
[Federal Register Volume 77, Number 132 (Tuesday, July 10, 2012)]
[Notices]
[Pages 40668-40671]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-16766]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67344; File No. SR-MSRB-2012-06]


Self-Regulatory Organizations; Municipal Securities Rulemaking 
Board; Notice of Filing of Proposed Rule Change To Amend Rule G-34, on 
CUSIP Numbers, New Issue, and Market Information Requirements

July 3, 2012.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``the Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on June 28, 2012, the Municipal Securities Rulemaking Board 
(``MSRB'') filed with the Securities and Exchange Commission 
(``Commission'') 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 is filing with the Commission a proposed rule change 
consisting of amendments to Rule G-34 on CUSIP numbers, new issue, and 
market information requirements (the ``proposed rule change''). The 
proposed rule change would govern the use by brokers, dealers or 
municipal securities dealers of the term ``not reoffered'' or the 
designation ``NRO'' in any of its written communications about new 
issues of municipal securities.
    The text of the proposed rule change is available on the MSRB's Web 
site at www.msrb.org/Rules-and-Interpretations/SEC-Filings/2012-Filings.aspx, 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
    Summary of Proposed Rule Change. The proposed rule change would 
amend MSRB Rule G-34 to prohibit any broker, dealer or municipal 
securities dealer (a ``dealer'') from using the term ``not reoffered'' 
or other comparable term or designation, such as the commonly used 
designation of ``NRO,'' without also including the applicable price or 
yield information about the securities in any of its written 
communications, electronic or otherwise, sent by or on behalf of the 
dealer. Such prohibition would apply to any such communication 
occurring from and after the time of initial award of a new issue of 
municipal securities. The time of initial award would be the earlier of 
(A) the Time of Formal Award, or (B) if applicable, the time at which 
the issuer initially accepts the terms of a new issue of municipal 
securities subject to subsequent formal award, sometimes referred to as 
the ``verbal award.'' ``Time of Formal Award'' currently is defined in 
MSRB Rule G-34(a)(ii)(C)(1)(a) as, ``for competitive issues, the later 
of the time the issuer announces the award or the time the issuer 
notifies the underwriter of the award, and, for negotiated issues, the 
later of the time the contract to purchase the securities from the 
issuer is executed or the time the issuer notifies the underwriter of 
its execution.'' The prohibition would not apply to communications 
occurring prior to the time of initial award of a new issue of 
municipal securities.
    The proposed rule change would improve the availability of current 
information about initial offering prices or yields of new issues of 
municipal securities to market participants. Dealers, whether acting as 
underwriters or in the secondary market, sometimes designate certain 
maturities of a new issue of municipal securities as not reoffered, or 
NRO, in communications about such securities, and omit the 
corresponding initial offering price or yield information. While an 
underwriter is required to report complete information about initial 
offering prices or yields (including for maturities designated as NRO) 
pursuant to MSRB Rules G-32 and G-34 as described below, such 
information may not be readily available until as late as the end of 
the ``date of first execution'' of the new issue.\3\ The proposed rule 
change would require underwriters to include such information about 
initial offering prices or yields in any communication it sends to any 
party from and after the time of initial award, which occurs prior to 
the submission deadlines of Rules G-32 and G-34.
---------------------------------------------------------------------------

    \3\ The date of first execution under Rule G-32 generally is the 
date on which the underwriter executes its first transactions with a 
customer or another dealer in any security offered in a primary 
offering.
---------------------------------------------------------------------------

    More timely information about initial offering prices or yields 
would improve new issue price discovery for issuers pricing their own 
same-day transactions as well as for investors and other market 
participants seeking more contemporaneous price information. Further, 
the availability of more contemporaneous price information to a larger 
universe of market participants would significantly reduce pricing 
inefficiencies in the marketplace. Currently, not all market 
participants have access to the same universe of price or yield 
information about new issues of municipal securities as they come to 
market and, as a result, differences in prices for similar

[[Page 40669]]

securities may reflect in part the lack of broad access to such data 
useful in more accurately assessing current market values, rather than 
differences in intrinsic credit, structural or other features of the 
securities or the respective issuers. Thus, improving timely access to 
a larger universe of pricing data by more market participants would 
reduce pricing inefficiency that results from incomplete data.
    The proposed rule change also would delete existing subsection 
(e)(iii) of MSRB Rule G-34, which includes provisions for compliance by 
dealers with certain registration and testing requirements previously 
applicable with respect to the start-up phase in 2008 of the New Issue 
Information Dissemination System (``NIIDS'') operated by the Depository 
Trust and Clearing Corporation (``DTCC''). This amendment will 
streamline Rule G-34 by eliminating language from the rule that no 
longer has any effect.
    Currently Applicable MSRB Rules. With certain exceptions, 
underwriters are required, pursuant to MSRB Rule G-34(a)(ii)(C), to 
report to NIIDS certain information about most new issues of municipal 
securities within two hours following the Time of Formal Award, 
including the initial price or yield at which each maturity of the new 
issue of municipal securities was sold. Underwriters are also required, 
pursuant to MSRB Rule G-32(b)(vi)(C)(1)(a), to submit to the MSRB's 
Electronic Municipal Market Access (EMMA[supreg]) system certain 
information about the new issue, including the initial offering price 
or yield of all maturities, on or prior to the end of the date of first 
execution. Under both rules, the initial offering price or yield must 
be provided for all maturities, including those that are not reoffered, 
and underwriters cannot use the designation of NRO in their 
submissions. Initial offering price or yield information submitted to 
NIIDS is disseminated by DTCC to its subscribers, including market 
participants and information vendors, upon submission by underwriters 
for dissemination, typically within two hours following the Time of 
Formal Award, while such information submitted to the EMMA system 
becomes available to the public on the EMMA Web site and through 
subscription services to information vendors and other market 
participants immediately upon submission and typically by the end of 
the date of first execution.\4\
---------------------------------------------------------------------------

    \4\ In addition, with limited exceptions, MSRB Rule G-14 
requires dealers to report the actual prices at which municipal 
securities are sold to the MSRB's Real-time Transaction Reporting 
System. Although most prices are required to be reported within 15 
minutes of the time of trade, in many cases initial trades by 
syndicate or selling group members executed on the first day of 
trading at the published list offering price may be reported by the 
end of the day. Thus, while these prices are disseminated shortly 
after receipt to the public on a real-time basis by the MSRB on the 
EMMA Web site and through subscription services to information 
vendors and other market participants, transactions reflecting 
initial offering prices or yields may not be available for 
dissemination until the end of the first day of trading.
---------------------------------------------------------------------------

    Availability of Information About Initial Offering Prices or Yields 
From Third-Party Vendors. Although, as noted above, information vendors 
may receive subscriptions from the MSRB or DTCC of data that includes 
the complete initial offering price or yield information for all 
maturities, including maturities that are not reoffered, such third-
party vendors may also receive information regarding the new issue 
directly from underwriters or other parties on the underwriters' behalf 
that may sometimes substitute the designation of NRO for the initial 
offering price or yield for applicable maturities. Third-party vendors 
may then post such separately submitted information in a manner 
designed to highlight new issues coming to market and may otherwise 
repackage and distribute such information to their subscribers, 
including a combination of dealers, other information vendors and other 
market participants. This information disseminated by third party 
vendors, often including the NRO designation without accompanying 
initial offering price or yield, is available to their subscribers 
shortly after submission to such vendor and frequently before the the 
complete initial offering price or yield information becomes available 
through NIIDS and the EMMA system. The proposed rule change would 
result in information about the initial offering prices or yields for 
NRO maturities to be included in any such separately submitted and 
disseminated information from and after the initial award.
    Effective Date of Proposed Rule Change. The MSRB proposes that the 
proposed rule change be made effective on the first calendar day of the 
next succeeding month beginning at least twenty-eight (28) calendar 
days after the date on which the proposed rule change is approved by 
the Commission.
2. Statutory Basis
    The MSRB believes that the proposed rule change is consistent with 
Section 15B(b)(2)(C) of the Securities Exchange Act of 1934, as amended 
(the ``Exchange Act''), which provides that the MSRB's rules shall:

    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 and 
municipal financial products, to remove impediments to and perfect 
the mechanism of a free and open market in municipal securities and 
municipal financial products, and, in general, to protect investors, 
municipal entities, obligated persons, and the public interest.

    The MSRB believes that the proposed rule change is consistent with 
the Exchange Act. The proposed rule change would remove impediments to 
and perfect the mechanism of a free and open market in municipal 
securities by prohibiting certain communications that hinder price and 
market transparency, and by facilitating new issue price discovery. The 
proposed rule change would require that communications occurring from 
and after the time of initial award of a new issue that use the 
designation not reoffered or NRO also include the applicable initial 
offering price or yield. The proposed rule change would contribute to 
more effective price discovery for issuers pricing their own same-day 
transactions resulting from the availability of more complete and 
contemporaneous pricing of other new issues, as well as for investors 
and other market participants seeking more contemporaneous price 
information. These changes would also contribute to the MSRB's 
continuing efforts to improve market transparency and to protect 
investors, municipal entities, obligated persons and the public 
interest.

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

    The MSRB does not believe that the proposed rule change would 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Exchange Act since it would apply to 
all dealers that send written or electronic communications about new 
issues of municipal securities. Since dealers are already required to 
provide the initial offering prices or yields under other MSRB rules, 
dealers would bear no additional burden in obtaining such information 
to fulfill the requirements of the proposed rule change. In addition, 
the burden of

[[Page 40670]]

adding such price or yield information to communications in which 
dealers designate a municipal security as not reoffered should be 
negligible, particularly in light of the fact that dealers already 
provide price or yield information in comparable communications 
occurring during the same timeframe in which they do not designate 
municipal securities as not reoffered. The MSRB believes that any such 
negligible burden would be greatly outweighed by the benefits accruing 
to issuers and the marketplace in general from the increased 
transparency available to issuers as they price their new issues of 
municipal securities, since such information will assist them is 
assuring that the pricing of such issue is informed by current market 
prices.

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

    On March 13, 2012, the MSRB requested comment on a draft of the 
proposed rule change (the ``draft proposal'').\5\ Comment letters were 
received from: Bond Dealers of America (``BDA''); Full Life Financial 
LLC (``Full Life''); Government Finance Officers Association 
(``GFOA''); Kious and Co. (``Kious''); M. E. Allison & Co., Inc. 
(``Allison''); McGuirk, Hugh (``McGuirk''); National Association of 
Independent Public Finance Advisors (``NAIPFA''); Oppenheimer & Co. 
Inc. (``Oppenheimer''); and UMB Bank, N.A. (``UMB''). Summaries of 
those comments and the MSRB's responses follow.
---------------------------------------------------------------------------

    \5\ See MSRB Notice 2012-14 (March 13, 2012).
---------------------------------------------------------------------------

    Draft proposal would create a more efficient and transparent 
market. Various commenters \6\ supported the draft proposal, saying it 
would enhance market transparency. BDA said that it would ``allow other 
comparable transactions to have a better sense of market movement on 
the day of pricing.'' GFOA said that the intent of the draft proposal 
rectifies the ``opaque practice'' of designating maturities of new 
issues without accompanying price and yield information. Allison said 
it would improve the availability of real-time information about 
initial offering prices or yields. NAIPFA said that the draft proposal 
would help ensure that issuers better understand the pricing terms of 
their securities. Full Life said it can help level the playing field 
between large and small issuers, and foster fairness between dealers 
and investors.
---------------------------------------------------------------------------

    \6\ See BDA, Full Life, Kious and NAIPFA.
---------------------------------------------------------------------------

    Both price and yield data should be reported. GFOA and Full Life 
said that both price and yield data should be reported. GFOA said that 
the reporting of just the maturity's price data requires issuers and 
investors to calculate the corresponding yield, and this added step 
makes the information less useful to issuers and investors. Full Life 
said reporting both price and yield data would improve transparency and 
accuracy of information processing by investors and issuers.
    While the MSRB recognizes the value of having both price and yield 
information available to investors, the MSRB notes that in some 
circumstances, such as an unknown settlement date, yield cannot be 
calculated and only price will be available. As a result, the proposed 
rule change retains the requirement that either price or yield be 
provided. Further, the various other existing MSRB rules relating to 
initial offering prices or yields, as described above, generally do not 
require that both be provided, and changing the requirement in the 
draft proposal to provide either price or yield to a requirement to 
provide both price and yield without addressing the existing ability of 
dealers to use either price or yield under such other MSRB rule 
provisions, and without making the necessary changes to MSRB 
information systems, would result in a significant inconsistency across 
MSRB rules and information systems. The MSRB notes that it has recently 
published its Long-Range Plan for Market Transparency Products, dated 
January 27, 2012, in which it lays out a vision for the next stages of 
its market transparency products that includes, among other things, 
significant enhancements to the scope and timing of information 
available through the EMMA system and other related transparency 
products. The MSRB will keep this comment under advisement and will 
consider potential changes consistent with the comment as it reviews 
its market transparency systems and related rules in connection with 
the changes described in the Long-Range Plan.
    Information about new issue pricing. Oppenheimer said that in 
sealed bid situations, members are not allowed to bid a yield and 
concession. It suggested, therefore, that the proposal be revised to 
permit a syndicate member to disclose the reoffering price or yield 
after a sealed bid has been awarded. Oppenheimer also said that because 
most notes are issued NRO, the reoffering price should be the 
reoffering price used to complete IRS Form 8038. Oppenheimer also 
questioned how to report offering prices or yields for bonds or notes 
purchased for inventory.\7\
---------------------------------------------------------------------------

    \7\ Other comments concerning new issue pricing unrelated to the 
proposed rule change included comments from GFOA and BDA. GFOA said 
that new issue pricing information should be submitted as promptly 
as possible, rather than at the end of the day. BDA said that it 
supported the MSRB's initiative of incorporating NIIDS data into the 
EMMA system, saying that it would address the problems that gave 
rise to the need to eliminate the NRO designation. The MSRB agrees 
with the suggestion that new issue pricing be available sooner than 
the end of the day and recently published a request for comment on 
draft amendments to MSRB Rules G-32 and G-34 that would cause 
information about new issue pricing to be available on EMMA within 
two hours of the Time of Formal Award. See MSRB Notice 2012-19 
(April 10, 2012).
---------------------------------------------------------------------------

    The draft proposal did not limit the time period during which 
dealers would be prohibited from using the NRO designation without 
accompanying initial offering price or yield information, and therefore 
the draft proposal could apply during the time that sealed bids are 
being provided to issuers prior to the award of a new issue. In 
response to Oppenheimer's comment concerning sealed bid situations, the 
MSRB has determined to modify the proposal to limit the applicability 
of the proposed rule change to communications occurring from and after 
the time of initial award. Sealed bid submissions occur prior to the 
time of initial award and are submitted in the context of a competitive 
sale where the expectation is that bids remain confidential until the 
issuer reviews all bids at the time of initial award. With respect to 
Oppenheimer's comments on the use of information from IRS Form 8038 and 
the reporting of prices or yields for bonds in inventory, the MSRB has 
no opinion regarding the proper calculation of information for 
inclusion on an issuer's tax forms but notes that, to the extent a 
dealer views a new issue municipal security as not being reoffered, the 
initial offering price or yield that should be reported for purposes of 
MSRB rules is the price or yield at which such securities were 
purchased, whether by a dealer for its own inventory or by a customer 
of the dealer based on a pre-arranged purchase price.
    Release of scales prior to official award may lead to inaccurate 
information in the marketplace and in an underwriter's loss of 
competitiveness. UMB said that dealers should not be required to 
release scales prior to an official award because this may lead to 
inaccurate scales being circulated in the marketplace. UMB also said 
that releasing scales to the market prior to official award would cause

[[Page 40671]]

dealers also bidding on same day comparable issues to lose their 
competitiveness.
    UMB's concern is addressed in part by the limitation of the 
applicability of the proposed rule change to communications occurring 
from and after the time of initial award. In addition, the proposed 
rule change would not prohibit a dealer, concerned about a change in 
pricing between the initial and final awards, from indicating in any 
communication that prices or yields disseminated prior to the final 
award may be subject to change. Furthermore, the proposed rule change 
would not compel an underwriter to disseminate a new issue scale before 
the formal award; rather, it simply would prohibit the underwriter from 
stating that some or all of the securities were not reoffered in such 
communication without also including the initial offering prices or 
yields. The MSRB also believes that adjusting the time frame during 
which the rule is applicable would address the concern about 
competitiveness because underwriters would have been awarded their bid 
by the time the requirements of the proposed rule change become 
applicable. By prohibiting the use of the term not reoffered or NRO 
without accompanying initial price or yield information from and after 
the time of initial award, the MSRB believes the proposed rule change 
would be applicable during the period when the information about 
pricing would be most useful to market participants.

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

    Within 45 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 or disapprove 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 email to rule-comments@sec.gov. Please include 
File Number SR-MSRB-2012-06 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-2012-06. This file 
number should be included on the subject line if email 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 business days between the hours of 10 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the MSRB's offices. 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-2012-06, and should be submitted on 
or before July 31, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\8\
---------------------------------------------------------------------------

    \8\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-16766 Filed 7-9-12; 8:45 am]
BILLING CODE 8011-01-P


