
[Federal Register Volume 77, Number 188 (Thursday, September 27, 2012)]
[Notices]
[Pages 59427-59429]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-23767]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67908; File No. SR-MSRB-2012-06]


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

September 21, 2012.

I. Introduction

    On June 28, 2012, the Municipal Securities Rulemaking Board 
(``MSRB'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Exchange Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change consisting of amendments to Rule 
G-34 on CUSIP numbers, new issue, and market information requirements. 
The proposed rule change was published for comment in the Federal 
Register on July 10, 2012.\3\ The Commission received three comment 
letters regarding the proposed rule change.\4\ On August 23, 2012, the 
MSRB granted an extension of time for the Commission to act on the 
filing until September 14, 2012. On September 11, 2012, the MSRB 
granted a second extension of time until September 21, 2012. On 
September 17, 2012, the MSRB submitted a response to the comment 
letters.\5\ This order grants approval of the proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 67344 (July 3, 
2012), 77 FR 40668 (``Notice'').
    \4\ See Letter to Elizabeth M. Murphy, Secretary, Commission, 
from Susan Gaffney, Director, Federal Liaison Center, Government 
Finance Officers Association, dated August 7, 2012 (``GFOA 
Letter''); and Web comments from Arthur Sinkler, dated July 8, 2012 
(``Sinkler Letter''); and Shelly Frank, dated July 10, 2012 (``Frank 
Letter''). The comments received by the Commission are available at 
http://www.sec.gov/comments/sr-msrb-2012-06/msrb201206.shtml.
    \5\ See Letter to Elizabeth M. Murphy, Secretary, Commission, 
from Karen Du Brul, Associate General Counsel, MSRB, dated September 
17, 2002 (``MSRB's Response'').
---------------------------------------------------------------------------

II. Description of the Proposed Rule Change

    The MSRB proposes to add new subsection (iv) to Rule G-34(a) to 
prohibit any broker, dealer, or municipal securities dealer from using 
the term ``not reoffered'' or other comparable term or designation 
(e.g., ``NRO'') without also including the applicable price or yield 
information about the securities in any of its written communications, 
electronic or otherwise, sent by it or on its behalf from and after the 
time of initial award of a new issue of municipal securities.\6\ For 
purposes of MSRB Rule G-34(a)(iv), the ``time of initial award'' means 
the earlier of (A) the ``Time of Formal Award'' as defined in MSRB Rule 
G-34(a)(ii)(C)(1)(a),\7\ 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. The prohibition would 
not apply to communications occurring prior to the time of initial 
award of a new issue of municipal securities.\8\ According to the MSRB, 
the proposed rule change will prohibit certain communications that 
hinder price and market transparency, as well as facilitate new issue 
price discovery.\9\
---------------------------------------------------------------------------

    \6\ See Proposed MSRB Rule G-34(a)(iv).
    \7\ MSRB Rule G-34(a)(ii)(C)(1)(a) defines ``Time of Formal 
Award'' 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.''
    \8\ See Notice, supra note 3, at 40668. The MSRB also proposes 
to 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''). The MSRB believes this 
amendment will streamline Rule G-34 by eliminating language from the 
Rule that no longer has any effect. See id. at 40669.
    \9\ See id. at 40669.
---------------------------------------------------------------------------

    MSRB Rules G-32 and G-34 set forth the reporting requirements for 
new issues of municipal securities. MSRB Rule G-32 requires 
underwriters 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 date of first execution.\10\ This information becomes 
available to the public on the EMMA Web site and to information vendors 
and other market participants through subscription services immediately 
upon submission

[[Page 59428]]

and typically by the end of the date of first execution.\11\ MSRB Rule 
G-34 requires underwriters, with certain exceptions, to report to NIIDS 
certain information about new issues of municipal securities within two 
hours following the Time of Formal Award,\12\ including the initial 
price or yield at which each maturity of the new issue of municipal 
securities was sold.\13\
---------------------------------------------------------------------------

    \10\ See MSRB Rule G-32(b)(vi)(C)(1)(a).
    \11\ See Notice, supra note 3, at 40669. In addition, while MSRB 
Rule G-14 requires dealers, with limited exceptions, to report the 
actual prices at which municipal securities are sold to the MSRB's 
Real-time Transaction Reporting System 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. See id. at 
40669 n.4.
    \12\ See supra note 7.
    \13\ See MSRB Rule G-34(a)(ii)(C). DTCC disseminates this 
information 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. See Notice, supra note 3, at 40669.
---------------------------------------------------------------------------

    While MSRB Rules G-32 and G-34 require underwriters to provide 
initial offering price or yield for all maturities, including those 
that are not reoffered, and prohibit underwriters from using the 
designation of NRO in their submissions, the rules do not prevent 
underwriters or other parties acting on the underwriters' behalf from 
substituting the designation of NRO for the initial offering price or 
yield for applicable maturities when sending information regarding a 
new issue directly to third-party vendors.\14\ According to the MSRB, 
the proposed rule change would result in information about the initial 
offering prices or yields for NRO maturities being included in any 
communication to or from third-party venders from and after the time of 
initial award.\15\
---------------------------------------------------------------------------

    \14\ See id. at 40669. Third-party vendors may then disseminate 
the new issue information, including the NRO designation without 
accompanying initial offering price or yield, to their subscribers 
shortly after receipt, and frequently before the complete initial 
offering price or yield information becomes available through NIIDS 
or the EMMA system. See id.
    \15\ See id.
---------------------------------------------------------------------------

III. Summary of Comments Received and the MSRB's Response

    The Commission received three comment letters on the proposed rule 
change.\16\ One commenter generally supported the proposed rule change 
but stated that underwriters should be required to provide yield 
information.\17\ The other two commenters raised issues that were not 
directly on point with the subject of the proposed rule change. 
Accordingly, the concerns raised in those comment letters are not 
addressed here.\18\
---------------------------------------------------------------------------

    \16\ See supra note 4.
    \17\ See GFOA Letter.
    \18\ For instance, the Frank and Sinkler Letters, as well as the 
GFOA Letter, stated that the timeframe for submitting pricing 
information should be shorter. Moreover, the Frank and Sinkler 
Letters encouraged release of scales before the pricing of a new 
issue is final and for retail investors to be able to purchase 
municipal securities at the issue price. Although the comments are 
not addressed here, those comments, as well as the MSRB's Response, 
are available at http://www.sec.gov/comments/sr-msrb-2012-06/msrb201206.shtml.
---------------------------------------------------------------------------

    As stated above, one commenter opined that there should be 
mandatory reporting of yield data.\19\ The commenter reasoned that 
reporting just the maturity's price data requires issuers and investors 
to calculate the corresponding yield, which makes the information less 
useful to issuers and investors.\20\ According to the commenter, the 
MSRB would take positive steps toward transparency and a more efficient 
market by requiring yield data.\21\
---------------------------------------------------------------------------

    \19\ See GFOA Letter.
    \20\ See id.
    \21\ See id.
---------------------------------------------------------------------------

    In its response, the MSRB stated that it is not requiring yield, 
rather than price or yield, because such a stipulation would create an 
inconsistency with other MSRB rules and the MSRB's information 
systems.\22\ The MSRB stated that it would be inconsistent to require 
yield when underwriters voluntarily provide such information to the 
public but permit price or yield when underwriters provide such 
information pursuant to mandatory reporting requirements, including 
submissions to EMMA and NIIDS, in connection with new issue 
underwritings or on customer confirmations.\23\ The MSRB acknowledged 
the value of having both price and yield data available for investors 
and also stated that, in the context of the MSRB's existing process 
outlined in its Long-Range Plan for Market Transparency Products 
(``MSRB Long-Range Plan''),\24\ it would consider as a potential next 
step whether to undertake a more universal approach to price and yield 
information for new issues of municipal securities.\25\
---------------------------------------------------------------------------

    \22\ See MSRB Letter at 2.
    \23\ See id.
    \24\ See MSRB Notice 2012-06 (February 23, 2012).
    \25\ See MSRB Letter at 2, 3.
---------------------------------------------------------------------------

IV. Discussion and Commission Findings

    The Commission has carefully considered the proposed rule change, 
as well as the comment letters received and the MSRB's response, and 
finds that the proposed rule change is consistent with the requirements 
of the Exchange Act and the rules and regulations thereunder applicable 
to the MSRB.\26\ In particular, the proposed rule change is consistent 
with Section 15B(b)(2)(C) of 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.\27\
---------------------------------------------------------------------------

    \26\ In approving the proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
    \27\ 15 U.S.C. 78o-4(b)(2)(C).
---------------------------------------------------------------------------

    The Commission believes that the proposed rule change is reasonably 
designed to 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 underwriters to include the initial offering price or yield in 
any written communication it sends to any party from and after the time 
of initial award, including for those maturities that are not 
reoffered. Although MSRB Rules G-32 and G-34 require the initial 
offering price or yield for all maturities, including those that are 
not reoffered, and prohibit underwriters from using the designation of 
NRO in their submissions, this information may not be readily available 
until the end of the date of first execution. Accordingly, the 
Commission believes the proposed rule change should cause issuers, 
investors, and other market participants to receive more timely 
information about initial offering prices or yields (i.e., prior to the 
submission deadlines of MSRB Rules G-32 and G-34). This should aid 
issuers in pricing their own same-day transactions and benefit 
investors and other market participants seeking more contemporaneous 
price information.
    The Commission also believes the proposed rule change could reduce 
pricing inefficiencies in the municipal securities market by providing 
timelier price or yield information to a larger universe of market 
participants. Currently, market participants have different levels of 
access to price or

[[Page 59429]]

yield information about new issues of municipal securities, which could 
contribute to differences in prices for similar securities. The 
Commission believes price transparency is vital for assuring that 
markets are fair and efficient, and that the proposed rule change 
should help enhance price transparency and lead to greater price 
discovery in the primary market.\28\
---------------------------------------------------------------------------

    \28\ The Commission also believes that the MSRB's proposal to 
delete existing subsection (e)(iii) of MSRB Rule G-34 is consistent 
with the Act as it would eliminate language from the Rule that no 
longer has any effect.
---------------------------------------------------------------------------

    With respect to the comment that reporting of yield data should be 
mandatory, the Commission recognizes that other MSRB rules do not 
require reporting of yield, but rather allow reporting of yield or 
price, and that requiring yield in the context of voluntary submissions 
in the instant proposed rule change would be inconsistent with existing 
mandatory reporting requirements under other MSRB rules. The 
Commission, however, notes that the MSRB has acknowledged the value of 
having both price and yield data available to investors and understands 
that, in connection with the MSRB's Long-Range Plan, it would consider 
a more universal approach to reporting of price and yield information 
for new issues of municipal securities.\29\
---------------------------------------------------------------------------

    \29\ See Notice, supra note 3, at 20670. See also MSRB's 
Response at 2, 3.
---------------------------------------------------------------------------

V. Conclusion

    For the foregoing reasons, the Commission finds that the proposed 
rule change is consistent with the requirements of the Exchange Act and 
the rules and regulations thereunder applicable to the MSRB and, in 
particular, Section 15B(b)(2)(C) \30\ of the Exchange Act. The proposal 
will become effective on the first calendar day of the next succeeding 
month beginning at least twenty-eight calendar days after the date of 
the Commission's order approving the proposed rule change.
---------------------------------------------------------------------------

    \30\ 15 U.S.C. 78o-4(b)(2)(C).
---------------------------------------------------------------------------

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Exchange Act,\31\ that the proposed rule change (SR-MSRB-2012-06) is 
approved.
---------------------------------------------------------------------------

    \31\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\32\
---------------------------------------------------------------------------

    \32\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-23767 Filed 9-26-12; 8:45 am]
BILLING CODE 8011-01-P


