[Federal Register Volume 66, Number 78 (Monday, April 23, 2001)]
[Notices]
[Pages 20505-20510]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-9960]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-44181; File No. SR-MSRB-2001-01]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by the Municipal Securities
Rulemaking Board Providing Guidance on Specific Electronic Primary
Offering and Trading Systems and Electronic Recordkeeping
April 16, 2001.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on March 27, 2001, the Municipal Securities Rulemaking Board (``MSRB'')
filed with the Securities and Exchange Commission (``SEC'' or
``Commission'') a proposed rule change as described in Items I, II, and
III below, which Items have been prepared by MSRB. The SEC is
publishing this notice to solicit comments on the proposed rule change
from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The proposed rule change consists of interpretations on the
application of (i) rules G-32 and G-36 to new issues offerings through
auction procedures; (ii) G-8, G-12 and G-14 to specific electronic
trading systems; and (iii) rules G-8 and G-9 to electronic
recordkeeping. The text of the proposed rule change is set forth below
in italics.
Interpretation on the Application of Rules G-32 and G-36 to New Issue
Offerings Through Auction Procedures
Traditionally, brokers, dealers and municipal securities dealers
(``dealers'') have underwritten new issue municipal securities through
syndicates in which one dealer serves as the managing underwriter. In
some cases, a single dealer may serve as the sole underwriter for a new
issue. Typically, these underwritings are effected on an ``all-or
none'' basis, meaning that the underwriters bid on the entire new
issue. In addition, new issues are occasionally sold to two or more
underwriters that have not formed a syndicate but instead each
underwriter has purchased a separate portion of the new issue (in
effect, each underwriter serving as the sole underwriter for its
respective portion of the new issue).
In the primary market in recent years, some issuers have issued
their new offerings through an electronic ``auction'' process that
permits the taking of bids from both dealers and investors directly. In
some cases, these bids may be taken on other than an all-or-none basis,
with bidders making separate bids on each maturity of a new issue. The
issuer may engage a dealer as an auction agent to conduct the auction
process on its behalf. In addition, to effectuate the transfer of the
securities from the issuer to the winning bidders and for certain other
purposes connected with the auction process, the issuer may engage a
dealer to serve in the role of settlement agent or in some other
intermediary role.
Although the Municipal Securities Rulemaking Board (the ``MSRB'')
has not examined all forms that these auction agent, settlement agent
or other intermediary roles (collectively referred to as ``dealer-
intermediaries'') may take, it believes that in most cases such dealer-
intermediary is effecting a transaction between the issuer and each of
the winning bidders. The MSRB also believes that in many cases such
dealer-intermediary may be acting as an underwriter, as such term is
defined in Rule 15c2-12(f)(8) under the Securities Exchange Act of
1934, as amended (the ``Exchange Act'').\3\ A dealer-intermediary that
is effecting transactions in connection with such an auction process
has certain obligations under rule G-32. If it is also an underwriter
with respect to an offering, it has certain additional obligations
under rules G-32 and G-36.
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\3\ Questions regarding whether an entity acting in an
intermediary role is effecting a transaction or whether a dealer
acting in such an intermediary role for a particular primary
offering of municipal securities would constitute an underwriter
should be addressed to staff of the Securities and Exchange
Commission.
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Application of Rule G-32, on Disclosures in Connection With New Issues
Rule G-32(a) generally requires that any dealer (i.e., not just the
underwriter) selling municipal securities to a customer during the
issue's underwriting period must deliver the
[[Page 20506]]
official statement in final form, if any, to the customer by settlement
of the transaction. Any dealer selling a new issue municipal security
to another dealer is obligated under rule G-32(b) to send such official
statement to the purchasing dealer within one business day of request.
In addition, under rule G-32(c), the managing or sole underwriter for
new issue municipal securities is obligated to send to any dealer
purchasing such securities (regardless of whether the securities were
purchased from such managing or sole underwriter or from another
dealer), within one business day of request, one official statement
plus one additional copy per $100,000 par value of the new issue
municipal securities sold by such dealer to customers. Where multiple
underwriters underwrite a new issue without forming an underwriting
syndicate, each underwriter is considered a sole underwriter for
purposes of rule G-32 and therefore each must undertake the official
statement delivery obligation described in the preceding sentence.
If a dealer-intermediary is involved in an auction or similar
process of primary offering of municipal securities in which all or a
portion of the securities are sold directly to investors that have
placed winning bids with the issuer, the dealer-intermediary is
obligated under rule G-32(a) to deliver an official statement to such
investors by settlement of their purchases. If all or a portion of the
securities are sold to other dealers that have placed winning bids with
the issuer, the dealer-intermediary is obligated under rule G-32(b) to
send an official statement to such purchasing dealers within one
business day of a request. Further, to the extent that the dealer-
intermediary is an underwriter, such dealer-intermediary typically
would have the obligations of a sole underwriter under rule G-32(c) to
distribute the official statement to any other dealer that subsequently
purchases the securities during the underwriting period and requests a
copy. Any dealer that has placed a winning bid in a new issue auction
would have the same distribution responsibility under rule G-32(c), to
the extent that it is acting as an underwriter.
The MSRB views rule G-32 as permitting one or more dealer-
intermediaries involved in an auction process to enter into an
agreement with one or more other dealers that have purchased securities
through a winning bid in which the parties agree that one such dealer
(i.e., a dealer-intermediary or one of the winning bidders) will serve
in the role of managing underwriter for purposes of rule G-32. In such
a case, such single dealer (rather than all dealers individually) would
have the responsibility for distribution of official statements to the
marketplace typically undertaken by a managing or sole underwriter
under rule G-32(c).\4\ Such an agreement may be entered into by less
than all dealers that have purchased securities through the auction
process. All dealers that agree to delegate this duty to a single
dealer may rely on such delegation to the same extent as if they had in
fact formed an underwriting syndicate.
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\4\ Each dealer that is party to this agreement would be
required to inform any dealer seeking copies of the official
statement from such dealer under rule G-32(c) of the identity of the
dealer that has by agreement undertaken this obligation or, in the
alternative, may fulfill the request for official statements. In
either case, the dealer would be required to act promptly so as
either to permit the dealer undertaking the distribution obligation
to fulfill its duty in a timely manner or to provide the official
statement itself in the time required by the rule. Such agreement
would not affect the obligated of a dealer that sells new issue
securities to another dealer to provide a copy of the official
statement to such dealer upon request as required under rule G-
32(b), nor would it affect the obligation to deliver official
statements to customers as required under rule G-32(a).
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Application of Rule G-36, on Delivery of Official Statements, Advance
Refunding Documents and Forms G-36(OS) and G-36(ARD) to the MSRB
Rule G-36 requires that the managing or sole underwriter for most
primary offerings send the official statement and Form G-36(OS) to the
MSRB within certain time frames set forth in the rule. In addition, if
the new issue is an advance refunding and an advance refunding document
has been prepared, the advance refunding document and Form G-36(ARD)
also must be sent to the MSRB by the managing or sole underwriter.
Where multiple underwriters underwrite an offering without forming an
underwriting syndicate, the MSRB has stated that each underwriter would
have the role of sole underwriter for purposes of rule G-36 and
therefore each would have a separate obligation to send official
statements, advance refunding documents and Forms G-36(OS) and G-
36(ARD) to the MSRB.\5\
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\5\ See Rule G-36 Interpretive Letter--Multiple underwriters,
MSRB interpretation of January 30, 1998, MSRB Rule Book (January 1,
2001) at 189.
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To the extent that the dealer-intermediary in an auction or similar
process of primary offering of municipal securities is an underwriter
for purposes of the Exchange Act, such dealer-intermediary would have
obligations under rule G-36. If all or a portion of the securities are
sold directly to investors that have placed winning bids with the
issuer, the dealer-intermediary would be obligated to send the official
statement and Form G-36(OS) (as well as any applicable advance
refunding document and Form G-36(ARD)) to the MSRB with respect to the
issue or portion thereof purchased by investors. If all or a portion of
the securities are sold to other dealers that have placed winning bids
with the issuer, the dealer-intermediary and each of the purchasing
dealers (to the extent that they are underwriters for purposes of the
Exchange Act) also typically would be separately obligated to send such
documents to the MSRB with respect to the issue or portion thereof
purchased by dealers.
To avoid duplicative filings under rule G-36, the MSRB believes
that one or more dealer-intermediaries involved in an auction process
may enter into an agreement with one or more other dealers that have
purchased securities through a winning bid in which the parties agree
that one such dealer (i.e., a dealer-intermediary or one of the winning
bidders) will serve in the role of managing underwriter for purposes of
rule G-36. In such a case, such single dealer (rather than all dealers
individually) would have the responsibility for sending the official
statement, advance refunding document and Forms G-36(OS) and G-36(ARD)
to the MSRB.\6\ Such an agreement may be entered into by less than all
dealers that have purchased securities. All dealers that agree to
delegate this duty to a single dealer may rely on such delegation to
the same extent as if they had in fact formed an underwriting
syndicate.
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\6\ The dealer designated to act as managing underwriter for
purposes of rule G-36 would be billed the full amount of any
applicable underwriting assessment due under rule A-13, on
underwriting and transaction assessments. Such dealer would be
permitted, in turn, to bill each other dealer that is party to the
agreement for its share of the assessment.
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* * * * *
Interpretation on the Application of Rules G-8, G-12, and G-14 to
Specific Electronic Trading Systems
The Municipal Securities Rulemaking Board (the ``MSRB'')
understands that, over time, the advent of new trading systems will
present novel situations in applying MSRB uniform practice rules. The
MSRB is prepared to provide interpretative guidance in these situations
as they arise, and, if necessary, implement formal rule interpretations
or rule changes to provide clarity or prevent unintended results in
novel situations. The MSRB has been asked to provide guidance on the
application of certain of its rules to
[[Page 20507]]
transactions effected on a proposed electronic trading system with
features similar to those described below.
Description of System
The system is an electronic trading system offering a variety of
trading services and operated by an entity registered as a dealer under
the Securities Exchange Act of 1934. The system is qualified as an
alternative trading system under Regulation ATS. Trading in the system
is limited to brokers, dealers and municipal securities dealers
(``dealers''). Purchase and sale contracts are created in the system
through various types of electronic communications via the system,
including acceptance of priced offers, a bid-wanted process, and
through negotiation by system participants with each other. System
rules govern how the bid/offer process is conducted and otherwise
govern how contracts are formed between buyers and sellers.
Participants are, or may be, anonymous during the bid/offer/
negotiation process. After a sales contract is formed, the system
immediately sends an electronic communication to the buyer and seller,
noting the transaction details as well as the identity of the contra-
party. The transaction is then sent by the buyer and seller to a
registered securities clearing agency for comparison and is settled
without involvement of the system operator.
The system operator does not take a position in the securities
traded on the system, even for clearance purposes. Dealers trading on
the system are required by system rules to clear and settle
transactions directly with each other even though the parties do not
know each other at the time the sale contract is formed. If a dealer
using the system does not wish to do business with another specific
contra-party using the system, it may direct the system operator to
adjust the system so that contracts with that contra-party cannot be
formed through the system.
Application of Certain Uniform Practice Rules to System
It appears to the MSRB that the dealer operating the system is
effecting agency transactions for dealer clients.\7\ The system
operator does not have a role in clearing the transactions and is not
taking principal positions in the securities being traded. However, the
system operator is participating in the transactions at key points by
providing anonymity to buyers and sellers during the formation of
contracts and by setting system rules for the formation of contracts.
Consequently, all MSRB rules generally applicable to inter-dealer
transactions would apply except to the extent that such rules
explicitly, or by context, are limited to principal transactions.
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\7\ This situation can be contrasted with the typical broker's
broker operation in which the broker's broker effects riskless
principal transactions for dealer clients. The nature of the
transactions as either agency or principal is governed for purposes
of MSRB rules by whether a principal position is taken with respect
to the security. ``Riskless principal'' transactions in this context
are considered to be principal transactions in which a dealer has a
firm order on one side at the time it executes a matching
transaction on the contra-side. For purposes of the uniform practice
rules, the MSRB considers broker's broker transactions to be
riskless principal transactions even though the broker's broker may
be acting for one party and may have agency or fiduciary obligations
toward that party.
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Automated Comparison
One issue raised by the description of the system above is the
planned method of clearance and settlement. Rule G-12(f)(i) requires
that inter-dealer transactions be compared in an automated comparison
system operated by a clearing corporation registered with the
Securities and Exchange Commission. The purpose of rule G-12(f)(i) is
to facilitate clearance and settlement of inter-dealer transactions. In
this case, the system operator: (i) Electronically communicates the
transaction details to the buyer and seller; (ii) requires the buyer
and seller to compare the transaction directly with each other in a
registered securities clearing corporation; and (iii) is not otherwise
involved in clearing or settling the transaction. The MSRB believes
that under these circumstances, it is unnecessary for the system
operator to obtain a separate comparison of its agency transactions
with the buyer and seller.
Although automated comparison is not required between the system
operator and the buyer and seller, the transaction details sent to each
party by the system must conform to the information requirements for
inter-dealer confirmations contained in rule G-12(c). Since system
participants implicitly agree to receive this information in electronic
form by participating in the system, a paper confirmation is not
necessary. Also, the system operator may have an agreement with its
participants that participants are not required to confirm the
transactions back to the system operator, which normally would be
required by rule G-12(c).
The system operator, which is subject to Regulation ATS, will be
governed by the recordkeeping requirements of Regulation ATS for
purposes of transaction records, including municipal securities
transactions. However, the system operator also must comply with any
applicable recordkeeping requirements in rule G-8(f), which relate to
records specific to effecting municipal securities transactions. With
respect to recordkeeping by dealers using the system, the specific
procedures associated with this system require that transactions be
recorded as principal transactions directly between buyer and seller,
with notations of the fact that the transactions were effected through
the system.
Transaction Reporting
Rule G-14 requires inter-dealer transactions to be reported to the
MSRB for the purposes of price transparency, market surveillance and
fee assessment. The mechanism for reporting inter-dealer transactions
is through National Securities Clearing Corporation (``NSCC''). In the
system described above, the buyer and seller clear and settle
transactions directly as principals with each other, and without the
involvement of the dealer operating the system. The buyer and seller
therefore will report transactions directly to NSCC. No transaction or
pricing information will be lost if the system operator does not report
the transaction. Consequently, it is not necessary for the system
operator separately to report the transactions tothe MSRB.
* * * * *
Interpretation on the Application of Rules G-8 and G-9 to Electronic
Recordkeeping
The Municipal Securities Rulemaking Board (the ``MSRB'') has
received requests for interpretive guidance regarding the maintenance
in electronic form of records under rule G-8, on books and records, and
rule G-9, on preservation of records. As the MSRB has previously noted,
rules G-8 and G-9 provide flexibility to brokers, dealers and municipal
securities dealers (``delears'') concerning the manner in which their
records are to be maintained, recognizing that various recordkeeping
systems could provide a complete and accurate record of a dealer's
municipal securities activities.\8\ Part of the reason for providing
this flexibility was that a variety of enforcement agencies, including
the Securities and Exchange Commission,
[[Page 20508]]
NASD Regulation, Inc. and the banking regulatory agencies, all may
inspect dealer records.
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\8\ See Rule G-8 Interpretation--Interpretive Notice on
Recordkeeping, July 29, 1977, reprinted in MSRB Rule Book (January
1, 2001) at 42.
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Rule G-8(b) does not specify that a dealer is required to maintain
its books and records in a specific manner so long as the information
required to be shown by the rule is clearly and accurately reflected
and provides an adequate basis for the audit of such information.
Further, rule G-9(e) allows records to be retained electronically
provided that the dealer has adequate facilities for ready retrieval
and inspection of any such record and for production of easily readable
facsimile copies.
The MSRB previously has recognized that efficiencies would be
obtained by the replacement of paper files with electronic data bases
and filing systems and stated that it generally allows records to be
retained in that form.\9\ In noting that increased automation would
likely lead to elimination of most physical records, the MSRB has
stated that electronic trading tickets and automated customer account
information satisfy the recordkeeping requirements of rule G-8 so long
as such information is maintained in compliance with rule G-9(e). The
MSRB believes that this position also applies with respect to the other
recordkeeping requirements of rule G-8 so long as such information is
maintained in compliance with rule G-9(e) and the appropriate
enforcement agency is satisfied that such manner of record creation and
retention provides an adequate basis for the audit of the information
to be maintained. In particular, the MSRB believes that a dealer that
meets the requirements of Rule 17a-4(f) under the Securities Exchange
Act of 1934 with respect to maintenance and preservation of required
books and records in the formats described therein would presumptively
meet the requirements of rule G-9(e).
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\9\ See Rule G-8 Interpretive Letters--Use of electronic
signatures, MSRB interpretation of February 27, 1989, reprinted in
MSRB Rule Book (January 1, 2001) at 47.
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II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the SEC, the MSRB included statements concerning
the purpose of and basis for the proposed rule change and discussed any
comments it received on the proposed rule change. The texts of these
statements may be examined at the places specified in Item IV below.
The MSRB has prepared summaries, set forth in Sections A, B, and C
below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
In May 2000, the MSRB hosted a roundtable to begin a discussion
about the use of electronic trading systems in municipal securities and
the application of the MSRB's rules to existing and proposed electronic
trading systems. During that roundtable, as well as during subsequent
conservations with industry members, it appeared that there was
significant confusion about the applicability of MSRB rules to brokers,
dealers and municipal securities dealers (``dealers'') who operate such
systems. In addition, questions were raised regarding the applicability
of MSRB rules in the context of electronic auction procedures in the
new issue market and the ability of dealers to make and maintain books
and records in an electronic format. As an outgrowth of the roundtable
and these industry inquiries, the MSRB determined to provide
interpretive guidance relating to the application of (i) rules G-32 and
G-36 to new issue offerings through auction procedures, (ii) rules G-8,
G-12 and G-14 to specific electronic trading systems, and (iii) rules
G-8 and G-9 to electronic recordkeeping.
In the interpretive guidance relating to the application of rules
G-32 and G-36 to new issue offerings through auction procedures, the
MSRB proposes to clarify that dealers serving as auction agent,
settlement agent or other intermediary role in such auction sales of
new issues by issuers have the same responsibilities relating to
distribution of official statements and other documents as do dealers
selling new issue municipal securities under rule G-32 and, in some
circumstances, as underwriters under rules G-32 and G-36. The MSRB
proposes to provide guidance on determining where the responsibilities
would lie when multiple dealers participate in a primary offering
without forming a syndicate.
In the interpretive guidance relating to the application of rules
G-8, G-12 and G-14 to specific electronic trading systems, the MSRB
proposes to provide guidance on the application of these rules to
transactions effected on a proposed electronic trading system. The MSRB
summarizes the relevant features of the proposed system and proposes
guidance in connection with clearance and settlement under rule G-12,
transaction reporting under rule G-14 and certain recordkeeping
obligations under rule G-8.
In the interpretive guidance relating to the application of rules
G-8 and G-9 to electronic recordkeeping, the MSRB proposes to provide
guidance as to the creation and maintenance of books and records
required under such rules in electronic format.
2. Statutory Basis
The MSRB believes that the proposed rule change is consistent with
Section 15B(b)(2)(C) of the Act,\10\ which requires, among other
things, that the MSRB's rules be designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to foster cooperation and coordination with
persons engaged in regulating, clearing, settling, processing
information with respect to, and facilitating transactions in municipal
securities, to remove impediments to and perfect the mechanism of a
free and open market in municipal securities, and, in general, to
protect investors and the public interest.
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\10\ 15 U.S.C. 78o-4(b)(2)(C).
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The MSRB believes that the proposed rule change is consistent with
the Act because it provides guidance to dealers in complying with
existing MSRB rules.
B. Self-Regulatory Organization's Statement on Burden on Competition
The MSRB does not believe that the proposed rule change will impose
any burden on competition not necessary or appropriate in furtherance
of the purposes of the Act because it would apply equally to all
dealers.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
On September 28, 2000, the MSRB published a notice seeking comment
on a draft interpretive guidance on dealer responsibilities in
connection with both electronic and traditional municipal securities
transactions (the ``Draft Guidance'').\11\ The Draft Guidance presented
the MSRB's views regarding certain compliance issues arising under
rules G-8, G-9, G-12, G-14, G-32 and G-36.\12\ The MSRB received seven
[[Page 20509]]
letters commenting on the discussion of these rules set forth in the
Draft Guidance.\13\ After reviewing these comments, the MSRB approved
the proposed rule change for filing with the SEC.\14\
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\11\ ``Notice and Draft Interpretive Guidance on Dealer
Responsibilities in Connection with Both Electronic and Traditional
Municipal Securities Transactions,'' MSRB Reports, Vol. 20, No. 2
(November 2000) at 3. See also the clarification to the Draft
Guidance published on November 17, 2000 at the MSRB's web site
(http://206.233.231.2/msrb/archive/etrading.htm).
\12\ The Draft Guidance also presented, in draft form, the
MSRB's views regarding certain compliance issues arising under rules
G-13, G-17, G-18 and G-19. The MSRB's draft guidance relating to
these rules is not included in this proposed rule change.
\13\ Letters to Carolyn Walsh, Assistant General Counsel, MSRB,
from Ida W. Draim, Dickstein Shapiro Morin & Oshinsky LLP, dated
October 25, 2000 (``Dickstein Shapiro Letter''); William L. Nichols,
Chief Operating Officer, ValuBond Securities, Inc., dated November
30, 2000 (``ValuBond Letter''); and Bradley W. Wendt, President and
Chief Operating Officer, and David L. Becker, General Counsel,
MuniGroup.com LLC, dated December 1, 2000 (``MuniGroup Letter'');
and letters to Ernesto A. Lanza, Associate General Counsel, MSRB,
from Michael J. Marz, Vice Chairman, First Southwest Company, dated
November 28, 2000 (``First Southwest Letter''); W. Hardy Callcott,
Senior Vice President and General Counsel, Charles Schwab & Co.,
Inc., dated November 30, 2000 (``Charles Schwab Letter''); Roger G.
Hayes, Chair, and Aimee S. Brown, Vice Chair, The Bond Market
Association Municipal E-Commerce Task Force, dated December 1, 2000
(``TBMA I Letter''); and LYnette Kelly Hotchkiss, Vice President and
Associate General Counsel, The Bond Market Association, dated
January 4, 2001 (``TBMA II Letter''). These letters also discussed,
and MSRB received additional letters commenting on, other portions
of the Draft Guidance.
\14\ Comments received by the MSRB with respect to rules G-13,
G-17, G-18 and G-19 will be addressed at a future date.
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As described above, the MSRB published draft interpretive guidance
regarding the application of rules G-32 and G-36 to new issue offerings
through auction procedures. Two commentators supported the MSRB's
guidance on rules G-32 and G-36.\15\ As a result, the MSRB has
determined to file the proposed interpretative guidance with the SEC.
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\15\ See MuniGroup and TBMA I Letters. One commentator sought
guidance as to the status of a specific website operator as an
underwriter for purposes of rules G-32 and G-36. See Dickstein
Shapiro Letter. As the MSRB noted in the Draft Guidance, a
determination of whether a dealer would constitute an underwriter is
based on an analysis of relevant Act provisions and such questions
should be addressed to SEC staff. See also note 3 supra.
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One commentator, however, mistakenly believed that the guidance
provided for the delegation to the managing underwriter of the task of
distributing official statements to customers, to which it is
opposed.\16\ The guidance does not provide for such delegation. This
commentator suggested that the MSRB and rule G-32 to permit delivery to
the customer of a preliminary official statement by settlement, with a
final official statement to be sent as soon as possible thereafter. The
MSRB has repeatedly emphasized the importance of ensuring that the
customer receives the final official statement by settlement.\17\ At
the same time, the MSRB recognizes some of the inherent difficulties in
meeting this obligation and has begun exploring possible approaches to
ensuring more efficient and effective delivery of material information
in the primary market in a timely manner.\18\
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\16\ See Charles Schwab Letter.
\17\ See, e.g., ``Official Statement Deliveries Under Rules G-32
and G-36 and Exchange Act Rule 15c2-12,'' MSRB Reports, Vol. 19, No.
3 (September 1999) at 29; Rule G-32 Interpretation--Notice Regarding
the Disclosure Obligations of Brokers, Dealers and Municipal
Securities Dealers in Connection with New Issue Municipal Securities
Under Rule G-32, November 19, 1998, reprinted in MSRB Rule Book
(January 1, 2001) at 160.
\18\ See ``MSRB Discussion Paper on Disclosure in the Municipal
Securities Market'' published on December 21, 2000 at the MSRB's web
site (http://www.msrb.org/msrb1/whatsnew/DiscussionPaper.htm).
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In addition, two commentators suggested that the MSRB endorse and
support the use of electronic documents, including official
statements.\19\ One commentator noted that the MSRB has sought to
encourage such use through its proposal on electronic filings under
rule G-36.\20\ In addition to this proposal, the MSRB has made clear
that official statements may be delivered in electronic format for
purposes of rule G-32 so long as certain requirements are met.\21\
Further, as noted above, the MSRB has begun exploring possible
approaches to improving the process of disseminating disclosure
materials, including by means of electronic document delivery.
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\19\ See MuniGroup and ValuBond Letters.
\20\ See TBMA II Letter, referring to ``Electronic Submission of
Official Statements, Advance Refunding Documents and Forms G-36(OS)
and G-36(ARD) to the MSRB,'' MSRB Reports, Vol. 20, No. 2 (November
2000) at 17.
\21\ See Rule G-32 Interpretation--Notice Regarding Electronic
Delivery and Receipt of Information by Brokers, Dealers and
Municipal Securities Dealers, November 20, 1998, reprinted in MSRB
Rule Book (January 1, 2001) at 163.
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2. Comments on Application of Rules G-8, G-12 and G-14 to Specific
Electronic Trading Systems
As discussed above, the MSRB published draft interpretive guidance
regarding the application of rules G-8, G-12 and G-14 to a specific
electronic trading system. One commentator stated that the MSRB's
allocation of responsibilities set forth in the guidance relating to
rules G-8, G-12 and G-14 as applied to such dealer-to-dealer electronic
trading system is appropriate.\22\ As a result, the MSRB has determined
to file the proposed interpretative guidance with the SEC.
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\22\ See MuniGroup Letter. Another commentator requested
interpretive guidance on the application of MSRB rules to a
different proposed electronic system, noting difficulties that such
system would have in complying with certain provisions of rules G-12
and G-14. See Dickstein Shapiro Letter. The MSRB does not have
sufficient information regarding this system to provide guidance at
this time and will undertake further discussions of the relevant
factors with this commentator.
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3. Comments on Application of Rules G-8 and G-9 to Electronic
Recordkeeping
The MSRB did not seek comment on the creation and maintenance of
dealer books and records in electronic format. However, three
commentators suggested that the MSRB affirmatively state that
electronic storage of required records satisfies the recordkeeping
requirements of rules G-8 and G-9 and that dealers may contract with
third parties to retain electronic records under rule G-9.\23\ As a
result, the MSRB has determined to file proposed interpretative
guidance with the SEC regarding electronic recordkeeping under rules G-
8 and G-9.
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\23\ See First Southwest, MuniGroup and TBMA I Letters.
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III. Date of Effectiveness of the Proposed Rule Change and Timing
for Commission Action
The foregoing rule change constitutes a stated policy, practice, or
interpretation with respect to the meaning, administration, or
enforcement of an existing MSRB rule and, therefore, has become
effective pursuant to Section 19(b)(3)(A) of the Act,\24\ and
subparagraph (f) of Rule 19b-4 thereunder.\25\ At any time within 60
days of the filing of such proposed rule change, the Commission may
summarily abrogate such rule change if it appears to the Commission
that such action is necessary or appropriate in the public interest,
for the protection of investors, or otherwise in furtherance of the
purposes of the Act.
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\24\ 15 U.S.C. 78s(b)(3)(A).
\25\ 17 CFR 240.19b-4(f).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609.
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the SEC, and all written communications relating to the proposed rule
change between the SEC and any person, other than those that may be
withheld from the public in accordance with the provisions of 5
[[Page 20510]]
U.S.C. 552, will be available for inspection and copying in the SEC's
Public Reference Room. Copies of the filing will also be available for
inspection and copying at the MSRB's principal offices. All submissions
should refer to File No. SR-MSRB-2001-01 and should be submitted by May
1, 2001.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\26\
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\26\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-9960 Filed 4-20-01; 8:45 am]
BILLING CODE 8010-01-M