[Federal Register Volume 74, Number 109 (Tuesday, June 9, 2009)]
[Notices]
[Pages 27369-27371]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-13404]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60033, File No. SR-MSRB-2009-04]


Self-Regulatory Organizations; Municipal Securities Rulemaking 
Board; Order Granting Approval of Proposed Rule Change Relating to the 
Voluntary Submission of Continuing Disclosure Documents to Its Upcoming 
Continuing Disclosure Service of the Electronic Municipal Market Access 
System (EMMA[supreg])

June 3, 2009.
    On April 14, 2009, the Municipal Securities Rulemaking Board 
(``MSRB''), filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC''), 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 to amend the continuing 
disclosure service of the MSRB's Electronic Municipal Market Access 
system (``EMMA'') to accept, and to make publicly available on the 
Internet, voluntary electronic submissions by issuers, obligated 
persons and their agents of continuing disclosure documents provided 
other than in connection with Exchange Act Rule 15c2-12. The proposed 
rule change was published for comment in the Federal Register on April 
29, 2009.\3\ The Commission received three comment letters about the 
proposed rule change.\4\ On May 8, 2009, May 18, 2009, and June 1, 
2009, the MSRB filed responses to the comment letters.\5\ 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. 59814 (Apr. 23, 
2009), 74 FR 19612 (Apr. 29, 2009) (``Commission's Notice'').
    \4\ See letters from Douglas Adamson, Executive Vice President, 
Technical Services Division, American Bankers Association (``ABA''), 
dated April 24, 2009; letter from Heather Traeger, Associate 
Counsel, Investment Company Institute (``ICI''), dated May 20, 2009; 
and letter from Vickie A. Tillman, Executive Vice President, 
Standard & Poor's Ratings Services (``S&P''), dated May 29, 2009.
    \5\ See letters from Ernesto A. Lanza, General Counsel, MSRB, to 
Elizabeth M. Murphy, Secretary, SEC, dated May 8, 2009 (``Response 
Letter I''), May 18, 2009 (``Response Letter II''), and June 1, 2009 
(``Response Letter III'').
---------------------------------------------------------------------------

    The Commission has previously approved the establishment of the 
continuing disclosure service of EMMA, which will commence operation on 
July 1, 2009.\6\ The EMMA continuing disclosure service will receive 
electronic submissions of, and will make publicly available on the 
Internet through the EMMA web portal,\7\ continuing disclosure 
documents and related information from issuers, obligated persons and 
their agents pursuant to continuing disclosure undertakings entered 
into consistent with Exchange Act Rule 15c2-12. As approved, the EMMA 
continuing disclosure service will accept submissions of (i) continuing 
disclosure documents as described in Rule 15c2-12,\8\ and (ii) other 
disclosure documents

[[Page 27370]]

specified in continuing disclosure undertakings but not specifically 
described in Rule 15c2-12.
---------------------------------------------------------------------------

    \6\ See Securities Exchange Act Release No. 59061 (December 5, 
2008), 73 FR 75778 (December 12, 2008) (File No. SR-MSRB-2008-05) 
(approving the continuing disclosure service of EMMA with an 
effective date of July 1, 2009) (the ``EMMA continuing disclosure 
service approval''). The EMMA continuing disclosure service is 
designed to commence operation simultaneously with the effectiveness 
of certain amendments to Exchange Act Rule 15c2-12 adopted by the 
Commission. See Securities Exchange Act Release No. 59062 (December 
5, 2008), 73 FR 76104 (December 15, 2008) (adopting amendments to 
Exchange Act Rule 15c2-12). Approval of the proposed rule change on 
or prior to July 1, 2009 would allow the permanent EMMA continuing 
disclosure service to accept such voluntary disclosures upon 
commencement of operations.
    \7\ The EMMA web portal is accessible at http://emma.msrb.org.
    \8\ Such items consist of: (A) Annual financial information 
concerning obligated persons; (B) audited financial statements for 
obligated persons if available and if not included in the annual 
financial information; (C) notices of the following events, if 
material: principal and interest payment delinquencies, non-payment 
related defaults, unscheduled draws on debt service reserves 
reflecting financial difficulties, unscheduled draws on credit 
enhancements reflecting financial difficulties, substitution of 
credit or liquidity providers or their failure to perform, adverse 
tax opinions or events affecting the tax-exempt status of the 
security, modifications to rights of security holders, bond calls, 
defeasances, release/substitution/sale of property securing 
repayment of the securities, and rating changes; and (D) notices of 
failures to provide annual financial information on or before the 
date specified in the continuing disclosure undertaking.
---------------------------------------------------------------------------

    The proposed rule change would amend the EMMA continuing disclosure 
service to accept submissions of, and to make publicly available 
through the EMMA web portal, additional categories of continuing 
disclosure documents voluntarily submitted by issuers, obligated 
persons and their agents (``voluntary continuing disclosure 
document''). The proposed rule change would not establish an obligation 
upon any issuer or obligated person to make a submission of any 
voluntary continuing disclosure document. Voluntary continuing 
disclosure documents would be submitted, processed and disseminated in 
the same manner as provided with respect to disclosures made to the 
EMMA continuing disclosure service pursuant to continuing disclosure 
undertakings entered into consistent with Rule 15c2-12. In particular, 
such submissions would be accepted solely in electronic form as 
portable document format (PDF) files accompanied by appropriate 
indexing information. The MSRB has requested approval of the proposed 
rule change on or prior to July 1, 2009. A full description of the 
proposal is contained in the Commission's Notice.
    As previously noted, the Commission received three comment letters 
relating to the proposed rule change.\9\ One commenter, the ABA, 
expressed concerns regarding certain legal issues relating to the 
protection of its intellectual property and contractual rights in the 
CUSIP database (the ``Database'') that it states have not yet been 
resolved. The ABA noted that it was the owner of the Database, which is 
administered by the CUSIP Service Bureau (``CSB''), as its exclusive 
licensee, and believed it was critical that these legal issues be 
resolved before the MSRB be allowed to move forward with the proposed 
expansion and full implementation of EMMA. It further requested that 
the operation of the EMMA Web site incorporate a variety of protections 
with respect to its intellectual property rights, including compliance 
with CSB's current licensing practices, permissible use guidelines, 
appropriate copyright notices and adequate security.\10\
---------------------------------------------------------------------------

    \9\ See supra note 4.
    \10\ See letter from the ABA, supra note 4.
---------------------------------------------------------------------------

    In response to the ABA's concerns, the MSRB and the CSB, as the 
ABA's exclusive licensee, have entered into a memorandum of 
understanding dated May 15, 2009 (the ``MOU'') in which CSB expressly 
permits use of the CUSIP database for purposes, among other things, of 
displaying information on the MSRB's EMMA public Web portal and for 
inclusion in data disseminated by the MSRB to subscribers of the EMMA 
data feed.\11\ The MSRB has agreed in the MOU to provide certain 
safeguards with respect to the ABA's intellectual property and 
contractual rights of the ABA in the Database. The Commission believes 
that the MSRB has provided adequate assurances that all necessary 
arrangements will be in place in order to operate the proposal as 
anticipated by the implementation date.
---------------------------------------------------------------------------

    \11\ See Response Letter II, supra note 5. The MSRB stated that 
this agreement would expand and reposition existing language on the 
EMMA Web site to ensure that users of the EMMA Web site have a 
fuller understanding of the sources of information displayed on the 
EMMA Web site and of the proprietary rights of third parties 
(including but not limited to the proprietary rights of the ABA in 
the Database) in certain displayed data elements. Such language 
would advise users of the limitations on their use or re-use of any 
proprietary information accessed on the EMMA Web site, and users 
would be required to acknowledge such limitations before being 
provided access to any portion of the Database. Additional systemic 
and reporting mechanisms would be implemented to further protect 
against inappropriate use of the Database. See Response Letter I, 
supra note 5.
---------------------------------------------------------------------------

    Another commenter, the ICI, supported the proposal and the MSRB's 
continuing efforts to increase transparency in the municipal securities 
market, noting that the proposed rule change is another needed step in 
ensuring the dissemination of important information to investors. The 
ICI recommended that, in addition to the expansion of EMMA put forth in 
the proposal, that the SEC and MSRB publicly encourage issuers to 
submit information for all classes of municipal securities to EMMA, 
including securities not subject to Rule 15c2-12.\12\
---------------------------------------------------------------------------

    \12\ See letter from the ICI, supra note 4.
---------------------------------------------------------------------------

    In response to the ICI's recommendation, the MSRB noted that EMMA 
is designed to accept submissions of continuing disclosure documents 
from issuers, obligated persons and their agents for any municipal 
security in any of the established categories, regardless of whether an 
obligation exists under a continuing disclosure undertaking to provide 
such disclosure. Thus, EMMA will accept continuing disclosure 
submissions with respect to all municipal securities, including those 
disclosures in connection with municipal securities that are not 
subject to Rule 15c2-12, beginning on July 1, 2009 with the launch of 
the permanent continuing disclosure service in conjunction with the 
effective date of amendments to Rule 15c2-12.\13\ Accordingly, the 
Commission believes that the MSRB has adequately addressed the ICI's 
recommendation.
---------------------------------------------------------------------------

    \13\ See Response Letter III, supra note 5.
---------------------------------------------------------------------------

    S&P, the third commenter, supported the proposal's goal of 
encouraging transparency in the market for municipal securities. 
However, S&P believed that the Commission and the MSRB should assess 
both the expected benefits and the potential consequences of including 
rating agency material as an EMMA disclosure category. In particular, 
S&P expressed concerns that material provided to rating agencies often 
includes ``raw'' data that may not be easily understood by most 
investors, that rating agency material may include data that is 
proprietary, confidential or subject to legal or contractual 
restrictions on redissemination that should be redacted by municipal 
issuers, that regulatory encouragement to submit rating agency data to 
EMMA could lead to reduced amounts of information that municipal 
issuers provide to rating agencies, and that an expectation that rating 
agency material be submitted to EMMA could create incentives for 
municipal issuers to ``shop'' for the rating agency that requires the 
least amount of information for its analysis, potentially affected 
ratings quality. S&P noted that without a specific EMMA category for 
rating agency material, municipal issuers could still choose to submit 
such material to EMMA under the category ``other financial/operating 
data,'' which is also set forth in the proposal. Finally, S&P noted 
that the proposal labels the disclosure category that includes rating 
agency material as ``material provided to rating agency or credit/
liquidity provider.'' S&P believes that categorizing these entities 
together on an official public Web site could confuse some investors 
about the distinctly different roles played by these entities in the 
municipal securities marketplace, and believes that if rating agency 
material remains an EMMA disclosure category, that it should be 
separated from material provided to credit and liquidity providers.\14\
---------------------------------------------------------------------------

    \14\ See letter from S&P, supra note 4.
---------------------------------------------------------------------------

    The MSRB agrees that S&P has raised important considerations with 
respect to whether materials provided by issuers to rating agencies 
should be submitted to EMMA for public dissemination. The MSRB stated 
that in making such a voluntary submission, issuers and others should 
carefully weigh the factors identified by S&P and any other appropriate 
considerations that may be applicable under the specific facts and

[[Page 27371]]

circumstances. The MSRB further believes that various factors 
appropriate to the particular facts and circumstances should be 
assessed by issuers, obligated persons and their agents in coming to a 
decision on whether to make a voluntary submission on continuing 
disclosure to EMMA, regardless of the potential category, to the extent 
that such parties are not otherwise obligated to make such disclosures.
    The MSRB does not agree that the establishment of a distinct 
category for the submission of rating agency materials creates an 
inappropriate regulatory encouragement for such disclosures. The MSRB 
noted that submitters may themselves assess the factors raised by S&P 
in determining whether to provide such disclosure and/or provide 
additional information necessary to make such disclosure effective and 
not misleading to the general public. Because such disclosure is wholly 
voluntary, the MSRB does not believe that there is a material 
likelihood that the creation of this category would serve as an 
incentive to reduce information provided to the rating agencies or to 
seek ratings only from the rating agency requiring the least amount of 
information.
    With regard to the inclusion of rating agency materials in the same 
category as materials provided to credit or liquidity providers, the 
MSRB noted that the general categorization structure is intended to 
serve as a finding aid for public users and that, within any particular 
category, the nature of the specific documents submitted may vary. To 
clarify that the MSRB does not intend to equate rating agencies with 
credit or liquidity providers and to provide for a broader range of 
material to be included in this category, the MSRB has determined to 
rename this category as ``information provided to rating agency, 
credit/liquidity provider or other third party.'' In submitting such 
information, submitters should consider including an indication of the 
type of third-party recipient, to the extent appropriate for purposes 
of understanding the nature of the information submitted.\15\ The 
Commission believes that the MSRB has reasonably addressed S&P's 
concerns in light of the voluntary nature of the information allowed to 
be submitted to the continuing disclosure service.
---------------------------------------------------------------------------

    \15\ See Response Letter III, supra note 5.
---------------------------------------------------------------------------

    The Commission has carefully considered the proposed rule change, 
the comment letters received, and the MSRB's responses to the comment 
letters and finds that the proposed rule change is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to the MSRB \16\ and, in particular, the requirements of 
Section 15B(b)(2)(C) of the Act \17\ and the rules and regulations 
thereunder. 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.\18\ In particular, the 
Commission finds that the proposed rule change is consistent with the 
Act because the EMMA continuing disclosure service, as amended by the 
proposed rule change, would serve as an additional mechanism by which 
the MSRB works toward removing impediments to and helping to perfect 
the mechanisms of a free and open market in municipal securities, and 
would serve to promote the statutory mandate of the MSRB to protect 
investors and the public interest. The inclusion of voluntary 
continuing disclosure documents in the EMMA continuing disclosure 
service would further help make information useful for making 
investment decisions more easily accessible to all participants in the 
municipal securities market on an equal basis throughout the life of 
the securities. Broad access to continuing disclosure documents through 
the EMMA continuing disclosure service should assist in preventing 
fraudulent and manipulative acts and practices by improving the 
opportunity for public investors to access material information about 
issuers and their securities. A single centralized and searchable venue 
for free public access to disclosure information should promote a more 
fair and efficient municipal securities market in which transactions 
are effected on the basis of material information available to all 
parties to such transactions, which should allow for fairer pricing of 
transactions based on a more complete understanding of the terms of the 
securities and the potential investment risks. Free access to this 
information--previously generally available, if at all, through paid 
subscription services or on a per-document fee basis--should reduce 
transaction costs for dealers and investors.
---------------------------------------------------------------------------

    \16\ In approving this proposed rule change, the Commission 
notes that it has considered the proposed rule's impact on 
efficiency, competition and capital formation. 15 U.S.C. 78c(f).
    \17\ 15 U.S.C. 78o-4(b)(2)(C).
    \18\ Id.
---------------------------------------------------------------------------

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\19\ that the proposed rule change (SR-MSRB-2009-04), be, and it 
hereby is, approved.
---------------------------------------------------------------------------

    \19\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
---------------------------------------------------------------------------

    \20\ 17 CFR 200.30-3(a)(12).

Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-13404 Filed 6-8-09; 8:45 am]
BILLING CODE 8010-01-P