[Federal Register Volume 62, Number 237 (Wednesday, December 10, 1997)]
[Notices]
[Pages 65114-65115]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-32230]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-39391; File No. SR-MSRB-97-8]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by the Municipal Securities
Rulemaking Board Relating to Interpreatioan of Rule G-38 on Consultants
December 3, 1997.
On November 13, 1997, 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-97-8), pursuant to Section 19(b)(1) of the Securities Exchange
Act of 1934 (``Act''),\1\ and Rule 19b-4 thereunder. The proposed rule
change is described in Items I, II, and III below, which Items have
been prepared by the board. The Board has designated this proposal as
constituting a stated policy, practice, or interpretation with respect
to the meaning, administration, or enforcement of an existing rule of
the Board under Section 19(b)(3)(A) of the Act, which renders the
proposal effective upon receipt of this filing by the Commission. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
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I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The Board is filing herewith a notice of interpretation concerning
Rule G-38 on consultants (hereafter referred to as ``the proposed rule
change''). The proposed rule change is as follows:
Rule G-38 Questions and Answers
Bank Affiliates and Definition of Payment
Q: A bank and its employees communicate with an issuer on behalf
of an affiliated dealer to obtain municipal securities business for
that dealer. In return, the bank and its employees receive certain
``credits'' from the dealer. These credits, which do not involve any
direct or indirect cash payments from the dealer to the bank or its
employees, are used for internal purposes to identify the source of
business referrals. Are the credits considered a ``payment'' under
rule G-38 thereby requiring the dealer to designate the bank or its
employees as consultants and comply with the requirements of rule G-
38?
A: Rule G-38 defines a consultant as any person used by a dealer
to obtain or retain municipal securities business through direct or
indirect communication by such person with an issuer on behalf of
the dealer where the communication is undertaken by the
[[Page 65115]]
person in exchange for, or with the understanding of receiving,
payment from the dealer or any other person.\2\ The term payment, as
used in rule G-38, means any gift, subscription, loan, advance, or
deposit of money or anything of value. The absence of an immediate
transfer of funds or anything of value to an affiliate or individual
employed by the afilitate would not exclude the credits from the
definition of payment if such credits eventually (e.g., at the end
of the fiscal year) result in compensation to the affiliate or
inficiual employed by the affiliate for referring municipal
securities business to the dealer. In this regard, the compensation
may be in the form of cash (e.g., a bonus) or non-cash. In either
case, if the dealer or any other person \3\ eventually gives
anything of value (i.e., make a ``payment'') to the affiliate or
individual based, even in part, on the referral, then the affiliate
or individual is a consultant for purposes of rule G-38 and the
dealer must comply with the various requirements of the rule. For
additional guidance in this area, you may wish to review Q&A number
6 and 7 (dated February 28, 1996) in the MSRB Manual following Rule
G-38, as well as Q&A number 4 (dated December 7, 1994) in the MSRB
Manual following Rule G-37.
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\2\ Municipal finance professionals and any person whose sole
basis of compensation is the actual provision of legal, accounting
or engineering advice services or assistance are expected from the
definition of consultant.
\3\ The Securities Exchange Act of 1934 (the ``Act'') defines
the term ``person'' as a ``natural person, company, government, or
political subdivision, agency, or instrumentality of a government.''
Board rule D-1 provides that unless the contest otherwise
specifically requires, the terms used in Board rules shall have the
same meanings as set forth in the Act.
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* * * * *
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 purposed of and basis for the propose 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 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
On January 17, 1996, the Commission approved Board Rule G-38 on
consultants.\4\ The Board adopted the rule because it was concerned
about dealers' increasing use of consultants to obtain or retain
municipal securities business, notwithstanding the requirements of Rule
G-37\5\ on political contributions and prohibitions on municipal
securities business, Rule G-20\6\ on gifts and gratuities, and Rule G-
17\7\ on fair dealing. Rule G-38 requires dealers to disclose
information about their consultant arrangements to issuers and the
public. Recently, the Board has received inquiries from market
participants concerning the definition of payment, as used in Rule G-
38, and whether bank affiliates and their employees may, under certain
circumstances, be deemed consultants for purposes of the rule. In order
to assist the municipal securities industry and, in particular,
brokers, dealers and municipal securities dealers in understanding and
complying with Rule G-38, the Board has determined to publish this
third notice of interpretation which sets forth, in question-and-answer
format, general guidance on Rule G-38.\8\ The Board will continue to
monitor the application of Rule G-38, and, from to time, will publish
additional notices of interpretations, as necessary.
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\4\ Securities Exchange Act Release No. 36727 (Jan. 17, 1996);
61 FR 1955 (Jan. 24, 1996). The rule became effective on March 18,
1996. See also MSRB Manual, General Rules, Rule G-38 (CCH) para.
3686.
\5\ MSRB Manual, General Rules, Rule G-37 (CCH) para. 3681.
\6\ MSRB Manual, General Rules, Rule G-20 (CCH) para. 3596.
\7\ MSRB Manual, General Rules, Rule G-17 (CCH) para. 3581.
\8\ See Securities Exchange Act Release No. 36950 (March 11,
1996); 61 FR 10828 (March 15, 1996) and Securities Exchange Act
Release No. 37997 (Nov. 29, 1996); 61 FR 64781 (Dec. 6, 1996).
See also MSRB Reports Vol. 16, No. 2 (June 1996) at 3-5; and
Vol. 17, No. 1 (Jan. 1997) at 15.
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The Board believes the proposed rule change is consistent with
Section 15B(b)(2)(C) of the Act.\9\
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\9\ 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 and 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, because it would apply equally
to all brokers, dealers and municipal securities dealers.
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
The Board has designated this proposal as constituting a stated
policy, practice, or interpretation with respect to the meaning,
administration, or enforcement of an existing rule of the Board under
Section 19(b)(3)(A) of the Act and Rule 19b-4(e) thereunder, which
renders the proposal effective upon receipt of this filing by the
Commission.\10\
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\10\ 17 CFR 240.19b-4(e)(1).
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At any time within sixty days of the filing of this 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-97-8 and should be
submitted by December 31, 1997.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\11\
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\11\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-32230 Filed 12-9-97; 8:45 am]
BILLING CODE 8010-01-M