Federal Register / Vol. 63, No. 81 /Tuesday, April 28, 1998 / Notices 23315

18 17 CFR 200.30–3(a)(12).

1 15 U.S.C. 78s(b)(1).

2 17 CFR 240.19b–4.

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. 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

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–97–14 and should be

submitted by May 19, 1998.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.18

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 98–11208 Filed 4–27–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39900; File No. SR–MSRB–

98–4]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the Municipal Securities Rulemaking

Board Relating to Rule G–32, on

Disclosures in Connection With New

Issues

April 22, 1998.

On March 25, 1998, 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–98–4)

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

Securities Exchange Act of 1934

(‘‘Act’’),1 and Rule 19b–4 thereunder.2

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 has filed with the

Commission a proposed rule change

consisting of amendments to Rule G–32,

on disclosures in connection with new

issues. The proposed rule change will

provide an alternate method of

compliance by brokers, dealers and

municipal securities dealers with their

obligation to deliver official statements

in final form to customers by settlement

for certain new issues of variable rate

demand obligations. Below is the text of

the proposed rule change. Additions are

italicized; deletions are in brackets.

Rule G–32. Disclosures in Connection

With New Issues

(a) Disclosure Requirements. No

broker, dealer or municipal securities

dealer shall sell, whether as principal or

agent, any new issue municipal

securities to a customer unless such

broker, dealer or municipal securities

dealer delivers to the customer no later

than the settlement of the transaction:

(i) a copy of the official statement in

final form prepared by or on behalf of

the issuer or, if an [a final] official

statement in final form is not being

prepared by or on behalf of the issuer,

a written notice to that effect together

with a copy of an official statement in

preliminary form, if any; provided,

however, that if an official statement in

final form is being prepared for new

issue municipal securities issued in a

primary offering that qualifies for the

exemption set forth in paragraph (iii) of

section (d)(1) of Securities Exchange Act

Rule 15c2–12, a broker, dealer or

municipal securities dealer may sell

such new issue municipal securities to

a customer if such broker, dealer or

municipal securities dealer:

(A) delivers to the customer no later

than the settlement of the transaction a

copy of an official statement in

preliminary form, if any, and written

notice that the official statement in final

form will be sent to the customer within

one business day following receipt

thereof by the broker, dealer or

municipal securities dealer, and

(B) sends to the customer a copy of

the official statement in final form, by

first class mail or other equally prompt

means, no later than the business day

following receipt thereof by the broker,

dealer or municipal securities dealer;

and

(ii) No change.

[In the event an official statement in

final form will not be prepared by or on

behalf of the issuer, an official statement

in preliminary form, if any, shall be sent

to the customer with a notice that no

final official statement is being

prepared.]

Every broker, dealer or municipal

securities dealer shall promptly furnish

the documents and information referred

to in this section (a) to any broker,

dealer or municipal securities dealer to

which it sells new issue municipal

securities, upon the request of such

broker, dealer or municipal securities

dealer.

(b) No change.

(c) Definitions [of New Issue

Municipal Securities and Official

Statement].

For purposes of this rule, the

following terms have the following

meanings:

(i)–(iii) No change.

(iv) The term ‘‘primary offering’’ shall

mean an offering defined in Securities

Exchange Act Rule 15c2–12(f)(7).

* * * * *

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 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

1. Purpose

The Board is proposing an

amendment to Rule G–32, on

disclosures in connection with new

issues, that would permit brokers,

dealers and municipal securities dealers

(‘‘dealers’’), selling variable rate demand

obligations to customers during the

underwriting period, to deliver a

preliminary official statement by no

later than settlement and to send the

official statement in final form within

one business day of receipt from the

issuer, provided these variable rate

demand obligations qualify for the

exemption provided under

subparagraph (d)(1)(iii) of Rule 15c2–12

under the Act (‘‘Rule 15c2–12’’).

Background. Rule G–32 provides that

no dealer shall sell any new issue

municipal securities to a customer

unless that dealer delivers to the
23316 Federal Register / Vol. 63, No. 81 /Tuesday, April 28, 1998 / Notices

3The rule applies to all municipal securities

(other than commercial paper) that are sold by a

dealer during the issue’s underwriting period, as

such term is defined under Board rules.

4The Bond Market Association states that ‘‘[i]t

usually takes about one month from the sale date

for the bonds to be actually ready to be delivered

to investors.’’ Public Securities Association,

Fundamentals of Municipal Bonds, Fourth Edition

(1990).

5See Securities Exchange Act Release No. 15247

(October 19, 1978), 43 FR 50526 (October 30, 1978)

(File No. SR–MSRB–77–12). The Commission

approved several Board rules in this release,

including G–32.

6The Commission approved this amendment is

Securities Exchange Act Release No. 22374 (August

30, 1985), 50 FR 36505 (September 6, 1985) (File

No. SR–MSRB–85–11). Subsequent amendments

have been limited to providing a definition of

‘‘underwriting period’’ and clarifying the exemption

for commercial paper. In addition, the Board has

filed with the Commission a proposed amendment

that relates primarily to dealer-to-dealer

dissemination of official statements. See File No.

SR–MSRB–97–14 (December 22, 1997, amended

March 12, 1998).

7Securities Exchange Act Release No. 26985

(June 28, 1989), 54 FR 28799 (July 10, 1989).

8For example, the seven business day time frame

of paragraph (b)(3) of Rule 15c2–12 presumably

anticipated a typical Bond Delivery Period of at

least one and one-half weeks since the final official

statement is generally expected to be available at

least by closing of the underwriting transaction.

9See MSRB Reports, Vol. 16, No. 3 (Sept. 1996)

at 19–23.

10See MSRB Reports, Vol. 17, No. 2 (June 1997)

at 23–24.

11See MSRB Reports, Vol. 17, No. 2 (June 1997)

at 3–16.

12See Securities Exchange Act Release No. 39545

(January 13, 1998), 63 FR 3368 (January 22, 1998)

(File No. SR–MSRB–97–10).

13See Securities Exchange Act Release No. 26985

(June 28, 1989), 54 FR 28799 (July 10, 1989).

14This compressed time frame arises as a result

of the fact that, as securities bearing short-term

yields sold at par, the market dictates that pricing—

i.e., the setting of the interest rate borne by the

securities during the initial rate period—and

settlement occur on a same-day or next-day basis.

customer, no later than the settlement of

the transaction, a copy of the official

statement in final form or, if an official

statement in final form is not being

prepared, a written notice to the effect

together with an official statement in

preliminary form, if any.3 The rule is

designed to ensure that a customer who

purchases a new issue municipal

securities is provided with all available

information relevant to his or her

investment decision by settlement of the

transaction.

The structure of Rule G–32, as

currently in effect, is premised on the

standard industry practice of issuers

delivering the securities to the

underwriters two or more weeks after

the sale date for the securities

(hereinafter referred to as the ‘‘Bond

Delivery Period’’).4 The rule was

originally adopted by the Board in

1977 5 and was amended substantially

to its current form in 1985.6 In 1989, the

Commission promulgated Rule 15c2–

12,7 which requires underwriters in

primary offerings subject to the rule,

among other things, to contract with

issuer to receive final official statements

within seven business days after any

final agreement to purchase, offer or sell

municipal securities and to receive

these statements in sufficient time to

accompany any confirmation that

request payment from any customer. At

the time Rule 15c2–12 was drafted, the

industry’s standard Bond Delivery

Period was two or more weeks.8

Presumably, Rule G–32’s official

statement delivery obligation was

premised, at least in part, on this timing

requirement.

The Board has previously sought to

make Rule G–32 consistent with the

provisions of Rule 15c2–12. In 1996, the

Board published a notice requesting

comments on a draft amendment to Rule

G–32 that, among other things, would

have expedited the time that customers

are provided with a final official

statement for primary offerings subject

to Rule 15c2–12 to the date of delivery

of final money confirmations, as

opposed to settlement, as is currently

required.9 The draft amendment was

based on the requirement under Rule

15c2–12 that underwriters contract with

issuers to receive final official

statements in sufficient time to

accompany any confirmation that

requests payment from any customer.

However, the Board decided not to

proceed with the draft amendment

primarily due to commentators’

complaints that frequent delays in

obtaining the final official statement

from the issuer would often make

compliance with the accelerated

timeframe impossible or unduly

expensive and burdensome.10

In the interim, the Board had

launched a review of the underwriting

process which focused on, among other

things, the manner and timeliness of

delivery of official statements from

issuers to underwriters under Rule

15c2–12 and from underwriters to the

Board under Rule G–36.11 The Board

found that, in some instances, issuers do

not meet their contractual obligation

entered into with underwriters pursuant

to Rule 15c2–12 to deliver official

statements within seven business days

after the date of final agreement to

purchase, offer or sell the municipal

securities. The Board noted that, if

issuers are not meeting the current

delivery requirement under Rule 15c2–

12, it is possible that final official

statements also are not being prepared

in time to deliver to customers by

settlement as required under Rule G–32.

Thus, to assist the agencies charged

with enforcing Rules G–32 and G–36

and to provide additional information to

the Board in considering the

effectiveness of such rules, the Board

proposed certain revisions to Forms G–

36(OS) and G–36(ARD) that would

require that underwriters indicate,

among other things, the date that final

official statements are received from the

issuer and the expected date of closing

on the underwriting. The revised forms

went into effect on January 1, 1998 and

are currently being used by

underwriting. The revised forms went

into effect on January 1, 1998 and are

currently being used by underwriters.12

The Board expects that information

obtained through the revised forms, as

well as, through dialogue with industry

participants, will assist it in assessing

the effectiveness of Rule G–32 in the

municipal marketplace as it has evolved

since 1985 and particularly since

promulgation of Rule 15c2–12.

Proposed Amendment. In

promulgating Rule 15c2–12 and in

response to concerns raised by

commentators that applying the

provisions of the rule to variable rate

demand obligations ‘‘might

unnecessarily hinder the operation of

this market,’’ 13 the Commission

provided an exemption to the rule for

any such obligations that can be

tendered by the holders thereof for

purchase by the issuer or its agent at

least as frequently as every nine months

and that are in authorized denomination

of $100,000 or more (‘‘Exempt VRDOs’’).

The decision by the Commission to

exclude Exempt VRDOs from the

operation of Rule 15c2–12 was

consistent with the fundamental

structural differences between such

securities and most of the traditional

market for municipal securities. In most

variable rate demand obligation issues,

particularly those that fall within the

Exempt VRDO category, the purchase

contract is not executed until the issue

closing date or the immediately

preceding day.14 Thus, in the vast

majority of such issues, the Bond

Delivery Period—the period between

the purchase date and the closing date—

is at most only one business day. As

issuers typically do not authorize the

printing of the official statement in final

form until the execution of the purchase

contract, underwriters usually do not

receive the official statement in final

form until the closing date at the earliest

and, in many instances, the printed

version is not available until after the

closing date, at which point the issuer

has already delivered the Exempt

VRDOs to the underwriters.
Federal Register / Vol. 63, No. 81 /Tuesday, April 28, 1998 / Notices 23317

15As in the current rule, if no official statement

in final form is being prepared, such dealer would

deliver to the customer by settlement the official

statement in preliminary form, if any, and written

notice to the effect that an official statement in final

form is not being prepared. If neither a final nor a

preliminary official statement is being prepared, the

dealer would only be obligated to deliver by

settlement the written notice to the effect that no

official statement in final form is being prepared.

16Section 15B(b)(2)(C) states that the Board’s

rules 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

transaction 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.

17 17 CFR 200.30–3(a)(12).

1 15 U.S.C. 78s(b)(1).

The Board has determined that,

because the Bond Delivery Period for

Exempt VRDOs is at most one business

day, it is often not possible for dealers

to settle with customers—who expect to

receive delivery of their securities on

the issue date—without causing a

violation of the requirement that they

deliver the official statement in final

form to such customers by settlement.

As a result, the Board is proposing an

amendment to Rule G–32 that would

permit a dealer, selling new issue

Exempt VRDOs, to deliver the official

statement in preliminary form to the

customer by settlement, together with a

written notice that the official statement

in final form will be sent to the

customer within one business day of

receipt. Thereafter, once the dealer

receives the official statement in final

form, it must send a copy to the

customer within one business day of

receipt. If no official statement in

preliminary form is being prepared, the

dealer would only be obligated to

deliver by settlement the written notice

regarding the official statement in final

form and to send the official statement

in final form upon receipt.15 The

proposed amendment offers an

alternative method of compliance with

Rule G–32 in the case of Exempt

VRDOs. Thus, in those limited

circumstances where dealers may in fact

receive the official statement in final

form in sufficient time to deliver it to

customers by settlement (e.g., if an

issuer approves completion of the

official statement in final form prior to

execution of the purchase contract),

dealers would have the option of

complying with the existing provision

of the rule by delivering the official

statement in final form to the customer

by settlement.

2. Statutory Basis

The Board believes the proposed rule

change is consistent with Section

15B(b)(2)(C) of the Act.16 The Board

believes that the proposed rule change

will ensure that the primary market in

municipal securities continues to

experience adequate levels of disclosure

without disruption to the market for

variable rate demand obligations.

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

Within 35 days of the publication of

this notice in the Federal Register or

within such longer period (i) as the

Commission may designated 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 the 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. 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

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–98–4 and should be

submitted by May 19, 1998.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.17

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 98–11209 Filed 4–27–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39893; File No. SR–NASD–

98–23]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the National Association of Securities

Dealers, Inc. Relating to an

Amendment to the NASD’s Options

Position Limits Rule

April 21, 1998.

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

Securities Exchange Act of 1934

(‘‘Exchange Act’’ or ‘‘Act’’),1 notice is

hereby given that on March 10, 1998,

NASD Regulation, Inc. (‘‘NASD

Regulation’’) filed with the Securities

and Exchange Commission (‘‘SEC’’ or

‘‘Commission’’) the proposed rule

change as described in Items I, II, and

III below, which Items have been

prepared by the self-regulatory

organization. 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

NASD Regulation is proposing to

amend Rule 2860(b) of the of the

National Association of Securities

Dealers, Inc. (‘‘NASD’’ or ‘‘Association’’)

to: (1) increase the position limits on

conventional equity options to three

times the basic position limits for

standardized equity options on the same

security; (2) disaggregate conventional

equity options from standardized equity

options and FLEX Equity Options for

position limit purposes; and (3) provide

that the OTC Collar Aggregation

Exemption shall be available with

respect to an entire conventional equity

options position, not just that portion of

the position that is established pursuant

to the NASD’s Equity Option Hedge

Exemption. Below is the text of the

proposed rule change. Proposed new