[Federal Register Volume 64, Number 2 (Tuesday, January 5, 1999)]
[Notices]
[Pages 544-548]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-73]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No 34-40848; File No. SR-MSRB-98-12]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Municipal Securities 
Rulemaking Board Consisting of an Interpretative Notice Regarding 
Electronic Delivery and Receipt of Information by Brokers, Dealers and 
Municipal Securities Dealers

December 28, 1998.
    On November 20, 1998, 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-98-12) pursuant to Section 19(b)(1) of the Securities Exchange 
Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder.\2\ 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 proposed 
rule change 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) 
\3\ of the Act, which renders the proposed rule change 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 28s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Board is filing herewith a proposed rule change consisting of 
an interpretive notice regarding electronic delivery and receipt of 
information by brokers, dealers and municipal securities dealers (the 
``Notice''). The interpretive notice is as follows:

Notice Regarding Electronic Delivery and Receipt of Information by 
Brokers, Dealers and Municipal Securities Dealers

    On May 9, 1996, the Commission issued an interpretative release 
expressing its views on the use of electronic media for a delivery 
of information by, among others, brokers and dealers.\4\ The 
Commission stated that brokers, dealers and others may satisfy their 
delivery obligations under federal securities laws by using 
electronic media as an alternative to paper-based media within the 
framework established in the Commission's October 1995 interpretive 
release on the use of electronic media for delivery purposes.\5\ The 
Commission also indicated that an electronic communication from a 
customer to a broker or dealer generally would satisfy the 
requirements for written consent or acknowledgment under the federal 
securities laws.
---------------------------------------------------------------------------

    \4\ See Securities Act Release No. 7288, Exchange Act Release 
No. 37182 (May 9, 1996), 61 FR 24644 (May 15, 1996) (the ``1996 
Release'').
    \5\ See Securities Act Release No. 7233, Exchange Act Release 
No. 36345 (October 6, 1995), 60 FR 53458 (October 13, 1995) (the 
``1995 Release'' and, together with the 1996 Release, the 
``Commission Releases'').
---------------------------------------------------------------------------

    The Board is publishing this notice to address the use of 
brokers, dealers and municipal securities dealers (``dealers'') of 
electronic media to a deliver and receive information under Board 
rules.\6\ The Board will permit dealers to transmit documents 
electronically that they are required or permitted to furnish to 
customers under Board rules provided that they adhere to the 
standards set forth in the Commission Releases and summarized 
below.\7\ Dealers also may receive consents and acknowledgments from 
customers electronically in satisfaction of required written 
consents and acknowledgments. Furthermore, the Board believes that 
the standards applied by the Commission by communications with 
customers should also apply to communications among dealers and 
between dealers and issuers. However, although it is the Board's 
goal ultimately to permit dealers to make required submissions of 
materials to the Board electronically if possible, this notice does 
not affect existing requirements for the submission of materials to 
the Board, its designees and certain other entities to which 
information is required to be delivered under Board rules.\8\
---------------------------------------------------------------------------

    \6\ The Commission has approved similar interpretive notices 
filed by the National Association of Securities Dealers, Inc. and 
the New York Stock Exchange, Inc. See Securities Exchange Act 
Release No. 39356 (November 25, 1997), 62 FR 64421 (December 5, 
1997) (Notice of Members of the National Association of Securities 
Dealers, Inc.); Securities Exchange Act Release No. 38731 (June 10, 
1997), 62 FR 32848 (June 17, 1997) (Memo of the New York Stock 
Exchange).
    \7\ The Board also reminds dealers that the Commission indicated 
in the 1996 Release that dealers may fulfill their obligation to 
deliver to customers, upon request, preliminary official statements 
and final official statement in connection with primary offering of 
municipal securities subject to Commission Rule 15c2-12 by 
electronic means, subject to the guidelines set forth in the 1996 
Release. See 1996 Release, supra note 4 at n. 47.
    \8\ For example, this notice does not apply to any requirements 
that dealers supply the Board with written information pursuant to 
Board Rules A-12, A-14, A-15, G-36, G-37 and G-38. The Board has 
begun the planning process for electronic submission or information 
required under Rule A-15 and of Form G-37/G-38 under Rules G-37 and 
G-38. At such time as electronic submission becomes available, the 
Board will publish notice thereof and of the procedures to be used 
for such submission. Although submission of Forms G-36(OS) and G-
36(ARD) under Rule G-36 could also be made electronically by means 
similar to those which the Board may develop for Form G-37/G-38, 
such electronic submission is complicated by the requirement that 
Forms G-36(OS) and G-36(ARD) be accompanied by an official statement 
or advance refunding document, as appropriate. Given the current 
debate and lack of consensus among the various sectors of the 
municipal securities industry regarding electronic formatting of 
disclosure materials, and since the Board does not have the 
authority to dictate the format of issuer documents, the Board 
believes that any further action regarding electronic submissions 
under Rule G-36 should await resolution of these issues. Finally, 
the Board does not at this time anticipate permitting electronic 
submission of information required under Rules A-12 and A-14 since 
such information must be accompanied by payment of certain required 
fees.
    Electronic submission of information under Rule G-14 will 
continue to be governed by Rule G-14 and associated Transaction 
Reporting Procedures. In addition, this notice does not alter the 
current submission standards applicable to the Board's Continuing 
Disclosure Information (CDI) System of the Municipal Securities 
Information Library (MSIL) system. The 
Municipal Securities Information Library and MSIL are registered 
trademarks of the Board.
    Furthermore, submission of information to the Board's designees 
or certain other designated entities under Board rules must continue 
to be done in accordance with the procedures established by such 
designees or other entities. Board rules in which such requirements 
currently appear include Rule G-7 (with respect to information 
required to be filed with the appropriate enforcement agencies), G-
12 and G-15 (with respect to information to be submitted to 
registered clearing agencies and registered securities 
depositories), G-26 (with respect to customer account transfer 
instructions (other than Form G-26) required by registered clearing 
agencies), G-34 (with respect to information to be submitted to the 
Board's designee for assignment of CUSIP numbers and to registered 
securities depositories) and G-37 (with respect to application to 
the appropriate enforcement agencies for exemptions from the ban on 
municipal securities business).

---------------------------------------------------------------------------

[[Page 545]]

    Dealers are urged to review the Commission Releases in their 
entity to ensure that they comply with all aspects of the 
Commission's electronic delivery requirements. Although the examples 
provided in the Commission Releases are based on Commission rules, 
the examples nonetheless provide important guidance as to the 
intended application of the standards set out by the Commission with 
respect to electronic communications.

Electronic Communications From Dealers to Customers

    General. According to the standards established by the 
Commission, dealers may use electronic media to satisfy their 
delivery obligations to customers under Board rules, provided that 
the electronic communication satisfies the following principles:\9\
---------------------------------------------------------------------------

    \9\ Dealers that structure their deliveries in accordance with 
the principles set forth in this notice can be assured, except where 
otherwise noted, that they have satisfied their delivery obligations 
under Board rules. However, as the Commission stated in the 1995 
Release, the three enumerated principles are not the only factors 
relevant to determining whether the legal requirements pertaining to 
delivery of documents have been satisfied. Consistent with the 
Commission's view, the Board believes that, if a dealer develops a 
method of electronic delivery that differs from the principles 
discussed herein, but provides assurance comparable to paper 
delivery that the required information will be delivered, that 
method may satisfy delivery obligations. See 1995 Release, supra 
note 5 at n.22 and accompanying text. For example, a dealer can 
satisfy its obligation to send a confirmation to a customer under 
Rule G-15 by electronic means in a manner that meets the principles 
set forth in this notice. In addition, dealers may continue to 
deliver confirmations electronically through the OASYS Global system 
established by Thomson Financial Services, Inc. on the conditions 
described in the Board's Notice Concerning Use of the OASYS Global 
Trade Confirmation System to Satisfy Rule G-15(a), dated June 6, 
1994, without specifically complying with the principles described 
in this notice. See MSRB Reports, Vol. 14, No. 3 (June 1994) at 37. 
See also 1996 Release, supra note 4 at n.38; 1995 Release, supra 
note 5 at n.12. Also, Rule G-29 provides that dealers must make 
available to customers for examination promptly upon request a copy 
of the Board's rules required to be kept in their offices. Dealers 
may continue to comply with the requirement by giving customers 
access to the rules either in printed form or by viewing the rules 
on screen from the Board's Internet web site (www.msrb.org) or from 
software products produced by other companies. See Interpretive 
Notice on Availability of Board Rules, dated May 20, 1998, in MSRB 
Reports, Vol. 18, No. 2 (August 1998) at 37.
---------------------------------------------------------------------------

    1. Notice--The electronic communication should provide timely 
and adequate notice to customers that the information is available 
electronically.\10\ Since certain forms of electronic delivery may 
not always provide a likelihood of notice that recipients have 
received information that they may wish to review, dealers should 
consider supplementing such forms of electronic communication with a 
separate communication, providing notice similar to that provided by 
delivery in paper through the postal mail, that information has been 
sent electronically that the recipients may wish to review.\11\
---------------------------------------------------------------------------

    \10\ See 1996 Release, supra note 4 at n.20 and accompanying 
text.
    \11\ See 1996 Release, supra note 4 at n.21 and accompanying 
text; 1995 Release, supra note 5 at n.23 and accompanying text. The 
Commission notes, for example, that if information is provided by 
physically delivering material (such as a diskette or CD-ROM) or by 
electronic mail, such communication itself generally should be 
sufficient notice. However, if information is made available 
electronically through a passive delivery system, such as an 
Internet web site, separate notice would be necessary to satisfy the 
delivery requirements unless the dealer can otherwise evidence that 
delivery to the customer has been satisfied. See 1996 Release, supra 
note 4 at n.21.
---------------------------------------------------------------------------

    2. Access--Customers who are provided information through 
electronic delivery should have access to that information 
comparable to the access that would be provided if the information 
were delivered in paper form.\12\ The use of a particular electronic 
medium should not be so burdensome that intended recipients cannot 
effectively access the information provided.\13\ A recipient should 
have the opportunity to retain the information through the selected 
medium (e.g., by downloading or printing the information) or have 
ongoing access equivalent to personal retention.\14\ Also, as a 
matter of policy, the Commission believes that a person who has a 
right to receive a document under the federal securities laws and 
chooses to receive it electronically should be provided with a paper 
version of the document upon specific request or if consent to 
receive documents electronically is revoked.\15\
---------------------------------------------------------------------------

    \12\ The Commission states that, regardless of whether 
information is delivered in paper form or by electronic means, it 
should convey all material and required information. For example, if 
a paper document is required to present information in a certain 
order, then the information delivered electronically should be in 
substantially the same order. See 1996 Release, supra note 4 at n.14 
and accompanying text.
    \13\ The Commission notes, for example, that if a customer must 
proceed through a confusing series of ever-changing menus to access 
a required document so that it is not reasonable to expect that 
access would generally occur, this procedure would likely be viewed 
as unduly burdensome. In that case, the Commission would deem 
delivery not to have occurred unless delivery otherwise could be 
shown. See 1995 Release, supra note 5 at n.24.
    \14\ See 1996 Release, supra note 4 at n.22 and accompanying 
text; 1995 Release, supra note 5 at ns.25-26 and accompanying text.
    \15\ See 1996 Release, supra note 4 at n.17 and accompanying 
text, and 1995 Release, supra note 5 at n.27 and accompanying text.
---------------------------------------------------------------------------

    3. Evidence to Show Delivery--Dealers must have reason to 
believe that electronically delivered information will result in the 
satisfaction of the delivery requirements under the federal 
securities laws. Dealers should consider the need to establish 
procedures to ensure that applicable delivery obligations are met, 
including recordkeeping procedures to evidence such 
satisfaction.\16\ Such procedures should also be designed to ensure 
the integrity and security of information being delivered so as to 
ensure that it is the information that was intended to be 
delivered.\17\ Dealers may be able to evidence satisfaction of 
delivery obligations, for example, by:
---------------------------------------------------------------------------

    \16\ See 1996 Release, supra note 4 at n.23; 1995 Release, supra 
note 5 at n.22 and n.28 and accompanying text. The Board is of the 
view that dealers that choose to deliver information to customers 
electronically should consider establishing systems and procedures 
for providing paper copies or using alternate electronic means in a 
timely manner should the primary electronic media fail for any 
reason.
    \17\ See 1996 Release, supra note 4 at n.25 and accompanying 
text; 1995 Release, supra note 5 at n.22 and accompanying text. 
Dealers also should consider the need for systems and procedures to 
deter or detect misconduct by firm personnel in connection with the 
delivery of information, whether by electronic or paper means. See 
1996 Release, supra note 4 at n.16 and accompanying text.
---------------------------------------------------------------------------

    (1) obtaining the intended recipient's informed consent \18\ to 
delivery through a specified electronic medium and ensuring that the 
recipient has appropriate notice and access;
---------------------------------------------------------------------------

    \18\ In order for a consent to be an informed consent, the 
Commission has stated that the consent should specify the electronic 
medium or source through which the information will be delivered and 
the period during which the consent will be effective, describe the 
information that will be delivered using such means, and disclose 
the potential for the customer to incur costs in accessing the 
information. See 1996 Release, supra note 4 at n.23; 1995 Release, 
supra note 5 at n.29.
---------------------------------------------------------------------------

    (2) obtaining evidence that the intended recipient actually 
received the information, such as by an electronic mail return-
receipt \19\ or by confirmation that the information was accessed, 
downloaded, or printed; or
---------------------------------------------------------------------------

    \19\ To the extent that material is distributed as an attachment 
to an electronic mail transmission, dealers must have a reasonable 
basis for believing that the attachment will in fact be transmitted 
along with the electronic mail transmission and that the attachment 
will be received by the recipient in an accessible format.
---------------------------------------------------------------------------

    (3) disseminating information through certain facsimile methods 
(e.g., faxing information to a customer who has requested the 
information and has provided the telephone number for the fax 
machine).
    Personal Financial Information. The Commission has noted, and 
the Board agrees, that special precautions are appropriate when 
dealers are delivering information to customers that is specific to 
that particular customer's personal financial information, including 
but not limited to information contained on confirmations and 
account statements.\20\ In transmitting such personal financial 
information, dealers should consider the following factors:
---------------------------------------------------------------------------

    \20\ In addition, the Board believes that other information that 
is privileged or confidential, regardless of whether such 
information is financial in nature, should be accorded the same 
precautions as are accorded personal financial information.
---------------------------------------------------------------------------

    1. Confidentiality and Security--Dealers sending personal 
financial information

[[Page 546]]

through electronic means or in paper form should take reasonable 
precautions to ensure the integrity, confidentiality, and security 
of that information. Dealers transmitting personal financial 
information electronically must tailor those precautions to the 
medium used in order to ensure that the information is reasonably 
secure from tampering or alteration.
    2. Consent.--Unless a dealer is responding to a request for 
information that is made through electronic media or the person 
making the request specifies delivery through a particular 
electronic medium, the dealer should obtain the intended recipient's 
informed consent prior to delivering personal financial information 
electronically. The customer's consent may be made either by a 
manual signature or by electronic means.

Electronic Communications From Customers to Dealers

    Consistent with the position taken by the Commission, dealers 
may rely on consents and acknowledgements received from customers by 
electronic means for purposes of Board rules. In relying on such 
communications from customers, dealers must be cognizant of their 
responsibilities to prevent, and the potential liability associated 
with, unauthorized transactions. In this regard, the Commission 
states, and the Board agrees, that dealers should have reasonable 
assurance that the communication from a customer is authentic.

Electronic Transmission of Non-Required Communications

    The 1996 Release states that the above standards are intended to 
permit dealers to comply with their delivery obligations under 
federal securities laws when using electronic media. While 
compliance with the guidelines is not mandatory for the electronic 
delivery of non-required information that, in some cases, is being 
provided voluntarily to customers, the Board believes adherence to 
the guidelines should be considered, especially with respect to 
delivery of personal financial information.

Electronic Communications Among Dealers and Between Dealers and Issuers

    The Board believes that the standards applied by the Commission 
to communications with customers should also apply to mandated 
communications among dealers and between dealers and issuers. Thus, 
a dealer that undertakes communications required under Board rules 
with other dealers and with issuers in a manner that conforms with 
the principles stated above relating to customer communications will 
have met its obligations with respect to such communications. In 
addition, a dealer may rely on consents and acknowledgements 
received from other dealers or issuers by electronic means for 
purposes of Board rule, provided that the dealer should have 
reasonable assurance that the communication from such other party is 
authentic. However, any Board rule that explicitly requires that a 
dealer enter into a written agreement with another party will 
continue to require that such agreement be in written form.\21\ 
Financial information, as well as other privileged or confidential 
information, relating to another dealer or an issuer (or relating to 
another person or entity contained in a transmission between a 
dealer and another dealer or an issuer) should be transmitted using 
precautions similar to those used by a dealer in transmitting 
personal financial information to a customer.
---------------------------------------------------------------------------

    \21\ For example, the written agreements required under Rules G-
20(c), G-(23) C and G-38(b) must continue to be entered into in 
paper form.
---------------------------------------------------------------------------

Rules to Which This Notice Applies

    Set forth below is a list of current Board rules to which 
dealers may apply the guidance provided in this notice. The Board 
believes that the list sets forth all of the rules that require or 
permit communications among dealers and between dealers and 
customers and issuers.\22\ The summaries provided of the delivery 
obligations under the listed rules is intended for ease of reference 
only and are not intended to be complete statements of all the 
requirements under such rules.
---------------------------------------------------------------------------

    \22\ Unless otherwise provided in connection with the adoption 
by the Board of any new rules or amendments to existing rules that 
require or permit communications among dealers and between dealers 
and customers, issuers, and others, the guidance provided in this 
notice would also apply to any such communications.
---------------------------------------------------------------------------

     Rule G-8, on books and records to be made by dealers, 
prohibits dealers from obtaining or submitting for payment a check, 
draft or other form of negotiable paper drawn on a customer's 
checking, savings, share or similar account without the customer's 
express written authorization.
     Rule G-10, on delivery of investor brochure, requires 
dealers to deliver a copy of the investor brochure to a customer 
upon receipt of a complaint by the customer.
     Rule G-11, on sales of new issue municipal securities 
during the underwriting period, requires certain communications 
between senior syndicate managers and other members of the 
syndicate.\23\
---------------------------------------------------------------------------

    \23\ Rule G-11 also requires that syndicate members furnish 
certain information to others, upon request. The Board believes 
that, solely for purposes of this requirement under Rule G-11, such 
information may be provided to others by electronic means so long as 
the standards established in this notice with respect to electronic 
deliveries to customers are met.
---------------------------------------------------------------------------

     Rule G-12, on uniform practice, provides for 
confirmation of inter-dealer transactions and certain other inter-
dealer communications.\24\
---------------------------------------------------------------------------

    \24\ See supra note 5 (regarding information to be submitted to 
registered clearing agencies and registered securities 
depositories).
---------------------------------------------------------------------------

     Rule G-15, on confirmation, clearance and settlement of 
transactions with customers, provides for confirmation of 
transactions with customers and the provision of additional 
information to customers upon request.\25\
---------------------------------------------------------------------------

    \25\ See supra note 5 (regarding information to be submitted to 
registered clearing agencies and registered securities 
depositories). See also supra 6 (regarding alternate electronic 
means previously reviewed by the Board).
---------------------------------------------------------------------------

     Rule G-19, on suitability of recommendations and 
transactions and discretionary accounts, requires that dealers 
obtain certain information from their customers in connection with 
transactions and recommendations and also receive customer 
authorizations with respect to discretionary account transactions.
     Rule G-22, on control relationships, requires certain 
disclosures from a dealer effecting a transaction for a customer in 
municipal securities with respect to which such dealer has a control 
relationship and customer authorization of such transaction with 
respect to discretionary accounts.
     Rule G-23, on activities of financial advisors, 
requires that, under certain circumstances, dealers acting as 
financial advisors to issuers provide various disclosures to issuers 
and customers and receive certain consents and acknowledgments from 
issuers.\26\
---------------------------------------------------------------------------

    \26\ See supra note 18 and accompanying text (regarding the 
written agreement to be entered into between a dealer acting as 
financial advisor and the issuer).
---------------------------------------------------------------------------

     Rule G-24, on use of ownership information obtained in 
fiduciary or agency capacity, requires a dealer seeking to use for 
its own purposes information obtained while acting in a fiduciary or 
agency capacity for an issuer or other dealer to receive consents to 
the use of such information.
     Rule G-25, on improper use of assets, provides that put 
options and repurchase agreements will not be deemed to be 
guaranties against loss if their terms are provided in writing to 
customers with or on the transaction confirmation.
     Rule G-26, on customer account transfers, provides for 
written notice from customers requesting account transfers between 
dealers and the use of Form G-26 to effect such transfer.\27\
---------------------------------------------------------------------------

    \27\ See supra note 5 (regarding the use of customer account 
transfer instructions other than Form G-26).
---------------------------------------------------------------------------

     Rule G-28, on transactions with employees and partners 
of other municipal securities professionals, requires that a dealer 
opening an account for a customer who is an employee or partner of 
another dealer must provide notice and copies of confirmations to 
such other dealer and permits such other dealers to provide 
instructions for handling of transactions with such customer.
     Rule G-29, on availability of Board rules, provides 
that dealers must make available to customers for examination 
promptly upon request a copy of the Board's rules required to be 
kept in their offices.\28\
---------------------------------------------------------------------------

    \28\ See supra note 6 (regarding alternate electronic means 
previously reviewed by the Board).
---------------------------------------------------------------------------

     Rule G-32, on disclosures in connection with new 
issues, requires dealers selling new issue municipal securities to 
customers to deliver official statements \29\ and certain other 
information by settlement and requires

[[Page 547]]

selling dealers, managing underwriters and certain dealers acting as 
financial advisors to deliver such materials to dealers purchasing 
new issue municipal securities, upon request.\30\
---------------------------------------------------------------------------

    \29\ The Board believes that dealers must be particularly 
cautious in delivering official statements by electronic means since 
they may present special challenges in ensuring that they are 
received by customers and other dealers without material omissions 
or distortions in formatting (for example, tables in which data is 
more than negligibly misaligned) that may cause such materials not 
to meet the standard for electronically transmitted information 
comparable to information delivered in paper form. See supra note 9 
and accompanying text.
    \30\ The Board believes that, to the extent that Rule G-32(b)(i) 
obligates a managing or sole underwriter to provide, upon request, 
multiple copies of the official statement to a dealer with respect 
to new issue municipal securities sold by such dealer to customers, 
such obligation must continue to be met with paper copies of the 
official statement unless the purchasing dealer has consented to 
electronic delivery of the official statement in lieu of delivery of 
multiple paper copies. See 1995 Release, supra note 5 at Section 
II.D. example 11.
---------------------------------------------------------------------------

     Rule G-34, on CUSIP numbers and new issue requirements, 
requires underwriters to communicate information regarding CUSIP 
numbers and initial trade date to syndicate and selling group 
members.\31\
---------------------------------------------------------------------------

    \31\ See supra note 5 (regarding information to be submitted to 
the Board's designee with respect to CUSIP number assignment and to 
registered securities depositories).
---------------------------------------------------------------------------

     Rule G-38, on consultants, requires dealers to provide 
certain information to issuers regarding consulting 
arrangements.\32\
---------------------------------------------------------------------------

    \32\ See supra note 18 and accompanying text (regarding the 
written agreement to be entered into between a dealer and its 
consultant). See also supra note 5 (regarding the submission of Form 
G-37/G-38 to the Board).
---------------------------------------------------------------------------

     Rule G-39, on telemarketing, prohibits certain 
telemarketing calls without the prior consent of the person being 
called.\33\
---------------------------------------------------------------------------

    \33\ Although the person receiving such telemarketing call may 
in many cases not be customer, the Board believes that, solely for 
purposes of this provision of Rule G-39, such consent may be 
accepted by the dealer by electronic means so long as the standards 
established in this notice with respect to electronic communications 
from customers to dealers are met.
---------------------------------------------------------------------------

* * * * *

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 statement 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 May 9, 1996, the Commission issued an interpretative release 
expressing its views on the use of electronic media for delivery of 
information by, among others, brokers and dealers.\34\ The Commission 
stated that brokers, dealers and others may satisfy their delivery 
obligations under federal securities laws by using electronic media as 
an alternative to paper-based media within the framework established in 
the Commission's October 1995 interpretive release on the use of 
electronic media for delivery purposes.\35\ The Commission also 
indicated that an electronic communication from a customer to a broker 
or dealer generally would satisfy the requirements for written consent 
or acknowledgment under the federal securities laws.
---------------------------------------------------------------------------

    \34\ See 1996 Release, supra note 4.
    \35\ See 1995 Release, supra note 5.
---------------------------------------------------------------------------

    The Board has determined to publish the Notice to address the use 
by dealers of electronic media to deliver and receive information under 
Board rules in a manner consistent with the Commission releases. 
Pursuant to the Notice, the Board will permit dealers to transmit 
documents electronically that they are required or permitted to furnish 
to customers under Board rules provided that they adhere to the 
standards set forth in the Commission Releases and summarized on the 
Notice. The Notice summarizes these standards, which address, among 
other things, notice, access and evidence to show delivery. In 
addition, the Notice discusses certain precautions that should be taken 
when using electronic means to communicate personal financial 
information.
    The Notice also states that dealers may receive consents and 
acknowledgements from customers electronically in satisfaction of 
required written consents and acknowledgements. Furthermore, the Notice 
sets forth the board's belief that the standards applied by the 
Commission to communications with customers should also apply to 
communications among dealers and between dealers and issuers.
    The Notice contains a list of current Board rules to which dealers 
may apply the guidance provided in the Notice. The Notice states that, 
unless otherwise provided in connection with the adoption by the Board 
of any new rules or amendments to existing rules that require or permit 
communications among dealers and between dealers and customers, issuers 
and others, the guidance provided in the Notice would also apply to any 
such communications.
    The Board believes that use of electronic media to satisfy delivery 
requirements under Board rules will be beneficial to dealers customers 
and issuers, particularly when conducted in accordance with Commission 
standards.
    The Board believes the proposed rule change in consistent with 
Section 15B(b)(2)(C) of the Act.\36\ The Board believes that providing 
standards that allow dealers to effectively and efficiently deliver and 
receive required information under Board rules is consistent with the 
Act.
---------------------------------------------------------------------------

    \36\ Section 15B(b)(20(C) states 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.
---------------------------------------------------------------------------

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 is would apply equally 
to all brokers, dealers and municipal securities dealers.

C. Self-Regulatory Organization's Statement of 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 proposed rule change as constituting 
a stated policy, practice, or interpretation with respect to the 
meaning, administration, or enforcement of an existing Board rule under 
Section 19(b)(3)(A) of the Act, which renders the proposed rule change 
effective upon receipt of this filing by the Commission. At any time 
within 60 days of the filing 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, including whether the proposed rule 
change is consistent with the Act.\37\ Persons making written 
submissions should file six copies thereof with the Secretary, 
Securities and Exchange Commission, 450 Fifth Street, NW.,

[[Page 548]]

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-98-12 and should be 
submitted by January 26, 1999.

    \37\ In reviewing this proposal, the Commission has considered 
its impact on efficiency, competition, and capital formation. 15 
U.S.C. 78c(f).
---------------------------------------------------------------------------

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\38\
---------------------------------------------------------------------------

    \38\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-73 Filed 1-4-99; 8:45 am]
BILLING CODE 8010-01-M