
[Federal Register: June 9, 2009 (Volume 74, Number 109)]
[Notices]
[Page 27369-27371]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr09jn09-152]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60033, File No. SR-MSRB-2009-04]


Self-Regulatory Organizations; Municipal Securities Rulemaking
Board; Order Granting Approval of Proposed Rule Change Relating to the
Voluntary Submission of Continuing Disclosure Documents to Its Upcoming
Continuing Disclosure Service of the Electronic Municipal Market Access
System (EMMA[supreg])

June 3, 2009.
    On April 14, 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 amend the continuing
disclosure service of the MSRB's Electronic Municipal Market Access
system (``EMMA'') to accept, and to make publicly available on the
Internet, voluntary electronic submissions by issuers, obligated
persons and their agents of continuing disclosure documents provided
other than in connection with Exchange Act Rule 15c2-12. The proposed
rule change was published for comment in the Federal Register on April
29, 2009.\3\ The Commission received three comment letters about the
proposed rule change.\4\ On May 8, 2009, May 18, 2009, and June 1,
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. 59814 (Apr. 23,
2009), 74 FR 19612 (Apr. 29, 2009) (``Commission's Notice'').
    \4\ See letters from Douglas Adamson, Executive Vice President,
Technical Services Division, American Bankers Association (``ABA''),
dated April 24, 2009; letter from Heather Traeger, Associate
Counsel, Investment Company Institute (``ICI''), dated May 20, 2009;
and letter from Vickie A. Tillman, Executive Vice President,
Standard & Poor's Ratings Services (``S&P''), dated May 29, 2009.
    \5\ See letters from Ernesto A. Lanza, General Counsel, MSRB, to
Elizabeth M. Murphy, Secretary, SEC, dated May 8, 2009 (``Response
Letter I''), May 18, 2009 (``Response Letter II''), and June 1, 2009
(``Response Letter III'').
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    The Commission has previously approved the establishment of the
continuing disclosure service of EMMA, which will commence operation on
July 1, 2009.\6\ The EMMA continuing disclosure service will receive
electronic submissions of, and will make publicly available on the
Internet through the EMMA web portal,\7\ continuing disclosure
documents and related information from issuers, obligated persons and
their agents pursuant to continuing disclosure undertakings entered
into consistent with Exchange Act Rule 15c2-12. As approved, the EMMA
continuing disclosure service will accept submissions of (i) continuing
disclosure documents as described in Rule 15c2-12,\8\ and (ii) other
disclosure documents

[[Page 27370]]

specified in continuing disclosure undertakings but not specifically
described in Rule 15c2-12.
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    \6\ See Securities Exchange Act Release No. 59061 (December 5,
2008), 73 FR 75778 (December 12, 2008) (File No. SR-MSRB-2008-05)
(approving the continuing disclosure service of EMMA with an
effective date of July 1, 2009) (the ``EMMA continuing disclosure
service approval''). The EMMA continuing disclosure service is
designed to commence operation simultaneously with the effectiveness
of certain amendments to Exchange Act Rule 15c2-12 adopted by the
Commission. See Securities Exchange Act Release No. 59062 (December
5, 2008), 73 FR 76104 (December 15, 2008) (adopting amendments to
Exchange Act Rule 15c2-12). Approval of the proposed rule change on
or prior to July 1, 2009 would allow the permanent EMMA continuing
disclosure service to accept such voluntary disclosures upon
commencement of operations.
    \7\ The EMMA web portal is accessible at http://emma.msrb.org.
    \8\ Such items consist of: (A) Annual financial information
concerning obligated persons; (B) audited financial statements for
obligated persons if available and if not included in the annual
financial information; (C) notices of the following events, if
material: principal and interest payment delinquencies, non-payment
related defaults, unscheduled draws on debt service reserves
reflecting financial difficulties, unscheduled draws on credit
enhancements reflecting financial difficulties, substitution of
credit or liquidity providers or their failure to perform, adverse
tax opinions or events affecting the tax-exempt status of the
security, modifications to rights of security holders, bond calls,
defeasances, release/substitution/sale of property securing
repayment of the securities, and rating changes; and (D) notices of
failures to provide annual financial information on or before the
date specified in the continuing disclosure undertaking.
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    The proposed rule change would amend the EMMA continuing disclosure
service to accept submissions of, and to make publicly available
through the EMMA web portal, additional categories of continuing
disclosure documents voluntarily submitted by issuers, obligated
persons and their agents (``voluntary continuing disclosure
document''). The proposed rule change would not establish an obligation
upon any issuer or obligated person to make a submission of any
voluntary continuing disclosure document. Voluntary continuing
disclosure documents would be submitted, processed and disseminated in
the same manner as provided with respect to disclosures made to the
EMMA continuing disclosure service pursuant to continuing disclosure
undertakings entered into consistent with Rule 15c2-12. In particular,
such submissions would be accepted solely in electronic form as
portable document format (PDF) files accompanied by appropriate
indexing information. The MSRB has requested approval of the proposed
rule change on or prior to July 1, 2009. A full description of the
proposal is contained in the Commission's Notice.
    As previously noted, the Commission received three comment letters
relating to the proposed rule change.\9\ 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.\10\
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    \9\ See supra note 4.
    \10\ 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 (the ``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.\11\ 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 provided adequate assurances that all necessary
arrangements will be in place in order to operate the proposal as
anticipated by the implementation date.
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    \11\ 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, the ICI, supported the proposal and the MSRB's
continuing efforts to increase transparency in the municipal securities
market, noting that the proposed rule change is another needed step in
ensuring the dissemination of important information to investors. The
ICI recommended that, in addition to the expansion of EMMA put forth in
the proposal, that the SEC and MSRB publicly encourage issuers to
submit information for all classes of municipal securities to EMMA,
including securities not subject to Rule 15c2-12.\12\
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    \12\ See letter from the ICI, supra note 4.
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    In response to the ICI's recommendation, the MSRB noted that EMMA
is designed to accept submissions of continuing disclosure documents
from issuers, obligated persons and their agents for any municipal
security in any of the established categories, regardless of whether an
obligation exists under a continuing disclosure undertaking to provide
such disclosure. Thus, EMMA will accept continuing disclosure
submissions with respect to all municipal securities, including those
disclosures in connection with municipal securities that are not
subject to Rule 15c2-12, beginning on July 1, 2009 with the launch of
the permanent continuing disclosure service in conjunction with the
effective date of amendments to Rule 15c2-12.\13\ Accordingly, the
Commission believes that the MSRB has adequately addressed the ICI's
recommendation.
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    \13\ See Response Letter III, supra note 5.
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    S&P, the third commenter, supported the proposal's goal of
encouraging transparency in the market for municipal securities.
However, S&P believed that the Commission and the MSRB should assess
both the expected benefits and the potential consequences of including
rating agency material as an EMMA disclosure category. In particular,
S&P expressed concerns that material provided to rating agencies often
includes ``raw'' data that may not be easily understood by most
investors, that rating agency material may include data that is
proprietary, confidential or subject to legal or contractual
restrictions on redissemination that should be redacted by municipal
issuers, that regulatory encouragement to submit rating agency data to
EMMA could lead to reduced amounts of information that municipal
issuers provide to rating agencies, and that an expectation that rating
agency material be submitted to EMMA could create incentives for
municipal issuers to ``shop'' for the rating agency that requires the
least amount of information for its analysis, potentially affected
ratings quality. S&P noted that without a specific EMMA category for
rating agency material, municipal issuers could still choose to submit
such material to EMMA under the category ``other financial/operating
data,'' which is also set forth in the proposal. Finally, S&P noted
that the proposal labels the disclosure category that includes rating
agency material as ``material provided to rating agency or credit/
liquidity provider.'' S&P believes that categorizing these entities
together on an official public Web site could confuse some investors
about the distinctly different roles played by these entities in the
municipal securities marketplace, and believes that if rating agency
material remains an EMMA disclosure category, that it should be
separated from material provided to credit and liquidity providers.\14\
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    \14\ See letter from S&P, supra note 4.
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    The MSRB agrees that S&P has raised important considerations with
respect to whether materials provided by issuers to rating agencies
should be submitted to EMMA for public dissemination. The MSRB stated
that in making such a voluntary submission, issuers and others should
carefully weigh the factors identified by S&P and any other appropriate
considerations that may be applicable under the specific facts and

[[Page 27371]]

circumstances. The MSRB further believes that various factors
appropriate to the particular facts and circumstances should be
assessed by issuers, obligated persons and their agents in coming to a
decision on whether to make a voluntary submission on continuing
disclosure to EMMA, regardless of the potential category, to the extent
that such parties are not otherwise obligated to make such disclosures.
    The MSRB does not agree that the establishment of a distinct
category for the submission of rating agency materials creates an
inappropriate regulatory encouragement for such disclosures. The MSRB
noted that submitters may themselves assess the factors raised by S&P
in determining whether to provide such disclosure and/or provide
additional information necessary to make such disclosure effective and
not misleading to the general public. Because such disclosure is wholly
voluntary, the MSRB does not believe that there is a material
likelihood that the creation of this category would serve as an
incentive to reduce information provided to the rating agencies or to
seek ratings only from the rating agency requiring the least amount of
information.
    With regard to the inclusion of rating agency materials in the same
category as materials provided to credit or liquidity providers, the
MSRB noted that the general categorization structure is intended to
serve as a finding aid for public users and that, within any particular
category, the nature of the specific documents submitted may vary. To
clarify that the MSRB does not intend to equate rating agencies with
credit or liquidity providers and to provide for a broader range of
material to be included in this category, the MSRB has determined to
rename this category as ``information provided to rating agency,
credit/liquidity provider or other third party.'' In submitting such
information, submitters should consider including an indication of the
type of third-party recipient, to the extent appropriate for purposes
of understanding the nature of the information submitted.\15\ The
Commission believes that the MSRB has reasonably addressed S&P's
concerns in light of the voluntary nature of the information allowed to
be submitted to the continuing disclosure service.
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    \15\ See Response Letter III, supra note 5.
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    The Commission has carefully considered the proposed rule change,
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 \16\ 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\ In particular, the
Commission finds that the proposed rule change is consistent with the
Act because the EMMA continuing disclosure service, as amended by the
proposed rule change, 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, and
would serve to promote the statutory mandate of the MSRB to protect
investors and the public interest. The inclusion of voluntary
continuing disclosure documents in the EMMA continuing disclosure
service would further help make information useful for making
investment decisions more easily accessible to all participants in the
municipal securities market on an equal basis throughout the life of
the securities. Broad access to continuing disclosure documents through
the EMMA continuing disclosure service should assist in preventing
fraudulent and manipulative acts and practices by improving the
opportunity for public investors to access material information about
issuers and their securities. A single centralized and searchable venue
for free public access to disclosure 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, which should allow for fairer pricing of
transactions based on a more complete understanding of the terms of the
securities and the potential investment risks. Free access to this
information--previously generally available, if at all, through paid
subscription services or on a per-document fee basis--should reduce
transaction costs for dealers and investors.
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    \16\ 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).
    \17\ 15 U.S.C. 78o-4(b)(2)(C).
    \18\ Id.
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    It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\19\ that the proposed rule change (SR-MSRB-2009-04), be, and it
hereby is, approved.
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    \19\ 15 U.S.C. 78s(b)(2).
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    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).

Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-13404 Filed 6-8-09; 8:45 am]

BILLING CODE 8010-01-P
