[Federal Register Volume 65, Number 226 (Wednesday, November 22, 2000)]
[Notices]
[Pages 70371-70373]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-29888]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43568; File No. SR-MSRB-00-02]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Municipal Securities Rulemaking Board Relating to Rules 
G-8 and G-38 and Form G-37/G-38

November 15, 2000.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on January 27, 2000, the Municipal Securities Rulemaking Board 
(``Board'' or ``MSRB'') filed with the Securities and Exchange 
Commission (``Commission'' or ``SEC'') a proposed rule change as 
described in Items I, II, and III below, which Items have been prepared 
by the Board. The Board filed Amendment No. 1 to the proposed rule 
change on November 15, 2000.\3\ The Commission is publishing this 
notice to solicit comments on the proposed rule change, as amended, 
from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ The Board submitted a new Form 19b-4, which replaces the 
original filing (``Amendment No. 1''). Specifically, Amendment No. 1 
amends MSRB Rules G-38 and G-8 to clarify that the name of the 
consultant is obtained from the consultant agreement. Amendment No. 
1 also revises the filing to include the statutory basis for the 
proposed rule change.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Board proposes to amend Rule G-38, on consultants, Rule G-8, on 
books and records, and revise Section IV of Form G-37/G-38 and the 
attachment page to the form. The text of the proposed rule change is 
available at the MSRB and at the Commission.

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 Exchange 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

1. Purpose
    The Board has received inquiries from dealers that have indicated 
that there is confusion about certain information required to be 
reported in Section IV of Form G-37/G-38 as well as the attachment page 
to the form.\4\ One area of confusion concerns whether an individual's 
name must be disclosed on Form G-37/G-38 in each instance in which the 
dealer lists a consultant. Part of this confusion is due to the format 
of Section IV of the form as well as the attachment page. Dealers list 
their consultants in Section IV of Form G-37/G-38 and they must provide 
additional information about each consultant on separate attachment 
pages. Under Section IV, there is one column labeled ``Name of 
Consultant'' and another column labeled ``Consultant Company Name.'' On 
the attachment page to the form, the first line indicates that a dealer 
is to report the ``Name of Consultant'' and the next line indicates the 
reporting of the ``Consultant Company Name.'' The Instructions for 
Completing and Filing Form G-37/G-38 \5\ state that a dealer should 
list the name of each consultant along with the consultant company name 
under Section IV and on the attachment page a dealer should list the 
name of the consultant as well as the consultant company name.
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    \4\ Rule G-38(d) states that each dealer shall send to the Board 
reports on Form G-37/G-38 of all consultants used by the dealer 
during each calendar quarter. These reports currently must include, 
among other things, for each consultant, the consultant's name, 
company, role and compensation arrangement.
    \5\ The Instructions for Completing and Filing Form G-37/G-38 
are printed in the MSRB Rule Book (January 1, 2000) at 201-203 and 
the Instructions are posted on the Board's web site (www.msrb.org) 
under the links for Rules G-37 and G-38.
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    A dealer must determine whether its consultant is an individual or 
a company based upon its Consultant Agreement \6\ with the 
consultant.\7\ If the Consultant Agreement is with an individual, then 
only the individual's name should be reported on the form and not a 
company name. Conversely, if the Consultant Agreement is with a 
company, only the company's name should be reported and not an 
individual's name.
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    \6\ Rule G-38(b) currently requires each dealer that uses a 
consultant to evidence the consulting arrangement by writing (the 
``Consultant Agreement'') that sets forth, at a minimum, the name, 
company, role and compensation arrangement of each such consultant.
    \7\ See Question and Answer Notice: Rule G-38 dated May 20, 
1998, MSRB Rule Book (January 1, 2000) at 210. In this notice, 
concerning bank affiliates and the definition of payment, the Board 
stated that ``each dealer (bank or securities firm) should determine 
whether the affiliate or individual employee(s) of the affiliate is 
its consultant(s), and must then ensure compliance with Rule G-38, 
including the contractual arrangements and disclosures required by 
the rule.''
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    The identification of a dealer's consultants has become even more 
significant with the recent amendments to Rules G-38, G-8, and G-37 
that became effective on April 1, 2000.\8\ Pursuant to those 
amendments, if an individual is a consultant, the

[[Page 70372]]

individual will relay to the dealer his or her reportable political 
contributions, reportable political party payments, and the reportable 
contributions and reportable payments of any political action committee 
(``PAC'') controlled by the individual. If the consultant is a company, 
the company will relay its reportable contributions and reportable 
payments to the dealer, as well as those made by any partner, director, 
officer or employee of the consultant who communicates with issuers to 
obtain municipal business on behalf of the dealer, and any PAC 
controlled by the consultant or any partner, director, officer or 
employee of the consultant who communicates with issuers to obtain 
municipal securities business on behalf of the dealer. Dealers will 
report this contribution and payment information to the Board on Form 
G-37/G-38 by contributor category (i.e., company, individual, company 
controlled PAC, or individual controlled PAC).\9\
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    \8\ See Securities Exchange Act Release No. 42205 (December 7, 
1999), 64 FR 69808 (December 14, 1999).
    \9\ Pursuant to Rule G-37, on political contributions and 
prohibitions on municipal securities business, dealers are also 
required to report their contributions and payments in Sections I 
and II of Form G-37/G-38 by contributor category (i.e., dealer, 
dealer controlled PAC, municipal finance professional controlled 
PAC, municipal finance professionals, and executive officers)
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    The current language of Rules G-38 and G-8 and the formats of Forms 
G-37/G-38, the attachment page, and the Instructions, are not as clear 
as they could be about the information required for identifying a 
consultant. The proposed rule change would amend Rule G-38 to remove 
the separate references to the consultant's company name from the 
requirements regarding the Consultant Agreement, the disclosure to 
issuers, and the disclosure to the Board. In addition, the proposed 
rule change would remove the requirement in Rule G-8 for dealers to 
maintain a separate record of the company name. The proposed rule 
change would also amend Rules G-8(a)(xviii)(A) and G-38(d) and (e) to 
add the phrase ``pursuant to the Consultant Agreement'' after the 
consultant's name.\10\ The proposed rule change would also revise the 
formats of Section IV of Form G-37/G-38 and the attachment page to 
state ``Name of Consultant (pursuant to Consultant Agreement)'' and 
delete the reference to the ``Consultant Company Name.'' Thus, a dealer 
would provide the name of an individual, if the consultant is an 
individual, or of a company, if the consultant is a company, depending 
upon whether the dealer has entered into a Consultant Agreement with an 
individual or a company. These revisions will eliminate existing 
ambiguities under the rules resulting from the requirements that 
information regarding both an individual and a company be provided. 
This also will make it clear to dealers and the public who is 
responsible for relaying information about reportable contributions and 
payments to the dealers.
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    \10\ See Amendment No. 1, supra note 3.
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    Another area addressed by the proposed rule change concerns the 
role of the consultant. Pursuant to Rule G-38, a dealer is required to 
include within the Consultant Agreement the role of the consultant, to 
disclose this rule to the issuer and to the Board and, pursuant to Rule 
G-8, to maintain a record of the role. The Instructions for Completing 
and Filing Form G-37/G-38 state that, in describing a consultant's 
role, a dealer should include the state or geographic area in which the 
consultant is working on behalf of the dealer. In addition, the Board 
issued a Question and Answer notice on Rule G-38 in which it stated 
that 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.\11\
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    \11\ See Rule G-38 Question and Answer number 1 dated November 
18, 1996, MSRB Rule Book (January 1, 2000) at 210. The Rule G-38 
Questions and Answers are also posted on the Board's web site at 
www.msrb.org.
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    From a review of the Forms G-37/G-38 submitted by dealers, there 
are a number of instances in which dealers have not reported the state 
or geographic area in which their consultants are working. The proposed 
rule change will revise Rules G-38 and G-8 to explicitly require the 
reporting of the state or geographic area in which a consultant is 
working on behalf of a dealer in the description of the consultant's 
role. The proposed rule change will also revise the attachment page to 
Form G-37/G-38 to include a parenthetical phrase in the section for 
reporting the role to be performed by the consultant to note that 
dealers should report the state or geographic area in which the 
consultant is working on behalf of the dealer.
2. Statutory Basis
    The Board believes the proposed rule change is consistent with 
section 15B(b)(2)(C) \12\ of the Act, which requires that the Board's 
rules 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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    \12\ 15 U.S.C. 78o-4(b)(2)(C).
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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 that is not necessary or appropriate 
in furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received from Members, Participants, or Others

    The Board did not solicit or receive written 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 Board consents, the Commission will:
    (A) By order approved such proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. 
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

[[Page 70373]]

Room. Copies of such filing will also be available for inspection and 
copying at the principal office of the MSRB. All submissions should 
refer to the File No. SR-MSRB-00-02 and should be submitted by December 
13, 2000.
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    \13\ 17 CFR 200.30-3(a)(12).

For the Commission, by the Division of Market Regulation, pursuant 
to delegated authority.\13\
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-29888 Filed 11-21-00; 8:45 am]
BILLING CODE 8010-01-M