[Federal Register Volume 61, Number 250 (Friday, December 27, 1996)]
[Notices]
[Pages 68322-68324]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-32956]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38066; File No. SR-MSRB-96-12]
Self-Regulatory Organizations; Notice of Filing and Order
Granting Approval of Proposed Rule Change by the Municipal Securities
Rulemaking Board Relating to the Permanent Operation of the Continuing
Disclosure Information System of the Municipal Securities Information
Library System
December 19, 1996.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on November
28, 1996, the Municipal Securities Rulemaking Board (``Board'' or
``MSRB'') filed with the Securities and Exchange Commission
(``Commission'' or ``SEC'') a proposed rule change (File No. SR-MSRB-
96-12). The proposed rule change is described in Items, I, II, and III
below, which Items have been prepared by the Board. The Commission is
publishing this notice to solicit comments of the proposed rule change
from interested persons.
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The MSRB is filing herewith a proposed rule change for upgrading
its interim Continuing Disclosure Information (``CDI'') System of the
Municipal Securities Information Library (``MSIL'')
system to CDINet, the Board's proposed permanent system for processing
and disseminating continuing disclosure information and notices of
material events.\1\ The changes are as follows:
\1\ The Municipal Securities Information Library and MSIL are
registered trademarks of the Board. The MSIL system, which
was approved in Securities Exchange Act Release No. 29298 (June 13,
1991), is a central facility through which information about
municipal securities is collected, stored and disseminated.
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1. The current limit of 10 pages per document for fax and paper
submissions will be changed to 25 pages. For documents exceeding 25
pages, the first 25 pages will be transmitted, with the full text
made available to subscribers by mail, upon request. The capacity of
the system to transmit documents will also be increased.
2. CDINet will replace the interim CDI System's modem submission
system with a secure Web page on the Internet that may be used by
submitters of disclosure documents.
3. The annual subscription price for CDINet will be increased to
$23,000.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Board included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
tests of these statements may be examined at the places specified in
Item IV below. The Board has prepared summaries, set forth in Sections
A, B, and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
On April 6, 1992, the Securities and Exchange Commission
(``Commission'' or ``SEC'') approved the CDI Pilot system for an 18-
month period.\2\ The CDI System began operating on January 23, 1993,
and functions as part of the Board's MSIL system. The CDI
System accepts and electronically disseminates voluntary submissions of
official disclosure notices relating to outstanding issues of municipal
securities, i.e., continuing disclosure information. During its first
phase of operation, the System accepted disclosure notices only from
trustees. On May 17, 1993, the System also began accepting disclosure
notices from issuers.\3\
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\2\ Securities Exchange Act Rel. No. 30556 (April 6, 1992). A
complete description of the CDI System is contained in File No. SR-
MSRB-90-4, Amendment No. 1.
\3\ On May 17, 1993, the Board reported to the Commission on the
initial phase of operation of the CDI System regarding technical,
policy and cost issues and proposed enhancements to the System.
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On November 10, 1994, the Commission approved an amendment to its
Rule 15c2-12 which prohibits dealers from underwriting issues of
municipal securities unless the issuer commits, among other things, to
provide material events notices to the Board's CDI System or to all
Nationally Recognized Municipal Securities Information Repositories
(``NRMSIRs'') and to the applicable state information depository.\4\ In
addition, the rule prohibits dealers from recommending municipal
securities without having a system in place to receive material events
notices. To conform to the new Commission requirements, the Board
revised the CDI System and implemented an interim System
[[Page 68323]]
designed to accept material event notices while a larger permanent
system was being designed.\5\ The interim System increased the capacity
of the system to enable it to process 200 documents per day and
increased the page limit per document from three to 10. The Commission
has approved operation of the interim System through December 31,
1996.\6\
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\4\ Securities Exchange Act Rel. No. 34961 (Nov. 10, 1994).
\5\ The Board also terminated the pilot phase of the CDI System
and filed its Report on the Conclusion of the CDI Pilot of the
Municipal Securities Information Library System with the
Commission on August 25, 1995.
\6\ Securities and Exchange Act Rel. No. 35911 (June 28, 1995);
Securities Exchange Act Rel. No. 36610 (Dec. 20, 1995); Securities
Exchange Act Rel. No. 37771 (Oct. 1, 1996).
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The Board's experience with operating the interim CDI System since
July 3, 1995, has demonstrated that the System operates reliably. The
queue of notices broadcast to subscribers in the interim System,
however, has become quite large, resulting in broadcasts continuing
past the 5:00 p.m. official closing time. This typically occurs if the
number of notices to broadcast exceeds the 200-notice capacity for
which the interim System was designed.\7\ The proposed permanent
system, CDINet, is designed to broadcast 500 notices a day at a higher
speed to address this situation.
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\7\ The largest number of notices broadcast by the interim
System in one day was 305 on November 1, 1996.
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CDINet
There are three areas of change from the interim System to CDINet.
The first area relates to the length of documents submitted to the
System and how they will be handled. Currently, the interim CDI System
will accept and disseminate submissions of up to 10 pages, plus a
voluntary cover sheet.\8\ CDINet will accept fax and paper submissions
of up to 25 pages. Should a submission exceed 25 pages, the first 25
pages and the cover sheet will be disseminated, with a notice to
subscribers that the submission exceeds 25 pages. The System will then
make available a copy of the complete submission to subscribers upon
request, by express or regular mail, at their expense.
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\8\ The cover sheet was in use in the interim System and
provides identifying information about the issuer, the securities at
issue, and the material event being disclosed. Use of the cover
sheet is voluntary for submitters.
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In addition, the interim CDI System was designed with the
capability to disseminate up to 200 10-page submissions a day. While
CDINet will increase the length of fax and paper notices it will
disseminate from 10 pages to 25 pages, experience with the interim CDI
System indicates that the vast majority of submissions will be no
longer than two to three pages.\9\ CDINet is designed to disseminate up
to 500 three-page submissions a day.
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\9\ From July 3, 1995 through October 22, 1996, the interim CDI
System disseminated 13,341 submissions. The total number of pages
disseminated in those submissions was 29,810. Thus, the average
number of pages in a submission has been between two to three pages.
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Regarding processing time, the Commission stated in the Release
approving the amendments to Rule 15c2-12 that 15 minutes might be an
appropriate turnaround time for dissemination of material event notices
by NRMSIRs, but that it would further discuss the issue during the
NRMSIR recognition process. The Board will use its best efforts to
maintain a quick turnaround time for documents sent by facsimile and
Internet to CDINet, but it is not possible to guarantee a 15-minute
turnaround to subscribers if large numbers of documents are received in
a short period of time. The Board will ensure that any document with a
voluntary cover sheet received by facsimile, Internet, or mail will be
disseminated the same day it is received. Depending upon the volume of
documents received, documents that refer in their title to one of the
12 material events described in SEC Rule 15c2-12 but do not have
voluntary cover sheets will be disseminated on the same day, if
possible, but documents with cover sheets have higher dissemination
priority.
The second change to the interim CDI System is to replace the
current modem submission system with a secure Web page on the Internet.
The interim System continued to use the modem submission system
developed for the original CDI Pilot. That system requires, among other
things, that the issuer or its agent install software developed by the
Board on a personal computer and make their submissions by having their
modems dial the CDI System at the Board's offices. The CDINet Web page
will permit issuers or their agents to use commonly available Web
browser software and make their submissions over the Internet. The
other requirements of the modem submission system, i.e., the need to
receive written authorization, a user name, and a password from the
Board and the need for submissions to be in ASCII format only, will
remain in effect on the CDINet Web page.\10\ Finally, since submissions
in ASCII format are substantially smaller, in terms of computer
storage, than the equivalent submission in fax format, the CDINet Web
page will accept and disseminate submissions of any length.
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\10\ In adopting the amendment to SEC Rule 15c2-12, the
Commission stated that NRMSIRs will not be required to verify the
accuracy of the information submitted, only to accurately convey the
information. Securities Exchange Act Rel. No. 34961 at n. 155 (Nov.
10, 1994). The Board similarly asserts that it is not required to
undertake to establish the authenticity or accuracy of documents
submitted, but that it will attempt to ensure accurate dissemination
of documents accepted into the System.
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The third change to the CDI System is to raise the annual
subscription fee from $16,000 plus telephone charges, to $23,000, plus
telephone charges. The Board currently has seven subscribers and does
not charge subscribers for any redistribution that they may make of the
information receive from the CDI System. In its original filing with
the Commission regarding subscriber fees for the CDI Pilot, the Board
stated that:
While Board funds will be expended, at least initially, to
implement and operate the [CDI] Pilot system, the Board intends that
user fees eventually will cover the operational costs of any
permanent system. The Board, however, does not intend to or expect
to make a profit from the operation of the system.\11\
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\11\ SEC File No. SR-MSRB-93-1, Jan. 12, 1993 at 2.
The increased fee better reflects the Board's operational costs of
the CDI System, but is not expected to produce excess revenues or
profits.
As with the pilot and interim Systems, the notices sent to
subscribers from CDINet will be available to any interested person at
the Board's Public Access Facility in Alexandria, Virginia. The cost of
copying notices in the Public Access Facility will remain 20 cents per
page.
To design the permanent system, the Board staff met with
representatives from CDI subscribers and all NRMSIRs in New York City
on March 26, 1996, to receive their comments regarding possible changes
to the interim CDI System. The changes proposed in this filing were
developed after considering their comments.
The Board requests that the Commission approve the permanent system
before the approval for the operation of the interim System expires on
December 31, 1996.
2. Statutory Basis
The Board has proposed this rule change pursuant to Section
15B(b)(2)(C) of the Act, which requires, in pertinent part, that the
Board'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
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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.
The MSIL system is designed to increase the integrity
and efficiency of the municipal securities market by, among other
things, helping to ensure that the price charged for an issue in the
secondary market reflects all available official information about that
issue. The Board will continue to operate the output side of the CDI
System to ensure that the information is available to any party who
wishes to subscribe to the service. As with all MSIL system
services, this service is available, on equal terms, to any party
requesting the service.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Board does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received from Members, Participants, or Others
Written comments were neither solicited nor received. As noted
above, the Board consulted with system users in developing CDINet.
III. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, NW., Washington, D.C. 20549.
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 inspection and copying in the
Commission's Public Reference Room. Copies of the filing will also be
available for inspection and copying at the Board's principal offices.
All submissions should refer to File No. SR-MSRB-96-12 and should be
submitted by January 17, 1997.
IV. Commission's Findings and Order Granting Accelerated Approval of
Proposed Rule Change
The Commission finds that the MSRB's proposal is consistent with
the requirements of the Act and the rules and regulations thereunder
applicable to the Board, and, in particular, the requirements of
Section 15B(b)(2)(C) and the rules and regulations thereunder.
Specifically, the Commission believes that the CDI System, which is a
component of the MSIL System, by making available official disclosure
notices about existing municipal issues, will increase the integrity
and efficiency of the municipal securities market, and help to ensure
that the prices charged for an issue in the secondary market reflect
all available official information about that issue.
The Commission finds good cause for approving SR-MSRB-96-12 prior
to the thirtieth day after the date of publication in the Federal
Register, in that accelerated approval is appropriate to provide for
uninterrupted operation of the CDI System, especially because approval
of the pilot program will expire on December 31, 1996.\12\ The
Commission believes that the CDI System has been proven to be reliable
and that permanent approval is appropriate. The Commission notes that
the CDI System has been in continuous operation since January 23, 1993,
and the changes proposed in this rule proposal primarily represent a
technical enhancement to the System.
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\12\ In approving this rule, the Commission has considered the
proposed rule's impact on efficiency, competition, and capital
formation. 15 U.S.C. Sec. 78c(f).
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It is therefore ordered, pursuant to Section 19(b)(2) of the Act
\13\, that the proposed rule change is hereby approved.
\13\ 15 U.S.C. 78s(b)(2).
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For the Commission by the Division of Market Regulation,
pursuant to delegated authority, 17 CFR 200.30-3(a)(12).
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-32956 Filed 12-26-96; 8:45 am]
BILLING CODE 8010-01-M
