[Federal Register Volume 59, Number 169 (Thursday, September 1, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-21571]
[[Page Unknown]]
[Federal Register: September 1, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34601; File No. SR-MSRB-94-12]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the Municipal Securities Rulemaking Board Relating to
Underwriting Assessment for Brokers, Dealers, and Municipal Securities
Dealers
August 25, 1994.
On August 15, 1994, the Municipal Securities Rulemaking (``Board''
or ``MSRB'') filed with the Securities and Exchange Commission
(``Commission'' or ``SEC'') a proposed rule change (File No. SR-MSRB-
94-12), 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 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 a proposed amendment to rule A-13 on
Underwriting Assessment for Brokers, Dealers and Municipal Securities
Dealers. Board rule A-13 requires dealers to pay fees to the Board
based upon the dealer's individual participation in primary offerings
of municipal securities (``rule A-13 fees'') and the proposed amendment
would preclude brokers, dealers and municipal securities dealers
(``dealers'') from charging or otherwise passing through rule A-13 fees
to issuers. The Board requests that the Commission delay effectiveness
of the proposed rule change until 30 days after approval by the
Commission is published in the Federal Register to ensure their
underwriting practices are in compliance.
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
text 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) Purpose
Rule A-13 requires each dealer to pay to the Board a fee based upon
the dealer's participation in ``primary offerings'' of municipal
securities.\1\ In addition to rule A-13 fees, the Board charges an
initial fee of $100 and an annual fee of $100 under rules A-12 and A-
14, respectively, but rule A-13 fees provide the bulk of Board
revenues. The amount of rule A-13 fees owed is based upon the par value
of the dealer's participation in primary offerings.\2\ No obligation to
pay a rule A-13 fee is generated by participation in the following
types of primary offerings: (i) Those composed exclusively of
securities less than nine months in maturity; (ii) offerings under $1
million in par value; and (iii) ``limited placement'' offerings, as
described in subsection (c)(1) of Exchange Act Rule 15c2-12.\3\
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\1\As used in rule A-13, ``primary offering'' is defined as in
Exchange Act Rule 15c2-12 on municipal securities disclosure. Thus,
a dealer's obligation under rule A-13 is triggered by its
participation in the offering of municipal securities by or on
behalf of an issuer, whether the dealer is purchasing the securities
directly (i.e., is acting as underwriter) or is acting as an agent
in placing the securities with investors. The obligation of a dealer
to deliver an official statement to the Board under Board rule G-36
also is based upon the dealer's participation in a ``primary
offering.'' Consistent use of the concept of ``primary offering'' in
rules A-13 and G-36 has created substantial administrative
efficiencies for the Board by allowing A-13 fee invoicing to be
accomplished in an automated matter with data collected under rule
G-36.
\2\Currently, the assessment under rule A-13 is $.03 per $1,000
par value for offerings containing securities two years or more in
maturity. If the longest maturity in an offering is over nine months
but less than two years, the assessment is $.01 per $1,000 par value
of the issue. For purposes of calculating the assessment, a put
option date is treated the same as a maturity date, e.g., a primary
offering of a security with a put option of one year would generate
an assessment at the $.01 rate.
\3\``Limited placement'' offerings are those that are sold to no
more than 35 persons each of whom the underwriter reasonably
believes (i) has such knowledge and experience in financial and
business matters that it is capable of evaluating the merits and
risks of the prospective investment and (ii) is not purchasing for
more than one account or with a view to distributing the securities.
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Rule A-13 states that, if a syndicate or similar account is formed
for the purpose of purchasing securities from an issuer, the managing
underwriter is responsible to pay the assessment fee on behalf of each
participant in the syndicate. Payment by the managing underwriter,
rather than by individual syndicate members, is solely an
administrative convenience for underwriters and the Board. The Board
invoices managing underwriters monthly for rule A-13 fees, based upon
information filed with the Board under rule G-36 on delivery of
official statements to the Board.
Rule A-13 is intended to provide a dealer assessment that roughly
reflects each dealer's involvement in the municipal securities market.
In adopting rule A-13 in 1976, the Board recognized that participation
in new issue offerings was not a perfect means to measure a dealer's
involvement in the market because the assessment would not, among other
things, reflect secondary market transactions and activity. However,
after looking at alternative assessment mechanisms and methods of
establishing accounts receivable available at that time, the Board
concluded that a fee based on underwriting participation was the best
available means to create verifiable assessments generally reflecting a
dealer's involvement in the market.
The Board is aware that, in negotiated underwritings, the subject
of rule A-13 fees sometimes is raised in the context of discussions of
expenses to be paid by the issuer of the securities. The Board believes
that it is misleading for underwriters to characterize rule A-13 fees
in this fashion. Since rule A-13 fees are assessments on dealers for
the operation of the Board, the Board believes that a dealer's
obligation under rule A-13 should not be charged or otherwise passed
through to an issuer as an expense to the issuer of bringing a new
issue to market. In this respect, the fees paid to the Board by dealers
under rule A-13 should be characterized by dealers to issuers no
differently than the annual fees paid to the Board under rule A-14 and
any other ``overhead'' expenses that are incurred by virtue of the
dealer engaging in municipal securities business.
(b) Statutory Basis
As set forth in Section 15B(b)(2)(J) of the Act, the Board has
authority to adopt rules to:
provide that each municipal securities broker and each municipal
securities dealer shall pay to the Board such reasonable fees and
charges as may be necessary or appropriate to defray the costs and
expenses of operating and administering the Board.
The Board believes that the proposed rule change is consistent with its
authority to charge dealers reasonable fees to defray the costs of
operating and administering the Board. The proposed rule change makes
clear that the fees levied under rule A-13 are to be paid by dealers
and not issuers.
B. Self-Regulatory Organization's Statement on Burden on Competition
The proposed rule change will equally apply to all dealers.
Therefore, the Board does not believe that the proposed rule change
will impose any burden on competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received from Members, Participants, or Others
The Board has not solicited comments on the proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing
for Commission Action
Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) As the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve such proposed rule change, or
(B) Institute proceedings to determine whether the proposed rule
change should be disapproved.
The Board requests that the Commission delay effectiveness of the
proposed rule change until 30 days after approval by the Commission is
published in the Federal Register to ensure that their underwriting
practices are in compliance.
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 Commissions, 450 Fifth Street, NW., Washington, DC 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. 522, 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-94-12 and should be
submitted by September 22, 1994.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\4\
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\4\17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-21571 Filed 8-31-94; 8:45 am]
BILLING CODE 8010-01-M
