regulatory organizations; proposed rule changes: Municipal Securities Rulemaking Board,
[Federal Register: July 27, 1998 (Volume 63, Number 143)]
[Notices]
[Page 40148-40150]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr27jy98-113]
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-40230; File No. SR-MSRB-97-14]
Self-Regulatory Organizations; Municipal Securities Rulemaking Board; Order Granting Approval of Proposed Rule Change Relating to Rule G-32, on Disclosures in Connection With New Issues
July 17, 1998.
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Introduction
On March 12, 1998,\1\ the Municipal Securities Rulemaking Board (``Board'' or ``MSRB'') submitted to the Securities and Exchange Commission (``Commission'' or ``SEC''), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ a proposed rule change to amend Rule G-32, on disclosures in connection with new issues. The proposed rule change strengthens the provisions of the rule relating to dissemination of official statements among dealers and incorporates a long-standing Board interpretation relating to disclosures required to be made to customers in connection with negotiated sales of new issue municipal securities. Notice of the
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proposed rule change appeared in the Federal Register on April 28, 1998.\4\ This order approves the proposed rule change.
\1\ The Board initially filedthis proposal on December 22, 1997. However, an amendment was filedto restore rule language that the initial proposal deleted. The Board filedAmendment No. 1 on this date.
\2\ 15 U.S.C. 78s(b)(1).
\3\ 17 CFR 240.19b-4.
\4\ See Securities Exchange Act Rel. No. 39904 (April 22, 1998), 63 FR 23311.
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Description of the Proposal
Rule G-32, on disclosures in connection with new issues, provides that no broker, dealer or municipal securities dealer (``dealer'') shall sell any new issue municipal securities to a customer unless that dealer delivers to the customer, no later than the settlement of the transaction, a copy of the official statement in final form, if one is being prepared. In connection with a negotiated sale of new issue municipal securities, dealers are also required to deliver to their customers, by no later than settlement with the customer, information regarding, among other things, the initial offering price for each maturity in the new issue (termed the ``Offering Price Disclosure Provision''). Managing underwriters and other dealers that sell new issue municipal securities to purchasing dealers are required to furnish copies of the official statement to such purchasing dealers upon request, and dealers acting as financial advisors are also required to ensure that official statements are made available to the underwriters in a timely manner (termed the ``Dealer Dissemination Provisions'').
The Dealer Dissemination Provisions
All dealers that sell new issue municipal securities to customers, not just dealers that participate in the underwriting of the new issue, are required to deliver official statements to their customers by no later than settlement of their transactions. The Dealer Dissemination Provisions clarify that the onus is on the selling dealer to make official statements for new issues available to all dealers so that they may fulfill their customer delivery obligation under the rule. Dealers that are not part of the underwriting group have indicated from time to time that they have had some difficulty in obtaining official statements from the managing underwriter or other selling dealers on a timely basis. Thus, the amended Dealer Dissemination Provisions of Rule G-32 provide a specific timeframe and method for delivery of official statements to purchasing dealers.
The rule language outlining the managing underwriter's primary dissemination responsibilities has been modified for clarity. The amended rule language adds a requirement that the official statement be sent by the managing underwriter to the purchasing dealer no later than the business day after the request or, if the official statement has not been received from the issuer or its agent, the business day after receipt. The managing underwriters would be required to send official statements by first class mail or other equally prompt means unless the purchasing dealer arranges some other method of delivery at its own expense.\5\ The amendments also add a requirement that the selling dealer send the official statement to the purchasing dealer within the same timeframe and by the same means as would be required of the managing underwriter.
\5\ These obligations of the managing underwriter will apply with respect to all purchasing dealers, even where the managing underwriter does not sell the securities to the purchasing dealer.
The proposed rule change retains the existing requirement under Rule G-32 that a dealer acting as financial advisor that prepares an official statement on behalf of an issuer must make that official statement available to the managing or sole underwriter, but would change the timing for such availability from ``promptly after the award is made,'' as provided in the current rule, to ``promptly after the issuer approves distribution'' of the official statement in final form. The amendment ensures that, once the official statement is completed and approved by the issuer for distribution, dealers acting as financial advisors will be obligated to commence the dissemination process promptly.\6\ Issuers using the services of non-dealer financial advisors are urged to hold these financial advisors to the same standards for prompt delivery of official statements to the underwriters, as those of regulated financial advisors.
\6\ Of course, this amendment would not relieve dealers acting as financial advisors of their obligations to comply with their contractual arrangements entered into with issuers and with all applicable state and federal statutes, regulations and common law. Thus, in particular, in instances where a dealer, acting as financial advisor, has a contractual or other legal duty to assist an issuer in complying with its contractual obligation to deliver final official statements within the timeframe and in the quantities set forth in Rule 15c2-12(b)(3) under the Act, such obligation would not be diminished by implementation of the amendment.
The Offering Price Disclosure Provision
Since January 1983,\7\ the Board has interpreted the Offering Price Disclosure Provision to require that the initial offering price of all maturities of a new issue of municipal securities in a negotiated offering must be disclosed to customers, even for maturities that are not reoffered. The amendment to the Offering Price Disclosure Provision of Rule G-32 incorporates into the rule language this long-standing Board interpretation. The application of the Offering Price Disclosure Provision to maturities that are not reoffered allows customers to determine whether the price they paid for a new issue municipal security is substantially different from the price being paid by presale purchasers.
\7\ See MSRB Reports, Vol. 3, No. 1 (Jan. 1983), ``Rule G-32 + Frequently Asked Questions Concerning Disclosures in Connection with New Issues,'' at 25-27. See also MSRB Reports, Vol. 6, No. 4 (Sept. 1986), ``Disclosure Requirements for New Issue Securities: Rule G- 32,'' at 17-20 and MSRB Reports, Vol. 16, No. 3 (Sept. 1996), ``Disclosures in Connection with New Issues: Rule G-32,'' at 19-23.
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Discussion
The Commission believes the proposed rule change is consistent with the Act and the rules and regulations promulgated thereunder.\8\ Specifically, the Commission believes that approval of the proposed rule change is consistent with Section 15B(b)(2)(C) \9\ of the Act. This proposed rule change should help dealers comply with their obligation to deliver official statements to their customers by settlement and should more effectively ensure rapid dissemination of official statements to customers and to the marketplace generally, than has been occurring under the past version of the rule.\10\ Incorporating a specific timeframe in the Dealer Dissemination Provisions injects accountability in the disclosure process. Compliance will be based on objective factors, not a dealer's interpretation of a vague standard. Furthermore, although the proposed amendment removes specific references in the existing rule to underwriters that
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prepare official statements on behalf of issuers, the Commission is of the opinion that an underwriter that prepares an official statement on behalf of an issuer would be deemed to have received the official statement from the issuer immediately upon the issuer approving the distribution of the completed official statement in final form.
\8\ The Commission has considered the proposed rule's impact on efficiency, competition and capital formation. Establishing a specific timeframe by which selling dealers must provide the requisite documentation enhances efficiency as the date for compliance is quantifiable and can be specifically determined. Also, requiring disclosure be made by a specific date to all similarly- situated dealers, eliminates any competitive advantage gained by uneven distribution of the requisite information. 15 U.S.C. 78c(f).
\9\ Section 15B(b)(2)(C) requires the Commission to determine that the Board's rules are designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in municipal securities, to remove impediments to and perfect the mechanism of a free and open market in municipal securities, and, in general, to protect investors and the public interest.
\10\ Specifically, the provisions of the proposed rule change and of the Bond Market Association's Standard Agreement Among Underwriters would effectively obligate the managing underwriter to send the official statement to syndicate members within one business day of receipt from the issuer. See supra note 4, p. 23313, n.5.
In codifying its long-standing position in the Offering Price Disclosure Provision, the Board not only improves the information available to customers to determine the cost of their investments, but also improves the historical data analysts use to compare similarly priced and structured deals in various municipalities. The Commission believes disclosure of accurate pricing data should help facilitate competitive pricing in the municipal securities markets.
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Conclusion
For the above reason, the Commission believes that the proposed rule change is consistent with the provisions of the Act, and in particular with Section 15B(b)(2)(C).
It is therefore ordered, pursuant to Section 19(b)(2) of the Act,\11\ that the proposed rule change (SR-MSRB-97-14), is hereby approved/
\11\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Market Regulation, pursuant to delegated authority.\12\
\12\ 17 CFR 200.30-3(a)(12).
Jonathan G. Katz, Secretary.
[FR Doc. 98-19985Filed7-24-98; 8:45 am]
BILLING CODE 8010-01-M
