[Federal Register Volume 67, Number 155 (Monday, August 12, 2002)]
[Notices]
[Pages 52503-52504]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-20332]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46318; File No. SR-MSRB-2002-06]


Self-Regulatory Organizations; Municipal Securities Rulemaking 
Board; Order Granting Approval of the Proposed Rule Change Relating to 
Disclosures in Connection With New Issues

August 6, 2002.
    On June 21, 2002, pursuant to section 19(b)(1) of the Securities 
Exchange Act of 1934 (the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ 
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 relates to disclosures in connection with new issues.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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    The Commission published the proposed rule change for comment in 
the Federal Register on July 3, 2002.\3\ The Commission did not receive 
comment letters relating to the forgoing proposed rule change. This 
order approves the Board's proposal.
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    \3\ See Release No. 34-46124 (June 26, 2002), 67 FR 44656.
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I. Description of the Proposed Rule Change

    To add greater convenience to customers and cost effectiveness to 
brokers, dealers and municipal securities dealers, the MSRB has 
determined to amend Rule G-32, on disclosures in connection with new 
issues. The proposed rule change amends Rule G-32(a) to reference Rule 
154, of the Securities Act of 1933 (``Securities Act''), on 
householding.\4\ The amendments to Rule G-8, on books and records, and 
Rule G-9, on preservation of records, account for the changes to Rule 
G-32.
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    \4\ Rule 154, on delivery of prospectuses to investors at the 
same address, permits broker-dealers to satisfy their delivery 
obligations by sending a single document to two or more investors 
sharing the same address. 17 CFR 230.154.
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    Under the Securities Act's Rule 154, a broker-dealer may satisfy 
its prospectus delivery requirements with respect to two or more 
investors sharing the same address by sending a single prospectus to 
that address, subject to certain conditions.\5\ The SEC refers to this 
process as ``householding.'' In adopting Rule 154, the Commission 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.\6\ 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).\7\ 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.\8\
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    \5\ The Commission has similar requirements under the Act and 
the Investment Company Act of 1940 with respect to shareholder 
reports.
    \6\ See Release No. 33-7912 (October 27, 2000).
    \7\ 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.
    \8\ Id.
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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; \9\ (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.\10\
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    \9\ The dealer must provide either a toll-free number or a pre-
addressed, postage paid form.
    \10\ 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, 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 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,

[[Page 52504]]

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.\11\ 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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    \11\ 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 proposed rule change provides 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 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.

II. Summary of Comments

    The Commission did not receive comment letters relating to this 
proposed rule change.

III. Discussion

    The Commission must approve a proposed MSRB rule change if the 
Commission finds that the proposal is consistent with the requirements 
set forth under the Act and the rules and regulations thereunder, which 
govern the MSRB.\12\ The language of Section 15B(b)(2)(C) of the Act 
requires that the MSRB's rules must be designed to prevent fraudulent 
and manipulative acts and practices, to promote just and equitable 
principals of trade, to foster cooperation and coordination with 
persons engaged in regulating, settling, processing information with 
respect to, and facilitating transactions in 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.\13\
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    \12\ Additionally, in approving this rule, the Commission notes 
that it has considered the proposed rule's impact on efficiency, 
competition and capital formation. 15 U.S.C. 78c(f).
    \13\ 15 U.S.C. 78o-4(b)(2)(C).
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    After careful review, the Commission finds that the Board's 
proposed rule change consisting of 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, meets the requisite statutory standard. The Commission 
believes that this proposed rule change is consistent with the 
requirements of the Act, and the rules and regulations thereunder. In 
addition, the Commission finds that the proposed rule is consistent 
with the requirements of Section 15B(b)(2)(C) of the Act, as set forth 
above.

IV. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\14\ that the proposed rule change (File No. MSRB-2002-06) be and 
hereby is, approved.

    \14\ 15 U.S.C. 78s(b)(2).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-20332 Filed 8-9-02; 8:45 am]
BILLING CODE 8010-01-P