[Federal Register Volume 67, Number 128 (Wednesday, July 3, 2002)]
[Notices]
[Pages 44656-44658]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-16688]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46124; File No. SR-MSRB-2002-06]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Municipal Securities Rulemaking Board Relating to 
Disclosures in Connection With New Issues

June 26, 2002.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ notice is hereby given that on June 21, 2002 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-2002-06). The proposed rule 
change 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 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 proposed amendment to Rule G-32, on 
disclosures in connection with new issues, as well as amendments to 
Rule G-8, on books and records, and Rule G-9, on preservation of 
records (hereafter referred to as ``the proposed rule change''). Below 
is the text of the proposed rule change. New language is italicized; 
deletions are in brackets.
Rule G-32. Disclosures in Connection With New Issues
    (a) Customer Disclosure Requirements. No broker, dealer or 
municipal securities dealer shall sell, whether as principal or agent, 
any new issue municipal securities to a customer unless such broker, 
dealer or municipal securities dealer delivers to the customer no later 
than the settlement of the transaction:
    (i) a copy of the official statement in final form prepared by or 
on behalf of the issuer or, if an official statement in final form is 
not being prepared by or on behalf of the issuer, a written notice to 
that effect together with a copy of an official statement in 
preliminary form, if any; provided, however, that:
    (A) No change
    (B) (1) No change
    (2) sends to the customer a copy of the official statement in final 
form, by first class mail or other equally prompt means, no later than 
the business day following receipt thereof by the broker, dealer or 
municipal securities dealer; [and]
    (B) if two or more customers share the same address, a broker, 
dealer or municipal securities dealer may satisfy the delivery 
obligations set forth in this section (a)(i) by complying with the 
requirements set forth in Rule 154 of the Securities Act of 1933, on 
delivery of prospectuses to investors at the same address. In addition, 
any such broker, dealer or municipal securities dealer shall comply 
with paragraph (c) of Rule 154, on revocation of consent, if subject to 
the delivery requirements in section (a)(i)(A) of this rule, concerning 
a customer who participates in a periodic municipal fund security plan 
or a non-periodic municipal fund security program; and
    (ii) No change.
    (b) through (d) No change.
Rule G-8. Books and Records To Be Made by Brokers, Dealers and 
Municipal Securities Dealers
    (a) Description of Books and Records to be Made. Except as 
otherwise specifically indicated in this rule, every broker, dealer and 
municipal securities dealer shall make and keep current the following 
books and records, to the extent applicable to the business of such 
broker, dealer or municipal securities dealer:
    (i)-(xii) No change.
    (xiii) Records Concerning Deliveries of Official Statements. A 
record of all deliveries to purchasers of new issue municipal 
securities, of official statements or other disclosures concerning the 
underwriting arrangements required under rule G-32[.] and, if 
applicable, a record evidencing compliance with section (a)(i)(C) of 
rule G-32.
    (xiv)-(xxi) No change.
    (b)-(g) No change.
Rule G-9. Preservation of Records
    (a) No change.
    (b) Records to be Preserved for Three Years. Every broker, dealer 
and municipal securities dealer shall preserve the following records 
for a period of not less that three years:
    (i)-(ix) No change.
    (x) all records of deliveries of rule G-32 disclosures and, if 
applicable, a record evidencing compliance with section (a)(i)(C) of 
rule G-32 required to be retained as described in rule G-8(a)(xiii);
    (xi)-(xv) No change.
    (c)-(g) No change.
* * * * *
    (a) Not applicable.

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

    In its filing with the Commission, the MSRB 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 MSRB 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

    SEC Rule 154, on delivery of prospectuses to investors at the same 
address, permits a broker-dealer or

[[Page 44657]]

issuer to satisfy its prospectus delivery requirements under the 
Securities Act of 1933 with respect to two or more investors sharing 
the same address by sending a single prospectus to that address, 
subject to certain conditions. 2, 3 The SEC refers to this 
process as ``householding.'' In adopting Rule 154, the SEC noted that, 
as a result of increased ownership of securities by individuals through 
different accounts (e.g., brokerage accounts, individual retirement 
accounts and custodial accounts for minors), duplicate copies of 
disclosure documents often were mailed to a single household.\4\ The 
purpose of Rule 154 is to reduce the number of duplicate disclosure 
documents delivered to such investors, thereby resulting in greater 
convenience for investors and cost savings for broker-dealers and 
issuers.\5\
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    \2, 3\ The Commission has similar requirements under the Act and 
the Investment Company Act of 1940 with respect to shareholder 
reports.
    \4\ See SEC Release No. 33-7766 (November 4, 1999).
    \5\ Id.
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    SEC Rule 154 permits broker-dealers to satisfy their delivery 
obligations by sending a single document to two or more investors 
sharing the same address. The investors do not have to be related. The 
document may be addressed to the investors as a group (e.g., ``Jane Doe 
and Household'' or ``The Smith Family'') or to each of the investors 
individually (e.g., ``Jane Doe and John Smith''). The address may be a 
residential, commercial, or electronic address (i.e., it may be a 
street address, post office box, fax number, or e-mail address).\6\
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    \6\ An e-mail address may be used if the dealer obtains the 
investors' written consent for electronic delivery and it is a 
shared e-mail address.
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    The broker-dealer must obtain the investors' written consent to the 
delivery of a single document on behalf of all such investors, or the 
broker-dealer may rely on ``implied consent'' if the following 
conditions are met: (1) The investor has the same last name as the 
other investors, or the broker-dealer reasonably believes that they are 
members of the same family; (2) the dealer sends each investor written 
notice at least 60 days before relying on this provision, and provides 
each investor with an opportunity to opt out of this method of 
delivery; \7\ (3) the investor does not opt out during the 60-day 
notice period; and (4) the dealer delivers the documents to a 
residential street address or a post office box.\8\
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    \7\ The dealer must provide either a toll-free number or a pre-
addressed, postage paid form.
    \8\ Rule 154 provides that a dealer can assume that an address 
is a residential address unless it has information that indicates it 
is a business address. If the dealer has reason to believe that the 
address is a multi-unit dwelling, the address must include the 
investor's unit number. See Rule 154(b)(4) and (d).
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    For open-end management investment companies (i.e., mutual funds) 
and dealers that are required to deliver the disclosure documents of 
such companies, SEC Rule 154(c) requires, at least annually, that the 
dealer explain to investors who have provided written or implied 
consent how such consent can be revoked. This information may be 
provided through any means reasonably designed to reach the investor, 
such as a prospectus, shareholder report or newsletter. Unlike other 
issuers, mutual funds typically send investors updated disclosure 
materials annually, and the ongoing nature of this relationship 
dictates that investors be informed of their right to revoke consent 
and begin receiving individual copies of disclosure documents, if they 
so desire.
    MSRB Rule G-32, on disclosures in connection with new issues, 
generally requires that any dealer selling municipal securities to a 
customer during the issue's underwriting period must deliver the 
official statement in final form, if any, to the customer by settlement 
of the transaction. The MSRB believes that, with respect to this 
delivery requirement, if two or more customers share the same address, 
Rule G-32 should allow for the same ``householding'' process as that 
contained in SEC Rule 154. In addition, Rule G-32(a)(i)(A) provides 
that, if a customer participates in a periodic municipal fund security 
plan or a non-periodic municipal fund security program and has 
previously received an official statement in final form in connection 
with such a plan or program, the dealer may sell additional shares or 
units to that customer if the dealer sends a copy of any new, 
supplemented, amended or ``stickered'' official statement in final 
form, by first class mail or other equally prompt means.\9\ Allowing 
for householding in the context of municipal fund securities would be 
particularly beneficial, especially where one family has accounts for 
multiple children (or each parent has separate accounts for the same 
child) and the dealer may be required to deliver disclosure documents 
on an ongoing basis (e.g., the customer participates in a periodic plan 
or non-periodic program).
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    \9\ If the dealer sends a supplement, amendment or sticker 
without including the remaining portions of the final official 
statement, the dealer must include a written statement describing 
which documents constitute the complete final official statement and 
stating that it is available upon request.
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    Thus, the MSRB has determined to amend Rule G-32(a) to reference 
SEC Rule 154 and state that a dealer may satisfy its official statement 
delivery obligations by complying with that Rule's requirements when 
sending disclosure documents to two or more customers sharing the same 
address. The amendment further provides that dealers that are required 
to send ongoing disclosure documents to customers who participate in a 
periodic municipal fund security plan or a non-periodic municipal fund 
security program are specifically required to comply with SEC Rule 
154(c) by providing those customers with information, at least 
annually, on how to revoke their consent to the householding process 
and thereby receive individual copies of disclosure documents, if they 
so desire.
    The proposed rule change also amends Rule G-8, on books and 
records, and Rule G-9, on preservation of records, to account for the 
changes to Rule G-32.
    (b) The MSRB has adopted the proposed rule change pursuant to 
Section 15B(b)(2)(C) of the Exchange Act, which authorizes the MSRB to 
adopt rules that shall:

be designed 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.

The proposed rule change incorporates by reference SEC Rule 154, on 
delivery of prospectuses to investors at the same address, and is 
intended as an accommodation for those brokers, dealers and municipal 
securities dealers that, pursuant to MSRB Rule G-32, are required to 
deliver multiple copies of the same disclosure document to customers 
sharing the same address. The proposed rule change will reduce the 
number of duplicate disclosure documents delivered to certain 
customers, thereby resulting in greater convenience for such customers 
and cost savings for brokers, dealers and municipal securities dealers.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The MSRB 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 since it would apply

[[Page 44658]]

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

    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 the 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 
arguments concerning the foregoing, including whether the proposed rule 
is consistent with the Act. Persons making written submissions should 
file six copies thereof with the Secretary, Securities and Exchange 
Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. 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 offices. All submissions should 
refer to File No. SR-MSRB-2002-06 and should be submitted by July 24, 
2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated Authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-16688 Filed 7-2-02; 8:45 am]
BILLING CODE 8010-01-P