[Federal Register Volume 64, Number 54 (Monday, March 22, 1999)]
[Notices]
[Pages 13837-13838]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-6830]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-41170; File No. SR-MSRB-99-1]
March 15, 1999.


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Municipal Securities 
Rulemaking Board Relating to Interpretation of Rule G-38 on Consultants

    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on March 4, 1999, 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-
99-1) as described in Items I, II, and III below, which Items have been 
prepared by the Board. The MSRB has designated this proposal as one 
constituting a stated policy, practice or interpretation with respect 
to the enforcement of an existing rule under Section 19(b)(3) \3\ of 
the Act which renders the proposal effective upon receipt of the 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).
    \2\ 17 CFR. 240.19b-4.
    \1\ 15 U.S.C. 78s(b)(3).
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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. The text of the proposed rule change is as 
follows in italics.
* * * * *

Rule G-38 Question and Answer Agreement to Jointly Seek Underwriting 
Assignments

    Q: Dealer Firm A and Dealer Firm B have entered into an agreement 
to jointly seek underwriting assignments. As part of this agreement, 
the two dealers shave jointly submitted proposals to issuers. Dealer 
Firm A ultimately is selected to underwrite a negotiated sale of a 
primary offering of municipal securities (i.e., ``municipal securities 
business'' as defined in Rule G-37). Dealer Firm B will not act as an 
underwriter on this offering but will assist Dealer Firm A in 
structuring the transaction. Dealer Firm A will compensate Dealer Firm 
B for the work it provides on the transaction. Is Dealer Firm B a 
consultant to Dealer Firm A pursuant to Rule G-38, on consultants?
    A. Yes. Dealer Firm B is a consultant to Dealer Firm A because, 
pursuant to the definition of consultant in Rule G-38(a)(i), Dealer 
Firm B is: (1) used by Dealer Firm A to obtain municipal securities 
business, (2) through direct or indirect communication with an issuer 
on behalf of Dealer Firm A, and (3) the communication is undertaken by 
Dealer Firm B in exchange for, or with the understanding of receiving, 
payment from Dealer Firm A. Moreover, Dealer Firm B is not exempt from 
the definition of consultant since it is not a municipal finance 
professional, and its sole basis of compensation is not the actual 
provision of legal, accounting or engineering advice, services or 
assistance. In addition, the Board believes that, even though Dealer 
Firm B is providing substantive work on the transaction, any dealer 
used by another dealer (other than a member of the syndicate) to assist 
in obtaining or retaining municipal securities business is acting as a 
consultant pursuant to Rule G-38.

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 Sections 
A, B, and C below, of the most significant aspects of such statements.

[[Page 13838]]

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: (i) 
Rule G-37 concerning political contributions and prohibitions on 
municipal securities business; (ii) Rule G-20 concerning gifts and 
gratuities; and (iii) Rule G-17 concerning fair dealing. Rule G-38 
requires dealers to disclose information about their consultant 
arrangements to issuers and the public. Recently, the Board received an 
inquiry from a dealer concerning the application of Rule G-38 to 
instances in which dealers have entered into agreements to jointly seek 
underwriting assignments. The Board has determined to publish this 
fourth notice of interpretation \5\ which sets forth, in question-and-
answer format, to provide general guidance on Rule G-38 and 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 will continue to monitor the 
application of Rule G-38, and, from time to time, will publish 
additional notices of interpretations, as necessary.
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    \4\ Securities Exchange Act Release No. 36727 (January 17, 
1996), 61 FR 1955 (January 24, 1996). The rule became effective on 
March 18, 1996.
    \5\ See Securities Exchange Act Release No. 36950 (March 11, 
1996), 61 FR 10828 (March 15, 1996), MSRB Reports, Vol. 16, No. 2 
(June 1996) at 3-5; Securities Exchange Act Release No. 37997 
(November 29, 1996), 61 FR 64781 (December 6, 1996), MSRB Reports, 
Vol. 17, No. 1 (January 1997) at 15; and Securities Exchange Act 
Release No. 40499 (September 29, 1998), 63 FR 53739 (October 6, 
1998), MSRB Reports, Vol. 18, No. 2 (August 1998) at 13. See also 
MSRB Manual (CCH) at paragraph 3686.
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    The Board believes the proposed rule change is consistent with 
Section 15B(b)(2)(C) \6\ of the Act, which provides, among other 
things, 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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    \6\ 15 U.S.C. 78o-4(b)(2)(C).
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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 proposed rule change constitutes a stated policy, practice, or 
interpretation with respect to the meaning, administration, or 
enforcement of an existing rule of the Board and, therefore, has become 
effective pursuant to Section 19(b)(3)(A) \7\ of the Act, and 
subparagraph (f) of Rule 19b-4 thereunder.\8\ At any time within 60 
days of the filing of such proposed rule change, the Commission may 
summarily abrogate the proposed 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.
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    \7\ 15 U.S.C. 78s(b)(3)(A).
    \8\ 17 CFR 240.19b-4(f).
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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. 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-
0609. 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-99-1 and should be 
submitted by April 12, 1999.

    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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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-6830 Filed 3-19-99; 8:45 am]
BILLING CODE 8010-01-M