[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]


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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

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proposed rule change appeared in the Federal Register on April 28, 
1998.\4\ This order approves the proposed rule change.
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    \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.
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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.
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    \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.
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    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.
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    \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.
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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.
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    \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.
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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.
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    \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.
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    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).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. 98-19985 Filed 7-24-98; 8:45 am]
BILLING CODE 8010-01-M