[Federal Register Volume 84, Number 128 (Wednesday, July 3, 2019)]
[Notices]
[Pages 31961-31968]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-14161]
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SECURITIES AND EXCHANGE COMMISSION
[Release No 34-86219; File No. SR-MSRB-2019-07]
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, Consisting of Proposed Amendments to MSRB Rule G-11
and MSRB Rule G-32 and Form G-32 Regarding a Collection of Data
Elements Provided in Electronic Format to the EMMA Dataport System in
Connection With Primary Offerings
June 27, 2019.
I. Introduction
On April 2, 2019, the Municipal Securities Rulemaking Board (the
``MSRB'' or ``Board'') filed with the Securities and Exchange
Commission (the ``SEC'' or ``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 proposed
amendments to MSRB Rule G-11 (``Primary Offering Practices''), MSRB
Rule G-32 (``Disclosures in Connection With Primary Offerings), and
Form G-32 regarding a collection of data elements provided in electric
format to the Electronic Municipal Market Access Dataport (the ``EMMA
Dataport'') \3\ system in connection with primary offerings (the
``proposed rule change''). The proposed rule change was published for
comment in the Federal Register on April 12, 2019.\4\
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ The EMMA Dataport is the submission portal through which
information is provided for display to the public on EMMA.
\4\ Securities Exchange Act Release No. 85551 (Apr. 8, 2019)
(the ``Notice of Filing''), 84 FR 14988 (Apr. 12, 2019).
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The Commission received three comment letters on the proposed rule
change.\5\ On June 6, 2019, the MSRB responded to those comments \6\
and filed Amendment No. 1 to the proposed rule change (``Amendment No.
1'').\7\ The Commission is publishing this notice to solicit comments
on Amendment No. 1 to the proposed rule change from interested parties
and is approving the proposed rule change, as modified by Amendment No.
1, on an accelerated basis.
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\5\ See Letter to Secretary, Commission, from Leslie M. Norwood,
Managing Director and Associate General Counsel, and Bernard V.
Canepa, Vice-President and Assistant General Counsel, the Securities
Industry and Financial Market Association (``SIFMA'') dated May 2,
2019 (the ``SIFMA Letter''); Letter to Secretary, Commission, from
Mike Nicholas, Chief Executive Officer, Bond Dealers of America
(``BDA''), dated May 3, 2019 (the ``BDA Letter''); and Letter to
Secretary, Commission, from Susan Gaffney, Executive Director,
National Association of Municipal Advisors (``NAMA''), dated May 3,
2019 (the ``NAMA Letter'').
\6\ See Letter to Secretary, Commission, from Margaret R. Blake,
Associate Counsel, Municipal Securities Rulemaking Board (``MSRB''),
dated Jun. 6, 2019 (the ``MSRB Response Letter'').
\7\ Id. As discussed further below, in Amendment No. 1, the MSRB
proposed to amend the proposed rule change with two technical
amendments (to MSRB Rule G-11(g) and MSRB Rule G-11(k)).
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II. Description of Proposed Rule Change
As described further below, the MSRB proposes to amend MSRB Rule G-
11 and MSRB Rule G-32, as well as Form G-32 to update and enhance the
general practices undertaken by underwriters and others, as applicable,
in a primary offering of municipal securities.\8\
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\8\ See Notice of Filing, 84 FR at 14988, and Amendment No. 1.
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A. Proposed Rule Change to MSRB Rule G-11--Primary Offering Practices
1. Revisions to MSRB Rule G-11(f)
The proposed rule change would amend MSRB Rule G-11(f) to codify an
existing obligation of selling group members to comply with the written
communications they receive from the senior syndicate manager relating
to, among other things, issuer requirements, priority provisions and
order period requirements.\9\
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\9\ See Notice of Filing, 84 FR at 14990.
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MSRB Rule G-11(f) currently states that prior to the first offer of
any securities by the syndicate, the senior syndicate manager is
required to provide, in writing, to syndicate members and selling group
members, if any, ``(i) a written statement of all terms and conditions
required by the issuer, (ii) a written statement of all of the issuer's
retail order period requirements, if any, [and] (iii) the priority
provisions . . . [.]'' \10\ The senior syndicate manager must also
promptly furnish, in writing, to the syndicate members and the selling
group members any changes in the priority provisions or pricing
information.\11\
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\10\ MSRB Rule G-11(f). See also id.
\11\ Notice of Filing, 84 FR at 14990.
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Additionally, the MSRB has stated that the activities of all
dealers should be viewed in light of the basic fair dealing principles
of MSRB Rule G-17, on conduct of municipal securities and municipal
advisor activities.\12\ In 2013, the MSRB amended MSRB Rule G-11 to,
among other things, address concerns related to retail order period
practices and required expressly that the senior syndicate manager's
written statement of all terms and conditions required by the issuer
also be delivered to selling group members.\13\ The amendment also
added MSRB Rule G-11(k) to require that any dealer that submits an
order designated as retail during a retail order period must provide
certain information that would assist in determining if the order is a
bona fide retail order.\14\ The MSRB stated that the 2013 amendments to
MSRB Rule G-11, coupled with the MSRB Rule G-17 guidance,\15\ indicate
that selling group members are subject
[[Page 31962]]
to the issuer requirements in allocating securities to their
investors.\16\
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\12\ See MSRB Notice 2009-42 (July 14, 2009).
\13\ See Securities Exchange Act Release No. 70532 (Sept. 26,
2013), 78 FR 60956 (Oct. 2, 2013) (File No. SR-MSRB-2013-05).
\14\ Id.
\15\ See MSRB Notice 2009-42 (July 14, 2009).
\16\ See Notice of Filing, 84 FR at 14990. See also MSRB Rule G-
11(b) (requiring that every dealer that submits an order to a
syndicate or to a member of a syndicate for the purchase of
securities must disclose at the time of submission if the order is
for its dealer account or a related account of the dealer).
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By codifying this existing obligation, the MSRB noted that the
proposed rule change would highlight that selling group members must
comply with the priority provisions and other issuer terms and
conditions when they receive written notification of such from the
syndicate manager.\17\
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\17\ See Notice of Filing, 84 FR at 14990.
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2. New MSRB Rule G-11(g)(ii)
The proposed rule change would also amend MSRB Rule G-11(g) to add
new subsection (ii), which would require the senior syndicate manager
to notify all members of the syndicate and selling group, at the same
time via free-to-trade wire or electronically by other industry-
accepted method of communication, that the offering is free to trade at
a price other than the initial offering price.\18\
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\18\ Id. The other provisions of Rule G-11(g) would be
renumbered accordingly to account for this addition.
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In a primary offering of municipal securities where a syndicate is
formed (i.e., not a sole-managed offering), a free-to-trade wire is
sent by the senior syndicate manager to syndicate members once all of
the municipal securities in the issue or a particular maturity (or
maturities) are free to trade.\19\ The free-to-trade wire communicates
to members of the syndicate that they may trade the bonds in the
secondary market at market prices which could be the same or different
from the initial offering price.\20\
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\19\ Id.
\20\ For purposes of reporting transactions after the free-to-
trade information has been disseminated, the MSRB has indicated that
once a new issue has been released for trading (i.e., is free to
trade), normal transaction reporting rules will apply to the
syndicate managers, syndicate members and selling group members. See
Securities Exchange Act Release No. 49902 (Jun. 22, 2004), 69 FR
38925 (Jun. 29, 2004) (File No. SR-MSRB-2004-02).
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The MSRB stated that equal access to information is important to
the fair and effective functioning of the market for primary offerings
of municipal securities.\21\ Accordingly, the proposed rule change
would require the senior syndicate manager to notify all members of the
syndicate and the selling group, at the same time via a free-to-trade
wire or electronically by other industry-accepted method of
communication, that the offering is free to trade at a price other than
the initial offering. The MSRB noted that requiring dissemination of
this information for receipt by all syndicate and selling group members
at the same time would prevent preferential access to the free-to-trade
information.\22\ Specifically, the MSRB wrote that this dissemination
would prevent access by some, while other syndicate and selling group
members (who are unaware of the information) are delayed in knowing
that they may transact at prices other than the initial offering
price.\23\
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\21\ See Notice of Filing, 84 FR at 14990.
\22\ Id.
\23\ Id.
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The MSRB stated that, as methods of communication evolve, the
dissemination of free-to-trade information eventually may be made by
methods other than the traditional ``free-to-trade wire.'' \24\ While
the MSRB did not propose to dictate the timing of when, or the form of
how, the free-to-trade communication should be sent, the MSRB stated
that requiring dissemination of this information electronically (by an
industry-accepted method that ensures all syndicate and selling group
members receive the information simultaneously) would level the playing
field.\25\
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\24\ Id.
\25\ Id.
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3. Revisions to MSRB Rule G-11(g)(ii) and MSRB Rule G-11(g)(iii) (new
MSRB Rule G-11(g)(iii) and MSRB Rule G-11(g)(iv))
Currently, the senior syndicate manager is not required to provide
information to issuers regarding designations and allocations of
municipal securities in a primary offering.\26\ The proposed rule
change, as amended by Amendment No. 1, would amend MSRB Rule G-
11(g)(ii) and MSRB Rule G-11(g)(iii) \27\ to require the senior
syndicate manager to comply with the information-dissemination
provisions of this rule with respect to issuers, in addition to just
syndicate members.\28\
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\26\ Id. ``Designation'' typically refers to the percentage of
the takedown or spread that a buyer directs the senior syndicate
manager to credit to a particular syndicate member (or members) in a
net designated order. ``Allocation'' generally refers to the process
of setting securities apart for the purpose of distribution to
syndicate and selling group members. See MSRB Glossary of Municipal
Securities Terms.
\27\ Currently, these provisions are MSRB Rule G-11(g)(ii) and
MSRB Rule G-11(g)(iii). However, with the proposed addition of MSRB
Rule G-11(g)(ii) noted above, these provisions would become MSRB
Rule G-11(g)(iii) and MSRB Rule G-11(g)(iv).
\28\ See Notice of Filing, 84 FR at 14990; Amendment No. 1. The
MSRB stated in Amendment No. 1 that it inadvertently deleted
language in the Notice of Filing that was necessary to make the
disclosure requirements of this rule operate properly and within the
prescribed timeframes. Specifically, the MSRB noted that Amendment
No. 1 amends the language of the Notice of Filing to correct the
deletions and reinstate the timing distinction between: (i) The
initial disclosure of all available information within 10 business
days following the date of sale; and (ii) the disclosure of all
available information with the sending of designation checks 10
calendar days following the date the issuer delivers the securities
to the syndicate.
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MSRB Rule G-11(g)(ii) requires, in part, the senior syndicate
manager, within two business days following the date of sale, to
disclose to the syndicate, in writing, a summary by priority category,
of all allocations of securities accorded priority over member
orders.\29\ MSRB Rule G-11(g)(iii) requires the senior syndicate
manager to disclose, in writing and as set forth in the rule, to each
member of the syndicate information on the designations paid to
syndicate and non-syndicate members.\30\
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\29\ MSRB Rule G-11(g)(ii).
\30\ MSRB Rule G-11(g)(iii).
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The MSRB stated that providing this information to the issuer along
with information on group net sales credits would better inform all
issuers of the orders and allocations of their primary offerings.\31\
The MSRB noted that this information would be valued particularly by
those issuers who are not aware this information is available for their
review.\32\ The MSRB stated that an issuer who does not wish to receive
or review this information could simply delete the communication at its
discretion.\33\
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\31\ See Notice of Filing, 84 FR at 14991.
\32\ Id.
\33\ Id.
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4. Revisions to MSRB Rule G-11(j)
The proposed rule change would amend Rule G-11(j) to align the
timeframe for the payment of group net sales credits with the timeframe
for the payment of net designation sales credits as set forth
therein.\34\
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\34\ Id.
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Currently, MSRB Rule G-11(i) states that the final settlement of a
syndicate or similar account shall be made within 30 calendar days
following the date the issuer delivers the securities to the
syndicate.\35\ Group net sales credits (i.e., those sales credits for
orders in which all syndicate members benefit according to their
participation in the account) are paid out of the syndicate account
when it settles pursuant to MSRB Rule G-11(i).\36\ As a result,
syndicate members may wait 30 calendar days following receipt of the
securities by the syndicate before they receive their group net sales
credits.\37\ By contrast, MSRB Rule G-
[[Page 31963]]
11(j) states that sales credits due to a syndicate member as designated
by an investor in connection with the purchase of securities (``net
designation payments'') shall be distributed within 10 calendar days
following the date the issuer delivers the securities to the
syndicate.\38\
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\35\ Id.
\36\ Id.
\37\ Id.
\38\ Id.
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The SEC approved amendments to MSRB Rule G-11(i) in 2009 to, among
other things, shorten the timeframe for settlement of the syndicate
account from 60 calendar days to 30 calendar days following the date
the issuer delivers the securities to the syndicate.\39\ The amendments
also shortened the timeframe for the payment of net designation orders
in Rule G-11(j) from 30 calendar days to 10 calendar days.\40\ The MSRB
noted that the shortened timeframes were intended to reduce the
exposure of co-managers to the credit risk of the senior manager
pending settlement of the accounts.\41\
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\39\ Id.
\40\ See Notice of Filing, 84 FR at 14991-92.
\41\ See Notice of Filing, 84 FR at 14992. See also Securities
Exchange Act Release No. 60725 (Sept. 28, 2009), 74 FR 50855 (Oct.
1, 2009) (File No. SR-MSRB-2009-12).
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The MSRB stated that the proposed amendments would not impact the
timing of the settlement of the syndicate account, but rather would
merely align the timeframe for the payment of group net and net
designation sales credits.\42\ The MSRB noted that aligning the time
frames for the payment and receipt of sales credits would be a minor
adjustment that would ensure uniform practice in making and receiving
such payments in a timely manner. \43\ In addition, the MSRB stated
that this proposed rule change would reduce credit risk by decreasing
the exposure of syndicate trading account members to the potential
deterioration in the credit of the syndicate or account manager during
the pendency of account settlements.\44\ The MSRB also noted that the
time period of 10 calendar days would provide balance between reducing
risk of exposure of co-managers and the credit risk of the senior
manager while still providing the senior syndicate manager with the
time needed to process and pay the sales credits.\45\
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\42\ See Notice of Filing, 84 FR at 14992.
\43\ Id.
\44\ Id.
\45\ Id.
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As a result of the alignment of these payments, the MSRB stated
that the information that is currently provided within 30 calendar days
of delivery of securities to the syndicate under MSRB Rule G-
11(h)(ii)(B) would now be provided within 10 business days following
the date of sale under revised MSRB Rule G-11(g)(iv).\46\ In addition,
the MSRB noted that the proposed rule change would delete MSRB Rule G-
11(h)(ii)(B), and would re-designate current MSRB Rule G-11(h)(ii)(C)
as MSRB Rule G-11(h)(ii)(B).\47\
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\46\ Id.
\47\ Id.
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5. Revisions to MSRB Rule G-11(k)
As amended by Amendment No. 1, the proposed rule change would
revise MSRB Rule G-11(k) to codify existing market practices with
regard to retail order period representations and required
disclosures.\48\ Currently, MSRB Rule G-11(k) requires dealers that
submit orders during a retail order period to provide certain
representations and disclosures ``[f]rom the end of the retail order
period but no later than the Time of Formal Award.'' \49\
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\48\ See Amendment No. 1 at 4.
\49\ MSRB Rule G-11(k).
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The MSRB agreed with a proposed technical rule change to MSRB Rule
G-11(k) suggested in the SIFMA Letter.\50\ The MSRB stated that dealers
using electronic order entry systems typically submit these
representations and disclosures earlier than the end of the retail
order period.\51\ The MSRB also noted that the term ``end of the retail
order period'' is not, technically, within the ``four corners'' of the
timeframe specified in MSRB Rule G-11(k).\52\ The proposed rule change,
as amended by Amendment No. 1, would delete the term ``end of the
retail order period'' from the current preamble to MSRB Rule G-11(k).
The MSRB stated that this revision would align the rule with existing
industry practice.\53\
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\50\ See MSRB Response Letter at 2, Amendment No. 1 at 4.
\51\ See Amendment No. 1 at 4.
\52\ Id.
\53\ Id. As discussed further below, the MSRB stated that it
proposed this revision in response to the SIFMA Letter.
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B. Proposed Rule Change to MSRB Rule G-32
1. Revisions to MSRB Rule G-32(b)(ii)
The proposed rule change would amend MSRB Rule G-32(b)(ii) to
require that in an advance refunding,\54\ where advance refunding
documents are prepared, the underwriter must provide access to the
documents and certain related information to the entire market at the
same time.\55\
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\54\ In general, advance refunding issues are those municipal
bonds issued more than 90 days before the redemption of the refunded
bonds. See MSRB Interpretive Guidance--Current Refundings (Aug. 8,
1991).
\55\ See Notice of Filing, 84 FR at 14992.
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The MSRB stated that this proposed change would mean underwriters
would be precluded from disseminating advance refunding documents and
information to any market participant, without first submitting such
documents and information to the EMMA Dataport (provided that this
restriction does not prohibit communication with anyone that may
require such information for purposes of facilitating the completion of
the transaction).\56\ Currently, MSRB Rule G-32(b)(ii) requires the
advance refunding documents and applicable Form G-32 information be
submitted to the EMMA Dataport, no later than five business days after
the closing date for the primary offering.\57\
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\56\ Id.
\57\ Id.
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The MSRB stated, however, that in some instances, some market
participants may be informed of the advance refunding details before
the information is submitted and made public on EMMA.\58\ The MSRB
noted that equal access to advance refunding information is important
for the efficient functioning of the primary and secondary market for
municipal securities.\59\ The MSRB also stated that requiring
underwriters to provide information to the market regarding CUSIP
numbers advance refunded in a manner that allows access to the
information by the entire market at the same time would support this
effort.\60\
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\58\ Id.
\59\ Id.
\60\ Id.
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2. Revisions to MSRB Rule G-32(c)
The proposed rule change would repeal the current requirement under
MSRB Rule G-32(c) that a dealer financial advisor that prepares an
official statement (on behalf of an issuer with respect to a primary
offering of municipal securities) make the official statement available
to the managing underwriter or sole underwriter in a designated
electronic format, promptly after the issuer approves its
distribution.\61\
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\61\ Id.
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The MSRB stated that several participants in a primary offering may
be responsible for preparing the official statement,\62\ and while
dealers acting as
[[Page 31964]]
financial advisors and non-dealer municipal advisors may be engaged to
review and contribute to portions of the document, they are less
frequently engaged to ``prepare'' the official statement as they might
have been in the past.\63\ The MSRB stated that, while the goal of MSRB
Rule G-32(c) is consistent with the overall goal of MSRB Rule G-32 and
Exchange Act Rule 15c2-12(b)(3) (that is, to facilitate the prompt
distribution of the official statement to investors and other market
participants), the MSRB noted that the section of the rule itself is
limited in such a way that its usefulness in the current market is
questionable.\64\ The MSRB stated it understands that MSRB Rule G-32(c)
requirements apply to a limited universe of market participants (i.e.,
dealers acting as financial advisors that prepare the official
statement).\65\ The MSRB noted that this leaves a gap such that MSRB
Rule G-32(c) does not extend to parties other than dealers acting as
financial advisors who prepare the official statement.\66\
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\62\ For example, the MSRB stated that bond counsel or
underwriter's counsel frequently prepares the official statement on
behalf of the issuer and may seek input on various components from
the underwriter or the municipal advisor. However, the MSRB noted
that Rule G-32(c) does not apply to bond counsel or underwriter's
counsel, and the MSRB does not have jurisdiction over these parties
in any event. Therefore, if these parties were engaged to prepare
the official statement for the issuer, they would not be subject to
the requirements of Rule G-32(c). Id.
\63\ See Notice of Filing, 84 FR at 14992-93.
\64\ See Notice of Filing, 84 FR at 14993.
\65\ Id.
\66\ Id.
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In reviewing MSRB Rule G-32(c) and considering whether to expand
the section of the rule to include non-dealer municipal advisors, the
MSRB stated that it considered whether the existing rule and/or the
expansion thereof would resolve a harm in the market.\67\ After
discussions with various market participants, and consideration of the
actual scope of the impact of the rule, the MSRB noted that any harm in
the market related to the delivery of official statements would not be
resolved by MSRB Rule G-32(c) regardless of whether dealers acting as
financial advisors and non-dealer municipal advisors are required to
comply.\68\ The MSRB stated that it understands that the obligation
under Exchange Act Rule 15c2-12(b)(3) for an underwriter to contract
with the issuer or its agent to receive the official statement within a
defined period of time already ensures that the underwriter would
receive the official statement within a certain period of time
regardless of the party preparing it.\69\ The MSRB also stated that the
scope of MSRB Rule G-32(c) may be too limited to have any significant
impact on the official statement delivery requirements.\70\
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\67\ Id.
\68\ Id.
\69\ Id.
\70\ Id.
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C. Proposed Changes to Form G-32
1. Inclusion of 57 Additional Data Points Already Collected By NIIDS
The proposed rule change would amend Form G-32 to include 57
additional data fields that would be auto-populated with datapoints
already required to be input into to the Depository Trust Company's
(DTC) New Issue Information Dissemination Service (NIIDS), as
applicable, for NIIDS-eligible offerings.\71\ These data fields are
currently available to regulators and certain other industry
participants that have access to NIIDS.\72\ The MSRB stated, however,
that adding the data fields to Form G-32 would ensure the MSRB's
continued access to important primary offering information, and enhance
its ability to oversee the accuracy and distribution of the information
provided.\73\
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\71\ Id.
\72\ Id.
\73\ Id.
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At this time, however, the MSRB stated that requiring the manual
completion of all the above data fields for non-NIIDS-eligible issues
such as private placements and other restricted offerings that are not
intended for secondary market trading would be burdensome on
underwriters.\74\ Thus, for a non-NIIDS-eligible primary offering, the
MSRB noted that an underwriter would continue to be required to
manually complete the same data fields on Form G-32 that it currently
completes with the addition of one of the 57 data fields discussed
above.\75\ The additional data field would indicate the original
minimum denomination of the offering, as applicable.\76\ As with the
other data points currently required on Form G-32, once an underwriter
provides the information, it would be available to regulators.\77\ The
MSRB stated that regulators could use this information to determine
whether a new issue of municipal securities is trading at the
appropriate minimum denomination in the secondary market.\78\
Additionally, as with the other NIIDS data points discussed above, the
MSRB noted that it may disseminate this information in the future.\79\
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\74\ The MSRB stated that non-NIIDS-eligible securities are less
likely to trade in the secondary market because they typically are
issued with trading restrictions and, therefore, less liquid. Notice
of Filing, 84 FR at 14993 n.41. In the MSRB's view, such non-NIIDS
eligible securities are different from NIIDS-eligible securities,
which by their nature are DTC eligible, and are freely tradable in
the market. See id.; see also Notice of Filing, 84 FR at 14993 n.8.
The MSRB stated it will continue to monitor the need for specific
information with respect to non-NIIDS-eligible offerings to
determine whether any other additional data elements may be required
at a later time. Notice of Filing, 84 FR at 14993 n.41.
\75\ See Notice of Filing, 84 FR at 14993.
\76\ Id.
\77\ Id.
\78\ Id.
\79\ Id.
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The MSRB stated that, at this time, requiring this additional
information on Form G-32, as applicable, for NIIDS-eligible offerings,
and requiring the single additional data point for non-NIIDS-eligible
offerings would not only assist the MSRB in ensuring its continued
access to new issue information but would enhance MSRB regulatory
transparency initiatives.\80\
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\80\ Id.
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2. Inclusion of Nine Additional Data Fields Not Currently Collected by
NIIDS
The proposed rule change would amend Form G-32 to include nine
additional data fields, set forth below, for manual completion (i.e.,
not auto-populated from NIIDS), as applicable, by underwriters in
NIIDS-eligible primary offerings of municipal securities.\81\ The MSRB
stated that underwriters in non-NIIDS-eligible primary offerings would
be required to manually complete two of these data fields: (i) The
``yes'' or ``no'' indicator regarding whether the original minimum
denomination for a new issue has the ability to change; and (ii) the
``yes'' or ``no'' indicator regarding whether the new issue has any
restrictions.\82\ The MSRB noted that, however, underwriters in non-
NIIDS-eligible offerings would not be required to complete the other
seven data fields.\83\
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\81\ Id.
\82\ Id.
\83\ Id.
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The MSRB stated that the information collected by these data fields
would enhance MSRB regulatory transparency initiatives as all of the
additional data elements would be immediately available to regulators
to perform regulatory oversight of primary offerings and subsequent
secondary market trading practices to ensure a fair and efficient
market.\84\ Additionally, the MSRB noted that it may disseminate some
or all of this information in the future.\85\ The proposed rule change
would amend Form G-32 to add the following data fields:
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\84\ Id.
\85\ Id.
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a. Ability for original minimum denomination to change--The MSRB
stated it believes providing a ``yes'' or
[[Page 31965]]
``no'' indicator at the time of issuance as to whether the original
minimum denomination for an issue can change would immediately enhance
regulatory transparency and provide useful information to investors,
should the MSRB disseminate this information in the future.\86\ The
MSRB stated that having this indicator would highlight the need to
check relevant disclosure documents for developments that could trigger
a change in the original minimum denominations.\87\
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\86\ Id.
\87\ Id.
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b. Additional syndicate managers--The MSRB stated that having a
data field that indicates all the syndicate managers (senior and co-
managers) on an underwriting would provide useful information for
regulators.\88\ Additionally, the MSRB stated that, should the MSRB
disseminate this information in the future, it could be used to
evaluate the experience of a syndicate manager for an upcoming
offering.\89\ The MSRB noted that the complete list of underwriters
typically is known at or before the pricing of an issue and, therefore,
senior and co-manager information is readily available to the senior
underwriter before Form G-32 is due.\90\
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\88\ See Notice of Filing, 84 FR at 14993-94.
\89\ See Notice of Filing, 84 FR at 14994.
\90\ Id.
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c. Call schedule--The MSRB stated that requiring call schedule
information on Form G-32 would include, for example, premium call dates
and prices, and the par call date.\91\ The MSRB stated that this
information would immediately increase regulatory transparency,
providing regulators with intermediate premium call dates and prices,
and, where applicable, a means to differentiate between a call price
represented in dollars as opposed to CAV.\92\ Additionally, the MSRB
noted that, if the MSRB disseminated this information in the future,
access to all the relevant call information could help investors make
more informed investment decisions.\93\
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\91\ Id. As part of its discussion of call schedules in the
Notice of Filing, the MSRB noted that, for primary offerings with
call prices stated as a percentage of the compound accreted value
(CAV), the underwriter would enter the premium call dates and
percentage of CAV the new issue can be called at as well as the par
call date.
\92\ Id.
\93\ Id.
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d. Identity of obligated person(s), other than the issuer--The MSRB
stated that it believes that providing the name(s) of the obligated
person(s) (other than the issuer) for a primary offering of municipal
securities is important because such obligated person(s) generally will
have continuing disclosure obligations associated with the issue, and
the identity of such obligated person(s) is sometimes not easily
identifiable for regulatory transparency purposes.\94\ Also, the MSRB
noted that having more ways of identifying those obligated to support
payment of all or part of a primary offering would increase
transparency (should it disseminate this information in the
future).\95\ The MSRB stated that there may be confusion in identifying
other obligated persons in a consistent manner.\96\ The MSRB noted
that, as a result, the identity of the other obligated person(s) should
be input on Form G-32 the same as it appears on the official statement,
or if there is no official statement, in the manner it appears in the
applicable offering documents for the issue.\97\ The MSRB stated that
this practice would ensure consistent identification of the obligated
person(s), other than the issuer, with respect to that issue.\98\
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\94\ Id.
\95\ Id.
\96\ Id.
\97\ Id.
\98\ Id.
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e. LEI \99\ for credit enhancers and obligated person(s), other
than the issuer, if readily available--The MSRB stated that LEI
provides a method to uniquely identify legally distinct entities that
engage in financial transactions.\100\ The MSRB noted that the goal of
this global identification system is to precisely identify parties to a
financial transaction to assist regulators, policymakers and financial
market participants in identifying and better understanding risk
exposure in the financial markets and to allow monitoring of areas of
concern.\101\ The MSRB stated that requiring this information for
credit enhancers and obligated persons, other than the issuer, if
readily available, would promote the value of obtaining LEIs and
encourage industry participants to obtain them as a matter of
course.\102\ As stated by the MSRB, an LEI is ``readily available'' if
it is easily obtainable via a general search on the internet (e.g., web
pages such as https://www.gleif.org/en/lei/search).\103\ The MSRB also
noted that obtaining this information, when readily available, on
credit enhancers and other obligated persons would help advance the
goal of having a global identification method for these parties and
improve the quality of municipal market financial data and
reporting.\104\
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\99\ An LEI is a 20-digit alpha-numeric code that connects to
key reference information providing unique identification of legal
entities participating in financial transactions. Only organizations
duly accredited by GLEIF are authorized to issue LEIs. The MSRB
believes that, at this time, except for credit enhancers and
obligated person(s), other than the issuer, the LEI information
being sought is not critical in evaluating the financial risks of an
issuer, and because issuers typically do not obtain an LEI, the
likely time and costs associated with having to conduct a search to
determine if LEI information is readily available for an issuer,
would exceed any potential benefits. Id.
\100\ Id.
\101\ Id.
\102\ Id.
\103\ Id.
\104\ Id.
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f. Dollar amount of each CUSIP number advance refunded--The MSRB
stated that requiring information regarding the dollar amount of each
CUSIP number advance refunded on Form G-32 would provide regulators
important information regarding material changes to a bond's structure
and value and should the MSRB disseminate this information in the
future, may assist investors in making more informed investment
determinations.\105\ Upon review of comments and discussions with
certain market participants, the MSRB stated that it believes requiring
the dollar amount of each CUSIP number advance refunded instead of the
percentage advance refunded would be more useful in understanding the
value of the portion of an issue being advance refunded and would be
less burdensome for underwriters to calculate.\106\
---------------------------------------------------------------------------
\105\ Id.
\106\ Id.
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g. Retail order period by CUSIP number--Currently, primary
offerings are flagged in the EMMA Dataport to indicate whether there
is/was a retail order period.\107\ The MSRB noted that, quite often,
however, not every maturity related to the offering is subject to a
retail order period.\108\ The MSRB stated that requiring underwriters
to mark a primary offering with a flag to indicate the existence of a
retail order period for each CUSIP number would provide greater
regulatory transparency as to the amount and types of bonds being
offered in that retail order period.\109\
---------------------------------------------------------------------------
\107\ Id.
\108\ Id.
\109\ Id.
---------------------------------------------------------------------------
h. Name of municipal advisor--The MSRB stated that including this
information would enhance regulatory transparency as key market
participants would be more easily identifiable to regulators.\110\ The
MSRB also noted that, should the MSRB disseminate this information in
the future, it could also assist certain market participants in
evaluating the experience of the municipal advisor when reviewing
[[Page 31966]]
primary offerings, especially for similar credits and structures.\111\
Finally, the MSRB stated that it intends to make this field autofill as
the underwriter begins to input the name of the municipal advisor into
the applicable text box.\112\
---------------------------------------------------------------------------
\110\ Id.
\111\ Id.
\112\ Id.
---------------------------------------------------------------------------
i. Restrictions on the issue--The MSRB stated that adding a ``yes''
or ``no'' flag to Form G-32 for an underwriter to indicate whether the
primary offering is being made with restrictions would help regulators
and, should the MSRB disseminate this information in the future, it
could help certain other market participants more easily identify this
information.\113\
---------------------------------------------------------------------------
\113\ Id.
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III. Summary of Comments Received and MSRB's Responses to Comments
As noted previously, the Commission received three comment letters
on the proposed rule change, as well as the MSRB Response Letter and
Amendment No. 1.
A.Technical Correction to Rule G-11(k)
SIFMA requested that the MSRB make a technical correction to MSRB
Rule G-11(k), which was not otherwise amended by the Proposed Rule
Change.\114\ SIFMA requested that the MSRB change the requirement that
dealers provide certain representations and disclosures ``from the end
of the retail order period but no later than the Time of Formal Award''
to ``by the time of the formal award.'' \115\ In SIFMA's view, these
disclosures are often made earlier than the end of the retail order
period and there is no reason to discourage that practice.\116\
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\114\ See SIFMA Letter at 2-3.
\115\ See SIFMA Letter at 3.
\116\ Id.
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The MSRB stated that it agreed with SIFMA regarding MSRB Rule G-
11(k), and made corresponding changes in Amendment No. 1.\117\
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\117\ See MSRB Response Letter.
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B. Additional Data Fields to be Required on Form G-32
1. Comments About Data Fields Generally
SIFMA, BDA, and NAMA commented on the requirement in the proposed
rule change that underwriters complete additional fields on Form G-
32.\118\ Generally, both SIFMA and BDA stated that the MSRB has
drastically underestimated the time and costs of compliance with these
new requirements.\119\ Further, SIFMA and BDA believe that the MSRB has
overestimated the benefits of the additional fields in Form G-32,
because this information is generally available in the Official
Statement that is already accessible on the MSRB's EMMA system.\120\
BDA suggested that additional burdens on dealers have, and could,
continue to lead to contraction in the market.\121\ SIFMA additionally
requested that the specifications of the new fields should be available
for comment prior to implementation, and that the MSRB provide a bulk
data uploader such as those provided by FINRA and DTC.\122\ SIFMA also
noted that changes will need to be made to the MSRB's Form G-32 Manual,
and offered to meet with MSRB staff to discuss.\123\
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\118\ See SIFMA Letter; BDA Letter; NAMA Letter.
\119\ See SIFMA Letter at 3; BDA Letter at 2.
\120\ See SIFMA Letter at 3-4; BDA Letter at 2.
\121\ See BDA Letter at 2-3.
\122\ See SIFMA Letter at 4.
\123\ See SIFMA Letter at 6.
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In the MSRB Response Letter, the MSRB responded to the general
comments from SIFMA, BDA, and NAMA about the additional data fields.
The MSRB stated that the nine data fields requiring manual completion
(as applicable) for NIIDS-eligible offers are necessary to enhance the
MSRB's regulatory transparency initiatives.\124\ The MSRB also noted
that the time and resources required for compliance with this
requirement would not be unduly burdensome.\125\ The MSRB acknowledged
that commenters raised concerns with the MSRB's economic analysis, but
responded that the commenters did not provide data to illustrate or
support such concerns.\126\ The MSRB stated that this data would
enhance its ability to perform oversight of primary offerings and
secondary market trading practices, as well as assist it in ensuring a
fair and efficient market.\127\ The MSRB noted that it plans to publish
the data in the future to help investors with their investment
decisions.\128\
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\124\ See MSRB Response Letter at 6.
\125\ See MSRB Response Letter at 6-7.
\126\ See MSRB Response Letter at 7.
\127\ Id.
\128\ Id.
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The MSRB also stated that it appreciated the commenters' concerns
about the need to assure the quality of the data they provide, but the
MSRB concluded that the importance of such data outweighs any attendant
burden.\129\ The MSRB also noted that it appreciated commenters'
willingness to meet to discuss suggestions to support technical aspects
of implementing the proposed rule change, but that the MSRB does not
believe meeting to discuss such suggestions should delay approval.\130\
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\129\ Id.
\130\ See MSRB Response Letter at 9.
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2. Comments About Specific Data Fields
With respect to specific fields on proposed amended Form G-32:
a. LEI: Both SIFMA and BDA raised concerns about the requirement to
include the LEI for Credit Enhancers and Obligated persons ``if readily
available.'' \131\ SIFMA suggested that only the names and LEIs of
Obligated Persons would be useful to the market.\132\ Both SIFMA and
BDA expressed concerns about the vagueness of ``if readily available,''
and believe that this qualifier does not provide enough guidance to
dealers as to where and how to search.\133\ BDA further expressed
concerns about errors in data entry.\134\
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\131\ See SIFMA Letter at 5; BDA Letter at 2.
\132\ See SIFMA Letter at 5.
\133\ Id.; BDA Letter at 2.
\134\ See BDA Letter at 2.
---------------------------------------------------------------------------
In the MSRB Response Letter, the MSRB responded to these comments
about LEI data.\135\ The MSRB stated that LEI information (when readily
available) on credit enhancers and obligated persons (other than the
issuer) would advance the goal of establishing a global identification
method for these parties.\136\ The MSRB noted that such LEI information
could improve the quality of municipal market financial data
reporting.\137\ The MSRB stated that a LEI could be considered
``readily available'' if it were easily obtainable via a general search
on the internet.\138\ The MSRB also noted that, if, after searching via
Form G-32's LEI search page, an LEI did not result for a particular
credit enhancer or obligated person, the underwriter could conclude
that the LEI was not ``readily available.'' \139\
---------------------------------------------------------------------------
\135\ See MSRB Response Letter at 7.
\136\ Id.
\137\ Id.
\138\ Id.
\139\ Id.
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b. Dollar amount of CUSIPs refunded: BDA expressed concern that the
manual entry of this data could lead to a high risk of errors.\140\
---------------------------------------------------------------------------
\140\ See BDA Letter at 2.
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The MSRB stated that it understands concerns about quality
assurance regarding data input, but that the MSRB concluded that the
importance of such data outweighs any associated burdens.\141\
---------------------------------------------------------------------------
\141\ Id.
---------------------------------------------------------------------------
c. Restrictions on the Issue: SIFMA requested clarifications on
what types of restrictions would require a yes or no answer, and
believes that restrictions
[[Page 31967]]
should be limited to the types of investors.\142\ Further, SIFMA
requested that checkboxes be offered in the form instead of ``yes'' and
``no'' choices.\143\
---------------------------------------------------------------------------
\142\ See SIFMA Letter at 5.
\143\ Id.
---------------------------------------------------------------------------
In response, the MSRB stated its continued belief that the ``yes''
or ``no'' indicator for whether the offering is being made with a
restriction would provide useful information to regulators, allowing
regulators to identify transactions involving municipal securities more
easily.\144\ The MSRB also noted that if such information is made
available via EMMA in the future, market participants could identify
primary offerings with restrictions and make any inquiries deemed
appropriate.\145\ The MSRB stated that it is not necessary ``at this
time'' to require an underwriter to provide additional information
regarding the specific types of investors to which an offering is
limited.\146\
---------------------------------------------------------------------------
\144\ See MSRB Response Letter at 8.
\145\ Id.
\146\ Id.
---------------------------------------------------------------------------
d. Municipal Advisor: NAMA requested that a number of elements to
the Municipal Advisor field be clarified, including:
i. Will the drop down box display the list of firms registered with
the SEC, MSRB, or both? \147\ NAMA believed this change is a good
opportunity to reconcile any differences.\148\
---------------------------------------------------------------------------
\147\ See NAMA Letter at 1.
\148\ Id.
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ii. How will the underwriter determine who should be listed as the
Municipal Advisor? \149\
---------------------------------------------------------------------------
\149\ Id.
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iii. Will there be an option for ``No Municipal Advisor?'' \150\
---------------------------------------------------------------------------
\150\ Id.
---------------------------------------------------------------------------
iv. Will there be an ability to correct/revise the form? \151\
---------------------------------------------------------------------------
\151\ Id.
---------------------------------------------------------------------------
v. How will the MSRB handle DBA Names? \152\
---------------------------------------------------------------------------
\152\ Id.
---------------------------------------------------------------------------
The MSRB responded that it anticipates implementing a method for
populating the ``municipal advisor'' data field that would cause the
field to autofill or provide a drop-down of municipal advisors by
name.\153\ The MSRB added that the autofill or drop-down would include
all municipal advisors registered with the SEC, as well as with the
MSRB, and would include a ``no municipal advisor'' option.\154\ The
MSRB also noted that an underwriter would look to the municipal advisor
named in the Official Statement, or if none is listed, the underwriter
would rely on its knowledge of the municipal advisor's identity.\155\
The MSRB stated that it anticipates Form G-32 would allow for an
underwriter to add a municipal advisor, if more than one municipal
advisor is known.\156\
---------------------------------------------------------------------------
\153\ See MSRB Response Letter at 8.
\154\ Id.
\155\ Id.
\156\ Id.
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IV. Discussion and Commission Findings
The Commission has carefully considered the proposed rule change,
the comment letters received, the MSRB Response Letter, and Amendment
No. 1. The Commission finds that the proposed rule change, as modified
by Amendment No. 1, is consistent with the requirements of the Act and
the rules and regulations thereunder applicable to the MSRB.
In particular, the Commission believes that the proposed rule
change, as modified by Amendment No. 1, is consistent with the
provisions of Section 15B(b)(2)(C) of the Act, which provides in part
that the MSRB's rules shall be designed 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, and to remove impediments
to and perfect the mechanism of a free and open market in municipal
securities and municipal financial products.\157\
---------------------------------------------------------------------------
\157\ 15 U.S.C. 78o-4(b)(2)(C).
---------------------------------------------------------------------------
The Commission believes that the proposed rule change to MSRB Rule
G-11(f) would promote just and equitable principles of trade by
codifying the obligation of selling group members, in addition to
syndicate members, to comply with the issuer's terms and conditions in
a primary offering of municipal securities, particularly in light of
the obligations of selling group members to comply with the priority
provisions, as well as other issuer terms and conditions.
The Commission believes that the proposed rule changes to MSRB Rule
G-11(g) also would promote just and equitable principles of trade by
removing any unfair advantage in the secondary market of having advance
knowledge of when an issue is free-to-trade, as well as by ensuring
issuers in a primary offering have material information regarding the
designations and allocations of their offerings. Additionally, the
Commission believes that providing this information to issuers removes
impediments to a free and open market in municipal securities by giving
issuers valuable information they otherwise may not know is available.
By reducing information asymmetry among market participants in primary
offerings of municipal securities, this proposed rule change would
reduce the potential for an unfair advantage in the secondary sales of
municipal securities.
Similarly, the Commission believes that by requiring the
underwriter in an advance refunding to disclose advance refunding
information, the proposed rule change to MSRB Rule G-32(b)(ii) would
remove impediments to and perfect the mechanism of a free and open
market, by ensuring that all market participants have access to such
information at the same time. The proposed rule change to MSRB Rule G-
11(j) also would foster cooperation and coordination with persons
engaged in processing information with respect to transactions in
municipal securities and municipal financial products, by aligning the
timing of payment of sales credits in net designation and group net
sales transactions. Additionally, aligning these payments would remove
impediments to a free and open market in municipal securities and
municipal financial products by reducing credit risk in the market and
allowing group net sales credit payments to be made to syndicate
members on a shortened timeframe.
The Commission believes that the deletion of MSRB Rule G-32(c) in
the proposed rule change would remove impediments to and perfect the
mechanism of a free and open market in municipal securities. The
Commission believes that, by eliminating a rule that no longer resolves
a market harm, the proposed rule change will more appropriately reflect
actual market practices, reduce regulatory burdens and thus encourage
compliance with a more appropriate process by which the underwriter
receives the official statement in a primary offering of municipal
securities. Further, because Exchange Act Rule 15c2-12(b)(3) requires
an underwriter to contract with the issuer or its agent to receive the
official statement within a defined period of time, the Commission
believes that the deletion of MSRB Rule G-32(c) will not adversely
affect investors or the public interest.
The Commission believes that the inclusion on Form G-32 of
additional data fields will foster cooperation with persons engaged in
regulating and processing information with respect to transactions in
municipal securities and municipal financial products, by providing
more transparency with respect to municipal securities offerings.
[[Page 31968]]
For example, by obtaining this information, the MSRB and other
regulators will have access to more fulsome and useful market data to
help inform their regulation of the municipal securities markets.
In approving the proposed rule change, the Commission has
considered the proposed rule change's impact on efficiency,
competition, and capital formation.\158\ Section 15B(b)(2)(C) of the
Act \159\ requires that MSRB rules not be designed to impose any burden
on competition not necessary or appropriate in furtherance of the
purposes of the Act. The Commission 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, because it would
apply equally to all dealers of new issues of municipal securities in
primary offerings.
---------------------------------------------------------------------------
\158\ 15 U.S.C. 78c(f).
\159\ 15 U.S.C. 78o-4(b)(2)(C).
---------------------------------------------------------------------------
Furthermore, the Commission believes that the potential burdens
created by the proposed rule change are likely to be outweighed by the
benefits of increasing regulatory transparency in the primary offering
process and secondary market trading. The Commission has reviewed the
record for the proposed rule change and notes that the record does not
contain any information to indicate that the proposed rule change would
have a negative effect on capital formation. The Commission believes
that the proposed rule change includes provisions that help promote
efficiency. The amendments requiring that the senior syndicate manager
to notify all members of the syndicate and selling group at the same
time that the offering is free to trade, and requiring underwriters to
provide access to advance refunding documents to the entire market at
the same time, would promote efficiency in the market by reducing
information asymmetry among market participants. Additionally, the
amendments aligning the timeframes for the payment of group net sales
credits and net designation sales credit would promote efficiency by
reducing credit risk in the market.
As noted above, the Commission received three comment letters on
the filing. The Commission believes that the MSRB, through its
responses and through Amendment No. 1, has addressed commenters'
concerns. For the reasons noted above, the Commission believes that the
proposed rule change, as modified by Amendment No. 1, is consistent
with the Act.
V. Solicitation of Comments on Amendment No. 1
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 of 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-2019-07 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549.
All submissions should refer to File Number SR-MSRB-2019-07. 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 website (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 website 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-2019-07 and should be submitted on
or before July 24, 2019.
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 of Amendment No. 1 in the Federal
Register. As noted by the MSRB, Amendment No. 1 does not raise any
significant issues with respect to the proposed rule change and only
provides minor technical changes. The proposed rule change to MSRB Rule
G-11(g)(iv) corrects an inadvertent drafting error and the proposed
rule change to MSRB Rule G-11(k) aligns the current rule to existing
industry practice and is directly responsive to comments received.
For the foregoing reasons, the Commission finds good cause for
approving the proposed rule change, as modified by Amendment No. 1, on
an accelerated basis, pursuant to Section 19(b)(2) of the Act.
VIII. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\160\ that the proposed rule change, as modified by Amendment No. 1
(SR-MSRB-2019-07) be, and hereby is, approved on an accelerated basis.
---------------------------------------------------------------------------
\160\ 15 U.S.C. 78s(b)(2).
For the Commission, pursuant to delegated authority.\161\
---------------------------------------------------------------------------
\161\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-14161 Filed 7-2-19; 8:45 am]
BILLING CODE 8011-01-P