[Federal Register Volume 61, Number 250 (Friday, December 27, 1996)]
[Notices]
[Pages 68322-68324]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-32956]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38066; File No. SR-MSRB-96-12]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Approval of Proposed Rule Change by the Municipal Securities 
Rulemaking Board Relating to the Permanent Operation of the Continuing 
Disclosure Information System of the Municipal Securities Information 
Library System

December 19, 1996.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on November 
28, 1996, the Municipal Securities Rulemaking Board (``Board'' or 
``MSRB'') filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC'') a proposed rule change (File No. SR-MSRB-
96-12). The proposed rule change is 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 of 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 for upgrading 
its interim Continuing Disclosure Information (``CDI'') System of the 
Municipal Securities Information Library (``MSIL'') 
system to CDINet, the Board's proposed permanent system for processing 
and disseminating continuing disclosure information and notices of 
material events.\1\ The changes are as follows:

    \1\ The Municipal Securities Information Library and MSIL are 
registered trademarks of the Board. The MSIL system, which 
was approved in Securities Exchange Act Release No. 29298 (June 13, 
1991), is a central facility through which information about 
municipal securities is collected, stored and disseminated.
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    1. The current limit of 10 pages per document for fax and paper 
submissions will be changed to 25 pages. For documents exceeding 25 
pages, the first 25 pages will be transmitted, with the full text 
made available to subscribers by mail, upon request. The capacity of 
the system to transmit documents will also be increased.
    2. CDINet will replace the interim CDI System's modem submission 
system with a secure Web page on the Internet that may be used by 
submitters of disclosure documents.
    3. The annual subscription price for CDINet will be increased to 
$23,000.

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 
tests of these statements may be examined at the places specified in 
Item IV below. The Board 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
    On April 6, 1992, the Securities and Exchange Commission 
(``Commission'' or ``SEC'') approved the CDI Pilot system for an 18-
month period.\2\ The CDI System began operating on January 23, 1993, 
and functions as part of the Board's MSIL system. The CDI 
System accepts and electronically disseminates voluntary submissions of 
official disclosure notices relating to outstanding issues of municipal 
securities, i.e., continuing disclosure information. During its first 
phase of operation, the System accepted disclosure notices only from 
trustees. On May 17, 1993, the System also began accepting disclosure 
notices from issuers.\3\
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    \2\ Securities Exchange Act Rel. No. 30556 (April 6, 1992). A 
complete description of the CDI System is contained in File No. SR-
MSRB-90-4, Amendment No. 1.
    \3\ On May 17, 1993, the Board reported to the Commission on the 
initial phase of operation of the CDI System regarding technical, 
policy and cost issues and proposed enhancements to the System.
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    On November 10, 1994, the Commission approved an amendment to its 
Rule 15c2-12 which prohibits dealers from underwriting issues of 
municipal securities unless the issuer commits, among other things, to 
provide material events notices to the Board's CDI System or to all 
Nationally Recognized Municipal Securities Information Repositories 
(``NRMSIRs'') and to the applicable state information depository.\4\ In 
addition, the rule prohibits dealers from recommending municipal 
securities without having a system in place to receive material events 
notices. To conform to the new Commission requirements, the Board 
revised the CDI System and implemented an interim System

[[Page 68323]]

designed to accept material event notices while a larger permanent 
system was being designed.\5\ The interim System increased the capacity 
of the system to enable it to process 200 documents per day and 
increased the page limit per document from three to 10. The Commission 
has approved operation of the interim System through December 31, 
1996.\6\
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    \4\ Securities Exchange Act Rel. No. 34961 (Nov. 10, 1994).
    \5\ The Board also terminated the pilot phase of the CDI System 
and filed its Report on the Conclusion of the CDI Pilot of the 
Municipal Securities Information Library System with the 
Commission on August 25, 1995.
    \6\ Securities and Exchange Act Rel. No. 35911 (June 28, 1995); 
Securities Exchange Act Rel. No. 36610 (Dec. 20, 1995); Securities 
Exchange Act Rel. No. 37771 (Oct. 1, 1996).
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    The Board's experience with operating the interim CDI System since 
July 3, 1995, has demonstrated that the System operates reliably. The 
queue of notices broadcast to subscribers in the interim System, 
however, has become quite large, resulting in broadcasts continuing 
past the 5:00 p.m. official closing time. This typically occurs if the 
number of notices to broadcast exceeds the 200-notice capacity for 
which the interim System was designed.\7\ The proposed permanent 
system, CDINet, is designed to broadcast 500 notices a day at a higher 
speed to address this situation.
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    \7\ The largest number of notices broadcast by the interim 
System in one day was 305 on November 1, 1996.
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CDINet
    There are three areas of change from the interim System to CDINet. 
The first area relates to the length of documents submitted to the 
System and how they will be handled. Currently, the interim CDI System 
will accept and disseminate submissions of up to 10 pages, plus a 
voluntary cover sheet.\8\ CDINet will accept fax and paper submissions 
of up to 25 pages. Should a submission exceed 25 pages, the first 25 
pages and the cover sheet will be disseminated, with a notice to 
subscribers that the submission exceeds 25 pages. The System will then 
make available a copy of the complete submission to subscribers upon 
request, by express or regular mail, at their expense.
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    \8\ The cover sheet was in use in the interim System and 
provides identifying information about the issuer, the securities at 
issue, and the material event being disclosed. Use of the cover 
sheet is voluntary for submitters.
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    In addition, the interim CDI System was designed with the 
capability to disseminate up to 200 10-page submissions a day. While 
CDINet will increase the length of fax and paper notices it will 
disseminate from 10 pages to 25 pages, experience with the interim CDI 
System indicates that the vast majority of submissions will be no 
longer than two to three pages.\9\ CDINet is designed to disseminate up 
to 500 three-page submissions a day.
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    \9\ From July 3, 1995 through October 22, 1996, the interim CDI 
System disseminated 13,341 submissions. The total number of pages 
disseminated in those submissions was 29,810. Thus, the average 
number of pages in a submission has been between two to three pages.
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    Regarding processing time, the Commission stated in the Release 
approving the amendments to Rule 15c2-12 that 15 minutes might be an 
appropriate turnaround time for dissemination of material event notices 
by NRMSIRs, but that it would further discuss the issue during the 
NRMSIR recognition process. The Board will use its best efforts to 
maintain a quick turnaround time for documents sent by facsimile and 
Internet to CDINet, but it is not possible to guarantee a 15-minute 
turnaround to subscribers if large numbers of documents are received in 
a short period of time. The Board will ensure that any document with a 
voluntary cover sheet received by facsimile, Internet, or mail will be 
disseminated the same day it is received. Depending upon the volume of 
documents received, documents that refer in their title to one of the 
12 material events described in SEC Rule 15c2-12 but do not have 
voluntary cover sheets will be disseminated on the same day, if 
possible, but documents with cover sheets have higher dissemination 
priority.
    The second change to the interim CDI System is to replace the 
current modem submission system with a secure Web page on the Internet. 
The interim System continued to use the modem submission system 
developed for the original CDI Pilot. That system requires, among other 
things, that the issuer or its agent install software developed by the 
Board on a personal computer and make their submissions by having their 
modems dial the CDI System at the Board's offices. The CDINet Web page 
will permit issuers or their agents to use commonly available Web 
browser software and make their submissions over the Internet. The 
other requirements of the modem submission system, i.e., the need to 
receive written authorization, a user name, and a password from the 
Board and the need for submissions to be in ASCII format only, will 
remain in effect on the CDINet Web page.\10\ Finally, since submissions 
in ASCII format are substantially smaller, in terms of computer 
storage, than the equivalent submission in fax format, the CDINet Web 
page will accept and disseminate submissions of any length.
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    \10\ In adopting the amendment to SEC Rule 15c2-12, the 
Commission stated that NRMSIRs will not be required to verify the 
accuracy of the information submitted, only to accurately convey the 
information. Securities Exchange Act Rel. No. 34961 at n. 155 (Nov. 
10, 1994). The Board similarly asserts that it is not required to 
undertake to establish the authenticity or accuracy of documents 
submitted, but that it will attempt to ensure accurate dissemination 
of documents accepted into the System.
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    The third change to the CDI System is to raise the annual 
subscription fee from $16,000 plus telephone charges, to $23,000, plus 
telephone charges. The Board currently has seven subscribers and does 
not charge subscribers for any redistribution that they may make of the 
information receive from the CDI System. In its original filing with 
the Commission regarding subscriber fees for the CDI Pilot, the Board 
stated that:

    While Board funds will be expended, at least initially, to 
implement and operate the [CDI] Pilot system, the Board intends that 
user fees eventually will cover the operational costs of any 
permanent system. The Board, however, does not intend to or expect 
to make a profit from the operation of the system.\11\
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    \11\ SEC File No. SR-MSRB-93-1, Jan. 12, 1993 at 2.

    The increased fee better reflects the Board's operational costs of 
the CDI System, but is not expected to produce excess revenues or 
profits.
    As with the pilot and interim Systems, the notices sent to 
subscribers from CDINet will be available to any interested person at 
the Board's Public Access Facility in Alexandria, Virginia. The cost of 
copying notices in the Public Access Facility will remain 20 cents per 
page.
    To design the permanent system, the Board staff met with 
representatives from CDI subscribers and all NRMSIRs in New York City 
on March 26, 1996, to receive their comments regarding possible changes 
to the interim CDI System. The changes proposed in this filing were 
developed after considering their comments.
    The Board requests that the Commission approve the permanent system 
before the approval for the operation of the interim System expires on 
December 31, 1996.
2. Statutory Basis
    The Board has proposed this rule change pursuant to Section 
15B(b)(2)(C) of the Act, which requires, in pertinent part, that the 
Board'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

[[Page 68324]]

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 
the public interest.

    The MSIL  system is designed to increase the integrity 
and efficiency of the municipal securities market by, among other 
things, helping to ensure that the price charged for an issue in the 
secondary market reflects all available official information about that 
issue. The Board will continue to operate the output side of the CDI 
System to ensure that the information is available to any party who 
wishes to subscribe to the service. As with all MSIL  system 
services, this service is available, on equal terms, to any party 
requesting the service.

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. As noted 
above, the Board consulted with system users in developing CDINet.

III. 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, NW., Washington, D.C. 20549. 
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 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-96-12 and should be 
submitted by January 17, 1997.

IV. Commission's Findings and Order Granting Accelerated Approval of 
Proposed Rule Change

    The Commission finds that the MSRB's proposal is consistent with 
the requirements of the Act and the rules and regulations thereunder 
applicable to the Board, and, in particular, the requirements of 
Section 15B(b)(2)(C) and the rules and regulations thereunder. 
Specifically, the Commission believes that the CDI System, which is a 
component of the MSIL System, by making available official disclosure 
notices about existing municipal issues, will increase the integrity 
and efficiency of the municipal securities market, and help to ensure 
that the prices charged for an issue in the secondary market reflect 
all available official information about that issue.
    The Commission finds good cause for approving SR-MSRB-96-12 prior 
to the thirtieth day after the date of publication in the Federal 
Register, in that accelerated approval is appropriate to provide for 
uninterrupted operation of the CDI System, especially because approval 
of the pilot program will expire on December 31, 1996.\12\ The 
Commission believes that the CDI System has been proven to be reliable 
and that permanent approval is appropriate. The Commission notes that 
the CDI System has been in continuous operation since January 23, 1993, 
and the changes proposed in this rule proposal primarily represent a 
technical enhancement to the System.
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    \12\ In approving this rule, the Commission has considered the 
proposed rule's impact on efficiency, competition, and capital 
formation. 15 U.S.C. Sec. 78c(f).
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    It is therefore ordered, pursuant to Section 19(b)(2) of the Act 
\13\, that the proposed rule change is hereby approved.

    \13\ 15 U.S.C. 78s(b)(2).
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    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. 96-32956 Filed 12-26-96; 8:45 am]
BILLING CODE 8010-01-M