[Federal Register Volume 73, Number 12 (Thursday, January 17, 2008)]
[Notices]
[Pages 3295-3300]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-732]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57131; File No. SR-MSRB-2007-08]


Self-Regulatory Organizations; Municipal Securities Rulemaking 
Board; Notice of Filing of Proposed Rule Change to Rule G-8, Books and 
Records, Rule G-9, Preservation of Records, and Rule G-34, CUSIP 
Numbers and New Issue Requirements, To Improve Transaction Reporting of 
New Issues

January 11, 2008.
    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 November 27, 2007, the Municipal Securities Rulemaking Board 
(``MSRB'') filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC'') the proposed rule change as described in 
Items I, II, and III below, which Items have been substantially 
prepared by the MSRB. 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 MSRB is filing with the Commission a proposed rule change 
consisting of an amendment of its Rule G-8, Books and Records, Rule G-
9, Preservation of Records, and Rule G-34, CUSIP Numbers and New Issue 
Requirements. The proposed rule change is designed to improve 
transaction reporting of new issues and would accelerate the timing for 
CUSIP number assignment and, with the exception of new issues of short-
term instruments with less than nine months in effective maturity, 
require underwriters to:
    (i) Submit certain information about a new issue of municipal 
securities to Depository Trust and Clearing Corporation's New Issue 
Information Dissemination System within set timeframes; and (ii) set 
and disseminate a ``Time of First Execution'' that allows time for 
market participants to access necessary information in preparation for 
trade reporting prior to beginning trade executions in the issue. The 
MSRB proposes an effective date for the proposed rule change of June 
30, 2008. The text of the proposed rule change is available on the 
MSRB's Web site (http://www.msrb.org), at the MSRB's principal office, 
and at the Commission's Public Reference Room.

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 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 
text 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

1. Purpose
    MSRB Rule G-14, on transaction reporting, requires all brokers, 
dealers and municipal securities dealers (``dealers'') to report all 
transactions in municipal securities to the MSRB Real-Time Transaction 
Reporting System (``RTRS'') within fifteen minutes of the time of trade 
execution, with limited exceptions. One exception listed in Rule G-14 
RTRS Procedures, paragraph (a)(ii) is a ``three-hour exception'' that 
allows a dealer three hours to report a transaction in a when, as and 
if issued (``when-issued'') security if all of the following conditions 
apply: (i) The CUSIP number and indicative data of the issue traded are 
not in the securities

[[Page 3296]]

master file used by the dealer to process trades for confirmations, 
clearance and settlement; (ii) the dealer has not traded the issue in 
the previous year; and (iii) the dealer is not a syndicate manager or 
syndicate member for the issue.\3\
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    \3\ Another exception is an end-of-day deadline for reporting 
trades in short-term instruments under nine months in effective 
maturity, including variable rate instruments, auction rate 
products, and commercial paper.
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    The three-hour exception was designed to give a dealer time to add 
a security to its ``securities master file'' so that a trade can be 
reported through the dealer's automated trade processing systems. A 
securities master file contains the information about a municipal 
security issue that is necessary for a dealer to be able to process 
transactions in the issue. It includes such items as the interest rate, 
dated date, interest payment cycle, and put and call schedules. The 
dealer's securities master file often contains information only for 
securities held in custody for customers and for securities that have 
been recently traded. If a dealer trades a security that is not in its 
securities master file, the relevant securities information must be 
obtained by the dealer from an information vendor before the trade can 
be processed and reported.\4\
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    \4\ Many dealers use service bureaus for various trade 
processing functions, including the maintenance of securities master 
files. Securities master file update procedures for service bureaus 
are the same as those described for dealers.
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    For new issue transactions, a dealer's access to necessary 
securities information depends not only on its link with an information 
vendor but also on whether that vendor itself has the information on 
the new issue. Vendors currently obtain much of their new issue 
information through voluntary cooperation from underwriters. This 
process does not always result in all the vendors having the necessary 
securities information by the time trade executions begin. Dealers 
trading a new issue for the first time need the three-hour exception 
from the fifteen-minute trade reporting requirement for their first 
trades in a new issue because the securities information is not always 
available at the time the trade is executed.\5\
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    \5\ In the new issue market, information vendors seek to collect 
information on each issue and deliver it to customers in time for 
trade reporting in the new issue. There are several challenges for 
vendors and dealers to meet the reporting deadlines. For example, 
there are approximately 15,000 new municipal issues that must be set 
up in databases each month. Another problem for the industry is the 
fact that approximately 85 different information fields for each 
issue must be successfully gathered, which in large part depends on 
the timely cooperation of the underwriters.
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    To address inefficiencies in the collection of new information 
securities data, Securities Industry and Financial Markets Association 
(``SIFMA''), industry members, securities information vendors, and 
other service providers in the municipal securities market have worked 
extensively with The Depository Trust and Clearing Corporation 
(``DTCC'') to develop a centralized system for collecting and 
communicating new issue securities information. The system, called the 
``New Issue Information Dissemination System'' (``NIIDS''), will be 
operated by DTCC and will act as a central collection point for 
standardized electronic files of new issue information provided by 
underwriters which will be disseminated in real-time to information 
vendors.
    Although the amount of securities information needed for trade 
reporting under Rule G-14 is limited,\6\ many of the automated trade 
processing systems used to report trades currently need more extensive 
securities information (essentially the information necessary to 
produce a trade confirmation) before a trade can be reported. The 
industry initiative on NIIDS has resulted in a relatively comprehensive 
list of new issue securities data that will be collected and 
disseminated by NIIDS, including Time of Formal Award and Time of First 
Execution, discussed below. DTCC plans to implement NIIDS in early 
2008.\7\
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    \6\ RTRS only requires dealers to include limited information on 
trade reports in when-issued securities, such as the CUSIP number of 
the security traded, the par value of the transaction, and the 
transaction price expressed as either yield or dollar price.
    \7\ In addition to providing an improved mechanism for 
disseminating the new issue information necessary for trade 
processing, the system also would use the information for purposes 
of establishing depository eligibility for new issues. DTCC plans to 
require use of the New Underwriting System (``NUWS''), of which 
NIIDS is a component, beginning in April 2008.
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    The proposed rule change is designed to improve new issue 
transaction reporting through requiring underwriter participation with 
NIIDS. The proposed rule change prescribes timetables for submission of 
data to NIIDS and other underwriter procedures that are intended to 
ensure that all dealers have timely access to the new issue information 
that is needed for compliance with trade reporting requirements. The 
MSRB proposes a June 30, 2008 effective date for the proposed rule 
change.\8\
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    \8\ NIIDS, in conjunction with MSRB rules, should make it 
possible for dealers to report new issue trades earlier and thus 
eliminate the need for the three-hour exception for when-issued 
trade reports. Accordingly, the MSRB has filed with the SEC a 
proposed rule change to sunset the ``three-hour exception'' on June 
30, 2008, to coincide with the effective date of the proposed rule 
change. See Securities Exchange Act Release No. 57002 (December 20, 
2007), 72 FR 73939 (December 28, 2007) (SR-MSRB-2007-07).
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Amendments to Rule G-34
    Currently, Rule G-34 requires underwriters \9\ to apply for CUSIP 
numbers within specific deadlines and to transmit a limited amount of 
information about a new issue such as the coupons, maturities and issue 
closing date to DTCC. The rule also contains a requirement for Time of 
Formal Award to be disseminated to market participants that may trade 
the new issue. The proposed rule change would accelerate the timing for 
CUSIP number assignment and, with the exception of new issues of short-
term instruments with less than nine months in effective maturity, 
require underwriters to: (i) Submit certain information about a new 
issue of municipal securities to DTCC's NIIDS System within set 
timeframes; and (ii) set and disseminate a ``Time of First Execution'' 
that allows time for market participants to access necessary 
information in preparation for trade reporting prior to beginning trade 
executions in the issue.
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    \9\ Rule G-34 defines ``underwriter'' very broadly to include a 
dealer acting as a placement agent as well as any dealer purchasing 
new issue securities from the issuer as principal. If there is an 
underwriting syndicate, the lead manager is considered to be the 
``underwriter'' for purposes of Rule G-34.
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Timing of CUSIP Number Assignment
    CUSIP numbers are a required data element for automated trade 
processing and trade reporting systems and will be a prerequisite for 
entry of new issue information into NIIDS. Timely processing of new 
issue transactions requires that CUSIP numbers be assigned as early as 
possible in the underwriting process. Rule G-34 contains various 
requirements for underwriters, and for dealers acting as financial 
advisors on competitive sales, to apply to the CUSIP Service Bureau for 
CUSIP number assignment. The current deadlines are based on: The time 
the bond purchase agreement is executed (for underwriters in negotiated 
sales); the time of the issuer's award (for dealers acting as financial 
advisors in competitive sales); and the time of the first execution of 
a trade in the issue (for underwriters in competitive sales). The 
proposed rule change would set new deadlines designed to ensure CUSIP 
number assignment occurs as soon as possible in the underwriting 
process, allowing for the timely submission of new issue information to 
NIIDS.

[[Page 3297]]

    For negotiated issues, the proposed rule change would require that 
an application must be made no later than the time that the pricing 
information for the issue is determined. For a dealer acting as a 
financial advisor on a competitive deal, the proposed rule change would 
require an application for CUSIP number assignment to be made within 
one business day of dissemination of a notice of sale. The proposed 
rule change also states a general requirement that the underwriter on a 
negotiated underwriting and a dealer acting as a financial advisor on a 
competitive deal would be required to ensure that final CUSIP number 
assignment occurs prior to the formal award of the new issue.\10\
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    \10\ Under existing provisions of Rule G-34, dealers frequently 
apply for CUSIP numbers before interest rates are determined. In 
these cases, the dealer must provide the final interest rate 
information as soon as it becomes available. The proposed rule 
change would clarify that a dealer must update any of the required 
information that changes after an initial application as soon as the 
new information becomes available.
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    Rule G-34 currently requires the underwriter in a competitive sale 
to apply for CUSIP numbers if an application has not already been made 
by the issuer or the issuer's representative. The MSRB understands that 
CUSIP numbers for competitively sold issues generally are assigned by 
the date of sale, but that on occasion this is not done.\11\ Dealers 
have noted that, in these situations, automated trade processing and 
real-time trade reporting for the issue may be delayed because of the 
time necessary for the underwriter to obtain CUSIP numbers after the 
formal award. The proposed rule change would clarify the underwriter's 
existing responsibility in such situations to apply for CUSIP numbers 
immediately after receiving the award.
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    \11\ As noted above, in competitive sales where a dealer serves 
as financial advisor, Rule G-34 requires the dealer to apply for 
CUSIP numbers. However, in competitive sales where there is no 
dealer financial advisor, there is no other dealer associated with 
the issue prior to the date of sale that can be charged under MSRB 
rules with the responsibility to make a pre-sale application for 
CUSIP numbers.
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Underwriter Requirement To Provide Information to NIIDS Within Certain 
Deadlines
    The proposed rule change would require underwriters to transmit new 
issue information to NIIDS within deadlines that are intended to ensure 
that the information reaches information vendors and is further re-
disseminated for use in automated trade processing systems by the time 
that trade executions begin in a new issue. The specific items of 
information required to be submitted are those generally considered 
necessary for automated trade processing in an issue and are designated 
in the NIIDS system as items necessary for ``Trade Eligibility.''
    Underwriters would be required to submit this information 
electronically in accordance with the methods and formats stated for 
NIIDS system users. The information could be provided through computer-
to-computer links or through a web interface allowing manual input of 
data. Although the underwriter would be ultimately responsible for 
timely, comprehensive and accurate data submission, the proposed rule 
change would allow for use of an intermediary to accomplish this 
function.\12\
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    \12\ Several industry vendors that provide ``bookrunning'' 
services to underwriters on new issues have indicated that they plan 
to offer a service to transmit information about a new issue to 
NIIDS on behalf of the underwriter.
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    NIIDS is designed so that, once CUSIP numbers are assigned to a new 
issue, information about the issue can be submitted as it becomes 
available. The proposed rule change would require underwriters to 
provide information specified by NIIDS as required for Trade 
Eligibility as soon as it is available, with a final deadline for all 
such information to be provided no later than two hours after the Time 
of Formal Award, which would be redefined as discussed below. The 
proposed rule change also states that only the hours between 9 a.m. and 
5 p.m. Eastern on an RTRS Business Day are counted for purposes of the 
timetables listed in the draft amendments. For example, if the Time of 
Formal Award occurs at 6 p.m. Eastern, the timetables listed in the 
proposed rule change would not commence until 9 a.m. Eastern on the 
next RTRS Business Day.
Revised Definition of ``Time of Formal Award''
    The Time of Formal Award represents the earliest time that a dealer 
can execute transactions in a new issue and is used currently in Rule 
G-34 and in the proposed rule change to set certain deadlines. The 
proposed rule change includes a minor change to the current definition 
of ``Time of Formal Award'' for purposes of Rule G-34 timetables. The 
MSRB understands that underwriters are not always present at the time 
the issuer executes a bond purchase agreement or formally confirms an 
award of a competitive issue. Some time may elapse between this time 
and the time at which the underwriter becomes aware of the issuer's 
action and this delay may not be under the control of the underwriter. 
To address this issue, the proposed rule change states that for 
purposes of Rule G-34, ``Time of Formal Award'' is defined as:
     For competitive issues, the later of the time the issuer 
formally awards the issue or the time the issuer notifies the 
underwriter of the award; and,
     for negotiated issues, the later of the time the contract 
to purchase the securities from the issuer is executed or the time the 
issuer notifies the underwriter of its execution of the agreement.
    The Time of Formal Award is one of the required information items 
to be submitted to NIIDS. Therefore, it would be subject to the general 
requirement to be submitted as soon as it is available as well as the 
ultimate deadline for submission of all required data, which is two 
hours after the Time of Formal Award. These requirements should ensure 
that all information necessary for trade reporting is available through 
NIIDS no later than two hours after the Time of Formal Award.
``Time of First Execution'' and Advance Notification Requirement
    The second major component of the amendments to Rule G-34 is an 
advance notification requirement that would ensure that all dealers 
have advance notification of the underwriter's planned time for first 
trade executions and can be prepared to process trade executions by 
that time. The MSRB understands that under current industry practices, 
underwriters do not always disseminate the time that they intend to 
begin trade executions. Consequently, dealers that are not in the 
underwriting group sometimes do not know when their own transactions in 
the issue should begin and this may negatively affect the ability of 
those dealers to report their initial transactions in a timely and 
accurate manner or to coordinate their reported time of trade execution 
on inter-dealer transactions with members of the underwriting group.
    To address this concern, the proposed rule change would require the 
underwriter of a new issue to disseminate the ``Time of First 
Execution,'' which is the underwriter's anticipated time for beginning 
trade executions in a new issue. Once an underwriter has completed the 
submission of all required information to NIIDS, the information then 
will need to be re-disseminated to other dealers that may have trades 
in the issue and these dealers (and service bureaus) will need to ``set 
up'' automated trade processing systems with the new issue information. 
To allow time for this

[[Page 3298]]

process to occur, the underwriter would be required to provide a Time 
of First Execution that is at least two hours after the time that all 
required information is provided to NIIDS.
    The proposed rule change would accommodate several situations that 
may occur in the underwriting of new issues of municipal securities. 
For example, the underwriter would be allowed to submit an anticipated 
Time of Formal Award rather than wait for the actual Time of Formal 
Award if the underwriter and issuer have agreed in advance on a Time of 
Formal Award. This may be the case if the formal award is a scheduled 
pro forma requirement by an issuer's governing body and all details 
necessary for the formal award have been finalized and submitted to 
NIIDS in advance. The underwriter could in this case complete its 
submission to NIIDS using the anticipated Time of Formal Award. By 
doing this, the underwriter could schedule its Time of First Execution 
to occur immediately after the formal award, rather than waiting two 
hours. Any changes to these times would require correction in NIIDS as 
soon as known. As long as the two-hour notification period has been met 
once, however, it would not be necessary to start a new notification 
period as a result of minor adjustments to the Time of Formal Award or 
Time of First Execution.
Amendments to Rules G-8 and G-9
    The proposed rule change includes amendments to the MSRB's 
recordkeeping rules that would require an underwriter to retain for 
three years a record of the Time of Formal Award, a copy of the 
notification from DTCC indicating that a new issue received Trade 
Eligibility status in NIIDS and the Time of First Execution. This would 
provide a record showing whether the underwriter provided information 
necessary for Trade Eligibility no later than two hours after the Time 
of Formal Award and whether the underwriter provided at least two hours 
advance notification of the Time of First Execution.
2. Statutory Basis
    The MSRB believes that the proposed rule change is consistent with 
section 15B(b)(2)(C) of the Act,\13\ which provides that the MSRB's 
rules shall:
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    \13\ 15 U.S.C. 78o-4(b)(2)(C).

    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 
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the public interest.

    The MSRB believes that the proposed rule change is consistent with 
the Act because it will allow the municipal securities industry to 
produce more accurate trade reporting and transparency.

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 that is 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

    On March 5, 2007, the MSRB published for comment an exposure draft 
of the proposed rule change \14\ (the ``March 2007 draft 
amendments'').\15\ While the MSRB did not request comment on the 
amendments to Rule G-8 and G-9, these amendments were included in the 
proposed rule change to provide enforcement agencies with information 
necessary to gauge compliance with the amendments to Rule G-34.
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    \14\ See MSRB Notice 2007-10 (March 5, 2007).
    \15\ The March 2007 draft amendments also included amendments to 
Rule G-14 that would create a new Conditional Trading Commitment 
(CTC) special condition indicator. The CTC indicator is not included 
in the proposed rule change as it is still under consideration by 
the MSRB.
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    The MSRB received comments on the March 2007 draft amendments from 
the following commentators:

--Bear Stearns and Co., Inc.
--Standard and Poor's CUSIP Service Bureau (``CUSIP'').
--First Southwest Company (``First Southwest'').
--J.J.B. Hilliard, W.L. Lyons, Inc. (``Hilliard Lyons'').
--Joe Jolly and Co., Inc.
--Lehman Brothers (``Lehman'').
--Roosevelt and Cross, Inc. (``Roosevelt and Cross'').
--Securities Industry and Financial Markets Association (``SIFMA'').
--Wiley Bros.

    While many of the commentators made specific suggestions on details 
of the March 2007 draft amendments, commentators were generally 
supportive. SIFMA ``supports * * * efforts by the MSRB to improve the 
efficiency of new issue information to the market necessary for dealers 
to comply with price reporting requirements.'' Hilliard Lyons stated 
``the centralization of an electronic system for new issue trade 
processing is a change that the industry has been eager for 
implementation * * * [and the MSRB's] proposal would alleviate the 
duplication of information that is sent to numerous vendors and would 
cut down on the time needed to process new issues.'' Roosevelt and 
Cross agreed ``with the philosophy of a central issue facility, which 
would make more information available on a timely basis and would 
increase transparency in the municipal marketplace.''

Timing of CUSIP Number Assignment

    CUSIP numbers are a required data element for automated trade 
processing and reporting systems and are a prerequisite for entry of 
new issue information into NIIDS. Rule G-34 currently requires that 
CUSIP numbers be assigned prior to the Time of Formal Award for 
underwriters of negotiated issues and for dealer financial advisors on 
competitive issues. The March 2007 draft amendments included new 
deadlines designed to ensure that CUSIP number assignment occurs as 
soon as possible in the underwriting so that information submission to 
NIIDS could occur as early as possible. The March 2007 draft amendments 
stated the following requirements:
     Managing underwriter of negotiated issue--apply for CUSIP 
number assignment within one business day of dissemination of a 
Preliminary Official Statement (POS); for issues sold without a POS, 
apply no later than the time pricing information is finalized.
     Dealer financial advisor on competitive issue--apply for 
CUSIP number assignment within one business day of dissemination of a 
POS; for issues sold without a POS, apply within one business day of a 
notice of sale.
     Managing underwriter of competitive issue with no pre-
assigned CUSIP numbers--apply immediately after receiving notification 
of award and ensure that CUSIP numbers are assigned prior to 
transmitting Time of First Execution to NIIDS.
    While CUSIP stated that it ``has always encouraged industry 
participants to apply for CUSIP numbers as early as possible'' and 
supports the proposed changes to Rule G-34 that would advance the 
timing of CUSIP number assignment, several commentators opposed a 
requirement to apply for

[[Page 3299]]

CUSIP numbers earlier in an underwriting. SIFMA and First Southwest 
recommended that the existing requirements for CUSIP number assignment 
remain unchanged because information about a new issue is not always 
final at the time of the dissemination of a POS. SIFMA stated that 
``the maturity schedule in a POS is tentative and very likely to change 
requiring underwriters to revise the application'' and noted that 
``while CUSIP numbers can be revised, the revisions result in numbers 
being out of sequence, and out of sequence numbers raise questions by 
investors and traders, as well as complicating operations.'' SIFMA 
noted that underwriters that want to set an early Time of First 
Execution would be required to apply for CUSIP numbers earlier than is 
currently required under Rule G-34; however, while this may occur in 
some instances, the MSRB believes that many underwriters will continue 
to postpone making an application for CUSIP number assignment until 
shortly before the Time of Formal Award.
    If a POS is not disseminated on a new issue, the March 2007 draft 
amendments included an alternative deadline for making a CUSIP number 
application. For a negotiated issue, the March 2007 draft amendments 
proposed requiring an underwriter to apply for CUSIP numbers at the 
time that pricing information is determined. For a dealer financial 
advisor on a competitive issue, the March 2007 draft amendments 
proposed requiring the dealer financial advisor to apply for CUSIP 
numbers within one business day of a notice of sale. The MSRB decided 
to use these alternative deadlines in the proposed rule change as they 
occur later in an underwriting than the time that a POS would typically 
be disseminated, but in advance of the Time of Formal Award, and should 
have the desired effect of advancing the timing of CUSIP number 
assignment.

Definition of ``Time of Formal Award''

    The March 2007 draft amendments revised the definition of ``Time of 
Formal Award'' to take into consideration that time may elapse between 
the time of the issuer's action and the time the underwriter becomes 
aware of the issuer's action. Although commentators were supportive of 
the revised definition of Time of Formal Award, SIFMA clarified that 
for a competitive transaction they ``interpret time of formal award not 
to occur before there is a set quantity and price,'' a definition with 
which the MSRB agrees.
New Issue Information Necessary for Trade Reporting
    To ensure that all information necessary for transaction reporting 
is made available to market participants as quickly as possible, the 
March 2007 draft amendments would require underwriters to transmit to 
NIIDS all new issue information designated in the NIIDS system as 
necessary for ``Trade Eligibility'' no later than two hours of the Time 
of Formal Award and include the Time of Formal Award (or the planned 
Time of Formal Award) as part of the information transmitted to NIIDS. 
The MSRB requested comment on whether the two-hour period after the 
Time of Formal Award for completing the information submission to NIIDS 
would be sufficient and whether the time period should be different for 
negotiated and competitive underwritings.
    Commentators were supportive of the two-hour timeframe for 
completing the communication to NIIDS of new issue information 
designated as necessary for ``Trade Eligibility'' for negotiated 
issues. However, Lehman proposed a longer period of three hours for 
competitive issues, citing inefficient communication with issuers who 
do not retain professional financial services. Wiley Bros. suggested 
revisiting the issue after the system has been implemented for a six-
month period to determine whether the two hour period should be 
shortened or lengthened. The MSRB notes that it will review the 
deadlines in the proposed rule change once NIIDS is implemented and 
dealers gain system experience.
Time of First Execution and Advance Notification Requirements
    To ensure that dealers that are not part of the underwriting group 
for the new issue are apprised of the time that the underwriter will 
initiate trade executions in the new issue and to ensure that those 
dealers will be prepared to process and report their own transactions 
in a timely manner, the March 2007 draft amendments included a 
requirement for underwriters to disseminate the Time of First Execution 
through NIIDS and provide a Time of First Execution that is no earlier 
than two hours after all required new issue information has been 
provided to NIIDS.
    The MSRB noted that, while electronically formatted information can 
be retransmitted immediately, it believes that the two-hour advance 
notification period prior to the Time of First Execution would be 
sufficient for vendors, dealers, and service bureaus to receive and 
enter information disseminated from NIIDS into their own systems. While 
all comments received on the two-hour advance notification period prior 
to the Time of First Execution indicate support, First Southwest noted 
that this timeframe should ``be reviewed as the industry gains 
experience with the NIIDS submission process.'' Similarly, SIFMA 
commented that ``it may be useful for the MSRB to have the flexibility 
to make adjustments in response to circumstances'' that may arise after 
continued use of the NIIDS system. The MSRB notes that it will review 
the two hour advance notification period once NIIDS is implemented and 
dealers gain system experience.
Timely Trade Reporting and Underwriter Flexibility
    For the various requirements for submitting information to NIIDS 
and setting a Time of First Execution, the March 2007 draft amendments 
state that only the hours between 9 a.m. and 5 p.m. Eastern Time on an 
RTRS Business Day are counted. A major implication of this is that an 
underwriter that does not obtain and transmit all required data 
elements to NIIDS by 3 p.m. Eastern Time would not be able to set a 
Time of First Execution on that day.
    The MSRB noted that this may present difficulties for West Coast 
underwriters, and requested suggestions for alternative approaches to 
help address time zone issues. Lehman and Wiley Bros. agreed that the 9 
a.m. to 5 p.m. hours are sufficient, adding only that ``a provision 
should be included for `early closes.' ''
Proposed Effective Dates of the Draft Amendments
    The MSRB requested comment on how much lead time would be necessary 
for underwriters to implement the changes required to use the NIIDS 
system and for dealers to implement the CTC indicator. Most 
commentators noted that it is difficult to commit to a time frame until 
NIIDS has been implemented and experience with the system has been 
gained. Lehman noted that ``as this a major change in the way of doing 
business, a long lead time would be warranted.'' First Southwest and 
SIFMA both noted that at least six months should be allowed after NIIDS 
is implemented for dealers to program the changes required.
    Roosevelt and Cross suggested a tiered approach for requiring the 
submission of NIIDS data requirements, citing potential ``unfair 
processing burdens on managing underwriters.'' Roosevelt and Cross 
proposed splitting the required

[[Page 3300]]

data elements into two components, requiring only data elements 
essential to completing the transaction to be inputted at the time of 
sale and the remaining elements within 24 hours. The MSRB notes that a 
SIFMA/DTCC task force identified the data elements about a new issue as 
necessary for automated trade processing of when-issued trades. This 
information is designated in NIIDS as information necessary for ``Trade 
Eligibility.'' While the MSRB recognizes that the proposed rule change 
would represent a significant change for underwriters, one of the 
objectives is to ensure that all dealers have access to information 
necessary to process and report trades in new issues in real-time.
Short-Term Instruments with Less than Nine Months in Effective Maturity
    The MSRB also requested comment on whether certain types of new 
issues of municipal securities have special characteristics or use 
different ``bookrunning'' services that would present difficulties for 
underwriters to comply with the draft amendments to Rule G-34. SIFMA 
stated that short-term instruments with less than nine months in 
effective maturity, such as variable rate instruments, auction rate 
products and commercial paper, ``each have operational issues that 
present problems distinct from long-term fixed-rate securities'' that 
would make complying with the NIIDS data dissemination requirement 
difficult. SIFMA noted that ``intermediaries may not be available to 
process the fields for Trade Eligibility with the result that 
underwriters may themselves be required to populate the fields and have 
systems in place to enter the data in the two hour period allowed by 
the proposed rule.''
    The MSRB notes that trades in short-term instruments with less than 
nine months in effective maturity qualify for an end-of-day exception 
from real-time transaction reporting. Therefore, one of the primary 
purposes of the March 2007 draft amendments, to improve timely real-
time transaction reporting of new issues, does not necessarily apply. 
While underwriters would be able to manually input information about a 
new issue to NIIDS through a web interface, the MSRB believes that the 
burden of complying with the requirement in the March 2007 draft 
amendments to transmit to NIIDS all new issue information designated as 
necessary for ``Trade Eligibility'' no later than two hours of the Time 
of Formal Award for short term instruments with less than nine months 
in effective maturity would not be warranted given the marginal benefit 
to price transparency that would be achieved. The MSRB decided that the 
NIIDS data dissemination requirement for new issues that have an 
effective maturity of nine months or less should be phased in at a 
later time once intermediaries or dealer systems are able to submit 
information about such securities to NIIDS electronically.\16\
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    \16\ The MSRB notes that Trade Eligibility information on short 
term instruments with less than nine months in effective maturity 
would still be required to be submitted to DTCC in connection with 
an underwriter's requirement to apply for depository eligibility 
under Rule G-34(a)(ii)(A), but would not be subject to the 
requirement to communicate such information not later than two hours 
after the Time of Formal Award.
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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
    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. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to [email protected]. Please include 
File Number SR-MSRB-2007-08 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-MSRB-2007-08. This file 
number should be included on the subject line if e-mail is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). 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, 100 F Street, NE., 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of such filing also will be available for 
inspection and copying at the principal office of the MSRB. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-MSRB-2007-08 and should be 
submitted on or before February 7, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
Florence E. Harmon,
Deputy Secretary.
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    \17\ 17 CFR 200.30-3(a)(12).
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 [FR Doc. E8-732 Filed 1-16-08; 8:45 am]
BILLING CODE 8011-01-P