[Federal Register Volume 78, Number 191 (Wednesday, October 2, 2013)]
[Notices]
[Pages 60956-60962]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-24021]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70532; File No. SR-MSRB-2013-05]


Self-Regulatory Organizations; Municipal Securities Rulemaking 
Board; Notice of Filing of Amendment No. 1 and Order Granting 
Accelerated Approval of a Proposed Rule Change, as Modified by 
Amendment No. 1 Thereto, To Amend MSRB Rules G-8, G-11, and G-32 To 
Include Provisions Specifically Tailored for Retail Order Periods

September 26, 2013.

I. Introduction

    On June 17, 2013, 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 consisting of amendments to MSRB Rules G-8, G-11, 
and G-32, and conforming changes to Form G-32. The proposed rule change 
was published for comment in the Federal Register on June 28, 2013.\3\ 
The Commission received eight comment letters on the proposal.\4\ On 
September 6, 2013, the MSRB submitted a response to these comments \5\ 
and filed Amendment No. 1 to the proposed rule change.\6\ The 
Commission is publishing this notice to solicit comments on Amendment 
No. 1 to the proposed rule change from interested persons and is 
approving the proposed rule change, as modified by Amendment No. 1, on 
an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 69834 (June 24, 2013), 
78 FR 39038 (``Notice'').
    \4\ See Letters to Elizabeth M. Murphy, Secretary, Commission, 
from David L. Cohen, Managing Director and Associate General 
Counsel, SIFMA, dated July 18, 2013 (``SIFMA Letter''); Dustin 
McDonald, Director, Federal Liaison Center, Government Finance 
Officers Association (``GFOA''), dated July 18, 2013 (``GFOA 
Letter''); Jeanine Rodgers Caruso, President, National Association 
of Independent Public Finance Advisors, dated July 19, 2013 
(``NAIPFA Letter''); Dorothy Donohue, Deputy General Counsel--
Securities Regulation, Investment Company Institute, dated July 19, 
2013 (``ICI Letter''); Robert J. McCarthy, Director of Regulatory 
Policy, Wells Fargo Advisors, LLC, dated July 19, 2013 (``WFA 
Letter''); Michael Nicholas, Chief Executive Officer, Bond Dealers 
of America, dated July 19, 2013 (``BDA Letter''); Leslie M. Norwood, 
Managing Director and Associate General Counsel, SIFMA, and Dustin 
McDonald, Director, Federal Liaison Center, GFOA, dated August 29, 
2013 (``SIFMA and GFOA Joint Letter''); and David L. Cohen, Managing 
Director and Associate General Counsel, SIFMA, dated September 23, 
2013 (``SIFMA Letter II'').
    \5\ See Letter to Elizabeth M. Murphy, Secretary, Commission, 
from Michael L. Post, Deputy General Counsel, MSRB, dated September 
6, 2013 (``MSRB Letter'').
    \6\ In Amendment No. 1, the MSRB partially amended the text of 
the original proposed rule change to: (i) Revise the definition of 
``retail order period'' in Rule G-11(a)(vii) to make clear the 
MSRB's intent that the definition covers order periods during which 
orders that meet the issuer's designated eligibility criteria for 
retail orders and for which the customer is already conditionally 
committed will be either (a) the only orders solicited or (b) given 
priority over other orders; (ii) revise proposed Rule G-11(k) to 
clarify that dealers submitting institutional orders during a retail 
order period are not required to submit certain additional 
information that is intended to relate to retail orders; (iii) 
eliminate the use of the defined term ``going away order,'' while 
retaining the concept represented by the term; (iv) delete certain 
duplicative language from the definition of ``selling group'' in 
Rule G-11(a); and (v) synchronize the effective dates so that all 
parts of the proposed rule change would take effect at the same 
time. The MSRB also made minor technical changes to correct marking 
of rule text that was incorrect in the original filing.
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II. Description of the Proposed Rule Change

    The MSRB states that this proposed rule change will establish basic 
protections for issuers and customers and provide additional tools to 
assist with the administration and examinations of retail order period 
requirements, as described below. The thrust of the proposal, according 
to the MSRB, is to provide a mechanism by which issuers can have 
greater assurance that a dealer has, when directed to do so by the 
issuer, made a

[[Page 60957]]

bona fide public offering of securities to retail customers at their 
initial offering prices. According to the MSRB, the proposed rule 
change addresses specific concerns raised by issuers, dealers, and 
municipal advisors that (i) Orders have been mischaracterized as 
``retail''; (ii) syndicate managers fail to disseminate timely notice 
of the terms and conditions of a retail order period to all dealers, 
including selling group members; and (iii) requested pricing 
information is not delivered in sufficient time to allow for 
communication with the requesting dealer's ``retail'' customers to 
determine whether the investor would like to purchase the bonds. The 
proposed rule change amends MSRB rules to include provisions 
specifically tailored to address these identified issues.

1. Proposed Changes to Rule G-11

    MSRB Rule G-11 addresses syndicate practices and management of the 
syndicate. Among other things, the rule requires syndicates to 
establish priorities for different categories of orders and requires 
various disclosures to syndicate members, which are intended to assure 
that allocations are made in accordance with those priorities.
    The MSRB proposes to amend Rule G-11 by adding definitions for 
terms used in the proposed new provisions addressing retail order 
periods. The term ``retail order period'' will be defined in 
subparagraph (a)(vii) to mean an order period during which orders that 
meet the issuers' designated eligibility criteria for retail orders and 
for which the customer is already conditionally committed will be 
either (i) the only orders solicited or (ii) given priority over other 
orders.\7\ In addition, the MSRB proposes to define the term ``selling 
group'' in subparagraph (a)(xii) to mean a group of brokers, dealers, 
or municipal securities dealers formed for the purpose of assisting in 
the distribution of a new issue of municipal securities for the issuer 
other than members of the syndicate.\8\
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    \7\ The definition of ``retail order period'' was amended in 
Amendment No. 1 in response to comments received in order to make 
clear the MSRB's intent that the definition covers retail order 
periods during which qualified orders are either the only orders 
solicited or are given priority over other orders. See supra note 6.
    \8\ The MSRB notes that selling groups are sometimes included by 
issuers in the distribution of new issues of municipal securities to 
expand the distribution channel beyond the customers of syndicate 
members. See Notice, supra note 3 at 39039.
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    Rule G-11(f) requires that the senior syndicate manager furnish in 
writing to the other members of the syndicate a written statement of 
all terms and conditions required by the issuer. The MSRB proposes to 
amend Rule G-11(f) to require expressly that the written statement also 
be delivered to selling group members. Additionally, the proposal 
requires that such written statement include all of the issuer's retail 
order period requirements, if any, and all pricing information. The 
proposal also requires a written statement be provided to syndicate and 
selling group members of any changes in either the priority provisions 
or pricing information. The proposed rule change further requires that 
an underwriter furnish in writing to any other broker, dealer, or 
municipal securities dealer with which it has an arrangement to market 
the issuer's securities all of the information provided by the senior 
syndicate manager.\9\
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    \9\ The MSRB states that this arrangement, commonly referred to 
as a ``distribution or marketing agreement,'' is used by some firms 
to enhance the firm's ability to ``reach'' retail customers, such as 
in the case where a firm does not have a significant retail 
distribution network. Notice, supra note 3 at 39040, n. 9. Under the 
proposed rule change, the onus to furnish the information would be 
placed on the underwriter that has entered into such arrangement, 
rather than the senior syndicate manager.
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    Rule G-11(f) also currently provides that if a senior syndicate 
manager, rather than the issuer, prepares the statement of all of the 
terms and conditions required by the issuer, such statement must be 
provided to the issuer. The proposed rule change adds the requirement 
to obtain the approval of the issuer of any statement prepared by the 
senior syndicate manager. This approval must be secured in all cases 
and is not limited solely to those instances when a retail order period 
is conducted.
    Rule G-11(h)(i) currently provides, among other things, that 
management fees and discretionary fees for clearance costs to be 
imposed by a syndicate manager shall be disclosed to the syndicate 
members prior to submission of a bid. The proposed rule change will 
require the syndicate manager specifically to disclose to each 
syndicate member the amount of any management fees or discretionary 
fees for clearance costs imposed by the syndicate manager.
    The MSRB also proposes to add new paragraph (k) to Rule G-11. New 
paragraph (k) will require any broker, dealer, or municipal securities 
dealer that submits an order that is designated as retail during a 
retail order period to provide certain information, which the MSRB 
states will assist in the determination that such order is a bona fide 
retail order. Specifically, the broker, dealer, or municipal securities 
dealer must provide the following information relating to each order 
designated as retail submitted during a retail order period: (i) 
Whether the order is from a customer that meets the issuer's 
eligibility criteria for participation in the retail order period; (ii) 
whether the order is one for which a customer is already conditionally 
committed; (iii) whether the broker, dealer, or municipal securities 
dealer has received more than one order from the retail customer for a 
security for which the same CUSIP number has been assigned; (iv) any 
identifying information required by the issuer, or the senior syndicate 
manager on the issuer's behalf, in connection with such retail order 
(but not including customer names or social security numbers); and (v) 
the par amount of the order. This Rule G-11(k) information must be 
submitted no later than the Time of Formal Award,\10\ and may be 
submitted electronically. The proposed rule change also provides that 
the senior syndicate manager may rely on the information furnished by 
such dealer, unless the senior syndicate manager knows, or has reason 
to know, that the information is not true, accurate, or complete.
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    \10\ As defined in MSRB Rule G-34(a)(ii)(C)(1)(a).
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2. Proposed Changes to Rule G-8

    MSRB Rule G-8 imposes books and records requirements on brokers, 
dealers, and municipal securities dealers. Rule G-8(a)(viii)(A) 
requires that, for each primary offering for which a syndicate has been 
formed for the purchase of municipal securities, the syndicate manager 
must maintain a variety of records. Currently, the rule provides these 
records must show, among other things, a statement of all terms and 
conditions required by the issuer (including whether there was a retail 
order period and the issuer's definition of ``retail,'' \11\ if 
applicable) and all orders received for the purchase of the securities 
from the syndicate.\12\ The MSRB proposes to amend Rule G-8(a)(viii)(A) 
so that senior syndicate managers also will need to maintain the

[[Page 60958]]

following records: (i) All orders received for the purchase of the 
securities from the selling group; (ii) the information required by 
Rule G-11(k) (as discussed below); and (iii) all pricing information 
distributed pursuant to Rule G-11(f) (as discussed below).
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    \11\ The MSRB also proposes to alter Rules G-8(a)(viii)(A) and 
(B) by deleting the parenthetical reference to ``whether there was a 
retail order period and the issuer's definition of retail'' and to 
replace it with ``those of any retail order period.'' The MSRB 
states that this part of proposed rule change is not intended to be 
a substantive change.
    \12\ See Rule G-8(a)(vii) relating to dealer records for 
principal transactions. Dealers are not required to retain records 
related to customer orders unless an order has been filled. The 
requirement in the rule for a memorandum of the transaction 
including a record of the customer's order applies only in the event 
such purchase or sale occurs with the customer.
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    Rule G-8(a)(viii)(B) requires that, for each primary offering for 
which a syndicate has not been formed for the purchase of municipal 
securities, the sole underwriter must maintain a variety of records 
which show, among other things, all terms and conditions required by 
the issuer (including whether there was a retail order period and the 
issuer's definition of ``retail,'' \13\ if applicable). The MSRB 
proposes to change Rule G-8(a)(viii)(B) to require the sole underwriter 
also to maintain in its files the information required by Rule G-11(k) 
(as discussed below).
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    \13\ See supra note 11.
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3. Proposed Changes to Rule G-32

    MSRB Rule G-32 governs disclosures in connection with primary 
offerings. Specifically, Rule G-32(a) provides requirements for the 
disclosure to customers of certain information in connection with 
primary offerings of municipal securities. Rule G-32(a)(i) provides, 
among other requirements, that no broker, dealer, or municipal 
securities dealer shall sell, whether as a principal or agent, any 
offered municipal securities to a customer unless such broker, dealer, 
or municipal securities dealer delivers to the customer a copy of the 
official statement by no later than the settlement of the transaction. 
The proposed rule change amends Rule G-32(a)(i) to replace the terms 
``whether as principal or agent'' with the phrase ``whether as an 
underwriter or otherwise'' to clarify that all brokers, dealers, and 
municipal securities dealers, not just underwriters, are subject to the 
official statement delivery requirement of the rule during the primary 
offering disclosure period. The MSRB notes that this proposed change 
codifies its long-standing interpretation of Rule G-32(a)(i).
    Rule G-32(b) provides detailed requirements for underwriters 
submitting documents or disclosure-related information to the 
Electronic Municipal Market Access (``EMMA'') system. Rule G-32(b)(v) 
provides that in the event a syndicate or similar account has been 
formed for the underwriting of a primary offering, the managing 
underwriter shall take the actions required under the provisions of the 
rule and shall also comply with the recordkeeping requirements of Rule 
G-8(a)(xiii)(B), which addresses the recordkeeping requirements in the 
case of a primary offering in which a syndicate has not been formed. 
The MSRB proposes to delete the reference in Rule G-32(b)(v) to such 
recordkeeping requirements because the cross reference to ``(B)'' is 
incorrect.
    Rule G-32(b)(vi)(C)(1)(a) provides that an underwriter must submit 
data, including: (i) CUSIP numbers; (ii) initial offering prices or 
yields, if applicable; (iii) the expected closing date for the 
transaction; and (iv) whether the issuer or other obligated persons 
have agreed to undertake to provide continuing disclosure information 
as contemplated by Rule 15c2-12 under the Act. The proposed change to 
Rule G-32(b)(vi)(C)(1)(a) adds to the data that must be submitted a 
requirement that the underwriter report to EMMA (for solely regulatory 
purposes) whether a primary offering of securities included a retail 
order period and each date and time (beginning and end) \14\ it was 
conducted.\15\
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    \14\ All times will be required to be reported as Eastern Time.
    \15\ Under the proposed rule change, the underwriter will be 
required to report to EMMA that a retail order period has occurred 
by no later than the closing date of the transaction. Under Rule G-
32(b)(vi)(C)(1)(a), Form G-32 submissions shall be ``initiated on or 
prior to the date of first execution . . .'' The ``date of first 
execution'' is defined in Rule G-32(d)(xi) and, for purposes of this 
report, is deemed to occur by no later than the closing date.
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4. Implementation Date

    The MSRB proposes that the implementation date would be no later 
than March 31, 2014, or such earlier date to be announced by the MSRB 
in a notice published on the MSRB Web site with at least a thirty-day 
advance notification prior to the effective date.\16\
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    \16\ See Amendment No. 1 at 4. As originally proposed, the 
amendments to Rules G-8 and G-11 would have become effective six 
months following the date of this order while the amendments to Rule 
G-32 would have taken effect no later than March 31, 2014, or such 
earlier date as announced by the MSRB in a notice published on its 
Web site with at least a thirty-day advance notification prior to 
the effective date. The MSRB determined that, consistent with the 
suggestion of commenters, it would be appropriate to synchronize 
these effective dates.
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III. Summary of Comments Received and the Commission's Response

    As previously noted, the Commission received eight comment letters 
on the proposed rule change and a response letter from the MSRB.\17\ 
The commenters generally supported the proposed rule change, but raised 
some specific concerns discussed in more detail below.
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    \17\ See supra notes 4 and 5.
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1. Definition of ``Retail'' Customer

    Three commenters addressed the MSRB's proposal to allow issuers to 
determine eligibility criteria for participating in a retail order 
period on an issue-by-issue basis in lieu of proposing a rule to define 
``retail'' customer.\18\ One commenter stated that, although it 
supports MSRB's intention of allowing the issuer to establish its own 
terms and conditions, including order priority provisions, for 
offerings, it believes the MSRB could do more to protect issuers by 
developing a non-binding definition of the term ``retail'' 
customer.\19\ This commenter noted that many issuers would benefit from 
a baseline definition of ``retail'' that they could tailor to their 
specific needs.\20\ Another commenter suggested that the MSRB adopt a 
uniform definition of ``retail'' that recognizes that retail investors 
access the municipal bond markets in many ways, including through 
collective investment vehicles such as mutual funds.\21\
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    \18\ See GFOA Letter; ICI Letter; NAIPFA Letter.
    \19\ See GFOA Letter at 1.
    \20\ See GFOA Letter at 1.
    \21\ See ICI Letter at 1-2. This commenter believes that, absent 
a definition of ``retail'' that includes collective investment 
vehicles, retail investors that seek exposure to the municipal bond 
markets through these vehicles will be disadvantaged.
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    In response to these comments, the MSRB reiterated its belief that 
it is appropriate to allow issuers the flexibility to designate the 
eligibility criteria for their retail order periods on an issue-by-
issue basis and adopt criteria that best suits their unique 
circumstances. The MSRB noted that this discretion is necessary given 
the vast array of potential factors that an issuer may consider in 
developing the eligibility criteria and the wide range of issuers in 
the municipal market.\22\ Although declining to provide a definition of 
``retail'' order in the rule, in its response letter, the MSRB provided 
a number of non-exclusive examples of some of the options that issuers 
may choose from when establishing eligibility criteria for orders 
solicited through its retail order period. The MSRB noted, for example, 
that an issuer could determine that retail orders include orders from a 
specific type of person, such as a natural person or a trust department 
or registered investment adviser acting on behalf of a natural 
person.\23\ The MSRB also noted that an issuer also could choose to 
define ``retail'' to include only orders from ``local'' investors, 
defined by reference to the residency or domicile of the investor. 
Alternatively, an issuer

[[Page 60959]]

also could choose to include an order from an institutional investor 
that represents a family foundation or trust or an order from a mutual 
fund. The MSRB also stated that an issuer could determine which orders 
are ``retail'' orders by imposing an aggregate limitation on the total 
par amount of the order.\24\
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    \22\ MSRB Letter at 2.
    \23\ MSRB Letter at 2.
    \24\ MSRB Letter at 2.
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    Further, the MSRB noted that even a non-binding definition of 
``retail'' customer could have the effect of skewing issuers' selection 
of eligibility criteria, which would be contrary to the MSRB's 
intention of granting broad flexibility to issuers. As an alternative 
to imposing eligibility criteria for retail order periods, the MSRB 
committed to develop educational materials concerning retail order 
periods that would assist issuers in developing such criteria.\25\ The 
MSRB stated that it intends to solicit and incorporate input from 
issuers in developing these educational materials.\26\
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    \25\ MSRB Letter at 3.
    \26\ MSRB Letter at 6.
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    Two commenters expressed concerns about issuers not having the 
requisite experience and having to rely on advice from their brokers or 
underwriters in developing their eligibility criteria in the absence of 
a definition of ``retail'' in the rule.\27\ One commenter argued that 
an issuer is likely to believe that its underwriters' advice is 
provided with the issuer's best interest in mind, but this may not be 
the case, as underwriters are likely to advise issuers to use a 
definition of ``retail'' customer that suits the underwriters' business 
model and/or distribution channels without regard to the interests of 
the issuer.\28\ Another commenter noted that dealers do not have a 
fiduciary duty to the issuer, and thus, it would be helpful for issuers 
to have a baseline definition of ``retail'' to reference, rather than 
relying solely on the advice of the dealer.\29\
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    \27\ See NAIPFA Letter at 1-2 and GFOA Letter at 1.
    \28\ See NAIPFA Letter at 1-2.
    \29\ See NAIPFA Letter at 1-2 and GFOA Letter at 1.
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    In response, the MSRB noted that an issuer could engage a municipal 
advisor experienced in retail order periods to assist the issuer in 
managing all aspects of the primary offering process, including the 
development of eligibility criteria, to help ensure that the issuer's 
objectives for the offering will be met.\30\ The MSRB also noted that 
today underwriters may assist issuers in establishing eligibility 
criteria for retail order periods without a standard definition of 
retail customer and that the commenter provided no argument as to why 
this is violative of existing MSRB rules. The MSRB further observed 
that the proposed rule change ``simply seeks to reinforce dealer 
compliance with the terms of a retail order period'' and that concerns 
about an underwriter's ability to manipulate the marketing process in 
order to be engaged by an issuer do not speak to the substance of the 
proposal.\31\
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    \30\ MSRB Letter at 2.
    \31\ MSRB Letter at 3.
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    One commenter also noted that the MSRB's use of the term ``retail'' 
throughout its proposal suggests that the MSRB believes the term is 
generally understood by market participants, but that absent a 
definition of ``retail,'' it is not possible to evaluate the MSRB's 
assessment that retail investors will benefit from its proposed 
rule.\32\ This commenter expressed the view that bona fide retail 
investors will, in fact, be hurt by the MSRB's proposal because they 
will be squeezed out by issuers that use definitions, developed with 
underwriter advice, favoring non-bona fide retail investors.\33\ In 
response, the MSRB defended its statement that retail investors will 
benefit from the proposed rule change by explaining that, in context, 
the statement refers to retail investors that issuers have determined 
should have the opportunity to compete to buy their bonds in the 
primary market.\34\ Further, the MSRB stated its belief that the 
proposed rule change will benefit those investors that meet the 
issuer's eligibility criteria, because all orders participating in the 
retail order period will be more likely to comply with the issuer's 
eligibility criteria and regulatory authorities will have additional 
tools to enforce compliance with Rule G-11.
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    \32\ See NAIPFA Letter at 2-3.
    \33\ See NAIPFA Letter at 3.
    \34\ MSRB Letter at 2-3 (emphasis in original).
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2. Definition of ``Retail Order Period''

    Commenters addressed three aspects of the MSRB's proposed 
definition of ``retail order period'' in proposed Rule G-11(a)(vii). 
One commenter urged the MSRB to revise the definition of ``retail order 
period'' to cover order periods in which both retail and institutional 
investors are permitted to place orders, but retail orders are given 
priority over other orders.\35\ The commenter noted that many issuers 
currently conduct order periods in this manner, particularly those 
whose bond issues are not large in size.\36\ In response to this 
comment, the MSRB proposed to revise the definition to clarify that 
``retail order period'' includes both: (i) Order periods where orders 
for retail customers are the only orders solicited; and (ii) order 
periods where retail orders are given priority over other orders.\37\ 
The MSRB also noted that it had originally intended for the rule to be 
flexible enough to accommodate an order period that runs concurrently 
as well as sequentially, stating that the term ``issuer's designated 
eligibility criteria'' was designed to be broad enough to encompass an 
order period where retail orders are given priority.
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    \35\ See GFOA Letter at 2.
    \36\ See GFOA Letter at 2.
    \37\ See Amendment No. 1 at 3-4; MSRB Letter at 5.
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    Two commenters recommended replacing all references to ``going away 
orders'' with references to ``bona fide'' customer orders.\38\ As 
originally proposed, the term ``retail order period'' was defined as a 
period during which solely going away orders would be solicited solely 
from customers that met the issuer's designed eligibility criteria, and 
``going away order'' was defined to mean an order for which a customer 
was already conditionally committed.\39\ One of the commenters argued 
that the proposal's usage of the term ``going away orders'' was 
inconsistent with the commonly accepted meaning of the term.\40\ The 
commenter further explained that the terms used by many issuers for 
retail order periods are designed to have the bonds purchased during 
the retail order period by ``ultimate investors'' who will buy and hold 
the bonds, rather than ``intermediate investors'' who will sell the 
bonds quickly and affect the secondary market pricing of the issuer's 
securities even prior to closing.\41\ While acknowledging that the 
MSRB's definition would exclude dealer orders (which is one of the 
stated goals of the proposal), this commenter advocated for the use of 
the term ``bona fide,'' arguing that this term is commonly understood 
to mean ``real'' or ``genuine,'' and therefore would enhance the 
likelihood of bonds going to ``ultimate investors.'' As such, the 
commenter argued that adoption of this term would address more 
appropriately the concern that issuers' directions concerning retail 
order periods are being ignored.\42\ The other commenter observed that 
the term ``conditionally committed'' is less precise than ``bona fide'' 
customer

[[Page 60960]]

orders that meet the issuer's designated eligibility criteria.\43\
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    \38\ See GFOA Letter at 2-3; SIFMA Letter at 2, n.5; SIFMA 
Letter II at 2.
    \39\ See Notice, supra note 3.
    \40\ See GFOA Letter at 2.
    \41\ See GFOA Letter at 2.
    \42\ See GFOA Letter at 2.
    \43\ SIFMA Letter II at 2.
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    In response, the MSRB proposed to eliminate the term ``going away 
order,'' while retaining the concept represented by the term to ensure 
that orders for dealer inventory are not permitted to be submitted 
during a retail order period.\44\ The MSRB declined to use the term 
``bona fide'' because, in the MSRB's view, the use of the bona fide 
concept to categorize customers that are likely to hold newly-issued 
municipal bonds rather than sell them quickly would lead to a highly 
subjective inquiry.\45\ Moreover, the MSRB noted that the commenters 
did not clearly distinguish between intermediate investors and ultimate 
investors.\46\ The MSRB also noted that the proposed rule change is not 
intended to prescribe a holding period in order to participate in a 
retail order period and, accordingly, the MSRB has not conducted an 
assessment of whether a holding period requirement would be consistent 
with the promotion of a free and efficient market.\47\
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    \44\ Amendment No. 1 at 4, MSRB Letter at 4-5.
    \45\ MSRB Letter at 5.
    \46\ MSRB Letter at 5.
    \47\ MSRB Letter at 5. The MSRB did note that although they were 
not prescribing a holding period, issuers have the ability to 
establish customer eligibility criteria to define the customers that 
they would like to participate in the retail order period to the 
extent consistent with applicable laws and regulations.
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    Lastly, one commenter recommended that any educational materials 
regarding the definition of ``retail order period'' developed by MSRB 
should include a recommendation that issuers reserve the right to 
conduct an audit of compliance by the syndicate of the issuer's retail 
order period rules.\48\ In its comment letter, the MSRB confirmed that 
issuers may audit customer orders.\49\
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    \48\ See BDA Letter at 2.
    \49\ MSRB Letter at 4.
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3. Representations by Dealers Required by MSRB Rule G-11(k)

    Five comments addressed the new representations that dealers would 
need to make to comply with proposed Rule G-11(k).\50\ One commenter 
stated that the representations required by the rule should account for 
order periods during which both retail and institutional orders are 
accepted.\51\ The MSRB addressed this comment by proposing to amend the 
definition of ``retail order period'' to include both: (i) Order 
periods where orders for retail customers are the only orders 
solicited; and (ii) order periods where retail orders are given 
priority over other orders, as described above.\52\
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    \50\ See BDA Letter; GFOA Letter; SIFMA Letter; SIFMA Letter II; 
WFA Letter.
    \51\ See GFOA Letter at 2.
    \52\ See supra note 6; Amendment No. 1 at 3-4.
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    Three commenters raised concerns about the scope of information 
required by proposed Rule G-11(k).\53\ One commenter argued that 
proposed Rule G-11(k) is too prescriptive and burdensome and suggested 
that dealers should be permitted to make certain representations 
required by the rule only once, rather than each time an order is 
submitted during a retail order period.\54\ The commenter recommended 
that this single set of representations could be made in either the 
Master Agreement Among Underwriters or the Selling Group Agreement.\55\ 
The commenter further suggested that dealers should only be required to 
separately inform the syndicate manager in writing if an order does not 
comply with proposed Rule G-11(k)(i), (ii), or (iii).\56\
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    \53\ BDA Letter at 1-2; SIFMA Letter at 2-3; SIFMA Letter II at 
2; WFA Letter at 3.
    \54\ See SIFMA Letter at 2-3. Specifically this commenter noted 
that the dealer could make a single representation that: (i) Each 
order meets the issuer's eligibility criteria for retail; (ii) each 
order is a bona fide customer order; and (iii) such order is not 
duplicative. See also SIFMA Letter II at 2.
    \55\ See SIFMA Letter at 2-3.
    \56\ See SIFMA Letter at 3.
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    In its response letter, the MSRB noted that the order-by-order 
information submission requirement is intended to highlight the 
importance of submitting (as retail orders) only orders that meet an 
issuer's eligibility criteria. In the MSRB's view, accepting this 
commenter's proposal would result in a rule that is not materially 
different from what is required today.\57\ MSRB further noted that, in 
practice, the diligence necessary for a dealer to provide a blanket 
statement is likely to approximate, if not exceed, the requirements set 
forth in the proposed rule change.\58\ With regard to the commenter's 
suggestion that dealers should only be required to separately contact 
the syndicate manager when an order does not comply with the rule, the 
MSRB stated that a dealer should not submit any orders that do not 
comply with applicable provisions of Rule G-11(k).\59\
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    \57\ See MSRB Letter at 4.
    \58\ MSRB Letter at 4.
    \59\ MSRB Letter at 4
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    Another commenter stated that proposed Rule G-11(k) will impose a 
costly, unreasonable, and unnecessary burden on dealers and recommended 
that issuers be able to determine the scope of information that dealers 
are required to compile to assess the validity of retail orders, in 
addition to the information required by current MSRB rules.\60\ The 
other commenter noted that requiring a dealer to submit any identifying 
information required by or on behalf of an issuer creates legitimate 
customer privacy protection issues that should be addressed within the 
rule.\61\ This commenter stated that Rule G-11(k) should prohibit 
issuers from requiring the submission of customer account numbers, 
addresses, phone numbers, and tax identification numbers, in addition 
to social security numbers and customer names.\62\
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    \60\ See BDA Letter at 1-2.
    \61\ See WFA Letter at 3.
    \62\ See WFA Letter at 3.
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    The MSRB responded that issuers should be given the tools to verify 
orders for their municipal securities.\63\ The MSRB noted that although 
it is aware of the responsibilities imposed on dealers to protect 
customer information, it does not believe that the regulations that 
address the protection of customer specific information prohibit 
regulatory authorities from requiring dealers to provide specific 
customer information to advance a legitimate regulatory objective, in 
this case, giving issuers the tools to verify orders for their 
municipal securities.\64\ The MSRB further noted that it believes 
issuers will be sensitive to concerns regarding customer privacy and 
that issuers should be open to modifying, at a dealer's request, a 
specific information collection requirement if the dealer can 
demonstrate legitimate customer privacy concerns or that capturing such 
information may violate applicable laws.\65\ The MSRB also stated that 
the amount of customer specific information that is required by the 
proposed rule change is not significantly greater than the amount of 
information that dealers routinely collect and submit today.\66\ 
Moreover, the MSRB noted that GFOA and NAIPFA, two professional 
associations who may represent the interest of issuers in this regard, 
generally support the proposed requirement to provide additional 
information about each order.\67\
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    \63\ MSRB Letter at 3.
    \64\ See MSRB Letter at 3.
    \65\ See MSRB Letter at 3-4.
    \66\ MSRB Letter at 3.
    \67\ MSRB Letter at 4 (referencing letters that GFOA and NAIPFA 
submitted in response to one of the MSRB's earlier requests for 
comment on this proposed rule change). In its earlier letter, NAIPFA 
argued that proposed Rule G-11(k) would likely result in increased 
market transparency and would allow issuers to better assess the 
effectiveness of their underwriter both in terms of the 
underwriter's ability to sell the issuer's securities as well as the 
underwriter's adherence to the issuer's desires. Letter to Ronald W. 
Smith, Corporate Secretary, MSRB, from Colette J. Irwin-Knott, 
President, NAIPFA, dated April 13, 2012, at 1.

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[[Page 60961]]

4. Issuer Approval of Terms and Conditions

    One commenter opposed the proposed amendment to Rule G-11(f) to 
require that an issuer approve any written statement of the terms and 
conditions required by the issuer if the senior syndicate manager 
prepares such statement, rather than the issuer.\68\ The commenter 
stated that the current language of Rule G-11(f) is sufficient and, in 
any event, this proposed change likely will result in some unintended 
consequences, including questions as to what will result in the event 
that issuers are unwilling to provide the required approval, among 
others.\69\ The MSRB responded to this comment by stating that it 
believes the new requirement is desirable and will help ensure that 
issuers understand their role and choices with respect to the syndicate 
process.\70\
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    \68\ See SIFMA Letter at 3.
    \69\ See SIFMA Letter at 3-4; SIFMA Letter II at 3. To support 
its contention that the current language of Rule G-11(f) is 
sufficient, this commenter noted that it is not aware of enforcement 
actions taken against syndicate managers for not honoring terms and 
conditions required by the issuer. SIFMA Letter II at 3.
    \70\ See MSRB Letter at 6.
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5. Implementation Timeline

    Two commenters addressed the MSRB's proposed implementation 
timeline, which, as originally proposed, would have had two separate 
dates for requiring compliance: the amendments to Rules G-8 and G-11 
would become effective six months following the date of the order; and 
the amendments to Rule G-32 would take effect no later than March 31, 
2014, or such earlier date to be announced by the MSRB in a notice 
published on the MSRB Web site with at least a thirty-day advance 
notification prior to the effective date.\71\ One of the two commenters 
that addressed the MSRB's implementation timeline supported the 
timeline as proposed.\72\ The other urged the MSRB to align the 
implementation date for the proposed changes to Rules G-8 and G-11 with 
the amendments to Rule G-32.\73\ This commenter noted that dealers will 
need time to design and test software to ensure that they can comply 
with the changes to Rules G-8 and G-11.\74\ In response, the MSRB 
agreed that the effective dates for the proposed amendments to Rules G-
8 and G-11 could be synchronized with the later effective date for Rule 
G-32.\75\ The new effective dates for the changes to Rules G-8 and G-11 
are reflected in the proposed rule change, as modified by Amendment No. 
1.\76\
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    \71\ See Notice, supra note 3.
    \72\ See GFOA Letter at 3.
    \73\ See WFA Letter at 3-4.
    \74\ See WFA Letter at 3-4.
    \75\ See MSRB Letter at 6.
    \76\ Amendment No. 1 at 4.
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6. Proposed Rule Change Process

    Prior to the filing of Amendment No. 1, two professional 
associations submitted a joint letter urging the Commission not to 
permit the proposed rule change to become immediately effective without 
public input.\77\ These commenters speculated that Amendment No. 1 
would make significant and material amendments to controversial aspects 
of the proposed rule change. The commenters asked that the proposed 
rule change, as modified by Amendment No. 1, be resubmitted for public 
comment rather than becoming immediately effective.\78\
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    \77\ SIFMA and GFOA Joint Letter at 1-2.
    \78\ SIFMA and GFOA Joint Letter at 1-2. The commenters state 
that a proposed rule change may take effect immediately only in 
limited circumstances under Section 19(b)(3)(A) of the Act, 15 
U.S.C. 78s(b)(3)(A). The Commission notes that the MSRB filed this 
proposed rule change under Section 19(b)(2) of the Act, 15 U.S.C. 
78s(b)(2), and, with this notice, the Commission is soliciting 
comment and accelerating approval because it ``finds good cause for 
so doing'' under Section 19(b)(2)(C)(iii) of the Act, 15 U.S.C. 
78s(b)(2)(C)(iii).
---------------------------------------------------------------------------

    In response, the MSRB stated that the only substantive change made 
by Amendment No. 1--the modification of the definition of ``retail 
order period'' to cover concurrent as well as sequential retail order 
periods--was made in response to comments submitted by one of the 
professional associations that authored the joint comment letter.\79\ 
MSRB further noted that it does not believe this refinement itself is 
significant or likely to result in controversy, in light of the stated 
goal of the original proposed rule change of enhancing the regulation 
of customer orders meeting an issuer's eligibility criteria for retail 
orders.\80\
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    \79\ MSRB Letter at 5.
    \80\ MSRB Letter at 5-6.
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IV. Discussion and Commission Findings

    The Commission has carefully considered the proposed rule change, 
as well as the comment letters received and the MSRB's response, 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.\81\ In particular, the proposed rule change is consistent with 
Section 15B(b)(2)(C) of the Act, which provides that the MSRB's rules 
shall 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 and municipal 
financial products, to remove impediments to and perfect the mechanism 
of a free and open market in municipal securities and municipal 
financial products, and, in general, to protect investors, municipal 
entities, obligated persons, and the public interest.\82\
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    \81\ In approving the proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
    \82\ 15 U.S.C. 78o-4(b)(2)(C).
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    The MSRB states that the proposed rule change is consistent with 
Section 15B(b)(2)(C) of the Act, because it is intended to protect, 
among others, investors and municipal entities by establishing certain 
basic regulatory standards to support the use of retail order periods. 
As the MSRB explained in its Notice, the proposed rule change is 
designed to addresses concerns that had been highlighted by issuers, 
dealers, and municipal advisors regarding the mischaracterization of 
orders as ``retail,'' the failure of syndicate managers to disseminate 
timely notice of the terms and conditions of a retail order period to 
all dealers, and the failure to deliver requested pricing information 
in a timely manner. The thrust of the proposal, according to the MSRB, 
is to provide a mechanism by which issuers can have greater assurance 
that a dealer has, when directed to do so by the issuer, made a bona 
fide public offering of securities to retail customers at their initial 
offering prices.
    According to the MSRB, the proposed rule change will prevent 
fraudulent and manipulative acts and practices by requiring additional 
representations and disclosures to support whether the orders placed 
during a retail order period meet the eligibility criteria for retail 
orders established by issuers. In addition, the MSRB states that the 
proposed rule change will reduce the opportunities for 
misrepresentation of orders as ``retail orders'' by requiring that 
certain information about each order is submitted in writing to the 
syndicate manager or sole underwriter in sufficient time so that the 
information can be examined by issuers and their financial advisors 
before bonds are allocated to dealers. The MSRB further states that the 
proposed rule change will provide enhanced recordkeeping to assist 
regulators in determining whether the requirements of Rule G-11 are 
being

[[Page 60962]]

met. The MSRB also represents that, by ensuring that a syndicate 
manager must communicate an issuer's requirements for the retail order 
period and other syndicate information to all dealers, including 
selling group members, the proposed rule change will foster cooperation 
and coordination among all dealers engaged in the marketing and sale of 
new issue municipal securities. Finally, the MSRB states that, by 
requiring that issuers approve the statement required by Rule G-11(f) 
if such statement is prepared by the senior syndicate manager on the 
issuer's behalf, the proposed rule change will ensure that issuers are 
aware of and agree with any requirement imposed on the syndicate and 
selling group in its name.
    The MSRB states that it does not believe that the proposed rule 
change would impose any burden on competition not necessary or 
appropriate in furtherance of the purposes of the Act. The MSRB has 
recognized that there are compliance costs with certain aspects of the 
proposed rule change, in particular, relating to the new 
representations that dealers will need to make in connection with 
retail orders submitted during retail order periods.\83\ However, the 
MSRB believes these costs are properly balanced against the need for 
issuers to have confidence that orders placed during a retail order 
period are bona fide and meet the issuer's eligibility requirements for 
participation in the retail order period. In addition, the MSRB 
represented that the proposal attempts to minimize the potential burden 
on dealers by permitting the required information to be submitted 
electronically, noting that many dealers currently operate software 
platforms which can be modified to capture the new disclosures.\84\
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    \83\ See Notice at 39042.
    \84\ See Notice at 39042.
---------------------------------------------------------------------------

    As noted above, the Commission received eight comment letters on 
the filing.\85\ The Commission notes that while many of the commenters 
suggested means to improve the filing or opposed certain aspects of the 
proposal, no commenters argued that the proposed rule change was 
inconsistent with the applicable provisions of the Act. For the reasons 
noted above, including those discussed in the MSRB Letter, the 
Commission believes that the proposed rule change, as amended by 
Amendment No. 1, is consistent with the Act.
---------------------------------------------------------------------------

    \85\ See supra Section III for a detailed discussion of the 
comment letters.
---------------------------------------------------------------------------

V. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether Amendment No. 1 
to 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 email to [email protected]. Please include 
File Number SR-MSRB-2013-05 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-2013-05. This file 
number should be included on the subject line if email 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 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 
10:00 a.m. and 3:00 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-2013-05 and should be 
submitted on or before October 23, 2013.

VI. Accelerated Approval of Proposed Rule Change, as Modified by 
Amendment No. 1

    The Commission finds good cause for approving the proposed rule 
change, as amended by Amendment No. 1, prior to the 30th day after the 
date of publication of notice in the Federal Register. As discussed 
above, Amendment No. 1 partially amends the text of the original 
proposed rule change to: (i) Revise the definition of ``retail order 
period'' in Rule G-11(a)(vii) to make clear the MSRB's intent that the 
definition covers order periods during which orders that meet the 
issuer's designated eligibility criteria for retail orders and for 
which the customer is already conditionally committed will be either 
(a) the only orders solicited or (b) given priority over other orders; 
(ii) revise proposed Rule G-11(k) to clarify that dealers submitting 
institutional orders during a retail order period are not required to 
submit certain additional information that is intended to relate to 
retail orders; (iii) eliminate the use of the defined term ``going away 
order,'' while retaining the concept represented by the term; (iv) 
delete certain duplicative language from the definition of ``selling 
group'' in Rule G-11(a); and (v) synchronize the effective dates so 
that all parts of the proposed rule change would take effect at the 
same time. As noted by the MSRB, the only substantive change in the 
proposed amendment--the refinement of the definition of ``retail order 
period''--was made to accommodate concerns raised during the comment 
period. MSRB has further noted that the modifications contained in 
Amendment No. 1 are unlikely to be controversial, in light of the 
stated goal of the original proposal to enhance the regulation of 
customer orders meeting the issuer's eligibility criteria for retail 
order. Moreover, the MSRB Letter responds to the concerns raised by 
other commenters. For the foregoing reasons, the Commission finds good 
cause for approving the proposed rule change, as amended, on an 
accelerated basis, pursuant to Section 19(b)(2) of the Act.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\86\ that the proposed rule change (SR-MSRB-2013-05), as modified 
by Amendment No. 1, be, and hereby is, approved on an accelerated 
basis.
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    \86\ 15 U.S.C. 78s(b)(2).
    \87\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\87\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-24021 Filed 10-1-13; 8:45 am]
BILLING CODE 8011-01-P