[Federal Register Volume 74, Number 158 (Tuesday, August 18, 2009)]
[Notices]
[Pages 41771-41772]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-19745]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60487; File No. SR-MSRB-2009-12]


Self-Regulatory Organizations; Municipal Securities Rulemaking 
Board; Notice of Filing of Proposed Rule Change Relating to Amendments 
to Rule G-11(i) (Settlement of Syndicate or Similar Account), Rule G-
11(j) (Payment of Designations), and Rule G-12(i) (Settlement of Joint 
or Similar Account)

August 12, 2009.
    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 August 6, 2009, the Municipal Securities Rulemaking Board (``MSRB'' 
or ``Board'') 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 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 has filed with the Commission proposed amendments to Rule 
G-11(i) (settlement of syndicate or similar account), MSRB Rule G-11(j) 
(payment of designations), and MSRB Rule G-12(i) (settlement of joint 
or similar account). For the proposed amendments to Rule G-11, the MSRB 
requested that the amendments become effective for new issues of 
municipal securities for which the Time of Formal Award (as defined in 
Rule G-34(a)(ii)(C)(1)(a)) is more than 30 calendar days after the date 
the amendments are approved by the SEC. For the proposed amendments to 
Rule G-12, the MSRB requested that the amendments become effective for 
secondary market trading accounts formed more than 30 days after the 
date the amendments are approved by the SEC.
    The text of the proposed rule change is available on the MSRB's Web 
site (http://www.msrb.org/msrb1/sec.asp), 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
    The proposed rule change accelerates the settlement of syndicate 
accounts and secondary market trading accounts, and the payment of 
designations, by shortening certain time periods within the rules. 
These proposals are designed to reduce the exposure of syndicate and 
secondary market trading account members to the risk of potential 
deterioration in the credit of the syndicate or account manager during 
the pendency of account settlements. Since the existing rules were 
adopted in the 1970s, dealers and those firms who invoice them for 
syndicate expenses have adopted significantly more efficient billing 
and accounting systems. The MSRB believes that such systems make 
reductions in the time periods for distribution of syndicate and 
secondary market trading account profits feasible and not unduly 
burdensome to dealers. Furthermore, many fees are agreed upon in 
advance or can be estimated with considerable accuracy soon after 
settlement.
    Currently, Rule G-11(i), on settlement of syndicate or similar 
account, requires that final settlement of an underwriting syndicate or 
similar account be made within 60 calendar days following the date all 
securities have been delivered by the syndicate or account manager to 
the syndicate or account members (``bond closing''). Rule G-11(j), on 
payments of designations, requires that any credit designated by a 
customer in connection with the purchase of new issue securities as due 
to a member of a syndicate shall be distributed to such member by any 
dealer handling such order within 30 calendar days following bond 
closing.
    The proposed rule change changes the deadlines in Rule G-11 to 30 
calendar days after bond closing for distributions (currently 60 
calendar days) and 10 calendar days after bond closing for designations 
(currently 30 calendar days). To facilitate implementation of these 
reduced time periods, the MSRB also determined to add a new requirement 
that all syndicate members submit their designations to the syndicate 
manager within two business days after bond closing.
    Rule G-12(i), on settlement of joint or similar account, contains 
requirements for the settlement of joint or similar accounts formed in 
the secondary market. The rule currently requires that the settlement 
of these accounts be made within 60 days following the date all 
securities have been delivered by the syndicate or account manager to 
the syndicate or account members (``delivery date''). The proposed rule 
change changes the deadline in the rule to 30 calendar days following 
delivery date.
2. Statutory Basis
    The MSRB has adopted the proposed rule change pursuant to Section 
15B(b)(2)(C) of the Act,\3\ which provides that the MSRB's rules shall:
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    \3\ 15 U.S.C. 78o-4(b)(2)(C).

    [B]e 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 further the free and open market in municipal 
securities by reducing the exposure of dealers to the potential 
deterioration of the credit of syndicate managers during the period 
prior to settlement of syndicate accounts and providing a comparable 
rule for the settlement of secondary market trading accounts.

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

    The MSRB does not believe the proposed rule change would impose any 
burden on competition not necessary or appropriate in furtherance of 
the purposes of the Act since it would apply equally to all dealers.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    On May 12, 2009, the MSRB requested comment on draft

[[Page 41772]]

amendments to Rules G-11 and G-12.\4\ The MSRB received comments on the 
proposed rule change from two commentators.\5\
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    \4\ See MSRB Notice 2009-20 (May 12, 2009).
    \5\ Letter from Hill A. Feinberg, Chairman and Chief Executive 
Officer, First Southwest Company (``First Southwest'') to Margaret 
C. Henry, dated June 26, 2009; Letter from Leslie M. Norwood, 
Managing Director and Associate General Counsel, Securities Industry 
and Financial Markets Association (``SIFMA'') to Margaret C. Henry, 
dated June 29, 2009.
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    First Southwest applauded the MSRB for proposing the changes to 
Rule G-11 and urged that they be adopted. No comment was made on the 
proposed change to Rule G-12. First Southwest also urged that the MSRB 
study how syndicates could be structured to eliminate the bankruptcy 
risk of the senior manager to the co-managers. The MSRB's Regulatory 
Review Special Committee gave preliminary consideration to potentially 
mandating such a structural change, and its initial review indicated 
that the cost of such a structural change likely would outweigh the 
potential benefits. Accordingly, the Committee chose to recommend to 
the full Board, and the Board approved, the proposed rule changes 
instead.
    SIFMA applauded the MSRB for attempting to reduce the exposure of 
syndicate members to a potential deterioration in credit of the 
syndicate manager by means of the draft amendments to Rules G-11 and G-
12. However, SIFMA only recommended that the changes to Rule G-12 be 
adopted. It opposed the proposed change to Rule G-11(i) that would 
require settlement of syndicate accounts within 30 calendar days rather 
than 60 calendar days for three reasons: (1) It said that, in many 
competitive deals, not all the bonds were sold within 30 days; (2) It 
said that many underwriters' counsel bills were not received within 30 
days, particularly for new and complicated financings; and (3) It said 
that 30 calendar days usually amounted to only 20 business days, which 
it said was too short a period. SIFMA opposed the proposed changes to 
the Rule G-11(j) on payment of designations for two reasons. First, it 
said that the new rule requiring co-managers to inform the syndicate 
manager within two business days after closing of a bond issue was 
unduly burdensome to co-managers. Instead, it said that the syndicate 
manager should be required to obtain the information from the co-
managers outside of MSRB rules. Second, SIFMA said that the shortening 
of the time period for payments of designations from 30 calendar days 
to 10 calendar days would unduly burden the syndicate manager, with 
minimal reduction in risk. SIFMA said that the periods for settlement 
of syndicate accounts and payment of designations should be the same: 
60 days.
    As to SIFMA's comment about the potential effect of the draft Rule 
G-11(i) changes on competitive underwritings, the Board concluded that 
only a small percentage of syndicates for competitive underwritings 
could not be settled within 30 days after closing of a bond issue and 
that, in such a case, the syndicate could be split up or any unsold 
bonds sold to a general account of the whole. The Board did not agree 
with SIFMA's comment regarding the timing of the receipt of 
underwriter's counsel bills. The Board also found that it was 
reasonable to require the payment of designations within 10 calendar 
days after closing of a bond issue and to require all syndicate members 
to notify the syndicate manager of their designations within two 
business days after closing of a bond issue.

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.
    For the proposed amendments to Rule G-11, the MSRB requested that 
the amendments become effective for new issues of municipal securities 
for which the Time of Formal Award (as defined in Rule G-
34(a)(ii)(C)(1)(a)) is more than 30 calendar days after the date the 
amendments are approved by the SEC. For the proposed amendments to Rule 
G-12, the MSRB requested that the amendments become effective for 
secondary market trading accounts formed more than 30 days after the 
date the amendments are approved by the SEC.

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-2009-12 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-MSRB-2009-12. 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-2009-12 and should be 
submitted on or before September 8, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\6\
Florence E. Harmon,
Deputy Secretary.
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    \6\ 17 CFR 200.30-3(a)(12).
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[FR Doc. E9-19745 Filed 8-17-09; 8:45 am]
BILLING CODE 8010-01-P