
[Federal Register Volume 74, Number 102 (Friday, May 29, 2009)]
[Notices]
[Pages 25789-25792]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-12442]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59966; File No. SR-MSRB-2009-02]


 Self-Regulatory Organizations; Municipal Securities Rulemaking 
Board; Order Granting Approval of Proposed Rule Change Relating to the 
Establishment of a Primary Market Disclosure Service and Trade Price 
Transparency Service of the Electronic Municipal Market Access System 
(EMMA[supreg]) and Amendments to MSRB Rules G-32 and G-36

May 21, 2009.
    On March 23, 2009, the Municipal Securities Rulemaking Board 
(``MSRB''), filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC''), pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to implement an electronic system 
for free public access to primary market disclosure documents and 
transaction price information for the municipal securities market 
through the MSRB's Electronic Municipal Market Access system 
(``EMMA''). The proposed rule change was published for comment in the 
Federal Register on April 2, 2009.\3\ The Commission received three 
comment letters on the proposed rule change.\4\ On May 12, 2009 and May 
18, 2009, the MSRB filed responses to the comment letters.\5\ This 
order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 59636 (March 27, 
2009), 74 FR 15190 (``Commission's Notice'').
    \4\ See letters from Douglas Adamson, Executive Vice President, 
Technical Services Division, American Bankers Association (``ABA''), 
dated April 24, 2009; Robert Schifellite, President, Broadridge 
Financial Solutions, Inc. (``BFS''), dated May 5, 2009; and Leslie 
M. Norwood, Managing Director and Associate General Counsel, 
Securities Industry and Financial Markets Association (``SIFMA''), 
dated May 10, 2009.
    Furthermore, on May 15, 2009, representatives of BFS met with 
Martha M. Haines, Chief and Mary N. Simpkins, Senior Special 
Counsel, Office of Municipal Securities, Division of Trading and 
Markets to discuss the proposed rule change and to provide 
additional materials related to their comments on the proposal. The 
materials may be found at http://www.sec.gov/comments/sr-msrb-2009-02/msrb200902-2.pdf.
    \5\ See letters from Ernesto A. Lanza, General Counsel, MSRB, to 
Elizabeth M. Murphy, Secretary, SEC, dated May 12, 2009 (``Response 
Letter I'') and May 18, 2009 (``Response Letter II'').
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    The proposed rule change would: (i) Establish EMMA's permanent 
primary market disclosure service for electronic submission and public 
availability on EMMA's Internet portal of official statements, advance 
refunding documents and related primary market documents and 
information; (ii) establish EMMA's permanent transparency service 
making municipal securities transaction price data publicly available 
on the EMMA portal; (iii) establish a real-time subscription to the 
primary market document collection; (iv) terminate the existing pilot 
EMMA facility of the Municipal Securities Information Library (MSIL) 
system and suspend submissions of official statements, advance 
refunding documents and Forms G-36(OS) and G-36(ARD) to the MSIL system 
and (v) amend and consolidate current Rules G-32 and G-36 into new Rule 
G-32 on disclosures in connection with primary offerings, replace 
current Forms G-36(OS) and G-36(ARD) with new Form G-32, provide 
transitional submission requirements, and amend certain related 
recordkeeping requirements, to establish an ``access equals delivery'' 
standard for electronic official statement dissemination in the 
municipal securities market.
    The MSRB requested approval of this proposed rule change, along 
with MSRB-2009-03 and MSRB-2009-04, by no later than May 22, 2009, so 
that the MSRB may commence operation of the EMMA services described 
therein, including but not limited to the permanent primary market 
disclosure service and pilot continuing disclosure service, on June 1, 
2009.\6\ A full description of the proposal is contained in the 
Commission's Notice.\7\
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    \6\ See Response Letter II, supra note 5.
    \7\ See Commission Notice, supra note 3.
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    As previously noted, the Commission received three comment letters 
relating to the proposed rule change.\8\ One commenter, the ABA, 
expressed concerns regarding certain legal issues relating to the 
protection of its intellectual property and contractual rights in the 
CUSIP database (the ``Database'') that it states have not yet been 
resolved. The ABA noted that it was the owner of the Database, which is 
administered by the CUSIP Service Bureau (``CSB''), as its exclusive 
licensee, and believed it was critical that these legal issues be 
resolved before the MSRB be allowed to move forward with the proposed 
expansion and full implementation of EMMA. It further requested that 
the operation of the EMMA Web site incorporate a variety of protections 
with respect to its intellectual property rights, including compliance 
with CSB's current licensing practices, permissible use guidelines, 
appropriate copyright notices and adequate security.\9\
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    \8\ See supra note 4.
    \9\ See letter from the ABA, supra note 4.
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    In response to the ABA's concerns, the MSRB and the CSB, as the 
ABA's exclusive licensee, have entered into a memorandum of 
understanding dated May 15, 2009 (``MOU'') in which CSB expressly 
permits use of the CUSIP database for purposes, among other things, of 
displaying information on the MSRB's EMMA public Web portal and for 
inclusion in data disseminated by the MSRB to subscribers of the EMMA 
data feed.\10\ The MSRB has agreed in the MOU to provide certain 
safeguards with respect to the ABA's intellectual property and 
contractual rights of the ABA in the Database. The Commission believes 
that the MSRB has taken sufficient action to ensure that all necessary 
arrangements will be in place in order to operate the permanent primary 
market disclosure service and pilot continuing disclosure service, as 
anticipated by the implementation date.
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    \10\ See Response Letter II, supra note 5. The MSRB stated that 
this agreement would expand and reposition existing language on the 
EMMA Web site to ensure that users of the EMMA Web site have a 
fuller understanding of the sources of information displayed on the 
EMMA Web site and of the proprietary rights of third parties 
(including but not limited to the proprietary rights of the ABA in 
the Database) in certain displayed data elements. Such language 
would advise users of the limitations on their use or re-use of any 
proprietary information accessed on the EMMA Web site, and users 
would be required to acknowledge such limitations before being 
provided access to any portion of the Database. Additional systemic 
and reporting mechanisms would be implemented to further protect 
against inappropriate use of the Database. See Response Letter I, 
supra note 5.
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    Another commenter, BFS, believed that the adoption of an ``access 
equals delivery'' standard for official statements would 
unintentionally result in less viewing of information by individual 
investors and suggested alternatives to obtaining industry efficiencies 
without reducing the number of investors that view information 
contained in official statements.\11\ BFS cited to internal statistics 
generated in connection with the Commission's adoption of rules on 
Internet availability of proxy materials in support of its view.\12\ 
BFS also cited to the Commission's recently adopted rules on delivery 
of summary mutual fund prospectuses and posting of the statutory 
prospectuses on the Internet as an alternative method of providing 
disclosure to investors while realizing cost savings.\13\
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    \11\ See letter from the BFS, supra note 4.
    \12\ See Securities Exchange Act Release No. 55146 (January 22, 
2007), 72 FR 4148 (January 29, 2007).
    \13\ See Securities Act Release No. 8998 (January 13, 2009), 74 
FR 4546 (January 26, 2009).

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[[Page 25791]]

    The MSRB disagreed with BFS's comparison of on-line access to proxy 
materials with on-line access to official statements and, in Response 
Letter I, pointed out the differences between the two materials.\14\ 
Specifically, the MSRB argued that: proxy statements are posted in a 
highly decentralized manner, whereas official statements are available 
on the centralized EMMA Web site specifically crafted for their 
presentation; proxy statements often are posted without any additional 
meaningful contextual information, whereas official statements are 
posted on EMMA along with transaction prices, rate/yield information 
and other relevant disclosures for the security being purchased and for 
all other securities in the marketplace, together with educational 
information to assist the individual investor in understanding the 
information in the official statement; proxy statements are unsolicited 
communications to a large group of investors triggered by company 
action (i.e., the investor is passive), whereas the MSRB's official 
statement dissemination requirement is triggered by an investor taking 
action to purchase a municipal security; proxy statements typically 
relate to matters of a generalized importance relating to a company and 
normally do not relate directly to an investment, whereas official 
statements have direct relevance to the investor's investment; proxy 
statements are intended to provide information prior to an investor 
voting his or her proxy, whereas official statements (much like 
prospectuses) often serve to disclose the detailed terms of a security 
after the investment decision has already been made; and proxy 
statements generally have little value once the vote occurs, whereas 
official statements retain significant value for the remaining life of 
the security and would remain available to all investors throughout 
that period in EMMA's permanent library.
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    \14\ See Response Letter I, supra note 5.
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    Furthermore, the MSRB believed that BFS seemed to place too much 
emphasis on cost savings as a reason for approving the proposed rule 
change. While acknowledging the sizeable cost saving associated with 
adoption of the proposal, the MSRB stated that it submitted the 
proposal primarily because of the significant improvements in the 
municipal securities disclosure system that would result from it. 
Specifically, the MSRB believed that the proposal would place 
individual investors on an equal footing with investment professionals 
with respect to access to key information and allow such information to 
flow into the marketplace more quickly.
    In addition, in response to BFS's suggestion of the summary mutual 
fund prospectus as a possible alternative, the MSRB stated that it will 
monitor the level of adoption of the summary prospectus in the mutual 
fund market, as well as the impact its use may have on the quality and 
timeliness of disclosure for mutual funds. Noting that it has no 
authority over the nature, content or timing of issuer disclosures in 
the municipal securities market and therefore could not adopt a 
requirement for the creation and use of summary official statements by 
municipal issuers, the MSRB believed that the experience in the mutual 
fund market with summary prospectuses could be instructive in crafting 
future disclosure initiatives in the municipal securities market. The 
Commission believes that the MSRB has provided a rational response to 
counter BFS's belief that an ``access equals delivery'' standard for 
official statements would reduce viewing by individual investors of the 
information, and agrees with the MSRB that the proposal would make 
information easily available to all market participants in the 
municipal securities market.
    Finally, the third commenter, SIFMA, was very supportive of the 
EMMA system, but expressed concern with certain operational and timing 
issues.\15\ Specifically, SIFMA requested that the proposed rule change 
conform to the rules applicable to the registered securities market by 
not requiring broker dealers to accommodate a customer's standing 
request for copies of official statements for all of his or her 
transactions with the dealer. SIFMA argued that such an accommodation 
would require dealers to undertake an enormous amount of expense for 
such a limited number of retail investors and that the costs of such 
changes would interfere with the ability of issuers and other market 
participants to achieve anticipated cost savings.
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    \15\ See letter from SIFMA, supra note 4.
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    In response, the MSRB stated it was important to allow investors to 
establish standing instructions with their dealers to receive paper 
copies of official statements for all of their new issue purchases and 
not to obligate them to make transaction by transaction requests for 
paper copies.\16\ Although the potential for costs savings was an 
important factor in the MSRB's proposal, the MSRB again indicated that 
such a factor does not trump the needs of individual investors to 
obtain the disclosures they are due. The MSRB also stated that revised 
Rule G-32 would not obligate dealers to rely on access to electronic 
official statements on EMMA, and that those dealers who are not yet 
prepared to do so upon launch of the new rule provisions could continue 
to meet their official statement dissemination obligation through 
actual delivery of the official statement to customers as under current 
Rule G-32. Therefore, the MSRB did not believe any change was merited.
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    \16\ See Response Letter I, supra note 5.
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    SIFMA also urged the MSRB to permit an underwriter to designate to 
the MSRB that information it has submitted to the new issue information 
dissemination system (``NIIDS'') under revised Rule G-34 also be used 
for purposes of completing new Form G-32. SIFMA requested that the MSRB 
make a firm commitment to take the outbound information feed from NIIDS 
to pre-fill the G-32 forms beginning no later than 90 days after SEC 
approval of the rule change proposal.
    In response, the MSRB stated that, as noted in its proposed rule 
change, it will continue working toward permitting dealers to designate 
to the MSRB that information they have submitted to NIIDS under Rule G-
34 should also be used for purposes of completing new Form G-32. The 
MSRB will publish a notice advising dealers of the availability of such 
functionality once it becomes available, but that it was not prepared 
at this time to commit to a specific timeframe for making this 
functionality available and that approval of the proposed rule change 
should not be contingent on such a commitment.
    Finally, SIFMA requested that the MSRB provide dealers at least 30 
calendar days' notice prior to implementing the proposed rule change, 
citing various factors regarding holiday and vacation schedules and 
lack of training and usage materials. In response, the MSRB stated that 
it will announce training sessions for use of the EMMA submission 
system and publish its user manual in the near future, and will have 
staff available to assist users in transitioning to the new submission 
process. The MSRB also indicated that, while it could not commit to 
providing the length of notice requested, it would provide notification 
of the operational date as soon as it becomes available. The Commission 
believes that the MSRB has reasonably addressed the operational and 
timing concerns raised by SIFMA, and that the changes suggested by 
SIFMA are not warranted at this time.
    The Commission has carefully considered the proposed rule change,

[[Page 25792]]

the comment letters received, and the MSRB's responses to the comment 
letters and finds that the proposed rule change is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to the MSRB and, in particular, the requirements of Section 
15B(b)(2)(C) of the Act \17\ and the rules and regulations thereunder. 
Section 15B(b)(2)(C) of the Act 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.\18\
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    \17\ 15 U.S.C. 78o-4(b)(2)(C).
    \18\ Id. In approving this proposed rule change, the Commission 
notes that it has considered the proposed rule's impact on 
efficiency, competition and capital formation. 15 U.S.C. 78c(f).
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    In particular, the Commission finds that the proposed rule change 
is consistent with the Act because it would serve as an additional 
mechanism by which the MSRB works toward removing impediments to and 
helping to perfect the mechanisms of a free and open market in 
municipal securities by providing a centralized venue for free public 
access to primary market disclosure documents and transaction price 
information for the municipal securities market through EMMA. The 
proposed rule change would provide greater access to primary market 
disclosure documents and transaction price information about municipal 
securities information to all participants in the municipal securities 
market on an equal basis, thereby removing potential barriers to 
obtaining such information, and will allow the municipal securities 
industry to produce more accurate trade reporting and transparency. 
Broad access to primary market disclosure documents and price 
transparency information through the EMMA portal should also assist in 
preventing fraudulent and manipulative acts and practices by improving 
the opportunity for public investors to access material information 
about issuers, their securities and the prices at which such securities 
trade. Furthermore, free public access to disclosure and transaction 
price information should promote a more fair and efficient municipal 
securities market in which transactions are effected on the basis of 
material information available to all parties to such transactions, and 
thereby allow for fairer pricing of transactions. In addition, the 
electronic dissemination of primary market disclosure documents should 
enable issuers to reduce their issuance costs by eliminating the need 
to print and to distribute in paper official statements in connection 
with their primary offerings, thereby resulting in lower costs to 
issuers and savings to their citizens, lower expenses for underwriters, 
and potentially lower prices for investors. All of these factors serve 
to promote the statutory mandate of the MSRB to protect investors and 
the public interest.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\19\ that the proposed rule change (SR-MSRB-2009-02), be, and it 
hereby is, approved.
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    \19\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
Florence E. Harmon,
Deputy Secretary.
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    \20\ 17 CFR 200.30-3(a)(12).
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[FR Doc. E9-12442 Filed 5-28-09; 8:45 am]
BILLING CODE 8010-01-P


