[Federal Register Volume 70, Number 104 (Wednesday, June 1, 2005)]
[Notices]
[Pages 31551-31552]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-2750]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51736, File No. SR-MSRB-2004-09]


Self-Regulatory Organizations; Municipal Securities Rulemaking 
Board; Order Approving Proposed Rule Change Relating to Advertisements 
of Municipal Fund Securities Under MSRB Rule G-21

May 24, 2005.
    On December 16, 2004, the Municipal Securities Rulemaking Board 
(``MSRB'' or ``Board''), filed with the Securities and Exchange 
Commission (``SEC'' or ``Commission''), pursuant to Section 19(b)(1) of 
the Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change amending MSRB Rule G-21, on 
advertising, to establish specific requirements with respect to 
advertisements by brokers, dealers and municipal securities dealers 
(``dealers'') relating to municipal fund securities. The proposed rule 
change was published for comment in the Federal Register on December 
30, 2004.\3\ The Commission received three comment letters regarding 
the proposal.\4\ On March 8, 2005, the MSRB filed a response to the 
first two comment letters and requested that the SEC make the proposed 
rule change effective 180 days after the proposed rule change is 
approved.\5\ On May 10, 2005, the MSRB filed a response to the third 
comment letter from Fund Distributors and modified the MSRB's request 
in the First Response Letter regarding the effective date of the 
proposed rule change.\6\ This order approves the proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 50919 (December 22, 
2004), 69 FR 78499 (December 30, 2004).
    \4\ See e-mail letter from David Pearlman, Chairman, College 
Savings Foundation (``CSF''), to [email protected], dated 
January 14, 2005 (``CSF's Letter''); letter to Jonathan G. Katz, 
Secretary, Commission, from Tamara K. Salmon, Senior Associate 
Counsel, Investment Company Institute (``ICI''), dated January 19, 
2005 (``ICI's Letter''); and letter from Joseph J. Connolly, Eckert 
Seamans Cherin & Mellott, LLC, on behalf of its client PFM Fund 
Distributors, Inc. (``Fund Distributors''), dated February 18, 2005 
(``Fund Distributors'' Letter'').
    \5\ See letter from Ernesto A. Lanza, Senior Associate General 
Counsel, MSRB, to Martha M. Haines, Chief, Office of Municipal 
Securities, Commission, dated March 8, 2005 (``MSRB's First Response 
Letter''). The MSRB's First Response Letter does not respond to Fund 
Distributors' Letter because Fund Distributors' Letter was received 
by the Commission after the end of the comment period.
    \6\ See letter from Ernesto A. Lanza, Senior Associate General 
Counsel, MSRB, to Martha M. Haines, Chief, Office of Municipal 
Securities, Commission, dated May 4, 2005 (``MSRB's Second Response 
Letter'').
---------------------------------------------------------------------------

    The proposed rule change amends MSRB Rule G-21 to establish 
specific standards applicable to advertisements of municipal fund 
securities by dealers. In its filing, the MSRB proposed an effective 
date for the proposed rule change of the first calendar day of the 
month beginning 90 or more calendar days after SEC approval.
    CSF's Letter and ICI's Letter generally supported the proposed 
amendments, which would bring advertising rules for municipal fund 
securities more in line with the requirements of Rule 482 adopted by 
the SEC under the Securities Act of 1933, as amended.\7\ CSF's Letter 
requested additional time to implement systems changes needed to comply 
with the proposal, and requested that there be a 180-day transition 
period from the effective date of the proposal until the date of 
required compliance. ICI's Letter recommended that the proposed 90-day 
compliance period be extended to a period of at least 210 days to 
accommodate the changes necessitated by the revised rule.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 77a et seq.
---------------------------------------------------------------------------

    In addition, ICI's Letter noted that the MSRB has published for 
comment related amendments to Rule G-21 that would supplement the 
proposed rule change (the ``additional draft

[[Page 31552]]

amendments''), and recommended the proposed rule change and the 
additional draft amendments, if ultimately approved, be made effective 
in a coordinated manner to avoid a two-step compliance process.
    The MSRB's First Response Letter stated that the MSRB had approved 
the filing with the SEC of the additional draft amendments to Rule G-21 
at its February meeting, and also stated that the MSRB would request an 
effective date for the additional draft amendments that coincides with 
the effective date for the proposed rule change.
    The MSRB's First Response Letter also stated that they understand 
that, in many cases, issuers will be involved in the process of 
preparing the disseminated performance data that dealers will use in 
their advertisements and for compliance with the requirements in the 
additional draft amendments. Accordingly, the MSRB's First Response 
Letter stated that they believe that additional time for the issuer 
community to prepare for the timeframes required under the new 
advertising requirements would be appropriate, and requested that the 
SEC amend the proposed rule change to be effective 180 days after the 
proposed rule change is approved. The MSRB's Second Response Letter, 
drafted after additional discussions with SEC staff, recommended that 
all advertisements for municipal fund securities submitted or caused to 
be submitted for publication by a dealer on or after September 1, 2005 
comply with section (e) of Rule G-21, as amended by the proposed rule 
change, except for paragraphs (e)(i)(C) and (e)(ii) relating to 
calculation and presentation of performance data and those provisions 
of paragraph (e)(i)(D) pertaining to paragraph (e)(i)(C), and that all 
advertisements for municipal fund securities submitted or caused to be 
submitted for publication by a dealer on or after December 1, 2005 
comply with all provisions of section (e) of Rule G-21.
    Fund Distributors' Letter stated that municipal fund securities 
consist of the securities of two broad classes of issuers: local 
government investment pools (LGIPs) and what are known as section 529 
college savings plans. Fund Distributors' Letter urged the Commission 
to decline to adopt the proposed rule change to the extent that the 
amendments apply to the historical performance data of LGIPs because 
those amendments fail to recognize the unique perspective of the 
financially sophisticated municipal governments which use LGIPs in 
their cash management programs. The MSRB's Second Response Letter 
stated that although they agree that many investors in the LGIP market 
may be ``financially sophisticated municipal governments,'' as 
characterized by Fund Distributors, they believe that a large number of 
LGIP investors consist of entities such as small municipalities, school 
and other special purpose districts, and various other governmental 
entities that may have only part-time or otherwise limited financial 
staffs who may well not be financially sophisticated. The MSRB's Second 
Response Letter further stated that they believe that the proposed rule 
change will further investor protection in the LGIP market and 
therefore should be approved as submitted.
    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to the MSRB \8\ and, in particular, the 
requirements of Section 15B(b)(2)(C) of the Act and the rules and 
regulations thereunder.\9\ Section 15B(b)(2)(C) of the Act requires, 
among other things, that the MSRB's rules 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.\10\ In particular, the 
Commission finds that the proposed rule change will further investor 
protection by raising the standards for advertisements of municipal 
fund securities and by making information provided in such 
advertisements comparable for different municipal fund securities 
investments and between municipal fund securities and registered mutual 
funds.
---------------------------------------------------------------------------

    \8\ 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).
    \9\ 15 U.S.C. 78o-4(b)(2)(C).
    \10\ Id.
---------------------------------------------------------------------------

    The Commission finds that the MSRB's recommendation concerning the 
effective date of the proposal falls within the statutory parameters 
and therefore agrees that all advertisements for municipal fund 
securities submitted or caused to be submitted for publication by a 
dealer on or after September 1, 2005 must comply with section (e) of 
Rule G-21, as amended by the proposed rule change, except for 
paragraphs (e)(i)(C) and (e)(ii) relating to calculation and 
presentation of performance data and those provisions of paragraph 
(e)(i)(D) pertaining to paragraph (e)(i)(C), and that all 
advertisements for municipal fund securities submitted or caused to be 
submitted for publication by a dealer on or after December 1, 2005 must 
comply with all provisions of section (e) of Rule G-21. These 
compliance dates also would apply to the additional draft amendments, 
when filed with (and if approved by) the Commission. In addition, the 
Commission believes that the amendments should be applied to LGIPs as 
well as section 529 plans because investor protection issues may be 
raised in connection with the sale by dealers of interests in local 
government pools as well as section 529 plans.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\11\ that the proposed rule change (SR-MSRB-2004-09) be, and hereby 
is, approved.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
---------------------------------------------------------------------------

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

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-2750 Filed 5-31-05; 8:45 am]
BILLING CODE 8010-01-P