02-6715. Self-Regulatory Organizations; Municipal Securities Rulemaking Board; Order Granting Approval of Proposed Rule Change Relating to Official Communications, Pursuant to MSRB Rules G-15 and G-8

March 14, 2002.

On November 6, 2001, the Municipal Securities Rulemaking Board (“MSRB”) filed with the Securities and Exchange Commission (“Commission”) a proposed rule change (File No. SR-MSRB-2001-08) (the “proposed rule change”) relating to official communications under Rules G-15 and G-8. The MSRB submited the proposed rule change pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 19b-4 thereunder.^[1]

The Commission published the proposed rule change for comment in the Federal Register on February 8, 2001.^[2] The Commission received no comment letters regarding the forgoing proposal. This order approves the proposal.

I. Description of the Proposed Rule Change

The MSRB's proposed rule change amended Rule G-15 on confirmation, clearance and settlement of transactions with customers and Rule G-8 on books and records. The proposed rule change requires brokers, dealers and municipal securities dealers (collectively “dealers”) that safekeep municipal securities to retransmit official documents about municipal securities issues to their safekeeping clients under certain conditions. The amendment to Rule G-15 provides that, upon request for retransmission, dealers who serve as safekeeping agents must undertake “reasonable efforts” to retransmit “official communications' ^[3] to their safekeeping clients. For their retransmission efforts, the amendment provides that dealers receive “adequate compensation'.^[4] Without an offer of adequate compensation, dealers are not required to effect the retransmission.

The proposed amendment includes a “compensation threshold”. For retransmission where the total compensation sought will be less than $500, the dealer should begin retransmitting immediately and ask for the calculated compensation concurrently. For retransmission where the total compensation sought will be greater than $500, the dealer may chose instead to promptly contact the party offering compensation, inform it of the amount of compensation required, obtain specific agreement on the amount of compensation and wait for receipt of such compensation prior to proceeding with the retransmission.

In addition, the amendment allows dealers in certain circumstances to send to the party requesting an official communication retransmission a list of beneficial owners who do not object to the disclosure of their name, contact information and security positions (“non-objecting beneficial owners”) in lieu of retransmitting documents. The customer account information amendment to Rule G-8 ensures that dealers retain an official record of a customer's written authorization, if any, as to the customer's status as a non-objecting beneficial owner.

The MSRB realizes that some dealers today retransmit documents to their customers voluntarily, or under specific terms of their safekeeping agreements, and in many cases do so without compensation from the party requesting retransmission. It is not the intent of the proposed rule change to discourage retransmissions of official communications in these cases. Rather, the purpose of the proposed rule change is to ensure that parties needing to transmit official communications to beneficial owners may rely on dealers undertaking reasonable efforts, under the explicit terms of Rules G-15 and G-8, to retransmit such official communications and maintain appropriate records.

II. Discussion

The MSRB believes that the proposed rule filing, relating to official communications, will promote just and equitable principles of trade and fosters an open market for municipal securities. Additionally, the MSRB believes that the proposed rule change will not impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Exchange Act since it applies equally to all dealers in municipal securities.

The Commission must approve a proposed MSRB rule change if the Commission finds that the MSRB's proposal is consistent with the requirements of the Exchange Act and the rules and regulations thereunder that govern the MSRB.^[5] The language of Section 15(b)(2)(C) of the Exchange Act requires that the MSRB's rules must be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principals of trade, to foster cooperation and coordination with persons engaged in regulating, settling, processing information with respect to, and facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national system, and, in general, to protect investors and the public interest.^[6]

After careful review, the Commission finds that the MSRB's proposed rule change relating to official communications meets this standard. The Commission believes that this proposed rule change is consistent with the requirements of the Exchange Act, and the rules and regulations thereunder. In particular, the Commission finds that the proposed rule is consistent with the requirements of Section 15B(b)(2)(C) of the Exchange Act, set forth above.

III. Conclusion

It is therefore ordered, pursuant to Section 19(b)(2) of the Exchange Act that the proposed rule change (File No. SR-MSRB-2001-08) be, and hereby is, approved.

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.^[7]

Margaret H. McFarland,

Deputy Secretary.

Footnotes

1.  15 U.S.C. 78s(b)(1) and 17 CFR 240.19b-4 thereunder.

2.  See Release No. 34-45363 (January 30, 2002), 67 FR 6067.

3.  The proposed rule change defines an “official communication” as a document or collection of documents addressed to beneficial owners that was prepared or authorized by an issuer of municipal securities, a trustee for an issue of municipal securities, a state or federal tax authority or a custody agent for a stripped coupon municipal securities program in its capacity as custody agent. See Release No. 34-45363 (January 30, 2002), 67 FR 6067.

4.  Rule G-15 does not provide specific guidance to define adequate compensation; however, the proposed rule change references the rates of compensation for transmittal of documents detailed in NASD interpretation IM-2260, on Suggested Rates of Reimbursement, relating to forwarding of proxy and other materials. See id.; see also NASD Manual (CCH) ¶ 4233. As under NASD Rule 2260, compensation under Rule G-15 is intended to reimburse a dealer for its out of pocket expenses, including reasonable clerical expenses, associated with the particular retransmission. See NASD Manual (CCH) ¶ 4231.

5.  Additionally, in approving this rule, the Commission notes that it has considered the proposed rule's impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).

6.  15 U.S.C. 78o-4(b)(2)(c).

7.  17 CFR 200.30-3(a)(12).