
[Federal Register: August 18, 2009 (Volume 74, Number 158)]
[Notices]
[Page 41771-41772]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr18au09-87]


[[Page 41771]]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60487; File No. SR-MSRB-2009-12]


Self-Regulatory Organizations; Municipal Securities Rulemaking
Board; Notice of Filing of Proposed Rule Change Relating to Amendments
to Rule G-11(i) (Settlement of Syndicate or Similar Account), Rule G-
11(j) (Payment of Designations), and Rule G-12(i) (Settlement of Joint
or Similar Account)

August 12, 2009.
    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 August 6, 2009, the Municipal Securities Rulemaking Board (``MSRB''
or ``Board'') filed with the Securities and Exchange Commission
(``Commission'' or ``SEC'') the proposed rule change as described in
Items I, II, and III below, which Items have been prepared by the MSRB.
The Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    The MSRB has filed with the Commission proposed amendments to Rule
G-11(i) (settlement of syndicate or similar account), MSRB Rule G-11(j)
(payment of designations), and MSRB Rule G-12(i) (settlement of joint
or similar account). For the proposed amendments to Rule G-11, the MSRB
requested that the amendments become effective for new issues of
municipal securities for which the Time of Formal Award (as defined in
Rule G-34(a)(ii)(C)(1)(a)) is more than 30 calendar days after the date
the amendments are approved by the SEC. For the proposed amendments to
Rule G-12, the MSRB requested that the amendments become effective for
secondary market trading accounts formed more than 30 days after the
date the amendments are approved by the SEC.
    The text of the proposed rule change is available on the MSRB's Web
site (http://www.msrb.org/msrb1/sec.asp), at the MSRB's principal
office, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, 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
text 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
    The proposed rule change accelerates the settlement of syndicate
accounts and secondary market trading accounts, and the payment of
designations, by shortening certain time periods within the rules.
These proposals are designed to reduce the exposure of syndicate and
secondary market trading account members to the risk of potential
deterioration in the credit of the syndicate or account manager during
the pendency of account settlements. Since the existing rules were
adopted in the 1970s, dealers and those firms who invoice them for
syndicate expenses have adopted significantly more efficient billing
and accounting systems. The MSRB believes that such systems make
reductions in the time periods for distribution of syndicate and
secondary market trading account profits feasible and not unduly
burdensome to dealers. Furthermore, many fees are agreed upon in
advance or can be estimated with considerable accuracy soon after
settlement.
    Currently, Rule G-11(i), on settlement of syndicate or similar
account, requires that final settlement of an underwriting syndicate or
similar account be made within 60 calendar days following the date all
securities have been delivered by the syndicate or account manager to
the syndicate or account members (``bond closing''). Rule G-11(j), on
payments of designations, requires that any credit designated by a
customer in connection with the purchase of new issue securities as due
to a member of a syndicate shall be distributed to such member by any
dealer handling such order within 30 calendar days following bond
closing.
    The proposed rule change changes the deadlines in Rule G-11 to 30
calendar days after bond closing for distributions (currently 60
calendar days) and 10 calendar days after bond closing for designations
(currently 30 calendar days). To facilitate implementation of these
reduced time periods, the MSRB also determined to add a new requirement
that all syndicate members submit their designations to the syndicate
manager within two business days after bond closing.
    Rule G-12(i), on settlement of joint or similar account, contains
requirements for the settlement of joint or similar accounts formed in
the secondary market. The rule currently requires that the settlement
of these accounts be made within 60 days following the date all
securities have been delivered by the syndicate or account manager to
the syndicate or account members (``delivery date''). The proposed rule
change changes the deadline in the rule to 30 calendar days following
delivery date.
2. Statutory Basis
    The MSRB has adopted the proposed rule change pursuant to Section
15B(b)(2)(C) of the Act,\3\ which provides that the MSRB's rules shall:
---------------------------------------------------------------------------

    \3\ 15 U.S.C. 78o-4(b)(2)(C).

    [B]e 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.

    The MSRB believes that the proposed rule change is consistent with
the Act because it will further the free and open market in municipal
securities by reducing the exposure of dealers to the potential
deterioration of the credit of syndicate managers during the period
prior to settlement of syndicate accounts and providing a comparable
rule for the settlement of secondary market trading accounts.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The MSRB does not believe the proposed rule change would impose any
burden on competition not necessary or appropriate in furtherance of
the purposes of the Act since 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 May 12, 2009, the MSRB requested comment on draft

[[Page 41772]]

amendments to Rules G-11 and G-12.\4\ The MSRB received comments on the
proposed rule change from two commentators.\5\
---------------------------------------------------------------------------

    \4\ See MSRB Notice 2009-20 (May 12, 2009).
    \5\ Letter from Hill A. Feinberg, Chairman and Chief Executive
Officer, First Southwest Company (``First Southwest'') to Margaret
C. Henry, dated June 26, 2009; Letter from Leslie M. Norwood,
Managing Director and Associate General Counsel, Securities Industry
and Financial Markets Association (``SIFMA'') to Margaret C. Henry,
dated June 29, 2009.
---------------------------------------------------------------------------

    First Southwest applauded the MSRB for proposing the changes to
Rule G-11 and urged that they be adopted. No comment was made on the
proposed change to Rule G-12. First Southwest also urged that the MSRB
study how syndicates could be structured to eliminate the bankruptcy
risk of the senior manager to the co-managers. The MSRB's Regulatory
Review Special Committee gave preliminary consideration to potentially
mandating such a structural change, and its initial review indicated
that the cost of such a structural change likely would outweigh the
potential benefits. Accordingly, the Committee chose to recommend to
the full Board, and the Board approved, the proposed rule changes
instead.
    SIFMA applauded the MSRB for attempting to reduce the exposure of
syndicate members to a potential deterioration in credit of the
syndicate manager by means of the draft amendments to Rules G-11 and G-
12. However, SIFMA only recommended that the changes to Rule G-12 be
adopted. It opposed the proposed change to Rule G-11(i) that would
require settlement of syndicate accounts within 30 calendar days rather
than 60 calendar days for three reasons: (1) It said that, in many
competitive deals, not all the bonds were sold within 30 days; (2) It
said that many underwriters' counsel bills were not received within 30
days, particularly for new and complicated financings; and (3) It said
that 30 calendar days usually amounted to only 20 business days, which
it said was too short a period. SIFMA opposed the proposed changes to
the Rule G-11(j) on payment of designations for two reasons. First, it
said that the new rule requiring co-managers to inform the syndicate
manager within two business days after closing of a bond issue was
unduly burdensome to co-managers. Instead, it said that the syndicate
manager should be required to obtain the information from the co-
managers outside of MSRB rules. Second, SIFMA said that the shortening
of the time period for payments of designations from 30 calendar days
to 10 calendar days would unduly burden the syndicate manager, with
minimal reduction in risk. SIFMA said that the periods for settlement
of syndicate accounts and payment of designations should be the same:
60 days.
    As to SIFMA's comment about the potential effect of the draft Rule
G-11(i) changes on competitive underwritings, the Board concluded that
only a small percentage of syndicates for competitive underwritings
could not be settled within 30 days after closing of a bond issue and
that, in such a case, the syndicate could be split up or any unsold
bonds sold to a general account of the whole. The Board did not agree
with SIFMA's comment regarding the timing of the receipt of
underwriter's counsel bills. The Board also found that it was
reasonable to require the payment of designations within 10 calendar
days after closing of a bond issue and to require all syndicate members
to notify the syndicate manager of their designations within two
business days after closing of a bond issue.

III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action

    Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
A. By order approve such proposed rule change, or
B. Institute proceedings to determine whether the proposed rule change
should be disapproved.
    For the proposed amendments to Rule G-11, the MSRB requested that
the amendments become effective for new issues of municipal securities
for which the Time of Formal Award (as defined in Rule G-
34(a)(ii)(C)(1)(a)) is more than 30 calendar days after the date the
amendments are approved by the SEC. For the proposed amendments to Rule
G-12, the MSRB requested that the amendments become effective for
secondary market trading accounts formed more than 30 days after the
date the amendments are approved by the SEC.

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. Comments may be submitted by any of
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://
www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-MSRB-2009-12 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.

All submissions should refer to File Number SR-MSRB-2009-12. This file
number should be included on the subject line if e-mail is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/
sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for inspection and
copying in the Commission's Public Reference Room, 100 F Street, NE.,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of such filing also will be available for
inspection and copying at the principal office of the MSRB. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-MSRB-2009-12 and should be
submitted on or before September 8, 2009.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\6\
Florence E. Harmon,
Deputy Secretary.
---------------------------------------------------------------------------

    \6\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

[FR Doc. E9-19745 Filed 8-17-09; 8:45 am]

BILLING CODE 8010-01-P
