[Federal Register Volume 75, Number 144 (Wednesday, July 28, 2010)]
[Notices]
[Pages 44296-44303]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-18442]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62550; File No. SR-MSRB-2010-02]


Self-Regulatory Organizations; Municipal Securities Rulemaking 
Board; Notice of Filing of Amendment No. 1 to Proposed Rule Change to 
MSRB Rule G-34, CUSIP Numbers and New Issue Requirements, To Enhance 
the Interest Rate and Descriptive Information Currently Collected and 
Made Transparent by the MSRB on Municipal Auction Rate Securities and 
Variable Rate Demand Obligations

July 22, 2010.
    On March 10, 2010, the Municipal Securities Rulemaking Board 
(``MSRB'') filed with the Securities and Exchange Commission 
(``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 to enhance the interest rate and descriptive 
information currently collected and made transparent by the MSRB on 
municipal Auction Rate Securities (``ARS'') and Variable Rate Demand 
Obligations (``VRDOs''). The proposed rule change was published for 
comment in the Federal Register on April 2, 2010.\3\ The Commission 
received five comment letters about the proposed rule change.\4\ On 
July 9, 2010, the MSRB filed with the Commission, pursuant to section 
19(b)(1) of the Exchange Act \5\ and Rule 19b-4

[[Page 44297]]

thereunder,\6\ Amendment No. 1 to the proposed rule change. Amendment 
No. 1 is described in items I, II, and III below, which items have been 
prepared by the MSRB. The Commission is publishing this notice of 
Amendment No. 1 to solicit comments on the proposed rule change, as 
amended, from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 61793 (March 26, 
2010), 75 FR 16878 (April 2, 2010) (File No. SR-MSRB-2010-02).
    \4\ See letters from: Vladimir Drozdoff, Centerport, New York, 
dated April 4, 2010; Joseph S. Fichera, Saber Partners, LLC, New 
York, New York (``Saber Partners''), dated April 12, 2010; Heather 
Traeger, Associate Counsel, Investment Company Institute (``ICI''), 
dated April 23, 2010; Leslie M. Norwood, Managing Director and 
Associate General Counsel, Securities Industry and Financial Markets 
Association (``SIFMA''), dated April 23, 2010; and Robert J. 
Stracks, Counsel, BMO Capital Markets GKST Inc. (``BMO Capital''), 
dated April 23, 2010.
    \5\ 15 U.S.C. 78s(b)(1).
    \6\ 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 Amendment No. 1 to File No. 
SR-MSRB-2010-02, originally filed on March 10, 2010 (the ``original 
proposed rule change''). Amendment No. 1 amends and restates the 
original proposed rule change relating to enhancements to the interest 
rate and descriptive information currently collected and made 
transparent by the MSRB on municipal Auction Rate Securities (``ARS'') 
and Variable Rate Demand Obligations (``VRDOs'') (as amended, the 
``proposed rule change''). The proposed rule change would: (i) amend 
Rules G-8, books and records, and G-34(c), variable rate security 
market information, to require brokers, dealers and municipal 
securities dealers (collectively ``dealers'') to (a) submit to the MSRB 
documents that define auction procedures and interest rate setting 
mechanisms for ARS and liquidity facilities for VRDOs (``short-term 
obligation document disclosure rule change''); (b) report to the MSRB 
ARS bidding information (``ARS bidding information rule change''); (c) 
report to the MSRB additional VRDO information (``VRDO information rule 
change''); and (d) communicate to an ARS Program Dealer the fact that 
an order submitted for inclusion in an auction is on behalf of an ARS 
issuer or conduit borrower (``ARS issuer bidding rule change'') 
(collectively, the ``rule change proposal''); (ii) amend the MSRB 
Short-term Obligation Rate Transparency (``SHORT'') System Facility to 
collect and disseminate information identified in the ARS bidding 
information rule change and the VRDO information rule change and 
documents identified in the short-term obligation document disclosure 
rule change (the ``SHORT System Facility amendment proposal''); and 
(iii) amend the MSRB EMMA Short-term Obligation Rate Transparency 
Service to make the documents collected in the SHORT System Facility 
amendment proposal available on the MSRB's Electronic Municipal Market 
Access (EMMA) Web site (the ``EMMA Short-term Obligation Rate 
Transparency Service amendment'').
    The MSRB has requested that the proposed rule change, which may be 
implemented in phases, be made effective on such date or dates as would 
be announced by the MSRB in notices published on the MSRB Web site, 
which dates would be no later than nine months after Commission 
approval of the proposed rule change and would be announced no later 
than sixty (60) days prior to the effective dates.
    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. If approved, the rule text for the 
Short-term Obligation Rate Transparency System, as well as for the EMMA 
Short-Term Obligation Rate Transparency Service, would be available on 
the MSRB Web site at http://www.msrb.org/Rules-and-Interpretations/Information-Facilities.aspx.

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
    Amendment No. 1 makes certain modifications to the original 
proposed rule change based on comments received on the original 
proposed rule change, as described below.
    The proposed rule change would enhance the interest rate and 
descriptive information currently collected and made transparent by the 
MSRB on municipal Auction Rate Securities (``ARS'') and Variable Rate 
Demand Obligations (``VRDOs''). The proposed rule change would: (i) 
Amend MSRB Rules G-8, books and records, and G-34(c), variable rate 
security market information, to require brokers, dealers and municipal 
securities dealers (collectively ``dealers'') to (a) submit to the MSRB 
documents that define auction procedures and interest rate setting 
mechanisms for ARS and liquidity facilities for VRDOs; (b) report to 
the MSRB ARS bidding information; (c) report to the MSRB additional 
VRDO information; and (d) communicate to an ARS Program Dealer the fact 
that an order submitted for inclusion in an auction is on behalf of an 
ARS issuer or conduit borrower (collectively ``rule change proposal''); 
(ii) amend the MSRB Short-term Obligation Rate Transparency (``SHORT'') 
System Facility to collect and disseminate the documents identified in 
the rule change proposal (``SHORT System Facility amendment 
proposal''); and (iii) amend the MSRB EMMA Short-term Obligation Rate 
Transparency Service to make the documents collected in the SHORT 
System Facility amendment proposal available on the MSRB's Electronic 
Municipal Market Access (EMMA) Web site (the ``EMMA Short-term 
Obligation Rate Transparency Service amendment'').
    SHORT and EMMA are components of an integrated suite of programs, 
services and systems (``MSRB market information programs'') for the 
collection of municipal securities market data and documents from 
dealers and other market participants and the dissemination of such 
data and documents to the public. The MSRB market information programs 
leverage the components of the various individual programs, services 
and systems to enhance the overall efficiency and effectiveness of the 
MSRB market information programs. In particular, processes, software, 
hardware or other components initially placed into service for a 
particular program, service or system may be utilized by other 
programs, services and systems within the MSRB market information 
programs to optimize the effectiveness of the MSRB market information 
programs and the individual components thereof.\7\
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    \7\ For example, certain elements of the SHORT System Facility 
amendment proposal would rely on components previously placed into 
service pursuant to the EMMA primary market or continuing disclosure 
services for purposes of processing submissions made to the MSRB.
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    Background. Since January 30, 2009 for ARS and April 1, 2009 for 
VRDOs, MSRB Rule G-34(c), on variable rate security market information, 
has required dealers that act as Program Dealers \8\ for ARS or 
Remarketing Agents for VRDOs to report (either directly or through an 
agent) certain information following an ARS auction or VRDO

[[Page 44298]]

interest rate reset to the SHORT System.\9\ Information generally is 
required to be reported to the SHORT System by no later than 6:30 p.m. 
e.t. on the day that an ARS auction or VRDO interest rate reset occurs 
and all collected information is made available to market participants 
for free in real-time on the MSRB's Electronic Municipal Market Access 
(``EMMA'') Web site.\10\ The specific items of interest rate and 
descriptive information about ARS and VRDOs currently required to be 
reported to the SHORT System are listed below.
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    \8\ An ARS Program Dealer is defined in Rule G-34(c) as a dealer 
that submits an order directly to an Auction Agent for its own 
account or on behalf of another account to buy, hold or sell ARS 
through the auction process.
    \9\ See Securities Exchange Act Release No. 34-59212, January 7, 
2009 (File No. SR-MSRB-2008-07).
    \10\ The 6:30 p.m. e.t. deadline only applies to those ARS 
auctions and VRDO interest rate resets that occur during an ``RTRS 
Business Day,'' as defined in Rule G-14(d)(ii). Information about 
ARS auctions and VRDO interest rate resets that occur outside of the 
hours of an ``RTRS Business Day'' is required to be submitted to the 
SHORT System by no later than 6:30 p.m. e.t. on the next ``RTRS 
Business Day.''
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    The following is a list of the information currently required to be 
reported to the SHORT System by an ARS Program Dealer following an ARS 
auction:
     CUSIP number;
     Interest rate for the next reset period;
     Identity of Program Dealer(s);
     Number of days of the reset period;
     Minimum denomination;
     Date and time of the auction;
     Date and time of posting of auction results by an Auction 
Agent;
     Indication of whether the interest rate represents a 
``maximum rate,'' an ``all hold rate,'' or a rate that was ``set by 
auction;''
     Minimum and maximum rates, if any, applicable at the time 
of the auction or, if not calculable as of the time of auction, 
indication that such rate or rates are not calculable; \11\ and
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    \11\ Some ARS and VRDOs have minimum and maximum rates that are 
set pursuant to formulas that are unable to be calculated at the 
time a submission to the SHORT System is required. In these cases, a 
value of ``NC'' is required to be included in a submission to the 
SHORT System to show that the minimum and maximum rates are ``not 
calculable.'' This exception does not apply to minimum and maximum 
rates that are linked to an index or bank lending rate, such as 
LIBOR. Such rates are required to be computed and the resulting 
values included on a submission to the SHORT System.
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     Par amount auctioned, not including hold orders effective 
at any rate.
    The following is a list of the information currently required to be 
reported to the SHORT System by a VRDO Remarketing Agent following a 
VRDO interest rate reset:
     CUSIP number;
     Interest rate for the next reset period;
     Identity of Remarketing Agent;
     Date of interest rate reset;
     Length of the interest rate reset period;
     Length of Notification Period;
     Indication of whether interest rate is ``set by formula,'' 
``set by Remarketing Agent'' or a ``maximum rate;''
     Minimum and maximum rates, if any, applicable at the time 
of the interest rate reset or, if not calculable as of the time of the 
interest rate reset, indication that such rate or rates are not 
calculable; \12\
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    \12\ Id.
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     Minimum denomination;
     Type of liquidity facility(ies); \13\ and
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    \13\ Dealers are required to submit to the SHORT System whether 
each applicable liquidity facility is a letter of credit or standby 
bond purchase agreement.
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     Expiration date of each liquidity facility.
    Description of the Rule Change Proposal. The proposed rule change 
would enhance the interest rate and descriptive information currently 
made available to market participants about ARS and VRDOs. The proposed 
rule change would require dealers to report to the MSRB documents that 
set forth auction procedures and interest rate setting mechanisms for 
ARS and liquidity facilities for VRDOs, as well as ARS bidding 
information and additional VRDO information. All collected documents 
and information would be made available in real-time on EMMA.\14\ The 
documents and information about ARS and VRDOs that would be required to 
be provided to the MSRB under the proposed rule change are described 
below.
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    \14\ In the future, the MSRB also plans to make all information 
collected under the rule change proposal available on a subscription 
basis.
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    ARS Bidding Information. As amended and restated by this amendment, 
the proposed rule change would require each ARS Program Dealer to 
report to the SHORT System ``ARS bidding information,'' which would 
include information about all orders placed by an ARS Program Dealer 
with an ARS Auction Agent for inclusion in an auction. This information 
would augment the interest rate and descriptive information currently 
provided to market participants by also providing information that 
would show, for example, how the interest rate was determined for a 
successful auction. The specific items of ARS bidding information an 
ARS Program Dealer would be required to report to the SHORT System are 
listed below.\15\ All items would be required to be reported within the 
same timeframe as the ARS interest rate and descriptive information 
currently required to be reported under Rule G-34(c). ARS bidding 
information would be required to be submitted to the SHORT System as 
data elements in the same manner as the interest rate and descriptive 
information currently required to be reported to the SHORT System.\16\
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    \15\ In response to comments received on the original proposed 
rule change, as discussed below, this amendment modifies the list of 
specific items of ARS bidding information in the original proposed 
rule change. This amendment deletes the requirement to report the 
``interest rate(s) and aggregate par amount(s) of orders to sell at 
a specific interest rate and aggregate par amount of such orders 
that were executed.''
    \16\ In response to comments received on the original proposed 
rule change, as discussed below, this amendment modifies the 
original proposed rule change by requiring ARS Program Dealers to 
report ARS bidding information as data elements. The original 
proposed rule change specified that ARS bidding information would be 
required to be reported as a word-searchable electronic document.
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     Aggregate par amount of orders to sell at any interest 
rate and aggregate par amount of such orders that were executed;
     Interest rate(s) and aggregate par amount(s) of orders to 
hold at a specific interest rate and aggregate par amount of such 
orders that were successfully held;
     Interest rate(s) and aggregate par amount(s) of orders to 
buy and aggregate par amount of such orders that were executed;
     Interest rate(s), aggregate par amount(s), and type of 
order--either buy, sell or hold--by a Program Dealer for its own 
account and aggregate par amounts of such orders, by type, that were 
executed; and
     Interest rate(s), aggregate par amount(s), and type of 
order--either buy, sell or hold--by an issuer or conduit borrower for 
such Auction Rate Security.\17\
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    \17\ In response to comments received on the original proposed 
rule change, as discussed below, this amendment modifies the 
original proposed rule change by deleting the requirement for ARS 
Program Dealers to report whether orders submitted by an issuer or 
conduit borrower for an ARS were executed.
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    ARS Issuer Bidding . One of the items of ARS bidding information 
that would be required to be submitted to the SHORT System by ARS 
Program Dealers are orders by issuers or conduit borrowers for the ARS. 
In response to comments received on the original proposed rule change, 
as discussed below, this amendment adds a requirement for dealers other 
than ARS Program Dealers that receive orders for inclusion in an 
auction for ARS from an issuer or conduit borrower of such ARS to 
disclose this fact when submitting such order to an ARS Program Dealer. 
This would ensure that ARS Program

[[Page 44299]]

Dealers are able to submit to the SHORT System orders by issuers or 
conduit borrowers for the ARS when such orders are not submitted 
directly to the ARS Program Dealer by the issuer or conduit borrower.
    Additional VRDO Information. As amended and restated by this 
amendment, the proposed rule change would require VRDO Remarketing 
Agents to submit additional items of VRDO information to the SHORT 
System in conjunction with the VRDO interest rate and descriptive 
information currently required to be reported under Rule G-34(c). This 
information would provide additional details concerning the interest 
rate set for a VRDO, such as the effective date of the interest rate, 
and would facilitate the tendering of a position in a VRDO by investors 
by requiring VRDO Remarketing Agents to report the identity of the 
agent of the issuer of the VRDOs to which a holder may tender their 
security (``Tender Agent'').
    The additional VRDO information would also provide transparency 
related to the current holders of the VRDO. Information about current 
holders of a VRDO would indicate, for example, that the interest rate 
set represents an interest rate paid to holders of the VRDO instead of 
instances when the VRDO is held entirely by a liquidity provider (as a 
``Bank Bond'') and that the interest rate set is therefore not set by 
market demand.
    The proposed rule change would require a VRDO Remarketing Agent to 
report to the SHORT System the effective date that the interest rate 
reset is applicable as well as the following information available to 
the VRDO Remarketing Agent as of the time of the interest rate reset: 
\18\
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    \18\ In response to comments received on the original proposed 
rule change, as discussed below, this amendment modifies the 
original proposed rule change by clarifying that the VRDO 
Remarketing Agent is only required to report the identities of the 
Tender Agent and liquidity provider(s) reflective of information 
available to the VRDO Remarketing Agent as of the time of the 
interest rate reset.
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     Identity of the Tender Agent;
     Identity of the liquidity provider(s) including a 
indication of those VRDOs for which an issuer provides ``self 
liquidity'' and the identity of the party providing such self-
liquidity; \19\
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    \19\ Some VRDOs have liquidity provisions under which the 
liquidity is provided by the issuer, conduit borrower or affiliate 
instead of by a third-party. Rule G-34(c) currently requires 
Remarketing Agents to report the type of liquidity facility 
applicable to a VRDO. Currently, SHORT System specifications only 
provide two options for this data element--letter of credit and 
standby bond purchase agreement--and in conjunction with proposed 
rule change the MSRB would revise the specifications to also capture 
VRDOs that have ``self liquidity.''
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     Par amount of the VRDO, if any, held as a Bank Bond; and
     Par amount of the VRDO, if any, held by parties other than 
a liquidity provider, which includes the par amounts held by a VRDO 
Remarketing Agent and by investors.
    ARS and VRDO Documents. As amended and restated by this amendment, 
the proposed rule change would require ARS Program Dealers and VRDO 
Remarketing Agents to submit certain documents to the SHORT System to 
ensure that market participants have centralized access to critical 
documents about ARS programs and VRDO issues. For existing ARS 
programs, dealers would be required to submit the current versions of 
ARS documents defining current auction procedures and interest rate 
setting mechanisms to the SHORT System within ninety days after the 
effective date of the proposed rule change. For existing VRDO issues, 
dealers would be required to undertake and document \20\ best efforts 
to obtain current versions of VRDO liquidity facility documents, 
including Letters of Credit, Stand-by Bond Purchase Agreements and any 
other document that establishes an obligation to provide liquidity, and 
submit such documents to the SHORT System within ninety days after the 
effective date of the proposed rule change. On an ongoing basis, 
dealers would be required to submit any new or amended versions of 
these documents within five business days of receipt.\21\
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    \20\ For documents of existing VRDO issues that are unable to be 
obtained through best efforts, the proposed rule change would 
require dealers to keep records of all efforts undertaken for a 
period of three years. Such records of best efforts would include, 
for example, all written requests for documents to and any responses 
from an issuer or liquidity provider. In response to comments 
received on the original proposed rule change, as discussed below, 
this amendment modifies the original proposed rule change by 
clarifying that such records are only required to be kept for those 
documents that are unable to be obtained.
    \21\ In response to comments received on the original proposed 
rule change, as discussed below, this amendment modifies the 
original proposed rule change by changing the deadline to submit new 
or amended versions of documents from one to five business days of 
receipt.
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    The MSRB recognizes that for some ARS programs, documents defining 
current auction procedures and interest rate setting mechanisms may 
already be available in the SHORT System. This may occur in the case of 
an ARS with multiple Program Dealers in which one Program Dealer has 
already submitted to the SHORT System the required document. In these 
cases, in lieu of submitting duplicate documents, dealers would be 
provided the capability to signify that a document required to be 
submitted has already been submitted to the SHORT System by identifying 
the relevant document.
    Since January 1, 2010, all documents submitted to EMMA have been 
required to be word-searchable PDF files. While this same requirement 
would apply to the submission of ARS and VRDO documents to the SHORT 
System, MSRB acknowledges that some of these documents for outstanding 
ARS and VRDOs are likely to be older documents that may not be 
available in electronic format or a format that would easily permit a 
dealer to produce a word-searchable PDF file of the document. 
Accordingly, the proposed rule change would only require ARS and VRDO 
documents submitted to EMMA to be word-searchable for new or amended 
versions of documents produced after the effective date of the proposed 
rule change.
    Description of the SHORT System Facility Amendment Proposal. The 
SHORT System is an MSRB Facility for the collection and public 
dissemination of information about ARS and VRDO. The proposed rule 
change would amend this facility to provide for the collection and 
public dissemination of documents identified in the rule change 
proposal.\22\
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    \22\ This amendment does not modify the provisions of the 
original proposed rule change relating to the SHORT System Facility.
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    Submissions to the SHORT System. The SHORT System receives 
submissions of information and documents about securities bearing 
interest at short-term rates under MSRB Rule G-34, on CUSIP numbers, 
new issue and market information requirements.
    Information and Documents to be Submitted. The basic items of 
information and documents that would be required to be submitted to the 
SHORT System are the same as those required to be submitted to the MSRB 
under MSRB Rule G-34(c). Submitters of documents would be required to 
provide to the SHORT System related indexing information with respect 
to each document submitted, including an indication of the document 
type, date such document became available to the dealer, and CUSIP 
number(s) of the municipal securities to which such document relates. A 
submitter required to submit a document that is already available in 
its entirety in the SHORT System would be permitted to, in lieu of 
submitting a duplicate document, identify the document already 
submitted and provide such items of related indexing information as are 
required by MSRB rules or the SHORT System input specifications and 
system

[[Page 44300]]

procedures. A submitter required to submit a document that is not able 
to be obtained through best efforts as provided in the proposed rule 
change would be required to provide an affirmative indication that a 
document required to be submitted is not available for submission 
notwithstanding the submitter's best efforts to obtain such document. 
The complete list of data elements that would be required on a 
submission to the SHORT System would be available in input 
specifications and system procedures made available on http://www.msrb.org. Submitters would be responsible for the accuracy and 
completeness of all information submitted to the SHORT System.
    Submitters. Submissions to the SHORT System may be made solely by 
authorized submitters using password-protected accounts in the MSRB's 
user authentication system, MSRB Gateway. MSRB Gateway is designed to 
be a single, secure access point for all MSRB applications. Submitters 
of information to the SHORT System are required to obtain an account in 
MSRB Gateway in order to submit information to the SHORT System. 
Through MSRB Gateway, submitters also have the ability to designate 
third-party agents to submit information to the SHORT System on the 
submitter's behalf.
    Submissions may be made by the following classes of submitters:
     ARS Program Dealer;
     VRDO Remarketing Agent;
     ARS Auction Agent; and
     Designated Agent, which may submit any information 
otherwise permitted to be submitted by another class of submitter which 
has designated such agent, as provided below.
    All ARS Auction Agents are allowed to submit information about an 
auction to the SHORT System without prior designation by an ARS Program 
Dealer. Dealers optionally may designate agents to submit information 
on their behalf, and may revoke the designation of any such agents, 
through MSRB Gateway. All actions taken by a Designated Agent on behalf 
of a dealer that has designated such agent shall be the responsibility 
of the dealer.
    Timing of Submissions. Submitters are required to make submissions 
to the SHORT System within the timeframes set forth in MSRB Rule G-
34(c) and related MSRB procedures. Submissions of information to the 
SHORT System may be made throughout any RTRS Business Day, as defined 
in Rule G-14 RTRS Procedures, from at least the hours of 6 a.m. to 9 
p.m., e.t., subject to the right of the MSRB to make such processes 
unavailable at times as needed to ensure the integrity of the SHORT 
System and any related systems. Submissions of documents would be able 
to be made throughout any day, subject to the right of the MSRB to make 
such processes unavailable between the hours of 3 a.m. and 6 a.m. each 
day, e.t., for required maintenance, upgrades or other purposes, or at 
other times as needed to ensure the integrity of MSRB systems. The MSRB 
provides advance notice of any planned periods of unavailability and 
shall endeavor to provide information to submitters as to the status of 
the submission interface during unanticipated periods of 
unavailability, to the extent technically feasible.
    Method of Submission. Information and documents may be submitted to 
the SHORT System through a secure, password-protected, Web-based 
electronic submitter interface or through a secure, authenticated 
computer-to-computer data connection, at the election of the submitter. 
When making submissions using the Web-based interface, related 
information is entered manually into an on-line form and documents 
would be required to be uploaded as portable document format (PDF) 
files. Computer-to-computer submissions utilize XML files for data and 
PDF files for documents. Appropriate schemas and procedures for Web-
based and computer-to-computer submissions would be available in input 
specifications and system procedures made available on http://www.msrb.org.
    Designated Electronic Format for Documents. All documents submitted 
to the SHORT System would be required to be in portable document format 
(PDF), configured to permit documents to be saved, viewed, printed and 
retransmitted by electronic means. If the submitted file is a 
reproduction of the original document, the submitted file must maintain 
the graphical and textual integrity of the original document. Documents 
submitted to the SHORT System created on or after the effective date of 
the proposed rule change would be required to be word-searchable 
(without regard to diagrams, images and other non-textual elements).
SHORT System Processing
    The SHORT System provides a single portal for the submission of 
information and documents. The SHORT System, as well as other MSRB 
systems and services, performs various data checks to ensure that 
information and documents are submitted in the correct format. In 
addition, data checks are performed to monitor dealer compliance with 
MSRB Rule G-34(c) as well as to identify information submitted in 
correct formats that may contain errors due to information not falling 
within reasonable ranges of expected values for a given item of 
information. All submissions generate an acknowledgement or error 
message, and all dealers that have information or documents submitted 
on their behalf by either an ARS Auction Agent or a Designated Agent 
are able to monitor such submissions.
    SHORT System Information and Document Dissemination. Information 
and documents submitted to the SHORT System that pass the format and 
data checks described above are processed and disseminated on a real-
time basis. Any changes to submissions also are processed upon receipt 
and updated information and documents are disseminated in real-time. 
Information submitted to the SHORT System is, in general, disseminated 
to the EMMA short-term obligation rate transparency service within 15 
minutes of acceptance, although during peak traffic periods 
dissemination may occur within one hour of acceptance. Submissions of 
documents to the SHORT System accepted during the hours of 8:30 a.m. to 
6 p.m. e.t. on an MSRB business day would generally be disseminated to 
the EMMA short-term obligation transparency service within 15 minutes 
of acceptance, although during peak traffic periods posting may occur 
within one hour of acceptance. Submissions outside of such hours often 
would be posted within 15 minutes although some submissions outside of 
the MSRB's normal business hours may not be processed until the next 
business day. SHORT System information and documents, along with 
related indexing information, would be made available to the public 
through the EMMA portal for the life of the related securities.
    The MSRB plans to offer subscriptions to the information and 
documents submitted to the SHORT System in the future.
    Description of The Emma Short-Term Obligation Rate Transparency 
Service Amendment Proposal. The EMMA short-term obligation rate 
transparency service currently makes the information collected by the 
SHORT System available to the public, at no charge, on the EMMA portal. 
The proposed rule change would add the documents identified in the rule 
change proposal to this service so that such documents would also be 
available to the public, at no charge, on the EMMA portal.\23\
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    \23\ This amendment does not modify the provisions of the 
original proposed rule change relating to the short-term obligation 
rate transparency service.

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[[Page 44301]]

2. Statutory Basis
    The MSRB believes that the proposed rule change is consistent with 
section 15B(b)(2)(C) of the Act,\24\ which requires, among other 
things, that MSRB rules must 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.
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    \24\ 15 U.S.C. 78o-4(b)(2)(C).
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    The MSRB believes that the proposed rule change is consistent with 
the Act. 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 by providing a centralized venue for free public 
access to information about and documents relating to ARS and VRDO. The 
proposed rule change would provide greater access to information about 
and documents relating to ARS and VRDO to all participants in the 
municipal securities market on an equal basis thereby removing 
potential barriers to obtaining such information. These factors serve 
to promote the statutory mandate of the MSRB to protect investors and 
the public interest.

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 dealers in 
municipal securities.

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

    The Commission received five \25\ comment letters regarding the 
original proposed rule change and the Commission has requested that the 
MSRB respond. While all of the commentators indicated general support 
for the MSRB's effort to increase transparency of ARS and VRDO several 
compliance concerns as well as suggested improvements to the proposed 
rule change were noted. The provisions of the original proposed rule 
change, comments received and a discussion of these comments are below.
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    \25\ See supra note 4.
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    Additional VRDO Information. The original proposed rule change 
would increase the information that a VRDO Remarketing Agent would be 
required to report to the SHORT System in conjunction with the VRDO 
interest rate and descriptive information currently required to be 
reported on the day that an interest rate reset occurs. The specific 
items of information include:
     Effective date that the interest rate reset is applicable;
     Identity of the Tender Agent;
     Identity of the liquidity provider(s) including an 
indication of those VRDOs for which an issuer provides ``self 
liquidity'' and the identity of the party providing such self-
liquidity;
     Information available to the VRDO Remarketing Agent as of 
the time of the interest rate reset of the par amount of the VRDO, if 
any, held as a Bank Bond; and
     Information available to the VRDO Remarketing Agent as of 
the time of the interest rate reset of the aggregate par amount of the 
VRDO, if any, held by parties other than a liquidity provider, which 
includes the par amounts held by a VRDO Remarketing Agent and by 
investors.
    SIFMA stated concerns with the requirement in the proposed rule 
change to report the identities of the Tender Agent and liquidity 
providers. SIFMA noted that the identities of these parties may change 
and that the VRDO Remarketing Agent may not receive timely notification 
of such changes. Accordingly, SIFMA suggested that VRDO Remarketing 
Agents only be required to report such information on a ``best 
efforts'' basis. While the MSRB acknowledges that the identities of 
Tender Agents and liquidity providers may change, and that VRDO 
Remarketing Agents may not receive timely notification that such 
information has changed, the MSRB does not believe that it is 
appropriate for VRDO Remarketing Agents to be required only to exercise 
best efforts to report this information. However, the MSRB is sensitive 
to compliance concerns in the event that the identity of a Tender Agent 
or liquidity provider changes, unbeknownst to the VRDO Remarketing 
Agent, yet a report to the SHORT System has been made that includes 
outdated information. Under the terms of the original proposed rule 
change, the VRDO Remarketing Agent would be required to modify any past 
submissions to the SHORT System in the event updated information about 
the Tender Agents and liquidity providers becomes known, which could 
place a significant compliance burden on dealers and result in frequent 
corrections to reports made to the SHORT System. Accordingly, in 
response to this comment, the MSRB has amended the original proposed 
rule change to clarify that the requirement to report these identities 
is based upon information known to the VRDO Remarketing Agent as of the 
time of the interest rate reset. The MSRB believes that this 
clarification would alleviate concerns with respect to dealers failing 
to receive timely information about a change in the identity of a 
Tender Agent or liquidity facility provider and provide a clearer 
requirement that such information is anticipated to be reported than 
would be provided through a best efforts provision.
    SIFMA also stated concerns related to reporting the par amount of 
Bank Bonds that are focused on whether the VRDO Remarketing Agent would 
be able to obtain and report accurate information. SIFMA noted that 
VRDO Remarketing Agents may not know the precise amount of securities 
held as Bank Bonds as a result of revised amortization schedules for 
securities held as Bank Bonds as well as instances when holders tender 
securities directly to a Tender Agent. The MSRB believes that the 
original proposed rule change already adequately addresses SIFMA's 
concern as it only requires VRDO Remarketing Agents to report the par 
amount of Bank Bonds based upon ``information available to the VRDO 
Remarketing Agent as of the time of the interest rate.''
    ARS Bidding Information. The original proposed rule change 
identified ARS Bidding Information that an ARS Program Dealer would be 
required to report within the same timeframe as the ARS interest rate 
and descriptive information currently required to be reported. The 
proposed rule change identified the following items of ``bidding 
information'' that would be required to be submitted to the SHORT 
System as a word-searchable portable document format (``PDF'') file.
     Interest rate(s) and aggregate par amount(s) of orders to 
sell at a specific interest rate and aggregate par amount of such 
orders that were executed;
     Aggregate par amount of orders to sell at any interest 
rate and aggregate par amount of such orders that were executed;
     Interest rate(s) and aggregate par amount(s) of orders to 
hold at a specific interest rate and aggregate par amount of such 
orders that were successfully held;

[[Page 44302]]

     Interest rate(s) and aggregate par amount(s) of orders to 
buy and aggregate par amount of such orders that were executed;
     Interest rate(s), aggregate par amount(s), and type of 
order--either buy, sell or hold--by a Program Dealer for its own 
account and aggregate par amounts of such orders, by type, that were 
executed; and
     Interest rate(s), aggregate par amount(s), and type of 
order--either buy, sell or hold--by an issuer or conduit borrower for 
such Auction Rate Security and aggregate par amounts of such orders, by 
type, that were executed.
    Saber Partners and SIFMA both stated that ARS Bidding Information 
should be reported as individual data elements instead of as a word-
searchable document. A document-based approach for collecting such 
information was included in the original proposed rule change based in 
large part upon earlier comments from SIFMA that it would be costly and 
time consuming to require the collection of such information as 
individual data elements.\26\ In response to the original proposed rule 
change, SIFMA noted that ``a data element level of submission would not 
only be easier but also a superior method of data management and 
analysis.'' The MSRB agrees with Saber Partners and SIFMA's comments on 
the original proposed rule change that having ARS bidding information 
collected as data elements would be a preferred method of data 
collection as it would facilitate data analysis and the computation of 
statistics, such as a bid-to-cover ratio, that would provide meaningful 
information about the demand for a specific ARS. Accordingly, in 
response to these comments, the MSRB has amended the original proposed 
rule change to require ARS bidding information to be reported to the 
SHORT System as individual data elements.
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    \26\ See Securities Exchange Act Release No. 34-61793, March 26, 
2010 (File No. SR-MSRB-2010-02).
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    SIFMA also stated concerns with the requirement to report orders 
submitted by an issuer or conduit borrower. SIFMA noted that some 
issuers or conduit borrowers utilize the services of a third party for 
submitting orders to an ARS Program Dealer. In these cases, the ARS 
Program Dealer may not know that an order represents an order submitted 
by an issuer or conduit borrower and would not be able to identify 
these orders in reports to the SHORT System. MSRB acknowledges that 
issuers or conduit borrowers may not always submit orders for an ARS 
directly to an ARS Program Dealer. To ensure ARS Program Dealers are 
provided with information that an order represents an order by an 
issuer or conduit borrower when such orders are placed with other 
dealers, the MSRB has amended the original proposed rule change to 
include a new requirement whereby any dealer that receives an order for 
inclusion in an auction for ARS from an issuer or conduit borrower of 
such ARS to disclose this fact when submitting the order to an ARS 
Program Dealer. MSRB has also amended the original proposed rule change 
by removing the requirement to identify whether orders placed by an 
issuer or conduit borrower were executed. MSRB notes that ARS Program 
Dealers would not be able to reliably ascertain whether orders on 
behalf of an issuer or conduit borrower submitted by a third-party 
dealer were executed, particularly if the third-party dealer submits 
more orders than just those on behalf of the issuer or conduit borrower 
and only some of those orders are filled.
    SIFMA also suggested that the requirement to report ``hold at 
rate'' and ``sell at rate'' orders is redundant. MSRB acknowledges that 
this requirement could be consolidated to simplify the rule language 
and has therefore amended the original proposed rule change to remove 
the requirement to report ``sell at rate'' orders as the remaining 
``hold at rate'' and ``sell at any interest rate'' categories of orders 
should provide for the reporting of all sell orders.
    ARS and VRDO Documents. The original proposed rule change would 
require ARS Program Dealers and VRDO Remarketing Agents to submit to 
the MSRB current and any new or amended versions of the following 
documents:
     ARS documents defining auction procedures and interest 
rate setting mechanisms;
     VRDO documents consisting of liquidity facilities, 
including Letter of Credit Agreements and Stand-by Bond Purchase 
Agreements.
    For existing documents, the original proposed rule change would 
require VRDO Remarketing Agents to make and document best efforts to 
obtain existing VRDO documents and specified a timeframe of ninety days 
from the date of effectiveness of a rule change for dealers to submit 
such documents to the MSRB. For ARS documents, ARS Program Dealers 
would be required to submit existing documents to the MSRB no later 
than ninety days from the date of effectiveness of a rule change. On an 
ongoing basis, the original proposed rule change included a requirement 
to submit new or amended versions of ARS and VRDO documents no later 
than one business day after receipt by the dealer.
    ICI stated that it ``believes there is a need for timely receipt of 
the proposed information for outstanding ARS and VRDOs.'' Accordingly, 
ICI stated that it ``supports the MSRB's original proposed submission 
deadline of [thirty] days from the effective date of the proposed 
[rule] change.'' \27\ While MSRB agrees that it is important to have a 
centralized source of ARS and VRDO documents as soon as practical, 
given the large number of documents that would need to be submitted to 
the MSRB and the fact that, for outstanding issues, dealers may need 
time to request documents from third parties, the MSRB believes that 
ninety days is an appropriate timeframe for having such documents 
submitted to the MSRB.
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    \27\ See MSRB Notice 2009-43 (July 13, 2009).
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    ICI also stated that it ``strongly supports the one-business day 
submission requirement for new or amendment versions of the ARS and 
VRDO documents.'' SIFMA, however, suggested that the deadline for 
submitting such new or amended documents be five business days after 
receipt. SIFMA noted the lack of a uniform manner in which dealers 
receive such documents from issuers and liquidity facility providers 
and that ``it may take a couple of days internally at a broker dealer 
for these documents to get routed to the proper place for submission to 
[the MSRB].'' MSRB acknowledges that it is unlikely that dealers would 
have an existing process in place to support submitting new or amended 
versions of ARS and VRDO documents within one business day of receipt. 
While MSRB believes that five business days is a generous amount of 
time, MSRB recognizes that it is consistent with the timeframe for 
submitting advance refunding documents to the MSRB and would be an 
appropriate timeframe, at least initially, for such new or amended 
versions of ARS and VRDO documents to be submitted to the MSRB. 
Accordingly, in response to this comment, MSRB has amended the original 
proposed rule change to provide a five business day deadline for 
submitting new or amended versions of ARS and VRDO documents to the 
MSRB.
    SIFMA also requested clarification of the recordkeeping requirement 
for VRDO Remarketing Agents to document best efforts to obtain existing 
VRDO documents and whether such documents would be required to contain

[[Page 44303]]

signatures. MSRB, in response to this comment, amended the original 
proposed rule change to clarify that such records are only required to 
be kept for those documents that are unable to be obtained. MSRB also 
notes that all documents would be required to be final, operative 
versions of such documents. While this requirement does not necessarily 
require that the document be signed, MSRB notes that signatures would 
provide a clear indication that the document reflects a final version.
    Other Comments. ICI recommended that the proposed rule change 
include a ``catch-all'' category to require dealers to report 
information ``about new products that fall outside of the scope of the 
ARS and VRDO disclosure requirements.'' MSRB agrees that new products 
may benefit from the transparency offered for ARS and VRDO by the SHORT 
System, yet technically fall outside of the definitions of such 
products, and plans to review in the future whether changes to the 
SHORT System and associated rules could accommodate future products 
without subsequent system and rule modifications.
    ICI also suggested that VRDO ``credit enhancement'' data and 
documentation be required to be reported. MSRB believes that such 
information should not be limited to VRDOs and notes a separate MSRB 
initiative to display on EMMA information offered by credit ratings 
agencies would provide additional access to credit enhancement features 
associated with municipal securities on a market-wide basis.\28\
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    \28\ See MSRB Notice 2010-13 (May 20, 2010).
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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, as amended by Amendment No. 1, 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-2010-02 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-2010-02. 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,\29\ 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 Web site 
viewing and printing 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 the 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-2010-02 and should be submitted on or before August 18, 2010.
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    \29\ The text of Amendment No. 1 to the proposed rule change is 
available on the Commission's Web site at http://www.sec.gov/.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\30\
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    \30\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-18442 Filed 7-27-10; 8:45 am]
BILLING CODE 8010-01-P