[Federal Register Volume 63, Number 188 (Tuesday, September 29, 1998)]
[Notices]
[Pages 51976-51978]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-25920]


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SECURITIIES AND EXCHANGE COMMISSION

[Release No. 34-40456; File No. SR-MSRB-97-15, Amdt. No. 1]


Self-Regulatory Organizations; Notice of Filing of Amendment No. 
1 to Proposed Rule Change by the Municipal Securities Rulemaking Board 
Relating to Rules G-11, on Sales of New Issue Municipal Securities 
During the Underwriting Period, G-12, on Uniform Practice, and G-8, on 
Books and Records

September 22, 1998.
    On August 18, 1998, the Municipal Securities Rulemaking Board 
(``Board'' or ``MSRB'') filed with the Securities and Exchange 
Commission (``Commission'' or ``SEC'') Amendment No. 1 to its File No. 
SR-MSRB-97-15 (hereafter referred to as ``Amendment No. 1''), pursuant 
to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder.\2\ Amendment No. 1 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 on Amendment No. 1 from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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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 Amendment No. 1 to its previously 
proposed amendment to Rule G-11(g)(i), on sales of new issue municipal 
securities during the underwriting period. Amendment No. 1 retains the 
requirement of the previously proposed amendment to Rule G-11(g)(i) to 
complete the allocation of securities within 24 hours of the sending of 
the commitment wire. Amendment No. 1 further provides that, if the bond 
purchase agreement is not yet signed or if the award is not yet made at 
the time allocations are made, such allocations are subject to the 
signing of the bond purchase agreement or the award of bonds and the 
purchaser must be informed of this fact.

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 Amendment No. 1 and discussed 
any comments it received on Amendment No. 1. 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 December 23, 1997, the Board filed with the Commission proposed 
amendments to Rules G-11, G-12 and G-8 to strengthen further the 
integrity of the syndicate practices process. One of the amendments to 
Rule G-11(g) would require the managing underwriter to complete the 
allocation of securities within 24 hours of the sending of the 
commitment wire. The Board adopted this amendment to ensure a timely 
allocation process in the industry.
    Notice of the proposed rule change appeared in the Federal Register 
on April 21, 1998.\3\ The Commission received three comment letters in 
response to the notice. One of the commenters was the City of New 
York.\4\ The City of New York states that it is a mistake to assume 
that the bond purchase agreement will be signed prior to the completion 
of the allocation. It notes that it is the City's practice to sign a 
bond purchase agreement on the

[[Page 51977]]

second day following the verbal award of its refunding bonds and that, 
due to the complexity of the City's refundings, it would be virtually 
impossible to complete the work necessary to permit a bond purchase 
agreement to be signed within 24 hours of the verbal award. The letter 
notes that the City of New York has been advised that allocations may 
be completed (and investors can be given notice of the allocations) 
prior to the signing of the bond purchase agreement. In such cases, the 
allocations are made subject to execution of a bond purchase agreement 
and investors are so notified. The letter states that underwriters have 
advised the City of New York that this is a fairly common practice.
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    \3\ See Securities Exchange Act Rel. No. 39873 (April 14, 1998), 
63 FR 19775.
    \4\ The Board responded to issues raised in comment letters to 
the Commission from The Bond Market Association and Salomon Smith 
Barney by letter dated June 10, 1998, to Mignon McLemore, Attorney, 
from Ronald W. Smith, Senior Legal Associate.
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    The City of New York does not want the amendment to Rule G-11(g) to 
be interpreted as requiring that a bond purchase agreement be signed 
within 24 hours of the sending of the commitment wire. It suggests that 
the rule language be amended to state: ``Within 24 hours of the sending 
of the commitment wire, complete the allocation of securities (which 
may be made subject to execution of a bond purchase agreement).'' As an 
alternative, the City of New York states that the Board could provide 
an exemption to the proposed requirement by allowing a 48-hour period 
for allocations of refunding bonds.
    The Board agrees with the City of New York that the proposed 
amendment does not require that the bond purchase agreement be signed 
within 24 hours of the sending of the commitment wire. In many 
instances, the bond purchase agreement is signed within 24 hours of the 
sending of the commitment wire, but there are circumstances in which 
this is not done (e.g., the City of New York example of refunding 
delays and when the issuing authority is unable to schedule a meeting 
to approve the final pricing until two to three days after the sending 
of the commitment wire). The Board also agrees that, prior to the 
signing of the bond purchase agreement in a negotiated offering or the 
official award of bonds in a competitive sale, any allocations made 
must be subject to the execution of the bond purchase agreement or the 
award, as appropriate. Moreover, the Board believes it is important 
that investors be made aware of this fact. Although the signing of the 
bond purchase agreement or the adoption of the award resolution is 
often viewed as a technicality, if the market moves dramatically before 
the signing or adoption, prices may change or the deal may not be 
finalized.
    Therefore, the Board determined to adopt Amendment No. 1 to the 
proposed rule change to revise the language of the proposed amendment 
to Rule G-11(g)(i). The revised amendment retains the requirement to 
complete the allocation of securities within 24 hours of the sending of 
the commitment wire. It further provides that, if the bond purchase 
agreement is not yet signed or if the award is not yet made at the time 
allocations are made, such allocations are subject to the signing of 
the bond purchase agreement or the award of bonds and the purchaser 
must be informed of this fact.
    In addition, the Board wishes to remind dealers about a prior Board 
interpretation regarding the sending of confirmations prior to the 
signing of the bond purchase agreement or date of award. Rule G-15, on 
confirmation, clearance and settlement of transactions with customers, 
requires that a confirmation be sent in all transactions, whether the 
transaction is done ``when, as and if issued'' or ``regular-way.'' \5\ 
Rule G-12(c), on uniform practice, requires that, for transactions 
effected on a ``when, as and if issued'' basis, initial confirmations 
be sent within two business days following the ``trade date.'' \6\ In a 
published interpretive letter on Rule G-12,\7\ the Board stated that, 
for purposes of this requirement, ``trade date'' should be understood 
to refer to, in the case of a competitive new issue, a date no earlier 
than the date of award of the new issue of municipal securities, and, 
in the case of a negotiated new issue, a date no earlier than the date 
of signing of the bond purchase agreement. Therefore, Board rules do 
not allow ``when, as and if issued'' confirmations reflecting the 
allocation of new issue securities to ``pre-sale'' orders to be sent to 
customers before the date of award or of signing of the bond purchase 
agreement. The Board stated that, in reaching this conclusion, it does 
not intend to call into question the validity of a ``pre-sale'' order 
received for a syndicate's securities or the practice of soliciting 
such orders. The Board recognizes that such orders are expressions of 
the purchaser's firm intent to buy the new issue securities in 
accordance with the stated terms, and that such orders may be filled 
and confirmed immediately upon the award of the issue or the execution 
of a bond purchase agreement. The Board is of the view, however, that 
such orders cannot be deemed to be executed until the time of the award 
of the new issue or the execution of a bond purchase agreement on the 
new issue. Mailing of confirmations on such orders prior to this time, 
therefore, is a representation that the orders have been filled before 
this actually occurs, and, as such, may be deceptive or misleading to 
the purchasers.
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    \5\ Rule G-15(a)(iii) further states that a dealer may send a 
confirmation for a ``when, as and if issued'' transaction executed 
prior to determination of settlement date. If such a confirmation is 
sent, it must include all the information required by Rule G-15(a) 
with the exception of settlement date, dollar price for transactions 
executed on a yield basis, yield for transactions executed on a 
dollar price, total monies, accrued interest, extended principal and 
delivery instructions.
    \6\ Pursuant to Rule G-12(a), any inter-dealer transaction that 
is submitted to NSCC for comparison is exempt from Rule G-12(c).
    \7\ MSRB Manual, General Rules, MSRB Interpretation (CCH) para. 
3556.55.
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    The Board believes Amendment No. 1 is consistent with Section 
15B(b)(2)(C) of the Act.\8\
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    \8\ Section 15B(b)(2)(C) states that the Board's rules shall be 
designed to prevent fraudulent and manipulative acts and practices, 
to promote just and equitable principles for 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 Amendment No. 1 would 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 relating to Amendment No. 1 were neither solicited 
nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing 
for Commission Action

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding, or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve such proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and

[[Page 51978]]

arguments concerning the foregoing, including whether Amendment No. 1 
is consistent with Act. Persons making written submissions should file 
six copies thereof with the Secretary, Securities and Exchange 
Commission, 450 Fifth Street, NW., Washington, DC 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-97-15, Amendment No. 1 and 
should be submitted by October 20, 1998.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. 98-25920 Filed 9-28-98; 8:45 am]
BILLING CODE 8010-01-M