Questions about the proposed amendment may be directed to Ernesto A. Lanza, Associate General Counsel.

On July 17, 1998, the Securities and Exchange Commission (SEC) approved an amendment to rule G-32, on disclosures in connection with new issues, that strengthens the rule's existing requirements regarding dissemination of official statements to dealers purchasing new issue municipal securities during the underwriting period and incorporates a longstanding Board interpretation regarding disclosure to customers of initial offering prices in negotiated underwritings.⁽¹⁾

Prior to the amendment, rule G-32 provided that no dealer shall sell any new issue municipal securities to a customer unless such dealer delivers to the customer no later than the settlement of the transaction, among other things, a copy of the official statement in final form and, in connection with a negotiated sale of new issue municipal securities, information regarding the initial offering price for each maturity in the new issue (the Offering Price Disclosure Provision). The rule also required that managing underwriters and other dealers that sell new issue municipal securities to purchasing dealers furnish copies of the official statement to such purchasing dealers upon request, and dealers acting as financial advisors were also required to ensure that official statements are made available to the underwriters in a timely manner (the Dealer Dissemination Provisions). The amendment to rule G-32 strengthens the Dealer Dissemination Provisions by requiring that official statements be sent to purchasing dealers within one business day of request and makes explicit in the Offering Price Disclosure Provision that the required disclosure to customers of the initial offering price of each maturity includes any maturities that have not been reoffered.

AMENDMENT TO DEALER DISSEMINATION PROVISIONS

All dealers selling new issue municipal securities to customers, not just dealers that participated in the underwriting of the new issue, are required to deliver official statements to their customers by no later than settlement of their transactions. As a result, the Dealer Dissemination Provisions were included in rule G-32 to make official statements for new issues available to all dealers so that they may fulfill their customer delivery obligation under the rule. Because dealers that are not part of the underwriting group have indicated from time to time that they have some difficulty in obtaining official statements from the managing underwriter or other selling dealers on a timely basis, the Board adopted the amendment to the Dealer Dissemination Provisions of rule G-32 to provide a specific time frame and method for delivery of official statements to purchasing dealers.

The amendment retains the existing responsibility of the managing underwriter under the rule to provide, upon request, one copy of the official statement to purchasing dealers, together with the disclosure information required for negotiated offerings, and one additional official statement per $100,000 par value purchased for resale to customers. The managing underwriter also continues to be required to provide purchasing dealers, upon request, with instructions on how to order copies of the official statement from the printer.⁽²⁾ The amendment adds a requirement that the official statement be sent by the managing underwriter to the purchasing dealer no later than the business day after the request or, if the official statement has not been received from the issuer or its agent, the business day after receipt. The managing underwriter is required to send official statements by first class mail or other equally prompt means unless the purchasing dealer arranges some other method of delivery at its own expense. These obligations of the managing underwriter continue to apply with respect to all purchasing dealers, even where the managing underwriter did not sell the securities to the purchasing dealer.

In addition, the amendment retains the existing requirement that every dealer selling a new issue municipal security to another dealer must furnish the official statement to such purchasing dealer upon request. The amendment adds a requirement that the selling dealer send the official statement to the purchasing dealer within the same time frame and by the same means as is required of the managing underwriter.

The Board believes that the amendment to the Dealer Dissemination Provisions will help dealers to comply with their obligation to deliver official statements to their customers by settlement and will more effectively ensure rapid dissemination of official statements to customers and the marketplace generally than is occurring in many instances under the existing version of the rule. In particular, the Board believes that the provisions of the amendment and of The Bond Market Association's Standard Agreement Among Underwriters will effectively obligate the managing underwriter to send the official statement to syndicate members within one business day of its receipt from the issuer.⁽³⁾ Furthermore, although the amendment removes specific references in the existing rule to underwriters that prepare official statements on behalf of issuers, the Board is of the view that an underwriter that prepares an official statement on behalf of an issuer would be deemed to have received the official statement from the issuer immediately upon such issuer approving the distribution of the completed official statement in final form (i.e., when the issuer releases the completed official statement for distribution).

The amendment retains the requirement under rule G-32 that a dealer acting as financial advisor that prepares an official statement on behalf of an issuer must make that official statement available to the managing or sole underwriter, but changes the timing for such availability from promptly after the award is made, as provided in the existing rule, to promptly after the issuer approves distribution of the official statement in final form. However, since the Board cannot prescribe the content, timing, quantity or manner of production of the official statement by the issuer or its agents, the portions of the existing rule that would regulate such production on behalf of an issuer by a dealer acting as financial advisor has been deleted. The amendment should ensure that, once the official statement is completed and approved by the issuer for distribution, dealers acting as financial advisors will be obligated to commence the dissemination process promptly.⁽⁴⁾ The Board urges issuers that utilize the services of non-dealer financial advisors to hold such financial advisors to the same standards for prompt delivery of official statements to the underwriters.

AMENDMENT TO OFFERING PRICE DISCLOSURE PROVISION

Since January 1983,⁽⁵⁾ the Board has interpreted the Offering Price Disclosure Provision to require that the initial offering price of all maturities of a new issue of municipal securities in a negotiated offering must be disclosed to customers, even for maturities that are not reoffered. The amendment to the Offering Price Disclosure Provision of rule G-32 incorporates into the rule language this longstanding Board interpretation. The Board believes that the application of the Offering Price Disclosure Provision to maturities that are not reoffered permits customers to determine whether the price they paid for a new issue municipal security is substantially different from the price being paid by presale purchasers.

July 17, 1998

TEXT OF AMENDMENT⁽⁶⁾

Rule G-32. Disclosures in Connection with New Issues

(a) Disclosure Requirements. No broker, dealer or municipal securities dealer shall sell, whether as principal or agent, any new issue municipal securities to a customer unless such broker, dealer or municipal securities dealer delivers to the customer no later than the settlement of the transaction:

(i) No change.

(ii) in connection with a negotiated sale of new issue municipal securities, the following information concerning the underwriting arrangements:

(A)-(B) No change.

(C) the initial offering price for each maturity in the issue that is offered or to be offered in whole or in part by the underwriters, including maturities that are not reoffered.

In the event an official statement in final form will not be prepared by or on behalf of the issuer, an official statement in preliminary form, if any, shall be sent to the customer with a notice that no final official statement is being prepared.

Every broker, dealer or municipal securities dealer shall send, upon request, promptly furnish the documents and information referred to in this section (a) to any broker, dealer or municipal securities dealer to which it sells new issue municipal securities , upon the request of such broker, dealer or municipal securities dealer. no later than the business day following the request or, if an official statement in final form is being prepared but has not been received from the issuer or its agent, no later than the business day following such receipt. Such items shall be sent by first class mail or other equally prompt means, unless the purchasing broker, dealer or municipal securities dealer arranges some other method of delivery and pays or agrees to pay for such delivery.

(b) Responsibility of Managing Underwriters, and Sole Underwriters and Financial Advisors.

(i) Managing Underwriters and Sole Underwriters. When an a final official statement in final form is prepared by or on behalf of an issuer, the managing underwriter or sole underwriter, upon request, shall send to provide all brokers, dealers and municipal securities dealers that purchase the new issue municipal securities with an official statement in final form and other information required by paragraph (a)(ii) of this rule and not less than one additional official statement in final form per $100,000 par value of the new issue purchased by the broker, dealer or municipal securities dealer and sold to customers. Such items shall be sent no later than the business day following the request or, if an official statement in final form is being prepared but has not been received from the issuer or its agent, no later than the business day following such receipt. Such items shall be sent by first class mail or other equally prompt means, unless the purchasing broker, dealer or municipal securities dealer arranges some other method of delivery and pays or agrees to pay for such delivery. In addition, the managing underwriter or sole underwriter, upon request, and shall provide all purchasing brokers, dealers and municipal securities dealers with instructions on how to order additional copies of the final official statement in final form directly from the printer. A managing underwriter or sole underwriter that prepares an official statement on behalf of an issuer shall print the final official statement and other information required by paragraph (a)(ii) of this rule and make them available promptly after the date of sale of the issue but no later than two business days before the date all securities are delivered by the syndicate manager to the syndicate members.

(ii) Financial Advisors. A broker, dealer or municipal securities dealer that, acting as financial advisor, prepares an a final official statement in final form on behalf of an issuer, shall make that official statement in final form available to the managing underwriter or sole underwriter promptly after the issuer approves its distribution. award is made. If the financial advisor is responsible for printing the final official statement, it shall make adequate copies of the final official statement available to the managing underwriter or sole underwriter promptly after the award is made but no later than two business days before the date all securities are delivered by the syndicate manager to the syndicate members to permit their compliance with paragraph (b)(i) of this rule.

(c) No change.

ENDNOTES

1. See Securities Exchange Act Release No. 40230 (July 17, 1998), 63 FR 40148 (1998).

2. Consistent with the position taken by the SEC in connection with its Rule 15c2-12, the Board recognizes that the official statement is the issuer's document. As a result, the amendment removes references in the existing rule to the preparation of official statements by underwriters.

3. The Bond Market Association's Standard Agreement Among Underwriters provides that syndicate members must place orders for the official statement by the business day following the date of execution of the purchase contract and states that any syndicate member that fails to place such an order will be assumed to have requested the quantity required under rule G-32(b)(i). See The Bond Market Association, Agreement Among Underwriters -- Instructions, Terms and Acceptance (Oct. 1, 1997) at ¶ 3. Thus, except in the rare instances where an official statement in final form is completed and available for distribution on the date of sale, syndicate members will have made or have been deemed to have made their requests for official statements by the time the managing underwriter receives the official statement from the issuer, thereby obligating the managing underwriter to send the official statement to syndicate members within one business day of receipt.

4. Of course, this amendment does not relieve dealers acting as financial advisors of their obligations to comply with their contractual arrangements entered into with issuers and with all applicable state and federal statutes, regulations and common law. Thus, in particular, in instances where a dealer acting as financial advisor has a contractual or other legal duty to assist an issuer in complying with its contractual obligation to deliver final official statements within the time frame and in the quantities set forth in SEC Rule 15c2-12(b)(3), such obligation would not be diminished by operation of the amendment.

5. See "Rule G-32 - Frequently Asked Questions Concerning Disclosures in Connection with New Issues," MSRB Reports, Vol. 3, No. 1 (Jan. 1983) at 25-27. See also "Disclosure Requirements for New Issue Securities: Rule G-32," MSRB Reports, Vol. 6, No. 4 (Sept. 1986) at 17-20; and "Disclosures in Connection with New Issues: Rule G-32," MSRB Reports, Vol. 16, No. 3 (Sept. 1996) at 19-23.

6. Underlining indicates additions; strikethrough denotes deletions.

Next|  Contents | Home Page

Copyright 2000 Municipal Securities Rulemaking Board. All Rights Reserved. Terms and Conditions of Use