in which the Board suggested that the SEC adopt a rule to require issuers to produce official statements and submit them to a repository that would make the documents available to the market. The Board also recommended that such a rule require document submission to occur within a specified number of days after the date of sale to ensure that official statements are produced in a timely manner.1 In June 1989, the SEC adopted Exchange Act Rule 15c2-12, which, among other things, requires underwriters to contract with issuers to receive official statements in connection with most primary offerings of municipal securities within seven business days after any final agreement to purchase, offer or sell the municipal securities.

The Board immediately began planning ways to improve timely access to the official statements required to be produced by SEC Rule 15c2-12. This was accomplished by: (1) the adoption of rule G-36, which requires underwriters to submit final official statements, as well as advance refunding documents, to the Board; and (2) the creation of the Municipal Securities Information Library (R) (or MSIL (R)) system by which disclosure information is collected and disseminated electronically to the market.[2] The MSIL system includes two subsystems one for primary market information (i.e., final official statements and advance refunding documents) and one for secondary market information (i.e., continuing disclosure documents). Further amendments to SEC Rule 15c2-12 in 1994 helped to ensure that specific continuing disclosure information was provided by issuers and disseminated to the market through, among other means, the Board's MSIL system.

In the course of the Board's review of the underwriting process, concerns have arisen about the practices of certain issuers and their agents. Some dealers complain that issuers and their agents (e.g., counsel and financial advisors) do not provide sufficient time for underwriters to perform the due diligence inquiries that are the basis on which underwriters fulfill their responsibilities under the federal securities laws. SEC Rule 15c2-12(b)(1) requires that, prior to bidding for, purchasing or offering municipal securities, underwriters must obtain and review an official statement that the issuer deems final. The SEC stated in its Interpretation on Municipal Underwriter Responsibilities[3] that "[t]he underwriter stands between the issuer and the public purchasers, assisting the issuer in pricing, and, at times, in structuring the financing and preparing disclosure documents. Most importantly, its role is to place the offered securities with public investors. By participating in an offering, an underwriter makes an implied recommendation about the securities." Thus, an underwriter must have "a reasonable basis for belief in the truthfulness and completeness of the key representations" made in the official statement. In addition, underwriters must have sufficient information about the issuer and the securities to recommend and sell those securities to customers to comply with Board customer protection rules rule G-17 on fair dealing, rule G-19 on suitability, and rule G-30 on pricing. Underwriters will be better able to comply with these requirements if issuers and their agents provide sufficient information in a timely manner. The Board urges all parties to the underwriting process to cooperate in providing accurate, complete and timely information to the investing public.

In addition, the Board is concerned with the practice of certain issuers selecting underwriters' counsel on an issue. The underwriters' counsel customarily plays an important role in assisting underwriters in complying with the federal securities laws and, in particular, in providing an independent review of the issuer's disclosure.[4] The Board believes that, because underwriters ultimately are responsible for such review, they must be free to select counsel in whom they have confidence and who are free of the possibility of any conflicting allegiances to other parties involved in the underwriting process. When an issuer or its agent selects or influences the selection of a particular firm or individual to serve as underwriters' counsel, this may call into question the ability of such counsel to carry out its responsibilities with the necessary degree of independence. The Board believes that issuer involvement in the selection of underwriters' counsel could be a matter requiring disclosure to investors. The Board welcomes comment on this practice and the need for and appropriateness of Board rulemaking in this area.

The Board also has learned that, although issuers contract, pursuant to SEC Rule 15c2-12, to provide final official statements to underwriters within seven business days after the date of the final agreement to purchase, offer or sell the municipal securities, in some instances issuers do not meet that time frame. The failure by issuers to deliver official statements to underwriters in a timely manner appears to be a problem in both negotiated and competitively sold issues. Of course, as in any contract, underwriters could bring a contract enforcement action to ensure compliance. Underwriters up to now have hesitated to take this legal action because of the ramifications to their continuing relationships with such issuers. However, underwriters are required by rule G-36 to send these official statements to the Board no later than three business days after the contractually-mandated time frame has expired. Many underwriters are now facing charges of violating rule G-36. To avoid violations, underwriters clearly must focus more attention on working with issuers and their agents, well before the deadline for receipt of final official statements, to assist them in meeting their contractual obligation. Underwriters also must revise their compliance procedures to ensure that they take adequate steps in every new issue to obtain final official statements within the appropriate time frame. At the same time, the Board reminds issuers and their agents of the importance of meeting their contractual commitments regarding the timing of preparation and delivery of final official statements. The Board seeks comment from all interested parties regarding the structure of the contractual obligation to deliver official statements, their experience with compliance with such contractual commitments and the types of contractual remedies for noncompliance that may be appropriate.

If issuers and their agents are not meeting the current seven business day requirement under SEC Rule 15c2-12, it is possible that final official statements also are not being prepared in time to deliver to customers by settlement as required under rule G-32. In conjunction with their review of rule G-36 compliance programs, dealers are urged to undertake a close review of their G-32 compliance procedures to ensure that final official statements are being provided to investors in accordance with that rule.

To assist the agencies charged with enforcing rules G-36 and G-32, the Board is proposing revisions to Forms G-36(OS) and G-36(ARD) to include information regarding the dates underwriters receive final official statements and advance refunding documents from issuers, the date of delivery of the issue to the underwriters, if known, and the date such documents are sent to the Board. In addition, Form G-36(OS) would be revised to include a statement whether the issue is an advance refunding. Underwriters already are required to record most of this information pursuant to rule G-8(a)(xv). The Board also is proposing draft amendments to rule G-8(a)(xv) to require underwriters to record the date of delivery of the issue to the underwriters and to retain a copy of the receipt of sending the required forms and documents to the Board, as well as a copy of the forms and documents sent.

The Board plans to share this Form G-36 information with the SEC and the other enforcement agencies so they can more readily identify issues for which there were delays in delivery of final official statements or advance refunding documents. In those instances, further review for compliance with rules G-36 and G-32 may result. This information, together with the additional recordkeeping requirements, would assist the SEC and other enforcement agencies in their compliance reviews. Forms G-36(OS) and G-36(ARD), as revised, will continue to be available to the general public at the Board's Public Access Facility. The Board welcomes comment on the draft amendments, as well as any other issues arising from the activities of underwriters, issuers and their agents in the preparation and dissemination of official statements and dealer compliance with current Board rules G-36 and G-32.

DISCLOSURE STANDARDS OF FINANCIAL ADVISORS AND UNDERWRITERS

Over the last few years, the SEC has brought a number of actions charging dealers with violations of the federal securities laws' antifraud provisions, as well as Board rule G-17, on fair dealing, for failure to disclose to issuers and investors payments to financial advisors from underwriters and payments to financial advisors and underwriters from third parties that sold or brokered investments to issuers.[5] While the Board believes rule G-17 adequately deals with such situations, it has determined to propose for comment amendments to rules G-23, on activities of financial advisors, and G-32, on disclosures in connection with new issues, to ensure that issuers are aware in all cases of such payments in connection with their municipal securities offerings. The Board believes that it is important for financial advisors and underwriters to meet the highest ethical standards in their dealings with issuers and, thus, the Board is proposing specific disclosure standards in this and other areas.

Financial Advisors

Over the last few years, more issuers are hiring financial advisors to assist them in issuing debt. Financial advisors may be dealers that are subject to the jurisdiction of the Board or non-dealers that are not so subject. Financial advisors are taking a greater role in selecting underwriters, structuring the issue, preparing official statements and assisting issuers in transactions associated with the underwriting, such as the reinvestment of bond proceeds and swaps. Because of the position a financial advisor holds in assisting the issuer in bringing a new issue to market, the Board believes that a financial advisor has a duty to disclose to the issuer whether it has received or has an understanding to receive payments from the underwriter or any third party in connection with the issue of municipal securities on which it is advising. Once such disclosure is made, the issuer and other underwriting participants can decide if disclosure to investors also is warranted.

The Board is proposing for comment draft amendments to rule G-23, on activities of financial advisors, which would require a dealer that acts as a financial advisor to include, either in its written financial advisory agreement with an issuer or in a separate written statement to the issuer, whether the financial advisor has received or has an understanding to receive any payments from any person in connection with the issue of municipal securities on which it is advising and the source, basis and estimated amount of any such payment. This would include any payments received by the financial advisor acting as agent for the issuer in any transaction associated with the underwriting, such as the reinvestment of bond proceeds or swaps. Payments received by the financial advisor acting as a principal in a transaction with the issuer associated with its financial advisory services would be exempt from this disclosure requirement. The Board believes that, if the issuer is dealing with the financial advisor as a principal in an associated transaction, the issuer should expect the financial advisor to receive compensation and should ask questions if it wishes to obtain additional information about that compensation. The draft amendments, however, would require a financial advisor to state in its agreement or in a separate written statement to the issuer whether it is acting as principal in any transaction associated with such financial advisory services.

To ensure that the issuer understands what services are being provided by the financial advisor as financial advisor or as principal in associated transactions the draft amendments would require that a financial advisor include in its written financial advisory agreement with the issuer a description of services expected to be rendered by the dealer as financial advisor, as well as the basis of compensation for such services. Finally, the draft amendments would require the financial advisor to undertake to advise the issuer promptly in writing of any change in scope of services, payments received or associated principal transactions engaged in during the term of its financial advisory contract.

The Board has learned that, in certain instances, financial advisors also act as remarketing agents for issues on which they advised. The Board believes that this may present 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. Thus, the Board also is proposing for comment a draft amendment to rule G-23 that would require 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.[6]

The draft amendments are intended to clarify the nature of the relationship between issuers and financial advisors and make issuers aware of payments made to financial advisors from third parties in connection with an underwriting. Similar payments can occur when issuers employ independent (or non-dealer) financial advisors. While Board rules only apply to financial advisors that are dealers, the Board believes issuers would benefit by requiring similar disclosure by independent financial advisors. Independent financial advisors also may wish to consider adopting such requirements as voluntary standards. The Board plans to discuss this issue with issuer and independent financial advisor groups and hopes these groups will agree to support similar disclosure requirements.

Underwriters

Underwriters perform a different function than financial advisors. Underwriters seek to negotiate the purchase of municipal securities from an issuer with a view toward sale of those securities to investors. However, in the course of seeking to become an underwriter (e.g., in response to Requests For Proposals) and during the course of acting as underwriters, dealers often provide advice to issuers regarding transactions associated with the underwriting. When underwriters provide advice on associated transactions, issuers may believe that the underwriters' only compensation is the spread on the new issue. If this is not the case, and underwriters receive payments from third parties in connection with the associated transactions, the Board believes that the underwriters have a duty to disclose these payments to the issuer. Thus, the Board is proposing amendments to rule G-32, on disclosure in connection with new issues, that would require disclosure to the issuer whether the underwriter has received or has an understanding to receive payments from any person in connection with the negotiated issue of municipal securities it is underwriting.[7]This would include any payments received by the underwriter acting as agent for the issuer in any transaction associated with the underwriting. This disclosure duty would last until delivery of the issue by the issuer to the underwriter (i.e., settlement). In addition, to help reduce the potential for conflicts of interest arising from financial advisors or other agents of em the issuer receiving payments from underwriters, the draft amendments also would require an underwriter to disclose, in writing, to the issuer any payments it has made or has an understanding to make to any person in connection with the issue of municipal securities it is underwriting.

Any payments made to or received by syndicate members or others from the underwriting spread would be exempt from disclosure. This would include, for example, payments to syndicate members and other dealers for sale of the new issue securities. The draft amendments also would not require disclosure of any amounts received by the underwriter acting as principal on any other transaction with the issuer associated with the underwriting (such as the reinvestment of bond proceeds or swaps). Just as discussed above in the case of a financial advisor, if an issuer is dealing with an underwriter as a principal in a transaction associated with the underwriting, the issuer should expect the underwriter to receive compensation and should ask questions if it wishes to obtain additional information about that compensation. To ensure that an issuer understands when an underwriter is acting as a principal on such an associated transaction, the draft amendments would require that a dealer disclose this fact in writing to the issuer.[8]

The Board believes that the draft amendments would go a long way toward ensuring that participants in an underwriting issuers, financial advisors, underwriters and investors are confident that all payments made in connection with the offering are disclosed. The Board welcomes comment on the draft amendments and any other disclosure standard of financial advisors and underwriters in the underwriting process.

SYNDICATE PRACTICES

The biggest change in syndicate practices during the last 10 years has been the greater role of issuers in determining how compensation from the syndicate should be allocated among syndicate members. Because of certain policy goals and concerns about the cost of new issues, issuers are increasingly directing many matters that previously were solely determined by the managing underwriter. Traditionally, underwriter compensation in new issues was based on four elements of the underwriting spread management fee, take-down, expenses and underwriter risk. Currently, compensation for underwriter risk is not a significant element in negotiated underwritings and, in many transactions, there is little or no management fee. Thus, most profits come from the sale of the securities to investors through the take-down portion of the spread. Many issuers now review syndicate orders and require certain designation policies and allocations. When they do so, issuers are determining which dealers benefit from the transaction. Some investors, particularly large institutional investors, have complained about certain designation policies of issuers.

In April 1996, the Board formed an Ad Hoc Committee on Underwriting Practices. The Committee, composed of Board and other industry members, sent out a survey regarding the process for underwriting municipal securities to over 700 issuers, dealers, financial advisors and investors. The survey suggested a number of topics for comment, including designation policies, allocation process and spreads. The Committee reviewed the responses and concluded last September that there were no major areas of concern that needed immediate attention, but that five topics merited further Board study. These topics are: disclosure of allocations, use of soft dollars, syndicate expenses, syndicate pricing restrictions, and the role of independent financial advisors. The Board is still reviewing certain of these issues but has determined to propose for comment draft amendments to rule G-11, on syndicate practices, rule G-12, on uniform practice, and rule G-8, on recordkeeping, in three areas: (1) recordkeeping and disclosure of issuer syndicate requirements; (2) timing and disclosure of allocations and designations; and (3) timing of settlement of syndicate accounts.

Issuer requirements involving syndicate formation, order review, designation policies and bond allocations have become much more prevalent in the municipal securities market. Such requirements are significant because they help to determine which dealers, and ultimately which investors, obtain the bonds. For many larger issuers, these requirements are formalized in published guidelines. For some other issuers, however, these requirements tend to be more informal, arising, for example, through discussions with issuers or their agents, i.e., financial advisors. Because issuer syndicate requirements can affect the functioning of the syndicate, and at times the final cost to the issuer of the new issue, records of such requirements should bemaintained so that any problems or concerns regarding the functioning of the syndicate arising from these requirements can be identified and addressed. Thus, the Board is proposing for comment draft amendments to rule G-8 to require the managing underwriter to maintain a record of all such issuer syndicate requirements. If the requirements are in a published guideline, such guideline should be maintained by the dealer and supplemented by a statement of any additional requirements that arise prior to settlement. If the requirements are not in published form, the managing underwriter must create a written detailed statement of such requirements and maintain such statement in its records.

Generally, through the Agreement Among Underwriters,[9] pricing wires and other contact with the managing underwriters, syndicate members are aware of issuer syndicate requirements. To ensure that this is the case, however, the Board is proposing for comment draft amendments to rule G-11(f) that would require the managing underwriter to provide a copy of the published guidelines or underwriter prepared statement of issuer syndicate requirements to syndicate members prior to the first offer of any securities by the syndicate. The draft amendments also would require syndicate members to furnish this summary promptly to others, upon request. This will help to ensure that non-syndicate dealers and investors are aware of any relevant syndicate requirements and can frame their orders accordingly. In addition, to ensure the accuracy of any statement prepared by the managing underwriter, the managing underwriter would also be required to provide the issuer with a copy of any such statement for its review.

The Board has learned that sometimes allocations of bonds are delayed because of issuer or financial advisor review of orders. Investors complain that they have difficulty finalizing their portfolio positions when their orders remain unfilled for as long as two or more days after the end of the order period. During volatile market conditions, delays in allocations hurt the prospect for a successful underwriting. Delays in allocations seem to be a growing problem in the municipal securities market and are of great concern to the Board. The Board urges issuers and their financial advisors to review orders and proposed allocations as soon as possible so as not to delay allocation information to investors. To expedite this process, the Board is proposing for comment a draft amendment to rule G-11(g) that would require senior syndicate managers to complete the allocation of securities within 24 hours of the sending of the commitment wire.

Rule G-11(g) currently requires the senior syndicate manager to disclose to the syndicate, within two business days of the date of sale, a summary in writing by priority category of all allocations accorded priority over syndicate members' take-down orders. As noted above, the Board's Committee on Underwriting Practices recommended that the Board review disclosure of allocations. The Board believes that syndicate members should have information about allocations and designations to members. Thus, the Board is proposing for comment draft amendments to rule G-11(g) to require disclosure to syndicate members of all designations to members within five business days following the date of sale. In addition, draft amendments to rule G-11(h) would require disclosure to syndicate members, by final settlement of the syndicate account, a summary statement, by maturity, of all bonds allocated to each member.

The Board is aware that a small number of issuers are setting aside, or holding back, a portion of the take-down to direct to syndicate members at their discretion. Because this issuer "set-aside" is part of the take-down, the Board believes it should be disclosed to syndicate members in the same manner as customer designations. Accordingly, the Board is proposing for comment a draft amendment to rule G-11(g) that would require the senior manager to disclose to members of the syndicate, in writing, within 10 business days following the date of sale, the amount of any portion of the take-down that is directed to each member of the syndicate by the issuer.

The Board also is proposing for comment draft amendments to rule G-12(k) to move the deadline for payment of designations from 30 business days following delivery of the securities to the customer to 30 calendar days after the issuer delivers the securities to the syndicate. In addition, to coordinate the timing for final settlement of syndicate accounts with the payment of designations, the Board is proposing for comment a draft amendment to rule G-12(j) that would move final settlement of syndicate accounts from 60 calendar days following the date all securities have been delivered by the syndicate to syndicate members to 30 calendar days after the issuer delivers the securities to the syndicate. Coordinating the time for payment of designations and final settlement of the syndicate account should provide for more efficient operation of syndicate accounts.

The Board requests comment on the draft amendments from underwriters, issuers, financial advisors and investors. It seeks, through these draft amendments, to ensure that issuer requirements regarding the syndicate process are formalized and understood by all the parties. The Board also believes that investors will benefit from quicker allocations of new issues and syndicate members should have complete allocation and designation information.

May 20, 1997

(a) - (b) No change.

(c) Written Agreement. Basis of Compensation. Each financial advisory relationship shall be evidenced by a written agreement writing entered into prior to, upon or promptly after the inception of the financial advisory relationship (or promptly after the creation or selection of the issuer if the issuer does not exist or has not been determined at the time the relationship commences). Such written agreement writing shall set forth the basis of compensation for the financial advisory services to be rendered, including provisions relating to the deposit of funds with or the utilization of fiduciary or agency services offered by such broker, dealer or municipal securities dealer or by a person controlling, controlled by, or under common control with such broker, dealer or municipal securities dealer in connection with the rendering of such financial advisory services shall include the following:

(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

(i) the financial advisory relationship with respect to such issue has been terminated in writing and at or after such termination the issuer has expressly consented in writing to such participation as remarketing agent;

(ii) the broker, dealer, or municipal securities dealer has expressly disclosed 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 remarketing agent for the securities with respect to which the financial advisory relationship exists and the issuer has expressly acknowledged in writing to the broker, dealer, or municipal securities dealer receipt of such disclosure; and

(iii) the broker, dealer, or municipal securities dealer has expressly disclosed in writing to the issuer at or before such termination the source and anticipated amount of all remuneration to the broker, dealer, or municipal securities dealer with respect to such issue in addition to the compensation referred to in section (c) of this rule, and the issuer has expressly acknowledged 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.

(a) Disclosure Requirements to Customers. No change.

(b) No change.

(c) Disclosure Requirements to Issuers. Prior to the delivery of municipal securities by an issuer to a broker, dealer or municipal securities dealer acting as underwriter in a negotiated primary offering of such municipal securities, each broker, dealer or municipal securities dealer shall disclose to the issuer, in writing:

(i) whether the broker, dealer or municipal securities dealer is acting as a principal in a transaction with the issuer associated with the underwriting of the municipal securities;

(ii) whether the broker, dealer or municipal securities dealer has received or has an understanding to receive payment(s) from any person in connection with the issue of the municipal securities it is underwriting and the source, basis, and estimated amount of any such payment; provided, however, that any payments received by the broker, dealer or municipal securities dealer acting as a principal in a transaction with the issuer associated with such underwriting and any payments received by syndicate members or others from the underwriting spread shall not be required to be disclosed; and

(iii) whether the broker, dealer or municipal securities dealer has made payments or has an understanding to make payments to any person in connection with the issue of municipal securities it is underwriting; provided, however, that payments made to syndicate members or others from the underwriting spread shall not be required to be disclosed.

(c) (d) Definitions of New Issue Municipal Securities and Official Statement. For purposes of this rule, the following terms have the following meanings:

(i) - (iii) No change.

(iv) The term Apayment@ shall have the same meaning as in rule G-37(g)(viii).

(v) The term Aprimary offering@ shall mean an offering defined in Securities Exchange Act Rule 15c2-12(f)(7).

(a) - (e) No change.

(f) Communications Relating to Issuer Syndicate Requirements, Priority Provisions and Order Period. Prior to the first offer of any securities by a syndicate, the senior syndicate manager shall furnish in writing to the other members of the syndicate (i) a written statement of all terms and conditions required by the issuer, (ii) the priority provisions, (iii) (ii) the procedure, if any, by which such priority provisions may be changed, (iv) (iii) if the senior syndicate manager or managers are to be permitted on a case-by-case basis to allocate securities in a manner other than in accordance with the priority provisions, the fact that they are to be permitted to do so, and (v) (iv) if there is to be an order period, whether orders may be confirmed prior to the end of the order period. Any change in the priority provisions shall be promptly furnished in writing by the senior syndicate manager to the other members of the syndicate. Syndicate members shall promptly furnish in writing the information described in this section to others, upon request. If the senior syndicate manager, rather than the issuer, prepares the written statement of all terms and conditions required by the issuer, such statement shall be provided to the issuer.

(ii) within two business days following the date of sale, disclose to the other members of the syndicate, in writing, a summary, by priority category, of all allocations of securities which are accorded priority over members= take-down orders, indicating the aggregate par value, maturity date and price of each maturity so allocated, including any allocation to an order confirmed at a price other than the original list price. The summary shall include allocations of securities to orders submitted through the end of the order period or, if the syndicate does not have an order period, through the first business day following the date of sale; .

(iii) within five business days following the date of sale, disclose to the members of the syndicate, in writing, the amount of any designations received by each member; and (iv) within 10 business days following the date of sale, disclose to the members of the syndicate, in writing, the amount of any portion of the take-down directed to each member by the issuer.

(h) Disclosure of Syndicate Expenses and Other Information. At or before the final settlement of a syndicate account, the senior manager shall furnish to the other members of the syndicate:

(i) a summary statement, by maturity, of all securities allocated to each member of the syndicate;

(a) - (i) No change.

(j) Settlement of Syndicate or Similar Account. Final settlement of a syndicate or similar account formed for the purchase of securities shall be made within 30 calendar days 60 days following the date the issuer delivers the securities to the syndicate all securities have been delivered by the syndicate or account manager to the syndicate or account members.

(k) Any credit designated by a customer in connection with the purchase of securities as due to a member of a syndicate or similar account shall be distributed to such member by the municipal securities broker, dealer or municipal securities dealer handling such order within 30 calendar business days following the date the issuer delivers the securities to the syndicate delivery of the securities to the customer.

(l) No change.

(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) - (vii) No change.

(viii) Records of Syndicate Transactions. With respect to each syndicate or similar account formed for the purchase of municipal securities, records shall be maintained by a managing underwriter designated by the syndicate or account to maintain the books and records of the syndicate or account, showing the description and aggregate par value of the securities, the name and percentage of participation of each member of the syndicate or account, the terms and conditions governing the formation and operation of the syndicate or account (including a separate statement of all terms and conditions required by the issuer) all orders received for the purchase of the securities from the syndicate or account (except bids at other than syndicate price), all allotments of securities and the price at which sold, the date and amount of any good faith deposit made to the issuer, the date of settlement with the issuer, the date of closing of the account, and a reconciliation of profits and expenses of the account.

(ix) - (xiv) No change.

(xv) Records Concerning Delivery of Official Statements, Advance Refunding Documents and Forms G-36(OS) and G-36(ARD) to the Board or its Designee. A broker, dealer or municipal securities dealer that acts as an underwriter in a primary offering of municipal securities subject to rule G-36 (or, in the event a syndicate or similar account has been formed for the purpose of underwriting the issue, the managing underwriter) shall maintain:

(A) a record of: the name, par amount and CUSIP number or numbers for all such primary offerings of municipal securities; and the dates that the documents and written information referred to in rule G-36 are received from the issuer and are sent to the Board or its designee; the date of delivery of the issue to the underwriters; and, for issues subject to Securities Exchange Act Rule 15c2-12 the date of the final agreement to purchase, offer or sell the municipal securities; and

(B) copies of the Forms G-36(OS) and G-36(ARD) and documents submitted to the Board or its designee along with the certified or registered mail receipt or other record of sending such forms and documents to the Board or its designee.

(xvi) - (xix) No change.

(b) - (f) No change.

ENDNOTES

[1] See "Letter to SEC on Information in the Municipal Securities Market," MSRB Reports, Vol. 8, No. 1 (Jan. 1988) at 7-10.

[2] Municipal Securities Information Library and MSIL are registered trademarks of the Board.

[3] Securities Exchange Act Release No. 26100 (Sept. 22, 1988).

[4] In referring to underwriters' counsel throughout this discussion, the Board's primary concern is the role that such counsel traditionally plays in c onnection with the underwriters' responsibility under federal securities laws. The Board believes that an issuer may assign the responsibility for preparing its official statement as it deems appropriate, whether it is to the issuer's own staff, the issuer's financial advisor or disclosure counsel engaged by the issuer. In addition, the underwriters and underwriters' counsel at times agree with the issuer to have underwriters' counsel undertake document production responsibilities: however, the undertaking by underwriters' counsel to produce the official statement for the issuer does not mitigate the responsibilities owed by such counsel to its client, the underwriters.

[5] See In the Matter of First Fidelity Securities Group, Securities Exchange Act Release No. 36694 (Jan. 5, 1996); In the Matter of Lazard F reres & Co. LLC, and Merrill Lynch, Pierce, Fenner & Smith Incorporated, Securities Exchange Act Release No. 36419 (Oct. 26, 1995); Securities and Exchange Commission v. Stifel, Nicolaus & Company Incorporated, Civil Action No. 95-1190-T (W.D. Okla., Aug. 3, 1995); In the Matter of George L. Tuttle, Jr. and Alexander S. Williams, Securities Exchange Act Release No. 35605 (April 14, 1995).

[6] This includes terminating the financial advisory relationship with regard to the issue and making certain disclosures regarding the potential conflict of interest.

[7] The Board does not believe that the same potential for conflicts of interest arise in competitive underwritings.

[8] The draft amendments would not require separate disclosure of the fact that the underwriters are acting as principal in the underwriting of the issue.

[9] The Agreement Among Underwriters is the contract entered into by members of an underwriting syndicate establishing the rights, duties and commitments of each member with respect to the new issue of municipal securities being underwritten.

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