[Federal Register Volume 64, Number 167 (Monday, August 30, 1999)]
[Notices]
[Pages 47209-47210]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-22429]



[[Page 47209]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-41773; File No. SR-MSRB-99-7]


Self-Regulatory Organizations; Municipal Securities Rulemaking 
Board; Notice of Filing of Proposed Rule Change Relating to an 
Amendment to Rule G-16 on Periodic Compliance Examinations

August 20, 1999.
    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 August 13, 1999, the Municipal Securities Rulemaking Board 
(``Board'' or ``MSRB'') filed with the Securities and Exchange 
Commission (``Commission'' or ``SEC'') a proposed rule change as 
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 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.
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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 proposed rule change to Rule G-16, 
on periodic compliance examination (hereinafter referred to as the 
``proposed rule change''). The proposed rule change will revise the 24-
month examination in Rule G-16 to a two calendar year requirement. 
Below is the text of the proposed rule change: \3\
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    \3\$New language is italicized and deletions are in brackets.
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Rule G-16. Periodic Compliance Examination

    At least once each [twenty-four months] two calendar years, each 
broker, dealer and municipal securities dealer shall be examined in 
accordance with Section 15B(c)(7) of the Act to determine, at a 
minimum, whether such broker, dealer or municipal securities dealer 
and its associated persons are in compliance with all applicable 
rules of the Board and all applicable provisions of the Act and 
rules and regulations of the Commission thereunder.
* * * * *

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 
text of these statements 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

    Section 15B(c)(7)(A) \4\ of the Act provides that periodic 
examinations of dealers for compliance with Board rules are to be 
conducted by the National Association of Securities Dealers, Inc. 
(``NASD'') with respect to securities firms and by the appropriate 
federal bank regulatory agencies with respect to bank dealers. Rule G-
16 permits such examinations to be combined with other periodic 
examinations of securities firms and bank dealers in order to avoid 
unnecessary regulatory duplication and undue regulatory burdens for 
such firms and bank dealers.
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    \4\ 15 U.S.C. 78o-4(c)(7)(A).
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    By letter dated April 28, 1999, NASD Regulation, Inc., (``NASDR'') 
requested that the Board revise Rule G-16. The letter states that 
because of NASDR's efforts to coordinate examination schedules, NASDR 
believes there is a need for a change in Rule G-16. NASDR requested 
that the Board change the 24-month requirement in Rule G-16 to a two 
calendar year requirement.
    NASDR states that the requirement in Rule G-16 that municipal 
securities examinations commence within 24-months of the previous 
examination takes precedence over all examinations when coordinating 
examination schedules. NASDR uses the ``field work start date'' of a 
firm's prior municipal securities examination to calculate the 24-month 
period for the purposes of Rule G-16. Apply this methodology, NASDR 
identifies all municipal securities examinations required in a given 
calendar year. A determination is then made as to whether the 
identified firms are also scheduled for a routine cycle examination 
during the same year.
    If a routine cycle examination is required of a firm that is 
subject to a municipal inspection, the routine and municipal 
examinations are combined. If a routine cycle examination is not 
required, a separate ``off-cycle'' municipal examination may have to be 
conducted on-site. Whenever a municipal securities examination is 
accelerated, the due date for commencement of a subsequent examination 
is moved to an earlier period; increasingly the first quarter. NASDR 
states that this hampers both current and future examination planning 
and coordination. NASDR states that without the rule change it may be 
necessary to remove municipal securities examinations from the 
coordinated examination programs.
    The Board discussed the proposed rule change with representatives 
from the Federal Deposit Insurance Corporation, the Federal Reserve 
Board, and the Office of the Comptroller of the Currency (``the bank 
regulators'') The bank regulators also examine dealers for compliance 
with Board rules pursuant to Rule G-16. All of the bank regulators 
responded favorably to the NASDR's request, stating that the requested 
change would help bank regulators better coordinate examinations.
    Coordination of on-site examinations eliminates unnecessary 
regulatory duplication and is less intrusive for dealers without 
negatively impacting investor protection. A formal Memorandum of 
Understanding among the North American Securities Administrators 
Association, Inc., SEC, NASDR and other securities industry self-
regulatory organizations reflects the joint commitment to coordinated 
examinations. The Board believes that the proposed rule change will 
permit more effective coordination of examinations with other 
regulatory and self-regulatory organizations. It will also provide 
operating flexibility in planning and scheduling NASDR's and the bank 
regulators' overall examination program.

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 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

    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

[[Page 47210]]

    (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 
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-99-7 and should be 
submitted by September 20, 1999.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\5\
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    \5\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-22429 Filed 8-27-99; 8:45 am]
BILLING CODE 8010-01-M