[Federal Register Volume 64, Number 205 (Monday, October 25, 1999)]
[Notices]
[Pages 57505-57506]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-27717]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-42019; File No. SR-MSRB-99-7]
Self-Regulatory Organizations; Municipal Securities Rulemaking
Board; Order Granting Approval to Proposed Rule Change Relating to an
Amendment to Rule G-16 on Periodic Compliance Examinations
October 15, 1999.
I. Introduction
On August 13, 1999, the Municipal Securities Rulemaking Board
(``Board'' or ``MSRB'') submitted to the Securities and Exchange
Commission (``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 relating to Rule G-16 on periodic
compliance examinations. The proposed rule change was published for
comment in the Federal Register on August 20, 1999.\3\ No comments were
received on the proposed rule change. This order approves the proposed
rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Exchange Act Release No. 41773 (Aug. 20, 1999), 64 FR
47209 (Aug. 30, 1999).
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II. Description of the Proposal
Section 15B(c)(7)(A) \4\ of the Act provides that periodic
examinations of dealers for compliance with MSRB rules are to be
conducted by the National Association of Securities Dealers, Inc.
(``NASD'') with respect to securities firms and by the appropriate
federal bank regulatory agencies with respect to bank dealers. Rule G-
16 permits periodic examinations of dealers for compliance with MSRB
rules to be combined with other periodic examinations of securities
firms and bank dealers to avoid unnecessary regulatory duplication and
undue regulatory burdens for such firms and bank dealers. Rule G-16
currently requires that compliance examinations for dealers be
conducted at least once every 24 months.
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\4\ 15 U.S.C. 78o-4(c)(7)(A).
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By letter dated April 28, 1999, NASD Regulation, Inc. (``NASDR'')
requested that the Board revise Rule G-16. The letter stated that
because of NASDR's efforts to coordinate examination schedules, NASDR
believes that the Board should change the 24-month requirement in Rule
G-16 to a two calendar year requirement.
NASDR stated that the requirement in Rule G-16 that municipal
securities examinations commence within 24 months of the previous
examination takes precedence over all examinations when coordinating
examination schedules. NASDR uses the ``field work start date'' of a
firm's prior municipal securities examination to calculate the 24-month
period for the purposes of Rule G-16. Applying this methodology, NASDR
identifies all municipal securities examinations required in a given
calendar year. A determination is then made as to whether the
identified firms are also scheduled for a routine cycle examination
during the same year.
If a routine cycle examination is required of a firm that is
subject to a municipal inspection, the routine and municipal
examinations are combined. If a routine cycle examination is not
required, a separate ``off-cycle'' municipal examination may have to be
conducted on-site. Whenever a municipal securities examination is
accelerated, the due date for commencement of a subsequent examination
is moved to an earlier period; increasingly the first quarter. NASDR
stated that this hampers both current and future examination planning
and coordination. NASDR stated that without the rule change it may be
necessary to remove municipal securities examinations from the
coordinated examination programs.
The proposed rule change alters Rule G-16's requirement that
compliance examinations be conducted once every 24 months to once every
two calendar years. The rule change is intended to facilitate
coordination of on-site examinations to eliminate unnecessary
regulatory duplication without negatively affecting investor
protection. A formal Memorandum of Understanding among the North
American Securities Administrators Association, Inc., Commission, NASDR
and other securities industry self-regulatory organizations reflect the
joint commitment to coordinated examinations.
III. Discussion
The Commission believes that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder.\5\ In particular, the Commission finds that the proposed
rule change is consistent
[[Page 57506]]
with Section 15B(b)(2(C) \6\ of the Act. Section 15B(b)(2)(C) of the
Act requires, among other things, that the rules of the Board be
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to remove impediments
to and perfect the mechanism of a free and open market, and, in
general, to protect investors and the public interest. Specifically,
the Commission believes that the proposed rule change will prevent
fraudulent and manipulative acts and practices and promote just and
equitable principles of trade by enabling the NASD to better coordinate
periodic examination schedules.
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\5\ In reviewing this proposal, the Commission has considered
the proposed rule's impact on efficiency, competition, and capital
formation. The proposed rule change should improve efficiency and
competition because it permits flexibility for scheduling periodic
compliance examinations. 15 U.S.C. 78c(f).
\6\ 15 U.S.C. 78o-4(b)(2)(C).
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The rule change will extend the maximum period between compliance
examinations to three years. For example, if a dealer is examined in
January, the two calendar year clock would not start running for the
next compliance examination under Rule G-16 until the following
January. While this could lengthen the time between compliance
examinations, the Commission believes that enhancing the NASD's ability
to coordinate examinations should reduce unnecessary regulatory
duplication and regulatory burdens for dealers as well as permit the
NASD to better allocate its examination resources. The Commission
believes that the proposed rule change will ease the burdens for both
the examiners and the dealers. By permitted more flexibility in
arranging examination schedules, the change to Rule G-16 should result
in scheduling examinations based on efficiency and methodology rather
than the calendar.
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) \7\ of the
Act, that the proposed rule change (SR-MSRB-99-7) is approved.
\7\ 15 U.S.C. 78s(b)(2).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\8\
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\8\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-27717 Filed 10-22-99; 8:45 am]
BILLING CODE 8010-01-M
