[Federal Register Volume 63, Number 143 (Monday, July 27, 1998)]
[Notices]
[Pages 40148-40150]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-19985]
-----------------------------------------------------------------------
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.
I. 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
[[Page 40149]]
proposed rule change appeared in the Federal Register on April 28,
1998.\4\ This order approves the proposed rule change.
---------------------------------------------------------------------------
\1\ The Board initially filed this proposal on December 22,
1997. However, an amendment was filed to restore rule language that
the initial proposal deleted. The Board filed Amendment 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.
---------------------------------------------------------------------------
II. 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.
---------------------------------------------------------------------------
III. 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
[[Page 40150]]
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.
IV. 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. 98-19985 Filed 7-24-98; 8:45 am]
BILLING CODE 8010-01-M
