[Federal Register Volume 60, Number 246 (Friday, December 22, 1995)]
[Notices]
[Pages 66571-66573]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-31178]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36596; File No. SR-MSRB-95-18]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by the Municipal Securities
Rulemaking Board Relating to Customer Confirmations
December 15, 1995.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''), 15 U.S.C. 78s(b)(1), and Rule 19b-4 thereunder, notice is
hereby given that on November 28, 1995, the Municipal Securities
Rulemaking Board (``Board'' or ``MSRB'') filed with the Securities and
Exchange Commission (``Commission'' or ``SEC'') a proposed rule change
(SR-MSRB-95-18) as described in Items I, II, and III below, which Items
have been prepared by the Board. The Commission is publishing this
notice to solicit comments on the proposed rule change from interested
persons.
I. Self-regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The MSRB is filing herewith a proposed rule change to rule G-15(a)
on customer confirmations (hereafter referred to as the ``proposed rule
change''). On July 11, 1995, the Commission approved an amendment to
rule G-15(a) which completely revised the test and incorporated many
interpretations that had been issued over the years. The proposed rule
change makes several clarifying and technical changes to the text. In
order to simplify compliance for dealers, the Board requests that the
provision in rule G-15(a)(i)(A)(6)(h) regarding disclosure of the
``premium paid over accreted value'' be withdrawn, effective upon
filing. The Board requests that the proposed rule change be made
operative 90 days after filing, pursuant to Section 19(b)(3)(A) of the
Act. The text of proposed rule change is as follows. (Additions are
italicized; deletions are bracketed.) Rule G-15(a). Customer
Confirmations.
(i)(A)(1)-(5) No change.
(6) Final Monies. The following information relating to the
calculation and display of final monies shall be shown:
(a)-(g) No change.
(h) for callable zero coupon securities, [any premium paid over
the accreted value of the securities] if applicable, the percentage
of the purchase price at risk due to the lowest possible call, which
shall be calculated based upon the ratio between (i) the difference
between the price paid by the customer and the lowest possible call
price, and (ii) the price paid by the customer.
(7)-(8) No change.
(B) No change.
(C) Securities descriptive information. The confirmation shall
include descriptive information about the securities which includes,
at a minimum:
(1) Credit backing. The following information, if applicable,
regarding the credit backing of the security:
(a) Revenue securities. For revenue securities, a notation of
that fact, [regardless of whether such designation appears in the
formal title of the security,] and a notation of the primary source
of revenue (e.g., project name). This subparagraph will be satisfied
if these designations appear on the confirmation in the formal title
of the security or elsewhere in the securities description.
(b) No change.
(2)-(3) No change.
(4) Tax information. The following information that may be
related to the tax treatment of the security:
(a)-(b) No change.
(c) Original issue discount securities. If the securities pay
periodic interest and are sold
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by the underwriter as original issue discount securities a designation
that they are ``original issue discount'' securities and a statement
of the initial public offering price of the securities, expressed as
a dollar price.
(D) Disclosure statements:
(1) The confirmation for zero coupon securities shall include a
statement to the effect that ``No periodic payments,'' and, if
applicable, ``callable below maturity value without notice by mail
to holder unless registered.''
(2) No change.
(E) No change.
(ii) Separate confirmation for each transaction. Each broker,
dealer or municipal securities dealer for each transaction in
municipal securities shall give or send to the customer a separate
written confirmation in accordance with the requirements of (i)
above. Multiple confirmations may be printed on one page, provided
that each transaction is clearly segregated and the information
provided for each transaction complies with the requirements of (i)
above; provided, however, that if multiple confirmations are printed
in a continuous manner within a single document, it is permissible
for the name and address of the broker, dealer, or municipal
securities dealer and the customer to appear once at the beginning
of the document, rather than being included in the confirmation
information for each transaction.
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 Board 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
texts of these statements may be examined at the places specified in
Item IV below. The Board has prepared summaries, set forth in Section
(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
On July 11, 1995, the Commission approved the Board's recent
amendment to rule G-15(a), on customer confirmations, which became
effective on November 15, 1995.\1\ This amendment constituted a major
revision of the rule, which not only revised and reorganized the rule,
but incorporated many interpretations that had been issued over the
years.
\1\ See Securities Exchange Act Release No. 35953 (July 11,
1995), 60 FR 36843.
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The Board has identified a need for several technical amendments to
clarify certain provisions of the rule. First, the proposed rule change
would clarify that the requirement in rule G-15(a)(i)(D)(1) to provide
a disclosure statement relating to call features of zero coupon bonds
is necessary on confirmations only if the bonds are callable.
Therefore, the proposed rule change adds the language ``if applicable''
before the disclosure statement for call provisions. Second, rule G-
15(a)(ii) requires dealers to provide a separate written confirmation
for each transaction. The proposed rule change would clarify that
separate confirmations may be printed as part of one document, as long
as the information unique to each trade (e.g., securities description,
yield, call information) is segregated and complies with the
requirements of the rule.
Third, rule G-15(a)(i)(C)(1)(a) states that revenue bonds must be
so identified, regardless of whether such designation appears in the
title of the bond. In some cases, this provision leads to the revenue
designation being stated twice on the confirmation, one in the title,
and again in a separate information block. The proposed rule change
makes clear that, if the bond is identified as a revenue bond on the
title, there is no need to make an additional disclosure that the bond
is a revenue bond. Fourth, dealers are required to disclose the initial
public offering price of original issue discount securities in rule G-
15(a)(i)(C)(4)(c). The proposed rule change would make clear that the
initial public offering price would be expressed as a dollar price,
rather than a yield.
Finally, rule G-15(a)(i)(A)(6)(h) states that the confirmation
shall disclose any premium paid over the ``accreted value'' for
callable zero coupon bonds. The rationale behind this provision is that
customers purchasing callable zero coupon bonds in the secondary market
can include a premium over the price at which all or some of the bonds
may be called. This portion of the customer's investment is at risk to
call.\2\ The Board believes that the most important information for the
customer in this situation is the amount of the purchase price at risk
to a call at the lowest price at which all or some of the customer's
bonds can be called. While the current language of rule G-
15(a)(i)(A)(6)(h) stated this information in terms of ``premium over
accreted value,'' it is not entirely accurate because a cusomter's
bonds are not always callable at accreted value. For example, a call
may be possible at a price that is a percentage of accreted value.
\2\ In contrast, the Board believes that a customer purchasing a
normal coupon bond at a price above par in the secondary market
usually understands that, if any of the bonds are called at par, the
premium paid in the market may be lost.
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Accordingly, the text of the proposed rule change states simply
that the amount to be disclosed is the percentage of the purchase price
at risk due to the lowest possible call price that might be experienced
by the customer. It further clarifies that the percentage must be
calculated as the ratio between (i) the difference between the price
paid by the customer and the lowest possible call price, and (ii) the
price paid by the customer. It also makes clear that such an at-risk
percentage must be disclosed only if it is applicable to the
transaction. The Board believes that the proposed rule change more
clearly reflects the rationale behind the provision than the current
language.
In order to simplify compliance for dealers, the Board requests
that the language in rule G-15(a)(i)(A)(6)(h) regarding disclosure of
the premium paid over accreted value be withdrawn, effective upon
filing. However, in order to allow dealers an opportunity to revise
their confirmation procedures to accommodate the proposed rule change,
the Board requests that the proposed rule change be made operative 90
days after filing with the Commission under Section 19(b)(3)(A) of the
Act.
The Board believes the proposed rule change is consistent with
Section 15B(b)(2)(C) of the Act.\3\
\3\ Section 15B(b)(2)(C) states in pertinent part that the rules
of the Board ``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, to remove impediments to and perfect the
mechanism of a free and open market in municipal securities, and in
general, to protect investors in the public interest.''
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Board does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received from Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change: (i) does not
significantly affect the protection of investors or the public
interest; (ii) does not impose any
[[Page 66573]]
significant burden on competition; (iii) was provided to the Commission
for its review at least five days prior to the filing date; and (iv)
does not become operative for ninety (90) days from the date of its
filing on November 28, 1995, the proposed rule change has become
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(e)(6) thereunder. In particular, the Commission believes the proposed
rule change qualifies as a ``non-controversial filing'' in that the
proposed standards do not significantly affect the protection of
investors or the public interest and do not impose any significant
burden on competition, and because it makes technical and clarifying
changes to an existing MSRB rule. At any time within sixty (60) days of
the filing of the proposed rule change, the Commission may summarily
abrogate such rule change if it appears to the Commission that such
action is necessary or appropriate in the public interest, for the
protection of investors, or otherwise in furtherance of the purposes of
the Act.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549.
Copies of the submissions, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for inspection and copying in the
Commission's Public Reference Room. Copies of the filing will also be
available for inspection and copying at the Board's principal offices.
All submissions should refer to File No. SR-MSRB-95-18 and should be
submitted by January 12, 1996.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority, 17 CFR 200.30-3(a)(12).
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-31178 Filed 12-21-95; 8:45 am]
BILLING CODE 8010-01-M