
[Federal Register: April 2, 2010 (Volume 75, Number 63)]
[Notices]               
[Page 16878-16886]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr02ap10-129]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61793; File No. SR-MSRB-2010-02]

 
Self-Regulatory Organizations; Municipal Securities Rulemaking 
Board; Notice of Filing of Proposed Rule Change to MSRB Rule G-34, 
CUSIP Numbers and New Issue Requirements, To Enhance the Interest Rate 
and Descriptive Information Currently Collected and Made Transparent by 
the MSRB on Municipal Auction Rate Securities and Variable Rate Demand 
Obligations

March 26, 2010.
    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 10, 2010, the Municipal Securities Rulemaking Board (``MSRB'') 
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.
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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 MSRB is filing with the Commission a proposed rule change to 
enhance the interest rate and descriptive information currently 
collected and made transparent by the MSRB on

[[Page 16879]]

municipal Auction Rate Securities (``ARS'') and Variable Rate Demand 
Obligations (``VRDOs''). The proposed rule change would: (i) Amend 
Rules G-8, books and records, and G-34(c), variable rate security 
market information, to require brokers, dealers and municipal 
securities dealers (collectively ``dealers'') to submit to the MSRB (a) 
documents that define auction procedures and interest rate setting 
mechanisms for ARS and liquidity facilities for VRDOs (``short-term 
obligation document disclosure rule change''); (b) ARS bidding 
information (``ARS bidding information rule change''); and (c) 
additional VRDO information (``VRDO information rule change'') 
(collectively, the ``rule change proposal''); (ii) amend the MSRB 
Short-term Obligation Rate Transparency (``SHORT'') System Facility to 
collect and disseminate information identified in the ARS bidding 
information rule change and the VRDO information rule change and 
documents identified in the short-term obligation document disclosure 
rule change (the ``SHORT System Facility amendment proposal''); and 
(iii) amend the MSRB EMMA Short-term Obligation Rate Transparency 
Service to make the documents collected in the SHORT System Facility 
amendment proposal available on the MSRB's Electronic Municipal Market 
Access (EMMA) Web site (the ``EMMA Short-term Obligation Rate 
Transparency Service amendment'').
    The MSRB has requested that the proposed rule change, which may be 
implemented in phases, be made effective on such date or dates as would 
be announced by the MSRB in notices published on the MSRB Web site, 
which dates would be no later than nine months after Commission 
approval of the proposed rule change and would be announced no later 
than sixty (60) days prior to the effective dates.
    The text of the proposed rule change is available on the MSRB's Web 
site (http://www.msrb.org), at the MSRB's principal office, and at the 
Commission's Public Reference Room. If approved, the rule text for the 
Short-term Obligation Rate Transparency System, as well as for the EMMA 
Short-Term Obligation Rate Transparency Service, would be available on 
the MSRB Web site at http://www.msrb.org/msrb1/rulesandforms under the 
heading Information Facilities.

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. 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 would enhance the interest rate and 
descriptive information currently collected and made transparent by the 
MSRB on municipal Auction Rate Securities (``ARS'') and Variable Rate 
Demand Obligations (``VRDOs''). The proposed rule change would: (i) 
Amend MSRB Rules G-8, books and records, and G-34(c), variable rate 
security market information, to require brokers, dealers and municipal 
securities dealers (collectively ``dealers'') to submit to the MSRB (a) 
documents that define auction procedures and interest rate setting 
mechanisms for ARS and liquidity facilities for VRDOs; (b) ARS bidding 
information; and (c) additional VRDO information (collectively ``rule 
change proposal''); (ii) amend the MSRB Short-term Obligation Rate 
Transparency (``SHORT'') System Facility to collect and disseminate the 
documents identified in the rule change proposal (``SHORT System 
Facility amendment proposal''); and (iii) amend the MSRB EMMA Short-
term Obligation Rate Transparency Service to make the documents 
collected in the SHORT System Facility amendment proposal available on 
the MSRB's Electronic Municipal Market Access (EMMA) Web site (the 
``EMMA Short-term Obligation Rate Transparency Service amendment'').
    SHORT and EMMA are components of an integrated suite of programs, 
services and systems (``MSRB market information programs'') for the 
collection of municipal securities market data and documents from 
dealers and other market participants and the dissemination of such 
data and documents to the public. The MSRB market information programs 
leverage the components of the various individual programs, services 
and systems to enhance the overall efficiency and effectiveness of the 
MSRB market information programs. In particular, processes, software, 
hardware or other components initially placed into service for a 
particular program, service or system may be utilized by other 
programs, services and systems within the MSRB market information 
programs to optimize the effectiveness of the MSRB market information 
programs and the individual components thereof.\3\
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    \3\ For example, certain elements of the SHORT System Facility 
amendment proposal would rely on components previously placed into 
service pursuant to the EMMA primary market or continuing disclosure 
services for purposes of processing submissions made to the MSRB.
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Background
    Since January 30, 2009 for ARS and April 1, 2009 for VRDOs, MSRB 
Rule G-34(c), on variable rate security market information, has 
required dealers that act as Program Dealers \4\ for ARS or Remarketing 
Agents for VRDOs to report (either directly or through an agent) 
certain information following an ARS auction or VRDO interest rate 
reset to the SHORT System.\5\ Information generally is required to be 
reported to the SHORT System by no later than 6:30 p.m. Eastern Time on 
the day that an ARS auction or VRDO interest rate reset occurs and all 
collected information is made available to market participants for free 
in real-time on the MSRB's Electronic Municipal Market Access 
(``EMMA'') Web site.\6\ The specific items of interest rate and 
descriptive information about ARS and VRDOs currently required to be 
reported to the SHORT System are listed below.
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    \4\ An ARS Program Dealer is defined in Rule G-34(c) as a dealer 
that submits an order directly to an Auction Agent for its own 
account or on behalf of another account to buy, hold or sell ARS 
through the auction process.
    \5\ See Securities Exchange Act Release No. 34-59212, January 7, 
2009 (File No. SR-MSRB-2008-07).
    \6\ The 6:30 p.m. Eastern Time deadline only applies to those 
ARS auctions and VRDO interest rate resets that occur during an 
``RTRS Business Day,'' as defined in Rule G-14(d)(ii). Information 
about ARS auctions and VRDO interest rate resets that occur outside 
of the hours of an ``RTRS Business Day'' is required to be submitted 
to the SHORT System by no later than 6:30 p.m. Eastern Time on the 
next ``RTRS Business Day.''
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    The following is a list of the information currently required to be 
reported to the SHORT System by an ARS Program Dealer following an ARS 
auction:
     CUSIP number;
     Interest rate for the next reset period;
     Identity of Program Dealer(s);
     Number of days of the reset period;
     Minimum denomination;
     Date and time of the auction;
     Date and time of posting of auction results by an Auction 
Agent;
     Indication of whether the interest rate represents a 
``maximum rate,'' an ``all hold rate,'' or a rate that was ``set by 
auction;''

[[Page 16880]]

     Minimum and maximum rates, if any, applicable at the time 
of the auction or, if not calculable as of the time of auction, 
indication that such rate or rates are not calculable; \7\ and
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    \7\ Some ARS and VRDOs have minimum and maximum rates that are 
set pursuant to formulas that are unable to be calculated at the 
time a submission to the SHORT System is required. In these cases, a 
value of ``NC'' is required to be included in a submission to the 
SHORT System to show that the minimum and maximum rates are ``not 
calculable.'' This exception does not apply to minimum and maximum 
rates that are linked to an index or bank lending rate, such as 
LIBOR. Such rates are required to be computed and the resulting 
values included on a submission to the SHORT System.
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     Par amount auctioned, not including hold orders effective 
at any rate.
    The following is a list of the information currently required to be 
reported to the SHORT System by a VRDO Remarketing Agent following a 
VRDO interest rate reset:
     CUSIP number;
     Interest rate for the next reset period;
     Identity of Remarketing Agent;
     Date of interest rate reset;
     Length of the interest rate reset period;
     Length of Notification Period;
     Indication of whether interest rate is ``set by formula,'' 
``set by Remarketing Agent'' or a ``maximum rate;''
     Minimum and maximum rates, if any, applicable at the time 
of the interest rate reset or, if not calculable as of the time of the 
interest rate reset, indication that such rate or rates are not 
calculable; \8\
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    \8\ Id.
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     Minimum denomination;
     Type of liquidity facility(ies); \9\ and
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    \9\ Dealers are required to submit to the SHORT System whether 
each applicable liquidity facility is a letter of credit or standby 
bond purchase agreement.
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     Expiration date of each liquidity facility.
Description of the Rule Change Proposal
    The proposed rule change would enhance the interest rate and 
descriptive information currently made available to market participants 
about ARS and VRDOs. The proposed rule change would require dealers to 
report to the MSRB documents that set forth auction procedures and 
interest rate setting mechanisms for ARS and liquidity facilities for 
VRDOs, as well as ARS bidding information and additional VRDO 
information. All collected documents and information would be made 
available in real-time on EMMA.\10\ The documents and information about 
ARS and VRDOs that would be required to be provided to the MSRB under 
the proposed rule change are described below.
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    \10\ In the future, the MSRB also plans to make all information 
collected under the rule change proposal available on a subscription 
basis.
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ARS Bidding Information
    The proposed rule change would require each ARS Program Dealer to 
report to the SHORT System an electronic document containing ``ARS 
bidding information,'' which would include information about all orders 
placed by an ARS Program Dealer with an ARS Auction Agent for inclusion 
in an auction. This information would augment the interest rate and 
descriptive information currently provided to market participants by 
also providing information that would show, for example, how the 
interest rate was determined for a successful auction. The specific 
items of ARS bidding information an ARS Program Dealer would be 
required to report to the SHORT System are listed below. All items 
would be required to be reported within the same timeframe as the ARS 
interest rate and descriptive information currently required to be 
reported under Rule G-34(c). The ARS bidding information document would 
be required to be submitted to the SHORT System as a word-searchable 
portable document format (``PDF'') file.
     Interest rate(s) and aggregate par amount(s) of orders to 
sell at a specific interest rate and aggregate par amount of such 
orders that were executed;
     Aggregate par amount of orders to sell at any interest 
rate and aggregate par amount of such orders that were executed;
     Interest rate(s) and aggregate par amount(s) of orders to 
hold at a specific interest rate and aggregate par amount of such 
orders that were successfully held;
     Interest rate(s) and aggregate par amount(s) of orders to 
buy and aggregate par amount of such orders that were executed;
     Interest rate(s), aggregate par amount(s), and type of 
order--either buy, sell or hold--by a Program Dealer for its own 
account and aggregate par amounts of such orders, by type, that were 
executed; and
     Interest rate(s), aggregate par amount(s), and type of 
order--either buy, sell or hold--by an issuer or conduit borrower for 
such Auction Rate Security and aggregate par amounts of such orders, by 
type, that were executed.
Additional VRDO Information
    The proposed rule change would require VRDO Remarketing Agents to 
submit additional items of VRDO information to the SHORT System in 
conjunction with the VRDO interest rate and descriptive information 
currently required to be reported under Rule G-34(c). This information 
would provide additional details concerning the interest rate set for a 
VRDO, such as the effective date of the interest rate, and would 
facilitate the tendering of a position in a VRDO by investors by 
requiring VRDO Remarketing Agents to report the identity of the agent 
of the issuer of the VRDOs to which a holder may tender their security 
(``Tender Agent'').
    The additional VRDO information would also provide transparency 
related to the current holders of the VRDO. Information about current 
holders of a VRDO would indicate, for example, that interest rate set 
represents an interest rate paid to holders of the VRDO instead of 
instances when the VRDO is held entirely by a liquidity provider (as a 
``Bank Bond'') and that the interest rate set is therefore not set by 
market demand. A complete list of the specific items of additional VRDO 
information a VRDO Remarketing Agent would be required to report to the 
SHORT System under the proposed rule change are listed below.
     Effective date that the interest rate reset is applicable;
     Identity of the Tender Agent;
     Identity of the liquidity provider(s) including a 
indication of those VRDOs for which an issuer provides ``self 
liquidity'' and the identity of the party providing such self-
liquidity; \11\
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    \11\ Some VRDOs have liquidity provisions under which the 
liquidity is provided by the issuer, conduit borrower or affiliate 
instead of by a third-party. Rule G-34(c) currently requires 
Remarketing Agents to report the type of liquidity facility 
applicable to a VRDO. Currently, SHORT System specifications only 
provide two options for this data element--letter of credit and 
standby bond purchase agreement--and in conjunction with proposed 
rule change the MSRB would revise the specifications to also capture 
VRDOs that have ``self liquidity.''
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     Information available to the VRDO Remarketing Agent as of 
the time of the interest rate reset of the par amount of the VRDO, if 
any, held as a Bank Bond; and
     Information available to the VRDO Remarketing Agent as of 
the time of the interest rate reset of the aggregate par amount of the 
VRDO, if any, held by parties other than a liquidity provider, which 
includes the par amounts held by a VRDO Remarketing Agent and by 
investors.
ARS and VRDO Documents
    The proposed rule change would require ARS Program Dealers and VRDO 
Remarketing Agents to submit certain documents to the SHORT System to

[[Page 16881]]

ensure that market participants have centralized access to critical 
documents about ARS programs and VRDO issues. For existing ARS 
programs, dealers would be required to submit the current versions of 
ARS documents defining current auction procedures and interest rate 
setting mechanisms to the SHORT System within ninety days after the 
effective date of the proposed rule change. For existing VRDO issues, 
dealers would be required to undertake and document \12\ best efforts 
to obtain current versions of VRDO liquidity facility documents, 
including Letters of Credit, Stand-by Bond Purchase Agreements and any 
other document that establishes an obligation to provide liquidity, and 
submit such documents to the SHORT System within ninety days after the 
effective date of the proposed rule change. On an ongoing basis, 
dealers would be required to submit any new or amended versions of 
these documents within one business day of receipt.
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    \12\ The proposed rule change would require dealers to keep 
records for a period of three years of all best efforts undertaken 
to obtain documents for existing VRDO issues. Such records of best 
efforts would include, for example, all written requests for 
documents to and any responses from an issuer or liquidity provider.
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    The MSRB recognizes that for some ARS programs, documents defining 
current auction procedures and interest rate setting mechanisms may 
already be available in the SHORT System. This may occur in the case of 
an ARS with multiple Program Dealers in which one Program Dealer has 
already submitted to the SHORT System the required document. In these 
cases, in lieu of submitting duplicate documents, dealers would be 
provided the capability to signify that a document required to be 
submitted has already been submitted to the SHORT System by identifying 
the relevant document.
    Since January 1, 2010, all documents submitted to EMMA have been 
required to be word-searchable PDF files. While this same requirement 
would apply to the submission of ARS and VRDO documents to the SHORT 
System, MSRB acknowledges that some of these documents for outstanding 
ARS and VRDOs are likely to be older documents that may not be 
available in electronic format or a format that would easily permit a 
dealer to produce a word-searchable PDF file of the document. 
Accordingly, the proposed rule change would only require ARS and VRDO 
documents submitted to EMMA to be word-searchable for new or amended 
versions of documents produced after the effective date of the proposed 
rule change.
Description of the Short System Facility Amendment Proposal
    The SHORT System is an MSRB Facility for the collection and public 
dissemination of information about ARS and VRDO. The amendment to this 
facility would provide for the collection and public dissemination of 
documents identified in the rule change proposal.
Submissions to the SHORT System
    The SHORT System receives submissions of information and documents 
about securities bearing interest at short-term rates under MSRB Rule 
G-34, on CUSIP numbers, new issue and market information requirements.
    Information and Documents to be Submitted. The basic items of 
information and documents that would be required to be submitted to the 
SHORT System are the same as those required to be submitted to the MSRB 
under MSRB Rule G-34(c). Submitters of documents would be required to 
provide to the SHORT System related indexing information with respect 
to each document submitted, including an indication of the document 
type, date such document became available to the dealer, and CUSIP 
number(s) of the municipal securities to which such document relates. A 
submitter required to submit a document that is already available in 
its entirety in the SHORT System would be permitted to, in lieu of 
submitting a duplicate document, identify the document already 
submitted and provide such items of related indexing information as are 
required by MSRB rules or the SHORT System input specifications and 
system procedures. A submitter required to submit a document that is 
not able to be obtained through best efforts as provided in the 
proposed rule change would be required to provide an affirmative 
indication that a document required to be submitted is not available 
for submission notwithstanding the submitter's best efforts to obtain 
such document. The complete list of data elements that would be 
required on a submission to the SHORT System would be available in 
input specifications and system procedures made available on http://
www.msrb.org. Submitters would be responsible for the accuracy and 
completeness of all information submitted to the SHORT System.
    Submitters. Submissions to the SHORT System may be made solely by 
authorized submitters using password-protected accounts in the MSRB's 
user authentication system, MSRB Gateway. MSRB Gateway is designed to 
be a single, secure access point for all MSRB applications. Submitters 
of information to the SHORT System are required to obtain an account in 
MSRB Gateway in order to submit information to the SHORT System. 
Through MSRB Gateway, submitters also have the ability to designate 
third-party agents to submit information to the SHORT System on the 
submitter's behalf.
    Submissions may be made by the following classes of submitters:
     ARS Program Dealer;
     VRDO Remarketing Agent;
     ARS Auction Agent; and
     Designated Agent, which may submit any information 
otherwise permitted to be submitted by another class of submitter which 
has designated such agent, as provided below.
    All ARS Auction Agents are allowed to submit information about an 
auction to the SHORT System without prior designation by an ARS Program 
Dealer. Dealers optionally may designate agents to submit information 
on their behalf, and may revoke the designation of any such agents, 
through MSRB Gateway. All actions taken by a Designated Agent on behalf 
of a dealer that has designated such agent shall be the responsibility 
of the dealer.
    Timing of Submissions. Submitters are required to make submissions 
to the SHORT System within the timeframes set forth in MSRB Rule G-
34(c) and related MSRB procedures. Submissions of information to the 
SHORT System may be made throughout any RTRS Business Day, as defined 
in Rule G-14 RTRS Procedures, from at least the hours of 6 a.m. to 9 
p.m. Eastern Time, subject to the right of the MSRB to make such 
processes unavailable at times as needed to ensure the integrity of the 
SHORT System and any related systems. Submissions of documents would be 
able to be made throughout any day, subject to the right of the MSRB to 
make such processes unavailable between the hours of 3 a.m. and 6 a.m. 
each day, Eastern Time, for required maintenance, upgrades or other 
purposes, or at other times as needed to ensure the integrity of MSRB 
systems. The MSRB provides advance notice of any planned periods of 
unavailability and shall endeavor to provide information to submitters 
as to the status of the submission interface during unanticipated 
periods of unavailability, to the extent technically feasible.
    Method of Submission. Information and documents may be submitted to 
the SHORT System through a secure, password-protected, Web-based 
electronic submitter interface or through a secure, authenticated 
computer-to-computer data connection, at the

[[Page 16882]]

election of the submitter. When making submissions using the Web-based 
interface, related information is entered manually into an on-line form 
and documents would be required to be uploaded as portable document 
format (PDF) files. Computer-to-computer submissions utilize XML files 
for data and PDF files for documents. Appropriate schemas and 
procedures for Web-based and computer-to-computer submissions would be 
available in input specifications and system procedures made available 
on http://www.msrb.org.
    Designated Electronic Format for Documents. All documents submitted 
to the SHORT System would be required to be in portable document format 
(PDF), configured to permit documents to be saved, viewed, printed and 
retransmitted by electronic means. If the submitted file is a 
reproduction of the original document, the submitted file must maintain 
the graphical and textual integrity of the original document. Documents 
submitted to the SHORT System created on or after the effective date of 
the proposed rule change would be required to be word-searchable 
(without regard to diagrams, images and other non-textual elements).
SHORT System Processing
    The SHORT System provides a single portal for the submission of 
information and documents. The SHORT System, as well as other MSRB 
systems and services, performs various data checks to ensure that 
information and documents are submitted in the correct format. In 
addition, data checks are performed to monitor dealer compliance with 
MSRB Rule G-34(c) as well as to identify information submitted in 
correct formats that may contain errors due to information not falling 
within reasonable ranges of expected values for a given item of 
information. All submissions generate an acknowledgement or error 
message, and all dealers that have information or documents submitted 
on their behalf by either an ARS Auction Agent or a Designated Agent 
are able to monitor such submissions.
SHORT System Information and Document Dissemination
    Information and documents submitted to the SHORT System that pass 
the format and data checks described above are processed and 
disseminated on a real-time basis. Any changes to submissions also are 
processed upon receipt and updated information and documents are 
disseminated in real-time. Information submitted to the SHORT System 
is, in general, disseminated to the EMMA short-term obligation rate 
transparency service within 15 minutes of acceptance, although during 
peak traffic periods dissemination may occur within one hour of 
acceptance. Submissions of documents to the SHORT System accepted 
during the hours of 8:30 a.m. to 6 p.m. Eastern Time on an MSRB 
business day would generally be disseminated to the EMMA short-term 
obligation transparency service within 15 minutes of acceptance, 
although during peak traffic periods posting may occur within one hour 
of acceptance. Submissions outside of such hours often would be posted 
within 15 minutes although some submissions outside of the MSRB's 
normal business hours may not be processed until the next business day. 
SHORT System information and documents, along with related indexing 
information, would be made available to the public through the EMMA 
portal for the life of the related securities.
    The MSRB plans to offer subscriptions to the information and 
documents submitted to the SHORT System in the future.
Description of the EMMA Short-Term Obligation Rate Transparency Service 
Amendment Proposal
    The EMMA short-term obligation rate transparency service currently 
makes the information collected by the SHORT System available to the 
public, at no charge, on the EMMA portal. The amendment to this service 
would add the documents identified in the rule change proposal to this 
service so that such documents would also be available to the public, 
at no charge, on the EMMA portal.
2. Statutory Basis
    The MSRB has adopted the proposed rule change pursuant to Section 
15B(b)(2)(C) of the Act,\13\ which provides that the MSRB's rules 
shall:
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    \13\ 15 U.S.C. 78o-4(b)(2)(C).

    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 
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the public interest.

    The MSRB believes that the proposed rule change is consistent with 
the Act. 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 by providing a centralized venue for free public 
access to information about and documents relating to ARS and VRDO. The 
proposed rule change would provide greater access to information about 
and documents relating to ARS and VRDO to all participants in the 
municipal securities market on an equal basis thereby removing 
potential barriers to obtaining such information. These factors serve 
to promote the statutory mandate of the MSRB to protect investors and 
the public interest.

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

    The MSRB does not believe the proposed rule change will impose any 
burden on competition not necessary or appropriate in furtherance of 
the purposes of the Act, since it would apply equally to dealers in 
municipal securities.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    On March 17, 2008, the MSRB requested comment on a proposed plan 
for increasing the information available for ARS (``March 2008 ARS 
Notice''),\14\ on May 23, 2008, the MSRB requested comment on a 
proposed plan for increasing the information available for VRDOs (``May 
2008 VRDO Notice''),\15\ and on July 14, 2009 the MSRB requested 
comment on the draft amendments to Rule G-34(c) (``July 2009 
Notice'').\16\ These notices, the comments received, and the MSRB's 
responses are discussed below.
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    \14\ See MSRB Notice 2008-15 (March 17, 2008).
    \15\ See MSRB Notice 2008-24 (May 23, 2008).
    \16\ See MSRB Notice 2009-43 (July 14, 2009).
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March 2008 ARS Notice
    The March 2008 ARS Notice proposed a plan to create a centralized 
system for the collection and dissemination of critical market 
information about ARS. The March 2008 ARS Notice proposed the 
collection and dissemination of the current interest rate and certain 
descriptive information for ARS programs, bidding information detailing 
the orders placed by an ARS Program Dealer with an ARS Auction Agent 
for inclusion in an auction (``ARS bidding information'') and documents 
concerning ARS that were not required to be filed with the MSRB under 
former Rule G-36, on delivery of official statements, advance refunding

[[Page 16883]]

documents and Forms G-36(OS) and G-36(ARD).
May 2008 VRDO Notice
    The May 2008 VRDO Notice proposed a plan to collect and disseminate 
critical market information about VRDOs using the same system proposed 
in the March 2008 ARS Notice for ARS. The May 2008 VRDO Notice proposed 
collecting and disseminating the current interest rate and certain 
descriptive information for VRDOs and documents concerning VRDOs that 
were not required to be filed with the MSRB under former Rule G-36, 
such as the letter of credit or standby bond purchase agreement.
July 2009 Notice
    The July 2009 Notice requested comment on draft amendments to Rule 
G-34(c). The draft amendments would require ARS Program Dealers to 
report ARS bidding information and VRDO Remarketing Agents to report 
additional descriptive information about VRDOs to the MSRB Short-term 
Obligation Rate Transparency (``SHORT'') System. The draft amendments 
also would require ARS Program Dealers and VRDO Remarketing Agents to 
submit ARS documents defining current auction procedures and interest 
rate setting mechanisms and VRDO liquidity facility documents, 
including current Letters of Credit and Stand-by Bond Purchase 
Agreements (collectively ``short-term obligation documents''). For 
existing ARS and VRDOs, the draft amendments would require dealers to 
provide the current versions of documents to the MSRB within thirty 
days after the effective date of the draft amendments and on an ongoing 
basis dealers would be required to provide any new or amended versions 
of these documents within one business day of receipt.
Discussion of Comments
    The MSRB received comments on the March 2008 ARS Notice from seven 
commentators,\17\ on the May 2008 VRDO Notice from nine 
commentators,\18\ and on the July 2009 Notice from five 
commentators.\19\ After reviewing the comments on the March 2008 ARS 
Notice and May 2008 VRDO Notice, the MSRB approved a phased-in approach 
to the collection and dissemination of ARS and VRDO information and 
documents. The first phase of this approach included changes to MSRB 
Rule G-34 to require dealers to report ARS and VRDO interest rate and 
descriptive information to the MSRB and implementation of the SHORT 
System, which became effective on January 30, 2009 for ARS and April 1, 
2009 for VRDOs.\20\ The principal comments of the March 2008 ARS 
Notice, May 2008 VRDO Notice and July 2009 Notice concerning the 
collection of ARS bidding information, additional VRDO descriptive 
information and short-term obligation disclosure documents are 
discussed below.
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    \17\ See letters from Paula Stuart, Chief Executive Officer, 
Digital Assurance Certification, LLC (``DAC'') to Justin Pica, dated 
April 21, 2008; Jack B. McPherson to Mr. Pica, dated March 27, 2008; 
Mikag@cox.net to Mr. Pica, e-mail dated April 23, 2008; Michael 
Decker, Co-Chief Executive Officer, and Mike Nicholas, Co-Chief 
Executive Officer, Regional Bond Dealers Association (``RBDA'') to 
Mr. Pica, dated April 21, 2008; Joseph S. Fichera, Senior Managing 
Director and CEO, Saber Partners, LLC (``Saber Partners'') to Mr. 
Pica, dated July 9, 2008; Leslie M. Norwood, Managing Director and 
Associate General Counsel, Securities Industry and Financial Markets 
Association (``SIFMA'') to Mr. Pica, dated April 21, 2008; and, Jeff 
Yankauer to Mr. Pica, e-mail dated April 17, 2008.
    \18\ See letters from Paula Stuart, Chief Executive Officer, 
Digital Assurance Certification LLC (``DAC'') to Mr. Pica, dated 
July 1, 2008; Daniel Thieke, Vice President, Depository Trust and 
Clearing Corporation (``DTCC'') to Mr. Pica, dated June 26, 2008; 
Christine Walsh, Managing Director, Merrill Lynch to Mr. Pica, dated 
June 26, 2008; S. Lauren Heyne, Chief Compliance Officer, RW Smith 
and Associates, Inc. (``RW Smith'') to Mr. Pica, dated June 30, 
2008; Joseph S. Fichera, Senior Managing Director and CEO, Saber 
Partners to Mr. Pica, dated July 9, 2008; Leslie M. Norwood, 
Managing Director and Associate General Counsel, SIFMA to Mr. Pica, 
dated June 30, 2008; Dara L. Smith, Managing Director, SunTrust 
Robinson Humphrey (``SunTrust'') to Mr. Pica, dated June 27, 2008; 
Joseph A. Whitehead, Thornton Farish Inc. (``Thornton Farish'') to 
Mr. Pica, dated June 30, 2008; and, Belle Walker, Senior Vice 
President, W.R. Taylor and Company, LLC (``W.R. Taylor'') to Mr. 
Pica, dated August 7, 2008.
    \19\ See letters from Patricia W. Wilson, Senior Managing 
Director Global Alternatives, Allstate Investments, LLC 
(``Allstate'') to Mr. Pica, dated September 1, 2009; Robert J. 
Stracks, Counsel, BMO Capital Markets GKST Inc. to Mr. Pica, dated 
September 1, 2009; Carl Giles, Managing Director Capital Markets, 
First Southwest Company (``First Southwest'') to Mr. Pica, dated 
August 31, 2009; Michael Decker, Co-Chief Executive Officer, and 
Mike Nicholas, Co-Chief Executive Officer, RBDA to Mr. Pica, dated 
September 1, 2009; and Leslie M. Norwood, Managing Director and 
Associate General Counsel, SIFMA to Mr. Pica, dated September 1, 
2009.
    \20\ See Securities Exchange Act Release No. 59212, January 7, 
2009 (File No. SR-MSRB-2008-07). The principal comments of the March 
ARS Notice and May VRDO Notice concerning the collection of ARS and 
VRDO interest rate and descriptive information as well as the 
implementation of the SHORT System were discussed in File No. SR-
MSRB-2008-07.
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Additional VRDO Data
    The draft amendments in the July 2009 Notice identified items of 
information that a VRDO Remarketing Agent would be required to report 
to the SHORT System in conjunction with the VRDO interest rate and 
descriptive information currently required to be reported on the day 
that an interest rate reset occurs. The specific items of information 
proposed included:
     Effective date that the interest rate reset is applicable;
     Identity of the Tender Agent;
     Identity of the liquidity provider;
     Par amount, if any, held by VRDO Remarketing Agent, at 
time of interest rate reset;
     Par amount, if any, held by a liquidity facility (``Bank 
Bond'') at time of interest rate reset and interest rate paid to the 
liquidity provider; and
     Par amount, if any, held by a party other than the 
Remarketing Agent or as a Bank Bond.
    In response to July 2009 Notice, First Southwest and SIFMA stated 
concerns relating to the draft amendment's requirement to report the 
additional VRDO information to the SHORT System, which are primarily 
focused on whether a VRDO Remarketing Agent would be able to obtain and 
report accurate information for several of the additional items of VRDO 
information. For example, with respect to reporting the identity of the 
Tender Agent and liquidity provider, First Southwest stated that it 
would be ``difficult and burdensome to be required to be continually 
updating [this] information, which can and does change frequently, 
between two parties where [the VRDO Remarketing Agent] has no legal 
standing and should be the responsibility of the bank or tender agent 
that is party to those transactions.'' However, RBDA generally 
supported the additional items of VRDO information and stated that 
``the information proposed to be disclosed for VRDOs is material to 
evaluating VRDO investments'' but acknowledged that ``Remarketing 
Agents may not have ready access to all of the information * * * 
proposed to be submitted * * * [and] would support other reasonable 
initiatives to achieve the ends outlined in the [July 2009 Notice] * * 
*.''
    The MSRB believes that information concerning the identity of the 
Tender Agent and liquidity provider is material to market participants 
and, in particular, investors of VRDOs. With respect to Tender Agents, 
the July 2009 Notice also solicited comment on whether a VRDO 
Remarketing Agent could also provide the contact information for the 
Tender Agent and the MSRB believes some of the concerns stated by SIFMA 
about providing the identity of the Tender Agent were focused on 
challenges in obtaining and keeping current contact information for the 
Tender Agent. MSRB acknowledges that it may be difficult to obtain and 
keep current contact information for a Tender Agent, particularly for 
smaller Tender Agents that use the name and contact information for an 
individual instead of

[[Page 16884]]

a division within a company for submitting tender requests, but the 
MSRB believes that a basic requirement to provide the identity of the 
Tender Agent is reasonable and that it is important that investors be 
able to have access to the identity of the Tender Agent to facilitate 
an investor tendering its position in VRDOs.
    In response to the July 2009 Notice proposal to require reporting 
of the par amounts of a VRDO held as a Bank Bond, by the VRDO 
Remarketing Agent and by investors at the time of the interest rate 
reset, SIFMA stated that making such information transparent ``would be 
detrimental to the municipal securities market by giving competitors a 
trading advantage against one another.'' MSRB is sensitive to SIFMA's 
concerns related to reporting and making transparent the individual par 
amounts of the VRDO held as a Bank Bond,\21\ by the VRDO Remarketing 
Agent and by investors. One of the purposes of requiring this 
information to be reported is to provide market participants with an 
indication that the interest rate set by the VRDO Remarketing Agent 
represents an interest rate paid to holders of the VRDO instead of 
instances when the VRDO is held entirely as a Bank Bond and that the 
interest rate set is therefore not set by market demand.\22\ As an 
alternative to the requirement in the July 2009 Notice, the proposed 
rule change includes a requirement for a VRDO Remarketing Agent to 
report the ``par amount remarketed,'' which would be the aggregate of 
VRDOs held by the VRDO Remarketing Agent and investors, but not Bank 
Bonds, and separately report the par amount held as Bank Bonds. This 
should provide a sufficient indication that the interest rate set 
reflects a market interest rate paid to holders of the VRDO while 
preventing individual par amounts held by VRDO Remarketing Agents from 
being disclosed to the public.
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    \21\ The July 2009 Notice also proposed collecting the interest 
rate paid to a liquidity provider for VRDOs held as a Bank Bond. 
SIFMA noted that many VRDO Remarketing Agents are not made aware of 
the interest rate paid on Bank Bonds. The MSRB acknowledges that 
this requirement may present significant compliance challenges for 
dealers and has accordingly decided not to proceed with it at this 
time.
    \22\ This information also is intended to provide a centralized 
source of information about holdings of VRDOs. SIFMA notes that 
information collected by the SEC in its Financial and Operational 
Combined Uniform Single (``FOCUS'') Reports, while not an identical 
requirement, provides such a centralized source of information about 
the holdings of VRDOs by Remarketing Agents.
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ARS Bidding Information
    The July 2009 Notice identified ARS Bidding Information that an ARS 
Program Dealer would be required to submit to the SHORT System as 
individual data elements in connection with a report of the ARS 
interest rate and descriptive information currently required to be 
reported following an auction. In response to the July 2009 Notice, 
First Southwest and SIFMA both noted that reporting ARS Bidding 
Information to the SHORT System as individual data elements would be 
costly and time consuming, particularly, as SIFMA noted, ``for a 
product that is winding down.'' SIFMA further noted that ``there have 
not been any new ARS issues in over a year and a half, and none are 
expected.'' Instead of submitting information as individual data 
elements, SIFMA suggested that ``the disclosure of this information to 
[the MSRB] by way of document, instead of breaking out each data 
element, would help minimize the burden.''
    The MSRB acknowledges that reporting ARS Bidding Information to the 
SHORT System as individual data elements would result in ARS Program 
Dealers incurring programming expenses as well as increasing the 
ongoing cost of compliance with reporting information to the SHORT 
System. Further, current interest rate information from the SHORT 
System indicates that approximately 80% of all ARS continue to 
experience failed auctions,\23\ so one of the purposes of having ARS 
Bidding Information as individual data elements, to compute a ``bid-to-
cover ratio'' \24\ that would show the demand for the ARS, may not at 
this time justify the expense incurred by ARS Program Dealers to report 
such information as individual data elements to the SHORT System. 
Nonetheless, the MSRB believes that having a centralized source of ARS 
Bidding Information, even if such information is only available as a 
document, would be of benefit to market participants as it would 
further the MSRB's investor protection mission. This document-based 
approach would provide for indexing of each such submission to the 
appropriate security so that the information would be easy to find, 
even if the information contained within such documents could not 
easily be exported to a data file or otherwise manipulated.
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    \23\ In light of the high number of failed auctions, Allstate 
suggests requiring ARS Program Dealers to provide the formula used 
to compute the maximum rate, including the ``net loan rate.'' MSRB 
does not believe that this information is readily available to ARS 
Program Dealers but notes that a separate requirement for certain 
ARS documents to be submitted to the MSRB and made available 
publicly should aide in determining how maximum rates are set.
    \24\ In response to the April 2008 ARS Notice, Saber Partners 
identified this statistic as one that ``can give great insight into 
the liquidity of an auction.''
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    In response to specific items of ARS Bidding information identified 
in the July 2009 Notice, SIFMA noted that when an ARS Program Dealer 
receives orders to buy from other dealers for submission to an ARS 
auction, such orders may be aggregated by the other dealer making it 
impossible for the ARS Program Dealer to provide accurate information 
on the number of unique bidders other than the Program Dealer bidding 
for its own account. MSRB acknowledges that orders submitted to an ARS 
Program Dealer may be aggregated by the submitting party and believes 
that disclosing such aggregated orders may be misleading to market 
participants. Thus, the MSRB has not included this requirement in the 
proposed rule change. SIFMA also noted that separately requiring an ARS 
Program Dealer to report bidding information for orders submitted by an 
issuer or conduit borrower would be unnecessary since issuers and ARS 
Program Dealers have made such information available on public Web 
sites. The MSRB notes that while the EMMA Continuing Disclosure Service 
provides a document category for issuers to voluntarily disclose an 
intent to bid on its ARS, this does not provide for a centralized 
source of all orders submitted by an issuer or conduit borrower, which 
would be provided by the proposed rule change.\25\
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    \25\ MSRB notes that issuers or conduit borrowers may instruct a 
third party, such as an investment adviser, to submit orders to an 
ARS Program Dealer on their behalf. In these cases, MSRB 
acknowledges that the ARS Program Dealer would not know that such 
orders are on behalf of issuers or conduit borrowers and would not 
be able to include this fact when making submissions of ARS Bidding 
Information to the SHORT System.
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Short-term Obligation Documents
    The draft amendments in the July 2009 Notice proposed requiring ARS 
Program Dealers and VRDO Remarketing Agents to submit to the MSRB 
current and any new or amended versions of the following documents:
     ARS documents defining auction procedures and interest 
rate setting mechanisms;
     VRDO documents consisting of liquidity facilities, 
including Letter of Credit Agreements and Stand-by Bond Purchase 
Agreements.
    In response to the July 2009 Notice First Southwest and SIFMA both 
stated

[[Page 16885]]

concerns with the requirement to submit ARS and VRDO documents for 
outstanding issues to the MSRB. First Southwest noted that to obtain 
some of these documents, dealers ``would need to go back to the 
creators of those documents to comply with the rule'' but nevertheless 
noted that ``in general, the requested documents are available.'' \26\ 
SIFMA also stated a concern that some documents for outstanding VRDOs 
may contain information that was not intended to be made public. In 
response to the May 2008 VRDO Notice DAC also noted that dealers ``may 
not always be a party to or have control over all of the documents.'' 
MSRB recognizes that dealers' ability to comply with the requirement 
proposed in the July 2009 Notice for VRDOs would, in some cases, be 
subject to the ability of the dealer to obtain a document from a third 
party. Therefore, MSRB has incorporated into the proposed rule change a 
``best efforts'' provision coupled with a recordkeeping requirement 
that would require dealers to make and document all efforts to obtain a 
VRDO document for which the dealer does not already have access.
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    \26\ Both First Southwest and SIFMA also noted that Official 
Statements typically contain summaries of the information contained 
in the documents identified in the draft amendments and note that if 
an investor wanted to obtain the actual document, they could request 
the documents identified in the draft amendments from either the 
issuer or a dealer. In particular, SIFMA noted in response to the 
April 2008 ARS Notice that ARS Official Statements generally already 
contain much of the information. MSRB notes that the proposed rule 
change would permit dealers to reference documents already submitted 
in lieu of submitting duplicate documents.
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    First Southwest and SIFMA also stated concerns with the timeframes 
proposed for submitting ARS and VRDO documents to the MSRB due to the 
high number of ARS and VRDO issues, which SIFMA states is approximately 
16,500 VRDOs and 1,750 ARS, and the fact that dealers may not have such 
documents in a format that would allow for easy electronic submission 
of the document to the MSRB. Given the high numbers of these 
securities, First Southwest and SIFMA both stated that 180 days, 
instead of the 30 days proposed in the July 2009 Notice, would be a 
more appropriate amount of time to submit the documents to the MSRB. 
MSRB recognizes that there are a large number of documents that would 
need to be obtained, converted into an electronic format and submitted 
to the MSRB. However, MSRB believes that it is important for investors 
and other market participants to have centralized access to these 
documents. Acknowledging the large number of documents and the fact 
that, for outstanding issues, dealers may need time to request 
documents from third parties, MSRB has provided 90 days from the date 
of effectiveness of a rule in the proposed rule change for dealers to 
submit outstanding ARS and VRDO documents to the MSRB. However, MSRB 
notes that dealers should not wait until a rule is in effect to begin 
the process of requesting documents and converting them into the 
appropriate electronic format.\27\
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    \27\ As previously described, the MSRB has requested flexibility 
with respect to the setting of effective dates for the proposed rule 
change. The MSRB notes that it would be prudent for dealers to use 
the time between the approval date of the proposed rule change and 
the effective date to begin collecting such required documents and 
converting them into electronic format.
---------------------------------------------------------------------------

    In response to the July 2009 Notice proposal that any new or 
amended versions of documents be submitted to the MSRB within one day 
of receipt, SIFMA suggested that dealers be required to submit a 
document within 5-days of receipt so that the deadline would be 
consistent with the deadline for submitting advance refunding documents 
to the MSRB. MSRB believes that it is important that market 
participants have access to documents that are current and therefore 
has retained in the proposed rule change the timeframe for an ARS 
Program Dealer or VRDO Remarketing Agent to provide such new or amended 
versions of documents to the MSRB no later than one business day after 
receipt by the dealer.\28\
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    \28\ RBDA also suggested that MSRB look into utilizing optical 
character recognition technology to facilitate performing word 
searches on EMMA of documents that are scanned and not ``native'' 
PDFs. MSRB notes that all documents submitted to EMMA since January 
1, 2010 are required to be word-searchable and that the proposed 
rule change would require documents created after the effective date 
of the proposed rule change to also be word-searchable.
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Public Availability of Collected Information and Documents
    In response to the April 2008 ARS Notice, Mr. Yankauer recommended 
that the MSRB make information collected about ARS available ``to the 
general public without any fee to view the information.'' MSRB agrees 
with Mr. Yankauer's recommendation and notes that the interest rate and 
descriptive information currently collected by the SHORT System is 
available at no charge on the EMMA Web site. MSRB also notes that it 
plans to make all information and documents collected under the 
proposed rule change available at no charge on the EMMA Web site.

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.

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-2010-02 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-2010-02. 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 Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street, NE., 
Washington, DC 20549, on official

[[Page 16886]]

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-2010-02 and should be submitted on or before April 
23, 2010.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\29\
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    \29\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-7463 Filed 4-1-10; 8:45 am]
BILLING CODE 8011-01-P

