65114 Federal Register / Vol. 62, No. 237 / Wednesday, December 10, 1997 / Notices

3The Commission notes that the filing may raise

questions concerning payment for order flow. To

the extent that it does raise such issues, exchange

members should consider any associated disclosure

obligations, namely pursuant to Rules 10b–10 and

11Ac1–3 under the Act, 17 CFR 240.10b–10 and 17

CFR 240.11Ac1–3, respectively. 4 17 CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1).

in a given quarter. The new credit is

delineated in Exhibit A.

2. Statutory Basis

The proposed rule change is

consistent with Section 6(b) of the Act

in general, and furthers the objectives of

Section 6(b)(5) in particular in that it is

designed to promote just and equitable

principles of trade and to remove

impediments to and perfect the

mechanism of a free and open market

and a national market system, and, in

general, to protect investors and the

public interest. It is also consistent with

Section 6(b)(4) in that it is designed to

provide for the equitable allocation of

reasonable dues, fees, and other charges

among Exchange members by crediting

members on a pro rata basis.3

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The CSE does not believe that the

proposed rule change will impose any

inappropriate burden on competition.

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received from

Members, Participants or Others

No written comments were solicited

in connection with the proposed rule

change.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

The foregoing rule change has become

effective pursuant to Section 19(b)(3)(A)

of the Act and subparagraph (e)(2) of

Rule 19b–4 thereunder because it

constitutes or changes a due, fee, or

other charge imposed by the Exchange.

At any time within 60 days of the filing

of such proposed rule change, the

Commission may summarily abrogate

such 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

Section, 450 Fifth Street, N.W.,

Washington, D.C. 20549. Copies of such

filings will also be available for

inspection and copying at the principal

office of the CSE. All submissions

should refer to File No. SR–CSE–97–12

and should be submitted by December

31, 1997.

For the Commission, by the Division of

Market Regulation, pursuant to the delegated

authority.4

Margaret H. McFarland,

Deputy Secretary.

Exhibit A

Proposed Rule Change

The Cincinnati Stock Exchange, Incorporated

Additions are italicized

Rule 11.10 National Securities Trading

System Fees

A. Trading Fees.

a.—(1) No Change.

(j) Tape ‘‘B’’ Transactions. The CSE will

not impose a transaction fee on Consolidated

Tape ‘‘B’’ securities. In addition, Members

will receive a pro rata transaction credit

based on the following schedule:

Average quarterly exchange

Tape B transaction market

share

Percentage

of Tape B

revenue

credited

1–2.99% .................................... 10

3–4.99% .................................... 25

5–6.99% .................................... 30

7% and greater ......................... 40

(k)—(n) No Change.

B. Membership Fees.

No Change.

[FR Doc. 97–32310 Filed 12–9–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39391; File No. SR–MSRB–

97–8]

Self-Regulatory Organizations; Notice

of Filing and Immediate Effectiveness

of Proposed Rule Change by the

Municipal Securities Rulemaking

Board Relating to Interpreatioan of

Rule G–38 on Consultants

December 3, 1997.

On November 13, 1997, 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–97–8),

pursuant to Section 19(b)(1) of the

Securities Exchange Act of 1934

(‘‘Act’’),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

Bank Affiliates and Definition of Payment

Q: A bank and its employees communicate

with an issuer on behalf of an affiliated

dealer to obtain municipal securities

business for that dealer. In return, the bank

and its employees receive certain ‘‘credits’’

from the dealer. These credits, which do not

involve any direct or indirect cash payments

from the dealer to the bank or its employees,

are used for internal purposes to identify the

source of business referrals. Are the credits

considered a ‘‘payment’’ under rule G–38

thereby requiring the dealer to designate the

bank or its employees as consultants and

comply with the requirements of rule G–38?

A: Rule G–38 defines a consultant as any

person used by a dealer to obtain or retain

municipal securities business through direct

or indirect communication by such person

with an issuer on behalf of the dealer where

the communication is undertaken by the
Federal Register / Vol. 62, No. 237 / Wednesday, December 10, 1997 / Notices 65115

2Municipal finance professionals and any person

whose sole basis of compensation is the actual

provision of legal, accounting or engineering advice

services or assistance are expected from the

definition of consultant.

3The Securities Exchange Act of 1934 (the ‘‘Act’’)

defines the term ‘‘person’’ as a ‘‘natural person,

company, government, or political subdivision,

agency, or instrumentality of a government.’’ Board

rule D–1 provides that unless the contest otherwise

specifically requires, the terms used in Board rules

shall have the same meanings as set forth in the Act.

4Securities Exchange Act Release No. 36727 (Jan.

17, 1996); 61 FR 1955 (Jan. 24, 1996). The rule

became effective on March 18, 1996. See also MSRB

Manual, General Rules, Rule G–38 (CCH) ¶ 3686.

5 MSRB Manual, General Rules, Rule G–37 (CCH)

¶ 3681.

6 MSRB Manual, General Rules, Rule G–20 (CCH)

¶ 3596.

7 MSRB Manual, General Rules, Rule G–17 (CCH)

¶ 3581.

8See Securities Exchange Act Release No. 36950

(March 11, 1996); 61 FR 10828 (March 15, 1996)

and Securities Exchange Act Release No. 37997

(Nov. 29, 1996); 61 FR 64781 (Dec. 6, 1996).

See also MSRB Reports Vol. 16, No. 2 (June 1996)

at 3–5; and Vol. 17, No. 1 (Jan. 1997) at 15.

9Section 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.’’

10 17 CFR 240.19b–4(e)(1).

11 17 CFR 200.30–3(a)(12).

person in exchange for, or with the

understanding of receiving, payment from

the dealer or any other person.2 The term

payment, as used in rule G–38, means any

gift, subscription, loan, advance, or deposit of

money or anything of value. The absence of

an immediate transfer of funds or anything of

value to an affiliate or individual employed

by the afilitate would not exclude the credits

from the definition of payment if such credits

eventually (e.g., at the end of the fiscal year)

result in compensation to the affiliate or

inficiual employed by the affiliate for

referring municipal securities business to the

dealer. In this regard, the compensation may

be in the form of cash (e.g., a bonus) or noncash. In either case, if the dealer or any other

person 3 eventually gives anything of value

(i.e., make a ‘‘payment’’) to the affiliate or

individual based, even in part, on the

referral, then the affiliate or individual is a

consultant for purposes of rule G–38 and the

dealer must comply with the various

requirements of the rule. For additional

guidance in this area, you may wish to

review Q&A number 6 and 7 (dated February

28, 1996) in the MSRB Manual following

Rule G–38, as well as Q&A number 4 (dated

December 7, 1994) in the MSRB Manual

following Rule G–37.

* * * * *

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 purposed of and basis for the

propose rule change and discussed any

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

On January 17, 1996, the Commission

approved Board Rule G–38 on

consultants.4 The Board adopted the

rule because it was concerned about

dealers’ increasing use of consultants to

obtain or retain municipal securities

business, notwithstanding the

requirements of Rule G–375 on political

contributions and prohibitions on

municipal securities business, Rule G–

206 on gifts and gratuities, and Rule G–

177 on fair dealing. Rule G–38 requires

dealers to disclose information about

their consultant arrangements to issuers

and the public. Recently, the Board has

received inquiries from market

participants concerning the definition of

payment, as used in Rule G–38, and

whether bank affiliates and their

employees may, under certain

circumstances, be deemed consultants

for purposes 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 Rule

G–38, the Board has determined to

publish this third notice of

interpretation which sets forth, in

question-and-answer format, general

guidance on Rule G–38.8 The Board will

continue to monitor the application of

Rule G–38, and, from to time, will

publish additional notices of

interpretations, as necessary.

The Board believes the proposed rule

change is consistent with Section

15B(b)(2)(C) of the Act.9

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, because 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

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 and Rule 19b–4(e) thereunder,

which renders the proposal effective

upon receipt of this filing by the

Commission.10

At any time within sixty days of the

filing of this proposed rule change, the

Commission may summarily abrogate

such 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

submissions, 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–97–8 and should be

submitted by December 31, 1997.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.11

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–32230 Filed 12–9–97; 8:45 am]

BILLING CODE 8010–01–M