[Federal Register Volume 89, Number 137 (Wednesday, July 17, 2024)]
[Notices]
[Pages 58229-58235]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-15678]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-100508; File No. SR-MSRB-2024-03]


Self-Regulatory Organizations; Municipal Securities Rulemaking 
Board; Order Granting Approval of a Proposed Rule Change To Amend MSRB 
Rule G-47, on Time of Trade Disclosure, To Codify and Retire Certain 
Existing Interpretive Guidance and Add New Time of Trade Disclosure 
Scenarios

July 11, 2024.

I. Introduction

    On April 9, 2024, the Municipal Securities Rulemaking Board 
(``MSRB'') filed with the Securities and Exchange Commission (``SEC'' 
or ``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to amend MSRB Rules G-47 (``Rule 
G-47''), on time of trade disclosure, to codify certain existing 
interpretive guidance and retire certain other existing interpretive 
guidance, add new time of trade disclosure scenarios, and make 
technical clarifications (the ``proposed rule change'').\3\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 34-99949 (April 9, 
2024), 89 FR 27809 (April 18, 2024) (``Notice'').
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    The MSRB will announce the effective date of the proposed rule 
change in a regulatory notice to be published on the MSRB website no 
later than 30 days following this approval. The effective date will be 
no later than nine months following this approval.
    The proposed rule change was published for comment in the Federal 
Register on April 18, 2024.\4\ The Commission received one comment 
letter on the proposed rule change.\5\ On June 14, 2024, the MSRB 
responded to the comment letter.\6\ As described further below, the 
Commission is approving the proposed rule change.
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    \4\ See Notice, 89 FR at 27809.
    \5\ See Letter from Leslie M. Norwood, Managing Director and 
Associate General Counsel, Securities Industry and Financial Markets 
Association (``SIFMA'') (May 9, 2024) (``SIFMA Letter''), available 
at https://www.sec.gov/comments/sr-msrb-2024-03/srmsrb202403.htm.
    \6\ See Letter to Secretary, Commission, from Ernesto A. Lanza, 
Chief Regulatory and Policy Officer, MSRB, dated June 14, 2024 
(``MSRB Letter'').
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II. Description of the Proposed Rule Change

A. Background

    MSRB Rule G-47 requires brokers, dealers, or municipal securities 
dealers (``dealers'') to disclose to customers, at or prior to the time 
of trade, all material information known or available publicly through 
established industry sources. More specifically, MSRB Rule G-47 
requires dealers selling a municipal security to a customer, or 
purchasing a municipal security from a customer, to disclose to the 
customer, orally or in writing, at or prior to the time of trade, all 
material information known about the transaction, as well as 
information about the municipal security that is reasonably accessible 
to the market. This obligation exists for both unsolicited and 
recommended transactions as well as primary and secondary market 
transactions.\7\
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    \7\ Dealers are also subject to Commission Rule 15l-1 under the 
Exchange Act that requires broker-dealers to make certain prescribed 
disclosures to their retail customer, before or at the time of the 
recommendation, about the recommended transaction and the 
relationship between the retail customer and the broker-dealer. See 
17 CFR 240.15l-1(a)(2)(i).
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    MSRB Rule G-47 Supplementary Material .03 contains examples of 
information that may be material in specific scenarios and therefore 
requires time of trade disclosures to a customer. The list of specific 
scenarios is non-exhaustive and other information not listed in MSRB 
Rule G-47 Supplementary Material .03 may be material to customers 
depending upon the specific scenario. In addition to the specific 
disclosure scenarios listed in MSRB Rule G-47 Supplementary Material 
.03, various items of MSRB interpretive guidance list other

[[Page 58230]]

scenarios that could require a time of trade disclosure obligation to a 
dealer transacting with a customer.
    In summary, the MSRB stated that the proposed rule change would 
amend MSRB Rule G-47 to:
     Clarify in section (a) of MSRB Rule G-47 that a dealer is 
not obligated to disclose material information in violation of insider 
trading rules or procedures; \8\
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    \8\ See Notice, 89 FR at 27809.
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     Amend and simplify the definition of material information 
in subsection (b)(ii) of MSRB Rule G-47 and make a conforming amendment 
to Supplementary Material .01(a); \9\
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    \9\ Id.
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     Codify into Supplementary Material .03 existing 
interpretive guidance pertaining to market discount and to zero coupon 
or stepped coupon securities; \10\
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    \10\ Id.
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     Add a clarifying example of factor bonds as bonds that 
prepay principal in Supplementary Material .03(i); \11\ and
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    \11\ Id.
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     Add three new disclosure scenarios to Supplementary 
Material .03.\12\
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    \12\ Id.
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    The MSRB also stated that proposed rule change would also retire 
interpretive guidance on conversion costs and secondary market 
insurance and consolidate existing inter-dealer time of trade 
disclosure guidance into a single piece of interpretive guidance.\13\
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    \13\ Id.
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B. Summary of the Proposed Rule Change

i. Disclosure of Material Information
    The MSRB has stated that the proposed rule change would redesignate 
the existing language of MSRB Rule G-47(a) as subsection (i) and add a 
new subsection (ii) to MSRB Rule G-47(a) clarifying that information 
that may be material to the transaction would not be required to be 
disclosed to the customer if, pursuant to the dealer's policies and 
procedures regarding insider trading and related securities laws, such 
information is intentionally withheld from the dealer's registered 
representatives who are engaged in sales to and purchases from 
customers.\14\ The MSRB noted that it would be beneficial to the market 
to clarify this point in the text of MSRB Rule G-47 given that it is 
not the MSRB's intent for dealers to violate securities 
regulations.\15\
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    \14\ Id.
    \15\ Id.
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ii. Definition of Material Information
    Current MSRB Rule G-47(b)(ii) defines the term ``material 
information'' and explains that information is considered to be 
material if there is a substantial likelihood that the information 
would be considered important or significant by a reasonable investor 
in making an investment decision. According to the MSRB, the proposed 
rule change would delete the language ``or significant'' in order to 
streamline and simplify the definition.\16\ The MSRB has stated that it 
does not believe that this would materially alter the definition of 
material information or impose any additional burdens on dealers.\17\ 
The MSRB further stated that the proposed rule change would make a 
conforming amendment in Supplementary Material .01(a) to change the 
word ``significant'' to ``important.'' \18\
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    \16\ See Notice, 89 FR at 27810.
    \17\ Id.
    \18\ Id.
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iii. Codify Existing Interpretive Guidance on Market Discount and Zero 
Coupon or Stepped Coupon Securities
    The MSRB states that the proposed rule change would codify and 
retire November 2016 interpretive guidance (the ``Market Discount 
Guidance'') \19\ on market discount.\20\ The Market Discount Guidance 
states that, absent adequate disclosure that a security has market 
discount, an investor might not be aware that all or a portion of such 
investor's investment return represented by accretion of the market 
discount is taxable as ordinary income.\21\ The Market Discount 
Guidance goes on to state that the fact that a security has market 
discount is material information that is required to be disclosed to a 
customer under MSRB Rule G-47 at or prior to the time of trade.\22\ The 
MSRB states that the proposed rule change would codify this information 
into MSRB Rule G-47 Supplementary Material .03(p).\23\ Furthermore, the 
MSRB states that the proposed rule change would retire the Market 
Discount Guidance upon codification as the MSRB believes that it would 
not retain any standalone value.\24\ The MSRB believes that codifying 
this information into the text of MSRB Rule G-47 would facilitate 
compliance and consolidate its rulebook by removing redundant 
interpretive guidance.\25\ The MSRB notes, however, that proposed MSRB 
Rule G-47 Supplementary Material .03(p) would not require dealers to 
provide customers with more detailed or personalized information, or to 
provide any information that could constitute tax advice, with respect 
to market discount.\26\
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    \19\ See MSRB Interpretive Guidance, Time of Trade Disclosure--
Disclosure of Market Discount (November 22, 2016), available at 
https://www.msrb.org/Time-Trade-Disclosure-Disclosure-Market-Discount.
    \20\ See Notice, 89 FR at 27810.
    \21\ See Market Discount Guidance.
    \22\ Id.
    \23\ See Notice, 89 FR at 27810.
    \24\ Id.
    \25\ Id.
    \26\ Id.
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    The MSRB also states that the proposed rule change would also 
codify and retain April 1982 interpretive guidance (the ``Zero or 
Stepped Coupon Guidance'') \27\ pertaining to municipal securities with 
zero coupons or stepped coupons.\28\ The Zero or Stepped Coupon 
Guidance states in the context of discussing zero coupon bonds and 
stepped coupon bonds that the MSRB is of the view that persons selling 
such securities to the public have an obligation to adequately disclose 
the special characteristics of such securities in order to comply with 
the MSRB's fair practice rules.\29\ The MSRB states that the proposed 
rule change would incorporate this guidance into MSRB Rule G-47 
Supplementary Material .03(q) but retain the Zero or Stepped Coupon 
Guidance as it contains additional standalone value pertaining to MSRB 
Rule G-12 and MSRB Rule G-15.\30\
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    \27\ See MSRB Interpretive Guidance, Notice Concerning ``Zero 
Coupon'' and ``Stepped Coupon'' Securities (April 27, 1982), 
available at https://www.msrb.org/Notice-Concerning-Zero-Coupon-and-Stepped-Coupon-Securities.
    \28\ See Notice, 89 FR at 27810.
    \29\ Id.
    \30\ Id.
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iv. Retire Existing Interpretive Guidance on Conversion Costs and 
Secondary Market Insurance
    The MSRB states that the proposed rule change would retire two 
pieces of interpretive guidance that the MSRB believes have become 
outdated.\31\ The MSRB states that the first interpretive guidance to 
be retired is interpretive guidance from August 1988 (the ``Conversion 
Cost Guidance'') \32\ stating that transfer agents for some 
interchangeable securities charge fees for the conversion of registered 
certificates to bearer form, which can be substantial and, in some 
cases, prohibitively expensive.\33\ The MSRB further states that the 
Conversion Cost Guidance goes on to state that dealers therefore should 
ascertain the amount of

[[Page 58231]]

the fee prior to agreeing to deliver bearer certificates and that, if a 
dealer passes on the costs of converting registered securities to 
bearer form to its customer, the dealer must disclose the amount of the 
conversion fee to the customer at or prior to the time of trade and the 
customer must agree to pay the conversion fee.\34\ The MSRB believes 
that interchangeable securities are a rare occurrence in the 
marketplace, and as such, the MSRB believes that there is limited 
utility in retaining this guidance and proposes its retirement.\35\
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    \31\ Id.
    \32\ See MSRB Interpretive Guidance, Confirmation, Delivery and 
Reclamation of Interchangeable Securities (August 10, 1988), 
available at https://www.msrb.org/Confirmation-Delivery-and-Reclamation-Interchangeable-Securities.
    \33\ See Notice, 89 FR at 27810.
    \34\ Id.
    \35\ Id.
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    The MSRB states that the second piece of interpretive guidance to 
be retired is guidance from March 1984 (the ``Secondary Market 
Insurance Guidance'') \36\ on secondary market insurance.\37\ The MSRB 
states that the Secondary Market Insurance Guidance, in part, reminds 
the industry that if a security has been insured or if arrangements for 
insurance have been initiated, the market price of the security would 
be affected and this information is material and must be disclosed to a 
customer at or before the execution of a transaction in the 
security.\38\ MSRB Rule G-47 Supplementary Material .03(e) currently 
includes a disclosure obligation scenario detailing when a security has 
been insured or arrangements for insurance have been initiated, the 
credit rating of the insurance company, and information about potential 
rating actions with respect to the bond insurance company, which, 
according to the MSRB, effectively makes the comparable portion of the 
Secondary Market Insurance Guidance superfluous.\39\ In addition, the 
MSRB explained in the Secondary Market Insurance Guidance that it 
believes that a dealer should advise a customer if evidence of 
insurance or other credit enhancement features must be attached to the 
security for effective transference of the insurance or device.\40\ 
However, the MSRB believes that it is no longer common practice to 
require such evidence of insurance for effective transference, and as a 
result, the MSRB proposed to retire the Secondary Market Insurance 
Guidance.\41\
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    \36\ See MSRB Interpretive Guidance, Application of Board Rules 
to Transactions in Municipal Securities Subject to Secondary Market 
Insurance or Other Credit Enhancement Features (March 6, 1984), 
available at https://www.msrb.org/Application-Board-Rules-Transactions-Municipal-Securities-Subject-Secondary-Market-Insurance-or.
    \37\ See Notice, 89 FR at 27810.
    \38\ Id.
    \39\ Id.
    \40\ Id.
    \41\ Id.
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v. Add an Example of a Bond That Prepays Principal
    Current MSRB Rule G-47 Supplementary Material .03(i) lists bonds 
that prepay principal as a specific scenario which may be material and 
require disclosure at or prior to the time of trade. More specifically, 
the scenario lists the fact that the security prepays principal and the 
amount of unpaid principal that will be delivered on the transaction as 
a scenario that may be material and require a time of trade disclosure. 
The MSRB states that the proposed rule change would add factor bonds to 
Rule G-47 Supplementary Material .03(i) as an example of a bond that 
prepays principal.\42\ The MSRB described factor bonds as bonds for 
which partial distributions are processed by a proportional return of 
principal to each bondholder.\43\ After the partial distribution, the 
factor must be applied to the face value to determine interest payments 
as well as the principal amount for each future transaction.\44\ The 
MSRB explains that factor bonds, by their terms, are already subject to 
this scenario and therefore this addition does not add or remove any 
disclosure burdens but instead simply provides an example of a 
potential disclosure obligation currently contained in MSRB Rule G-47 
that serves to remind dealers of the applicability of this provision to 
factor bonds.\45\
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    \42\ Id.
    \43\ Id.
    \44\ Id.
    \45\ See Notice, 89 FR at 27810-27811.
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vi. Add Three New Disclosure Scenarios
    The MSRB states that the proposed rule change would add three new 
disclosure scenarios to MSRB Rule G-47 Supplementary Material .03's 
non-exhaustive list of specific scenarios that could be material and 
require a time of trade disclosure.\46\ Specifically, the MSRB states 
that these three new scenarios are yield to worst, the unavailability 
of the official statement, and the fact that continuing disclosures are 
not available.\47\
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    \46\ See Notice, 89 FR at 27811.
    \47\ Id.
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    Yield to Worst. The MSRB indicated that the proposed rule change 
would add yield to worst as a disclosure scenario to MSRB Rule G-47 
Supplementary Material .03 in new clause (r) thereof.\48\ MSRB Rule G-
15(a)(i)(A)(5) requires the yield at which a transaction is effected 
for transactions that are computed on the basis of yield to maturity, 
yield to a call date, or yield to a put date to be disclosed on a 
customer's confirmation.\49\ Furthermore, the MSRB stated that if the 
computed yield required by MSRB Rule G-15 is different than the yield 
at which the transaction was effected, the computed yield must also be 
disclosed on the confirmation.\50\ The MSRB explained that this 
information is typically referred to as yield to worst.\51\ The MSRB 
believes that this information may be material to a customer's 
investment decision, as it could impact a decision to purchase a 
municipal security at the current price or yield, and therefore may be 
required to be disclosed at or prior to the time of trade in addition 
to being disclosed on a customer's confirmation.\52\
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    \48\ Id.
    \49\ Id. The MSRB noted that, pursuant to MSRB Rule G-
15(a)(i)(A)(5)(c)(v), yield is to be calculated in accordance with 
MSRB Rule G-33, on calculations. Id.
    \50\ Id.; see also MSRB Rule G-15(a)(i)(A)(5)(c)(vii).
    \51\ See Notice, 89 FR at 27811.
    \52\ Id.
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    Unavailability of Official Statement for New Issue Customers. The 
MSRB states that the proposed rule change would add, in the case of 
sales to customers of new issue municipal securities, the fact that an 
official statement is unavailable or only available from the 
underwriter as a disclosure scenario to MSRB Rule G-47 Supplementary 
Material .03 in new clause (s) thereof.\53\ For purposes of this 
scenario, the MSRB indicated that new issue municipal securities 
consist of offered municipal securities within the meaning of MSRB Rule 
G-32, which in general are municipal securities sold in a primary 
offering until 25 days after the closing of the new issue.\54\ In 
contrast, the MSRB explained that the potential for the lack of an 
official statement to be material to a customer in a transaction 
outside of the primary offering disclosure period is considerably lower

[[Page 58232]]

and therefore normally would not trigger an obligation under MSRB Rule 
G-47.\55\
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    \53\ Id.
    \54\ Id. MSRB Rule G-32(c)(vi) defines offered municipal 
securities as municipal securities that are sold by a dealer during 
the securities' primary offering disclosure period, including but 
not limited to municipal securities reoffered in a remarketing that 
constitutes a primary offering and municipal securities sold in a 
primary offering but designated as not reoffered. Primary offering 
disclosure period is defined in MSRB Rule G-32(c)(ix) as the period 
commencing with the first submission to an underwriter of an order 
for the purchase of offered municipal securities or the purchase of 
such securities from the issuer, whichever first occurs, and ending 
25 days after the final delivery by the issuer or its agent of all 
securities of the issue to or through the underwriting syndicate or 
sole underwriter. Pursuant to MSRB Rule G-32(c)(viii), primary 
offering means an offering defined in Exchange Act Rule 15c2-
12(f)(7) (17 CFR 240.15c2-12(f)(7)), including but not limited to 
any remarketing of municipal securities that constitutes a primary 
offering as such subsection (f)(7) may be interpreted from time to 
time by the Commission.
    \55\ See Notice, 89 FR at 27811.
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    Exchange Act Rule 15c2-12 \56\ requires underwriters to obtain and 
review an official statement for most primary offerings of municipal 
securities.\57\ MSRB Rule G-32(b)(i)(B) generally requires that the 
underwriter submit such official statement (as well as any official 
statement produced for a primary offering exempt from Exchange Act Rule 
15c2-12 \58\) for posting on the Electronic Municipal Market Access 
(``EMMA[supreg]'') \59\ website. If no official statement is posted by 
an underwriter to EMMA for a primary offering by the closing date, the 
MSRB notes that the underwriter is generally required under MSRB Rule 
G-32 to post to EMMA, as applicable, either: (i) notification that no 
official statement exists pursuant to MSRB Rule G-32(b)(i)(C) or (ii) 
in the case of a primary offering not subject to Exchange Act Rule 
15c2-12 \60\ by virtue of paragraph (d)(1)(i) thereof (sometimes 
referred to as a limited offering) and the underwriter has withheld 
posting the official statement to EMMA pursuant to MSRB Rule G-
32(b)(i)(E), contact information for investors to request a copy of the 
official statement.\61\
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    \56\ 17 CFR 240.15c2-12.
    \57\ Id.
    \58\ Id.
    \59\ EMMA[supreg] is a registered trademark of the MSRB.
    \60\ 17 CFR 240.15c2-12.
    \61\ See Notice, 89 FR at 27811. MSRB Rule G-32(b)(i)(F) also 
provides an exemption for certain commercial paper offerings or 
remarketings from the official statement submission requirement 
assuming applicable conditions are met.
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    Under certain circumstances, the MSRB notes that dealers currently 
have obligations to inform new issue customers by trade settlement 
regarding the availability or unavailability of the official statement 
under MSRB Rule G-32(a)(i) or (a)(iii)(A).\62\ The MSRB believes that 
the fact that an official statement is not available could be material 
to a new issue investor in making an investment decision and therefore 
should be included in MSRB Rule G-47's list of scenarios that could 
trigger a time of trade disclosure.\63\ As a result, the MSRB states 
that the new clause(s) of MSRB Rule G-47 Supplementary Material .03 
would accelerate the timing for this disclosure to a point in time 
where this information would be available to the customer while making 
such investment decision, rather than merely by settlement of the 
transaction and thus after such decision has been made.\64\
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    \62\ See Notice, 89 FR at 27811.
    \63\ Id.
    \64\ Id.
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    The MSRB states that dealers generally would be able to rely, for 
purposes of proposed clause(s), on information posted on EMMA as of the 
time of trade of a new issue municipal security with regard to whether 
an official statement is unavailable or available only from the 
underwriter.\65\ In the case of a customer trade by a dealer (other 
than the underwriter of the municipal security) occurring prior to the 
posting on EMMA of the official statement or any statement about the 
official statement's availability,\66\ the MSRB states that such dealer 
may presume that an official statement will become available unless the 
dealer has knowledge that the official statement will not in fact be 
posted or will only be made available through the underwriter.\67\ 
Dealers that serve as underwriters for a primary offering would, in 
contrast, be deemed to know whether or not an official statement will 
be posted for such offering or will be made available only from such 
underwriters.\68\
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    \65\ Id.
    \66\ Id. The MSRB indicated that it is common for new issue 
municipal securities to be traded beginning immediately after the 
time of first execution within the meaning of MSRB Rule G-
34(a)(ii)(C)(1)(b) but before the underwriter timely posts the 
official statement to EMMA under MSRB Rule G-32(b)(i)(B). Id. The 
MSRB further noted that this gap typically is a result of the time 
needed to finalize and produce the official statement that 
incorporates the final terms of a new issue offering. Id.
    \67\ See Notice, 89 FR at 27811. The MSRB noted that this is 
somewhat analogous to the ability of dealers other than the 
underwriter of a new issue to effectively presume that the 
underwriter has made the required submissions to EMMA under MSRB 
Rule G-32(a)(ii)(B). Id.
    \68\ Id.
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    Unavailability of Continuing Disclosure. The MSRB states that the 
proposed rule change would add, as a disclosure scenario to MSRB Rule 
G-47 Supplementary Material .03 in new clause (t) thereof, the fact 
that no issuer of, or other obligated person with respect to, a 
customer's municipal security has agreed to make continuing disclosures 
as contemplated under Exchange Act Rule 15c2-12 \69\ available on 
EMMA.\70\ Exchange Act Rule 15c2-12(b)(5) \71\ generally prohibits an 
underwriter from purchasing or selling municipal securities in most new 
issue offerings unless the underwriter has reasonably determined that 
an issuer or obligated person for whom financial or operating data is 
presented in the final official statement has undertaken in a written 
agreement or contract to provide certain continuing disclosures to the 
MSRB as specified in Exchange Act Rule 15c2-12(b)(5). Exchange Act Rule 
15c2-12(d)(2)(ii) \72\ provides an exemption from Exchange Act Rule 
15c2-12(b)(5),\73\ but requires a modified version of such continuing 
disclosure agreement or contract. In addition, Exchange Act Rule 15c2-
12(d)(3) \74\ provides a partial exemption from Exchange Act Rule 15c2-
12(b)(5) \75\ but still requires a modified version of such continuing 
disclosure agreement or contract limited to specified event 
notices.\76\ The MSRB states that this new disclosure scenario in 
proposed clause (t) would apply to any municipal securities of the 
foregoing offerings.\77\ However, the MSRB notes that certain new issue 
offerings are wholly exempt from or otherwise not subject to Exchange 
Act Rule 15c2-12(b)(5) \78\ by virtue of paragraph (a) or subparagraph 
(d)(1) of Exchange Act Rule 15c2-12,\79\ and therefore the MSRB states 
that this new disclosure scenario would not apply to any municipal 
securities of these specific types of exempt offerings.\80\
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    \69\ 17 CFR 240.15c2-12.
    \70\ See Notice, 89 FR at 27811.
    \71\ 17 CFR 240.15c2-12(b)(5).
    \72\ 17 CFR 240.15c2-12(d)(2)(ii).
    \73\ 17 CFR 240.15c2-12(b)(5).
    \74\ 17 CFR 240.15c2-12(d)(3).
    \75\ 17 CFR 240.15c2-12(b)(5).
    \76\ See Notice, 89 FR at 27812.
    \77\ Id.
    \78\ Id.
    \79\ 17 CFR 240.15c2-12(a) and (d)(1). In addition, Exchange Act 
Rule 15c2-12(d)(5) provides an exemption from Exchange Act Rule 
15c2-12(b)(5) for municipal securities outstanding on November 30, 
2010 so long as they continuously remain in authorized denominations 
of $100,000 or more and may, at the option of the holder thereof, be 
tendered to an issuer of such securities or its designated agent for 
redemption or purchase at par value or more at least as frequently 
as every nine months until maturity, earlier redemption, or purchase 
by an issuer or its designated agent. 17 CFR 240.15c2-12(d)(5).
    \80\ See Notice, 89 FR at 27812.
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    The MSRB notes that continuing disclosure documents and related 
information submitted by issuers and obligated persons to EMMA's 
continuing disclosure service are made available on the EMMA 
website.\81\ The MSRB states that such continuing disclosures currently 
are accessible by users of the EMMA website through a variety of means, 
including on the Disclosure Documents tab of the EMMA Security Details 
page for each specific municipal security.\82\ The MSRB further states 
that the disclosures provided on such page are generally accompanied by 
certain information, as applicable, provided to EMMA by the underwriter

[[Page 58233]]

of the applicable municipal security at the time of its initial 
issuance regarding any agreement by the issuer or other obligated 
persons to undertake to provide continuing disclosures.\83\
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    \81\ See Notice, 89 FR at 27812; see also MSRB Information 
Facility IF-3, on Electronic Municipal Market Access System--EMMA, 
available at https://www.msrb.org/Rules-and-Interpretations/MSRB-Rules/Informational/IF-3.
    \82\ See Notice, 89 FR at 27812.
    \83\ Id. See also MSRB Rule G-32(b)(i)(A) and (b)(vi)(C)(1)(a).
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    The MSRB states that dealers generally would be able to rely on 
such information posted on EMMA by the underwriter regarding an 
issuer's or other obligated person's continuing disclosure undertaking 
for purposes of MSRB Rule G-47 Supplementary Material .03(t) unless the 
dealer has knowledge to the contrary.\84\ In addition, the MSRB states 
that particularly for municipal securities for which no such 
underwriter-provided information concerning any continuing disclosure 
agreement may be displayed on EMMA, a review of the official statement 
or other information available on EMMA typically would indicate whether 
the issuer or obligated person has undertaken to provide continuing 
disclosures on the municipal securities.\85\
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    \84\ See Notice, 89 FR at 27812. The MSRB states that the 
ability of a dealer to rely on this posted information for purposes 
of MSRB Rule G-47 Supplementary Material .03(t) would not 
conclusively foreclose any other potential disclosure or other 
obligation of a dealer, under MSRB Rule G-47(a), Exchange Act Rule 
15c2-12 (17 CFR 240.15c2-12) or otherwise, that might arise relating 
to the existence of or the performance or non-performance under any 
continuing disclosure agreement by an issuer or obligated person, or 
with regard to the content of such continuing disclosure, depending 
on the specific facts and circumstances. Id.
    \85\ See Notice, 89 FR at 27812.
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    The MSRB believes that the fact that continuing disclosures are not 
required to be made available to a customer on EMMA, which is where a 
customer would typically go to review such information prior to trading 
a municipal security, will generally be material and therefore should 
be included in time of trade disclosures provided to a customer.\86\ 
The MSRB states that on occasion, an issuer or obligated person may 
undertake to provide continuing disclosures not contemplated by 
Exchange Act Rule 15c2-12 \87\ (sometimes referred to as voluntary 
continuing disclosures).\88\ The MSRB further states that this proposed 
scenario is not intended to require disclosures with regard to the 
existence of an agreement solely in respect of such voluntary 
continuing disclosures.\89\
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    \86\ Id.
    \87\ 17 CFR 240.15c2-12.
    \88\ See Notice, 89 FR at 27812.
    \89\ Id.
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vii. Consolidate Existing Inter-Dealer Time of Trade Disclosure 
Guidance
    The MSRB states that the proposed rule change would consolidate 
three pieces of existing interpretive guidance relating to inter-dealer 
time of trade disclosure into one standalone interpretive guidance in 
order to better streamline time of trade disclosure guidance.\90\ The 
MSRB further states that while MSRB Rule G-47 applies to customer 
transactions and not transactions between dealers,\91\ the MSRB has 
previously discussed a dealer's fair dealing disclosure obligations in 
connection with inter-dealer transactions in these three pieces of 
inter-dealer guidance.\92\ The MSRB believes that consolidating this 
existing guidance into a single interpretive guidance would be 
beneficial to the market and result in a more organized MSRB 
rulebook.\93\ The MSRB does not believe that the three existing pieces 
of inter-dealer guidance would otherwise retain any standalone value 
upon consolidation into the new guidance and, therefore, these three 
pieces of guidance would be retired.\94\
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    \90\ See Notice, 89 FR at 27812. See also MSRB Interpretive 
Guidance, Notice Concerning Securities that Prepay Principal (March 
19, 1991), available at https://www.msrb.org/Notice-Concerning-Securities-Prepay-Principal; MSRB Interpretive Guidance, Disclosure 
of Pricing: Calculating the Dollar Price of Partially Prerefunded 
Bonds (May 15, 1986), available at https://www.msrb.org/Disclosure-Pricing-Calculating-Dollar-Price-Partially-Prerefunded-Bonds; and 
MSRB Interpretive Guidance, Description Provided at or Prior to the 
Time of Trade (April 30, 1986), available at https://www.msrb.org/Description-Provided-or-Prior-Time-Trade. Any portions of such 
interpretive pieces relating to customer disclosure standards are 
already incorporated into MSRB Rule G-47.
    \91\ See MSRB Rule G-47(a).
    \92\ See Notice, 89 FR at 27812.
    \93\ Id.
    \94\ Id.
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III. Summary of Comments Received to the Proposed Rule Change

    The Commission received one comment letter \95\ on the proposed 
rule change, as well as a response \96\ from the MSRB to the comment 
letter.
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    \95\ See SIFMA Letter.
    \96\ See MSRB Letter.
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    The commenter stated that the MSRB should ``make clear that a 
dealer should only be responsible for providing factor information 
pursuant to the rule if there is an event filing on EMMA which 
specifies that the factor concept applies, or the dealer otherwise has 
specific knowledge of factor payments.'' \97\ The MSRB stated that if 
factor information that may be material is not known by the dealer or 
is not reasonably accessible to the market through established industry 
sources, such factor information would not be required to be disclosed 
pursuant to the proposed amendment to Supplementary Material 
.03(i).\98\
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    \97\ See SIFMA Letter at 2.
    \98\ See MSRB Letter at 2.
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    The commenter stated that ``it should be made clear that broker 
dealers neither give tax advice nor should they be perceived to be 
giving tax advice'' and that the original guidance should be preserved 
due to the fact that it ``merely requires notification of the existence 
of a discount'' and dealers are concerned that discount disclosures 
``may force dealers to move closer to the line of giving tax advice.'' 
\99\ The MSRB responded that the proposed rule change would only 
require dealers to disclose the fact that the security bears a market 
discount and that an impact may exist, the proposed new Supplementary 
Material .03(p) would not require dealers to provide customers with 
more detailed or personalized information, or to provide any 
information that could constitute tax advice, with respect to market 
discount.\100\ Thus, the MSRB stated the proposed rule change would not 
require dealers to calculate the impact or give tax advice.\101\
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    \99\ See SIFMA Letter at 2.
    \100\ See MSRB Letter at 2.
    \101\ Id.
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    The commenter stated that ``[d]ealers should be only required to 
disclose whether bonds are zero coupon bonds or stepped coupon bonds, 
but not the details of the special characteristics of these features, 
such as the details of the increases to the interest rates'' due to the 
fact that information is limited on the MSRB's primary market 
feed.\102\ The MSRB noted that time of trade disclosures, including 
those related to zero or stepped coupon bonds, are limited to 
information that dealers know or that is reasonably accessible to the 
market.\103\ Therefore, the MSRB stated, if the information available 
via established industry sources (including but not limited to the 
MSRB's primary market feed) is limited or not present, a dealer would 
not be required to seek out additional information that is not known to 
the dealer or not reasonably accessible to the market at the time of 
trade.\104\
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    \102\ See SIFMA Letter at 3.
    \103\ See MSRB Letter at 3.
    \104\ Id.
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    The commenter expressed concern that describing a disclosure as 
``Yield to Worst'' could be misleading or confusing and ``regulatory 
examiners and/or customers alike may believe that

[[Page 58234]]

this is the computation which accounts for all potential scenarios and 
represents the absolute worst possible yield a customer may experience 
when purchasing a municipal security.'' \105\ In addition, the 
commenter requested that ``if the MSRB moves forward with requiring 
this time of trade disclosure, that the MSRB make clear that the time 
of trade disclosure it is articulating in the proposed rule change is 
the same `Computed Yield' calculation that is required under Rule G15's 
confirmation requirements and that dealers are not expected to provide 
any additional or different disclosures in this regard.'' \106\ The 
MSRB responded that the proposed time of trade disclosure lists the 
required information to be disclosed as the computed yield required by 
MSRB Rule G-15(a)(i)(A)(5)(c), if different than the yield at which the 
transaction was effected, and does not contemplate dealers providing 
any additional or different disclosures in this regard.\107\ The MSRB 
also stated that dealers are not required to refer to such computed 
yield as ``yield to worst'' to their customers and may appropriately 
refer to it is a computed yield consistent with the proposed rule 
change.\108\
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    \105\ Id.
    \106\ Id.
    \107\ See MSRB Letter at 3.
    \108\ Id.
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    The commenter requested that the MSRB remove certain time of trade 
disclosure requirements related to whether an official statement is 
unavailable or provide further guidance.\109\ The commenter stated that 
``the proposed rule change as drafted would provide little to no 
actionable information for investors in a public offering.'' \110\ The 
MSRB responded that it believes that the fact that an official 
statement is unavailable is material information that could impact 
investors' investment decisions, especially retail customers, for whom 
MSRB Rule G-47 is primarily oriented.
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    \109\ See SIFMA Letter at 4.
    \110\ Id.
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    The commenter also requested that the MSRB clarify the application 
and disclosure requirements of the proposed rule change in four 
different scenarios.\111\ The scenarios were as follows: ``(1) public 
offerings where it is anticipated that the issuer will produce a Final 
Official Statement by settlement but a Final Official Statement is not 
available at the Time of Trade; (2) Rule 15c2-12 exempt offerings where 
an issuer has drafted and disseminated an offering document that does 
not technically meet the Final Official Statement requirements of Rule 
15c2-12 but would meet the official statement definition of Rule 
G32(c)(vii); (3) Rule 15c2-12 exempt offerings where the issuer 
declines to draft an offering document for the offering; and (4) 
remarketings of municipal securities that may be deemed to be a primary 
offering of municipal securities under Rule 15c2-12 and Rule G-32.'' 
(footnotes omitted).\112\ he commenter further stated that it 
``supports the MSRB proposals that any such time of trade disclosure 
should be limited to underwriters in new issue trades.'' \113\
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    \111\ See SIFMA Letter at 5.
    \112\ Id.
    \113\ Id.
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    The MSRB responded to the four scenarios.\114\
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    \114\ See MSRB Letter at 5.
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    With respect to the first scenario, the MSRB responded that if an 
underwriter is expected to produce a final official statement, but it 
is not yet available at the time of trade or it is still in production, 
a dealer selling a new issue security constituting an offered municipal 
security within the meaning of Rule G32 would not be required to 
disclose that there is no official statement available for the 
municipal security in question.\115\ The MSRB further stated that such 
disclosure requirement only attaches when the underwriter is not 
expected to produce an official statement at all, which would be 
evidenced by the required notification by the underwriter, pursuant to 
MSRB Rule G-32(b)(i)(C), that no official statement will be prepared, 
which notification is displayed on EMMA.\116\ As the MSRB noted in its 
proposed rule change, dealers (other than the underwriter of a new 
issue of municipal securities) generally would be able to rely on 
information posted on EMMA as of the time of trade of such new issue 
municipal security with regard to whether an official statement is or 
will be unavailable, while the underwriter for such new issue would be 
deemed to know whether or not an official statement will be posted for 
such offering.\117\
---------------------------------------------------------------------------

    \115\ Id.
    \116\ Id.
    \117\ Id.
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    With respect to the second scenario, the MSRB responded that the 
proposed rule change uses the term ``official statement'' for purposes 
of proposed new Supplementary Material .03(s) with the same meaning as 
in Rule G-32(c)(vii).\118\ The MSRB noted that underwriters have become 
familiar over many years with the use of the term ``official 
statement'' as defined under MSRB Rule G-32, including any distinctions 
that exist between that term in Rule G-32 and the term ``final official 
statement'' as used in Exchange Act Rule 15c2-12.\119\
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    \118\ See MSRB Letter at 6.
    \119\ Id.
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    With respect to the third scenario, the MSRB responded that there 
no official statement is anticipated, a dealer selling a new issue 
security constituting an offered municipal security within the meaning 
of Rule G-32 would be required to disclose to the customer that there 
is no official statement.\120\ The MSRB noted that this disclosure 
requirement would attach, and dealers other than the underwriter would 
be entitled to rely on information posted to EMMA, as described in the 
preceding paragraph.\121\
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    \120\ Id.
    \121\ Id.
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    With respect to the fourth scenario, the MSRB responded that in 
sales of new issue securities constituting offered municipal securities 
within the meaning of Rule G-32 in a remarketing that is deemed to be a 
primary offering, dealers are required to make a time of trade 
disclosure if no official statement is available, with such disclosure 
requirement attaching, and dealers other than the underwriter being 
entitled to rely on information posted to EMMA, as described 
above.\122\
---------------------------------------------------------------------------

    \122\ Id.
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    The MSRB further stated that the proposed time of trade disclosure 
would not apply to any sales occurring after the end of the primary 
offering disclosure period, but such application would not be limited 
to sales by underwriters of such securities but would apply to any sale 
by any dealer of such securities during the primary offering disclosure 
period (although dealers other than underwriters would be entitled to 
certain reliance on information posted on EMMA in regard to such 
requirement, as described in the proposed rule change).\123\
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    \123\ See MSRB Letter at 5.
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    The commenter stated that ``disclosing the issuer or obligated 
person has not agreed to make continuing disclosures with respect to 
the municipal securities, as contemplated under Securities Exchange Act 
Rule 15c2-12, that will be available on EMMA should be limited to new 
issue trades'' and that ``[s]ecurities exempt from 15c2-12 would 
typically have such a disclosure in an investor letter'' and 
``[i]nvestors making secondary market trades can see offering 
documents, or the lack thereof, on

[[Page 58235]]

EMMA.'' \124\ The MSRB responded that it believes that the fact that 
continuing disclosures may not be available is material information 
that may impact an investor's investment decision and is relevant 
beyond the primary offering disclosure period.\125\ In addition, the 
MSRB noted that while it may be obvious to dealers or sophisticated 
investors how to determine if continuing disclosures are not available, 
it may not be so obvious to retail customers for whom MSRB Rule G-47 is 
primarily oriented.\126\
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    \124\ See SIFMA Letter at 5-6.
    \125\ See MSRB Letter at 6.
    \126\ See MSRB Letter at 6.
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IV. Discussion and Commission's Findings

    The Commission has carefully considered the proposed rule change, 
the comment letter received, and the MSRB's response thereto. The 
Commission finds that the proposed rule change 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 is consistent with the provisions of Section 15B(b)(2)(C), which 
provides, in part, 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.\127\
---------------------------------------------------------------------------

    \127\ 15 U.S.C. 78o-4(b)(2)(C).
---------------------------------------------------------------------------

    The Commission believes the proposed rule change is consistent with 
Section 15B(b)(2)(C) of the Exchange Act because the proposed rule 
change would protect investors and the public interest. The proposed 
rule change would clarify for market participants the meaning of 
material information under Rule G-47, and better ensure that retail and 
other customers receive such material information at or prior to the 
time of trade, allowing them to make a more informed investment 
decision. The proposed rule change would add new requirements in 
specific scenarios for dealers to disclose when an official statement 
is unavailable, when continuing disclosures are not available, and the 
yield to worst of a transaction, and these new requirements would 
provide investors with material information when deciding to transact 
in municipal securities. Finally, consolidating existing interpretive 
guidance into the text of MSRB Rule G-47 and clarifying existing rule 
language would also promote compliance by dealers with existing 
requirements under MSRB Rule G-47 and thereby promote the protection of 
investors and the public interest by assisting investors, particularly 
retail customers who may or may not know how or where to access this 
information, by providing them with material information that could 
influence an investment decision.
    In approving the proposed rule change, the Commission has 
considered the proposed rule change's impact on efficiency, 
competition, and capital formation. Section 15B(b)(2)(C) of the Act 
\128\ 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 believes the proposed rule change to amend 
Rule G-47 would not impose any burden on competition and would not have 
an impact on competition, as the proposed rule change would apply a 
uniform standard for disclosures required under MSRB Rule G-47. In 
addition, the proposed rule change would apply equally to all dealers. 
As all components of the proposed rule change would be applied equally 
to all registered dealers transacting in municipal securities, the 
Commission believes that the proposed rule change would not impose any 
additional burdens on competition that are not necessary or appropriate 
in furtherance of the purposes of the Act.
---------------------------------------------------------------------------

    \128\ 15 U.S.C. 78o-4(b)(2)(C).
---------------------------------------------------------------------------

    The Commission also finds that the proposed rule change will not 
hinder capital formation. As noted above, the proposed rule change 
ensures a uniform standard for disclosures required under MSRB Rule G-
47, and would be applied equally to all dealers. As such, the 
Commission believes that the proposed rule change would promote clearer 
regulatory requirements for the disclosures under MSRB Rule G-47 by 
retiring interpretive guidance on conversion costs and secondary market 
insurance and consolidating existing inter-dealer time of trade 
disclosure guidance into a single piece of interpretive guidance. The 
Commission also finds that the proposed rule change would promote 
efficiency by retiring guidance no longer in use and consolidating 
other existing interpretive guidance.
    As noted above, the Commission received one comment letter on the 
filing.\129\ The Commission believes that the MSRB, through its 
response, addressed the commenter's concerns. For the reasons noted 
above, the Commission believes that the proposed rule change is 
consistent with the Exchange Act.
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    \129\ See SIFMA Letter.
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Exchange Act,\130\ that the proposed rule change (SR-MSRB-2024-03) be, 
and hereby is, approved.
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    \130\ 15 U.S.C. 78s(b)(2).
    \131\ 17 CFR 200.30-3(a)(12).

    For the Commission, pursuant to delegated authority.\131\
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2024-15678 Filed 7-16-24; 8:45 am]
BILLING CODE 8011-01-P