[Federal Register Volume 61, Number 236 (Friday, December 6, 1996)]
[Notices]
[Pages 64781-64782]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-31015]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37997; File No. SR-MSRB-96-11]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by the Municipal Securities
Rulemaking Board Relating to Interpretation of Rule G-38 on Consultants
November 29, 1996.
On November 18, 1996, the Municipal Securities Rulemaking Board
(``Board'' or ``MSRB'') filed with the Securities and Exchange
Commission (``Commission'' or ``SEC'') a proposed rule change (SR-MSRB-
96-11), pursuant to Section 19(b)(1) of the Securities Exchange Act of
1934 (``Act''), 15 U.S.C. 78s(b)(1), and Rule 19b-4 thereunder. The
proposed rule change is described in Items I, II, and III below, which
Items have been prepared by the Board. The Board has designated this
proposal as constituting a stated policy, practice, or interpretation
with respect to the meaning, administration, or enforcement of an
existing rule of the Board under Section 19(b) (3)(A) of the Act, which
renders the proposal effective upon receipt of this filing by the
Commission. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The Board is filing herewith a notice of interpretation concerning
rule G-38 on consultants (hereafter referred to as ``the proposed rule
change''). The proposed rule change is as follows:
Rule G-38 Questions and Answers
Role To Be Performed by Consultant
1. Q: Is there specific information concerning the role to be
performed by a consultant that a dealer must disclose on Form G-37/G-
38?
A: The role to be performed by a consultant may be described in
general terms on Form G-37/G-38; however, dealers must include the
state or geographic area in which the consultant is working on behalf
of the dealer.
Compensation Arrangement, Total Dollar Amount Paid to Consultant During
Reporting Period and Dollar Amounts Paid to Consultant Connected With
Particular Municipal Securities Business
2. Q: When providing the information required to be disclosed on
Form G-37/G-38, how should dealers describe the consultant's
compensation arrangement?
A: Dealers must ensure that the compensation arrangement is clearly
described and that it correlates with the information being disclosed
concerning the total dollar amount paid to the consultant during the
reporting period and the dollar amounts paid in connection with
particular municipal securities business.
For example, if a consultant is paid a monthly retainer,
the amount of the monthly retainer must be disclosed and the total
dollar amount paid during the reporting period must be reported.
If a consultant is reimbursed for expenses, the amount of
the reimbursed expenses must be disclosed either separately or within
the total dollar amount paid for the quarter.
If a consultant is to be paid a success fee, dealers must
disclose how the success fee will be arrived at (e.g., a certain
percentage of profits). The sum total of the dollar amounts paid to the
consultant in connection with particular municipal securities business
should equal the total dollar amount paid to the consultant during the
reporting period.
In addition, if any discretionary bonus or similar payment
is made, this amount must be included within the total amount paid for
the quarter in which it is paid.
3. Q: What information must a dealer disclose on Form G-37/G-38 for
the dollar amounts paid to a consultant connected with particular
municipal securities business?
A: If any payment made during the reporting period is related to a
consultant's efforts on behalf of the dealer which resulted in
particular municipal securities business, whether the municipal
securities business was completed during that or a prior reporting
period, then the dealer must separately identify that business and the
dollar amount of the payment.
Disclosure to Issuers of the Compensation Arrangement With Consultants
4. Q: Rule G-38 requires a dealer to disclose in writing its
consulting arrangements to an issuer with which it is engaging or
seeking to engage in municipal securities business and this written
disclosure must include, among other things, the compensation
arrangement. What is the level of disclosure required to issuers of the
compensation arrangement with consultants?
A: The written disclosure to issuers of the compensation
arrangement must explain the arrangement.
For example, if a consultant is paid a monthly retainer,
the amount of the monthly retainer must be disclosed.
If a consultant also is reimbursed for expenses, this fact
must be noted.
If a consultant is to be paid a success fee, the dealer
must disclose to the issuer how that fee will be arrived at (e.g., a
certain percentage of profits).
* * * * *
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
[[Page 64782]]
comments it received on the proposed rule change. The texts 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
(a) On January 17, 1996, the Commission approved Board rule G-38 on
consultants.\1\ Since that time, the Board has received inquiries
concerning the application of the rule. In order to assist the
municipal securities industry and, in particular, brokers, dealers and
municipal securities dealers in understanding and complying with the
provisions of the rule, the Board published a prior notice of
interpretation which set forth, in question-and-answer format, general
guidance on rule G-38.\2\ In its prior filing with the Commission, the
Board stated that it will continue to monitor the application of rule
G-38, and, from time to time, will publish additional notices of
interpretations, as necessary.\3\ In light of questions recently
received from market participants concerning the disclosures to be made
regarding consultants, the Board has determined that it is necessary to
provide further guidance to the municipal securities industry.
Accordingly, the Board is publishing this second set of questions and
answers concerning rule G-38.\4\
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\1\ Securities Exchange Act Release No. 36727 (January 17,
1996); 61 FR 1955 (January 24, 1996). The rule became effective on
March 18, 1996.
\2\ See MSRB Reports, Vol. 16, No. 2 (June 1996) at 3-5. See
also MSRB Manual (CCH) paragraph 3686.
\3\ Securities Exchange Act Release No. 36950 (March 11, 1996);
61 FR 10828 (March 15, 1996).
\4\ The Board plans to publish the interpretations in the __
199__ MSRB Reports (Vol. 1__, No. __).
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(b) The Board believes the proposed rule change is consistent with
Section 15B(b)(2)(C) of the Act.\5\
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\5\ Section 15B(b)(2)(C) states in pertinent part that the rules
of the Board ``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, 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.''
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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, since it would apply equally to
all brokers, dealers and municipal securities dealers.
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.
III. Date of Effectiveness of the Proposed Rule Change and Timing
for Commission Action
The Board has designated this proposed rule change as constituting
a stated policy, practice, or interpretation with respect to the
meaning, administration, or enforcement of an existing rule of the
Board under Section 19(b)(3)(A) of the Act, which renders the proposed
rule change effective upon receipt of this filing by the Commission.
At any time within sixty (60) days of the filing of a proposed rule
change pursuant to Section 19(b)(3)(A) of the Act, the Commission may
summarily abrogate the rule change if it appears to the Commission that
such action is necessary or appropriate in the public interest, for the
protection of investors, or otherwise in furtherance of the purposes of
the Act.
IV. 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, N.W., 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-96-11 and should be
submitted by December 27, 1996.
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. 96-31015 Filed 12-5-96; 8:45 am]
BILLING CODE 8010-01-M
