[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``premium paid over accreted value'' be withdrawn, effective upon 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 

[[Page 66572]]
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