[Federal Register Volume 75, Number 105 (Wednesday, June 2, 2010)]
[Notices]
[Pages 30893-30897]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-13156]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62182, File No. SR-MSRB-2009-09]


Self-Regulatory Organizations; Municipal Securities Rulemaking 
Board; Order Granting Approval of Proposed Rule Change, as Modified by 
Amendment Nos. 1 and 2 Thereto, Relating to Rule G-32, on Disclosures 
in Connection with Primary Offerings, Form G-32, and the Primary Market 
Disclosure and Primary Market Subscription Services of the MSRB's 
Electronic Municipal Market Access System (EMMA[supreg])

May 26, 2010.

I. Introduction

    On July 14, 2009, the Municipal Securities Rulemaking Board 
(``MSRB''), filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC''), pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Exchange Act''),\1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change relating to Rule G-32, relating 
to disclosures in connection with primary offerings, Form G-32, and the 
primary market disclosure and primary market subscription services of 
the MSRB's Electronic Municipal Market Access System (``EMMA''). The 
proposed rule change was published for comment in the Federal Register 
on July 22, 2009.\3\ The Commission received eight comment letters 
about the proposed rule change.\4\ On December 18, 2009, the MSRB filed 
with the Commission, pursuant to Section 19(b)(1) of the Exchange Act 
\5\ and Rule 19b-4 thereunder,\6\ Amendment No. 1 to the proposed rule 
change. Amendment No. 1 to the proposed rule change was published for 
comment in the Federal Register on January 5, 2010.\7\ The Commission 
received no comment letters concerning Amendment No. 1. On May 21, 
2010, the MSRB filed with the Commission, pursuant to Section 19(b)(1) 
of the Exchange Act \8\ and Rule 19b-4 thereunder,\9\ Amendment No. 2 
to the proposed rule change requesting an additional three months to 
implement the proposal.\10\ This order approves the proposed rule 
change, as modified by Amendment Nos. 1 and 2.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 60314 (July 15, 
2009), 74 FR 36300 (July 22, 2009) (the ``original proposed rule 
change'').
    \4\ See letters from: Ernesto A. Lanza, General Counsel, MSRB, 
dated August 6, 2009; Michael Decker, Co-CEO and Mike Nicholas, Co-
Chief Executive Officer, Regional Bond Dealers Association 
(``RBDA''), dated August 12, 2009 (``RBDA Letter''); Leon J. Bijou, 
Managing Director and Associate General Counsel, Securities Industry 
and Financial Markets Association (``SIFMA''), dated August 12, 2009 
(``SIFMA Letter''); John Wallingford, Executive Board Member, 
Virginia Government Finance Officers' Association (``Virginia 
GFOA''), dated August 12, 2009; William A. Holby, President, The 
National Association of Bond Lawyers (``NABL''), dated August 13, 
2009 (``NABL Letter''); Marycarol C. White, CPA, CPFO, President, 
Virginia Government Finance Officers' Association, dated August 14, 
2009 (``Virginia GFOA Letter''); Denise L. Nappier, Connecticut 
State Treasurer, dated August 20, 2009 (``Connecticut Treasurer 
Letter''); and Heather Traeger, Associate Counsel, Investment 
Company Institute (``ICI''), dated August 21, 2009 (``ICI Letter'').
    \5\ 15 U.S.C. 78s(b)(1).
    \6\ 17 CFR 240.19b-4.
    \7\ See Securities Exchange Act Release No. 61238 (December 23, 
2009), 75 FR 492 (January 5, 2010).
    \8\ 15 U.S.C. 78s(b)(1).
    \9\ 17 CFR 240.19b-4.
    \10\ This is a technical amendment and is not subject to notice 
and comment.

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[[Page 30894]]

II. Description of the Proposed Rule Change, as Modified by Amendment 
Nos. 1 and 2 to the Proposed Rule Change

    The proposed rule change consists of amendments to Rule G-32 and 
Form G-32 to require underwriters of primary offerings of municipal 
securities to submit to the MSRB's EMMA system, as part of their 
primary offering submission obligation under Rule G-32(b), certain key 
items of information relating to continuing disclosure undertakings 
made by issuers and other obligated persons in connection with such 
primary offerings. These items of information would be made available 
to the public through the EMMA Web portal and are intended to inform 
investors in advance whether continuing disclosures will be made 
available with respect to a particular municipal security, from and 
about whom such continuing disclosures are expected to be made, and the 
timing by which such disclosures should be made available.
    The items of information regarding continuing disclosure 
undertakings to be provided by underwriters through Form G-32 would 
include:
    <bullet> Whether the issuer or other obligated persons have agreed 
to undertake to provide continuing disclosure information as 
contemplated by Securities Exchange Act Rule 15c2-12;
    <bullet> The name of any obligated person, other than the issuer of 
the municipal securities, that has or will undertake, or is otherwise 
expected to provide, continuing disclosure as identified in the 
continuing disclosure undertaking;\11\
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    \11\ Amendment No. 1 proposes to modify the original proposed 
rule change by conforming the definition of obligated person more 
closely with the definition used in Rule 15c2-12 and by making clear 
that the obligated persons to be identified are those that are 
specifically identified in the continuing disclosure undertaking.
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    <bullet> The timing set forth in the continuing disclosure 
undertaking, pursuant to Rule 15c2-12(b)(5)(ii)(C) or otherwise, for 
the submission of annual financial information each year by the issuer 
and/or any obligated persons to the EMMA system, either as a specific 
date or as the number of days or months after a specified end date of 
the issuer's or obligated person's fiscal year.\12\
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    \12\ Amendment No. 1 proposes to modify the original proposed 
rule change by permitting this information to be provided as the 
number of days or months after the end of the fiscal year, if the 
fiscal year end date is also submitted, as an alternative to 
submission of the specific deadline date as provided in the original 
proposed rule change.
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    Amendment No. 1 proposes to make certain modifications to the 
original proposed rule change based on comments received on the 
original proposed rule change. Amendment No. 1 would modify the 
original proposed rule change by eliminating the proposed requirement 
to submit contact information for a representative of the issuer and/or 
any obligated persons for purposes of establishing continuing 
disclosure submission accounts for such issuer and/or obligated persons 
in connection with their submissions to the EMMA system. Underwriters 
currently are able to provide contact information for issuer or 
obligated person representatives with respect to current and past 
primary offerings through EMMA on a voluntary basis and the MSRB 
believes that this process has been effective.
    The name or names of obligated persons to be provided would be of 
the entity acting as an obligated person identified in the continuing 
disclosure undertaking, not an individual at such entity, unless the 
obligated person is in fact an individual. The timing for submission of 
annual financial information could be provided either as a specific 
date each year (i.e., month and day, such as June 30) or the number of 
days or months after the end of the fiscal year (i.e., 120 days after 
the end of the fiscal year). The underwriter could use the day/month 
count alternative only if the underwriter also submits the day on which 
the issuer's or obligated person's fiscal year ends (i.e., month and 
day, such as June 30). If annual financial information is expected to 
be submitted by more than one entity and such information is expected 
to be submitted by different deadlines, each such deadline would be 
provided matched to the appropriate issuer and/or obligated person.
    The underwriter would be required to provide information regarding 
whether the issuer or other obligated persons have agreed to undertake 
to provide continuing disclosure information as contemplated by Rule 
15c2-12 by no later than the date of first execution of transactions in 
municipal securities sold in the primary offering. The remaining items 
of information would be required to be provided by the closing date of 
the primary offering. Until closing, the underwriter would be required 
to update promptly any information it has previously provided on Form 
G-32 which may have changed or to correct promptly any inaccuracies in 
such information, and would be responsible for ensuring that such 
information provided by it is accurate as of the closing date. So long 
as the underwriter has provided such information accurately as of the 
closing date, it would not be obligated to update the information 
provided if there are any subsequent changes to such information, such 
as additions, deletions or modifications to the identities of obligated 
persons or changes in the timing for providing annual financial 
information. Issuers and obligated persons will be able to make changes 
to such information through their submission accounts established in 
connection with EMMA's continuing disclosure service.
    Information regarding whether an offering is subject to a 
continuing disclosure undertaking, the names of obligated persons and 
the deadlines for providing annual financial information would be 
displayed on the EMMA Web portal and also would be included in EMMA's 
primary market disclosure subscription service. These items are 
intended to provide investors and others with information on the 
expected availability of disclosures following the initial issuance of 
the securities. In particular, users of the EMMA Web portal would be 
able to determine which obligated persons are expected to submit annual 
financial information, audited financial statements and material event 
notices on an on-going basis, as well as the date each year by which 
they should expect to have access to the annual financial information.
    In Amendment No. 2, the MSRB requested an effective date for the 
proposed rule change of a date to be announced by the MSRB in a notice 
published on the MSRB Web site, which date shall be no later than one 
year after Commission approval of the proposed rule change and shall be 
announced no later than sixty (60) days prior to the effective date.

III. Summary of Comments Received and the MSRB's Response

General Comments

    As previously noted, the Commission received eight comment letters 
on the original proposed rule change \13\ and no comments on Amendment 
No. 1. Most of the commenters expressed support for the proposal's 
general goal of increasing transparency and disclosure in the market 
for municipal securities.\14\ However, some commenters objected to 
specific new requirements that the

[[Page 30895]]

proposal would place on underwriters,\15\ requested clarification of 
certain aspects of the proposal,\16\ suggested alternative 
approaches,\17\ or expressed concern with the timing of the 
proposal.\18\
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    \13\ See supra note 4.
    \14\ See, e.g., RBDA Letter, SIFMA Letter, Virginia GFOA Letter, 
Connecticut Treasurer Letter, ICI Letter. The MSRB filed a comment 
letter noting that it was extending the time period for Commission 
action on the proposed rule change. The first letter from the 
Virginia GFOA requested an extension of time to submit a comment 
letter.
    \15\ See, e.g., RBDA Letter, SIFMA Letter, NABL Letter, 
Connecticut Treasurer Letter.
    \16\ See, e.g., NABL Letter, Connecticut Treasurer Letter.
    \17\ See, e.g., RBDA Letter, SIFMA Letter.
    \18\ See, e.g., SIFMA Letter.
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    The Connecticut Treasurer, ICI and Virginia GFOA were generally 
supportive. The Connecticut Treasurer stated that the original proposed 
rule change would make municipal disclosure more transparent, 
efficient, consistent, comparable and accessible to investors, 
particularly individual investors. ICI stated that the original 
proposed rule change would ensure the accessibility and improve the 
utility of continuing disclosure information for investors and would 
further enhance transparency in the municipal securities market.
    RBDA supported the goal of the original proposed rule change but 
suggested that underwriters be required to submit continuing disclosure 
agreements rather than the information specified in the proposal. SIFMA 
opposed the original proposed rule change. Both RBDA and SIFMA 
expressed concern that requiring underwriters to extract information 
from documents could result in submission of erroneous information to 
EMMA and would create an undue burden and compliance risk for 
underwriters. ICI stated, however, that it believes that the benefits 
to investors stemming from the original proposed rule change would 
outweigh the perceived costs and risks, and that integrating and 
packaging the proposed information would greatly assist investors and 
potential investors in monitoring their investments by easily 
identifying for them whether and when they should expect to have access 
to key continuing disclosure information.
    RBDA distinguished the type of information currently required to be 
reported on Form G-32, characterized as data necessary to create the 
database record of the issue on the EMMA system, from the type of 
information proposed to be collected in the proposed rule change, which 
RBDA characterized as unnecessary for creating the record in EMMA. 
SIFMA stated that the continuing disclosure undertaking is already 
required to be summarized in the official statement available through 
EMMA and that extracting information from the official statement would 
effectively discourage investors from having to read the official 
statement itself. SIFMA further stated that, if the MSRB wants to 
highlight issuers' continuing disclosure obligations, this can be done 
by creating a best practices standard. Finally, SIFMA urged the MSRB to 
commit to making EMMA compatible with information underwriters are 
providing to the Depository Trust and Clearing Corporation's New Issue 
Information Dissemination System (``NIIDS'').
    NABL did not state a position regarding the original proposed rule 
change but recommended clarifications and modifications. NABL 
recommended that the Commission clarify, consistent with Rule 15c2-12, 
that the proposed amendment to Rule G-32 does not alter the 
``reasonable determination'' standard of Rule 15c2-12(b)(5)(i) or 
require underwriters to provide information about obligated persons 
that could be viewed as additional certification beyond the obligations 
prescribed by Rule 15c2-12(b)(5)(i). NABL also suggested that a more 
complete analysis of the MSRB's statutory authority for adopting the 
original proposed rule change be provided.
    The MSRB noted that collecting and displaying on the EMMA Web 
portal the existence of a continuing disclosure obligation, the names 
of any obligated persons other than the issuer, and the deadline for 
submission of annual financial and operating data, all as fielded 
information rather than merely as information provided within 
documents, would provide significant benefits to investors and other 
market participants.\19\ According to the MSRB, the close proximity of 
this information to the links to posted continuing disclosure documents 
on the EMMA Web portal would assist investors with understanding 
whether and when they should expect to have access to key continuing 
disclosure information in the future and about whom such information is 
expected to be provided.\20\ The MSRB stated that investors and other 
market participants would be able to include an assessment of ongoing 
access to information along with other factors upon which they may 
evaluate their investment decisions.\21\ The MSRB remarked that it 
firmly believes that the proposed rule change is within its statutory 
authority and noted that an MSRB rule change or system requirement 
would not have the effect of altering any obligations or standards 
under Rule 15c2-12 or any other Commission rule.\22\
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    \19\ See Amendment No. 1, supra note 7.
    \20\ Id.
    \21\ Id.
    \22\ Id.
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Identification of Obligated Persons

    The original proposed rule change would require the underwriter to 
provide, on amended Form G-32, the name of any obligated person, other 
than the issuer of the municipal securities, that has or will 
undertake, or is otherwise expected to provide, continuing disclosure 
pursuant to the continuing disclosure undertaking.
    NABL suggested that underwriters only be required ``to identify 
those persons expressly specified in the continuing disclosure 
undertaking who will be required to make continuing disclosure filings 
or to state that such persons will be determined by the functional 
descriptions contained in the continuing disclosure undertaking.'' NABL 
recommended that the Commission make clear in any approval order that 
Rule G-32 is intended to be a mechanical reporting requirement by which 
the underwriter is required to report which persons are identified in 
the applicable continuing disclosure agreement as being responsible for 
continuing disclosure, and is not intended to impose on the underwriter 
any new requirement to determine who are the various obligated persons 
with respect to a particular offering. NABL also recommended that the 
definition of obligated person more closely mirror the definition 
thereof in Rule 15c2-12. The Connecticut Treasurer noted that, for some 
issues, obligated persons can change over time and believed that it was 
unclear whether the original proposed rule change accommodated this 
possibility.
    In Amendment No. 1, the MSRB noted its view that collecting the 
identity of obligated persons in a fielded manner that permits 
automated indexing and search functions is an important feature that 
would make the EMMA Web portal considerably more useful for users.\23\ 
The MSRB stated that such indexed information would assist EMMA Web 
users in finding some or all of the offerings for a particular 
obligated person, thereby allowing the user to review the continuing 
disclosure undertakings that more fully spell out how the continuing 
disclosure obligations will be fulfilled.\24\
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    \23\ Id.
    \24\ Id.
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    In Amendment No. 1, the MSRB proposes to modify the definition of 
obligated person in proposed Rule G-32(d)(xiii) to more closely conform 
to the definition thereof in Rule 15c2-

[[Page 30896]]

12(f)(10) to avoid any definitional ambiguity. Furthermore, Amendment 
No. 1 would modify Form G-32 to explicitly provide that the obligated 
persons to be identified are those that are specifically identified in 
the continuing disclosure undertaking. The MSRB emphasized that the 
underwriter's obligation is solely to provide the identities of those 
obligated persons who have a specific commitment under the continuing 
disclosure agreement to provide continuing disclosures. The MSRB stated 
that underwriters would not be required to undertake any independent 
analysis of what other persons might be covered, to submit descriptions 
of bases for determining future obligated persons, or to maintain the 
currency of the list of obligated persons beyond the closing date.\25\
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    \25\ Id. The MSRB indicated that issuers and obligated persons 
would be able to make changes to such information through their 
submission accounts established in connection with EMMA's continuing 
disclosure service.
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Deadline for Annual Filing and End of Fiscal Year

    The original proposed rule change would require the underwriter to 
provide, on amended Form G-32, the date or dates identified in the 
continuing disclosure undertaking, pursuant to Rule 15c2-
12(b)(5)(ii)(C) or otherwise, by which annual financial information is 
expected to be submitted each year by the issuer and/or any obligated 
persons to the EMMA system. NABL recommended that the proposed Form G-
32 be revised to list those dates by which the issuer or those 
expressly identified obligated persons who have agreed to provide 
continuing disclosure pursuant to the continuing disclosure undertaking 
have agreed to provide such information, as opposed to dates by which 
the data is expected to be submitted.
    In Amendment No. 1, the MSRB stated that there is considerable 
value in providing the deadline for submission of annual financial 
information in a manner that is extracted from the official 
statement.\26\ This would permit investors and the general public to 
readily identify when such disclosures should become available from 
each issuer or obligated person expected to provide the annual 
filings.\27\ The MSRB further noted that issuers and obligated persons 
would be able to update the timing requirement, as well as the identity 
of any obligated persons, through EMMA as appropriate.\28\
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    \26\ See Amendment No. 1, supra note 7.
    \27\ Id.
    \28\ Id.
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    In Amendment No. 1, the MSRB proposed a new alternative method for 
reporting the deadline for submissions of annual financial and 
operating data based on the disclosed end of fiscal year, so that 
underwriters could disclose as the submission deadline either a 
specific date each year (i.e., month and day, such as June 30) or the 
number of days or months after the end of the fiscal year (i.e., 120 
days after the end of the fiscal year). The underwriter could use the 
day/month count alternative only if the underwriter also submits the 
day on which the issuer's or obligated person's fiscal year ends (i.e., 
month and day, such as June 30). Form G-32 would be modified to allow 
for submission of this new data element.

Issuer/Obligated Person Contact Information

    The original proposed rule change would require the underwriter to 
provide, on amended Form G-32, contact information for a representative 
of the issuer and/or any obligated persons for purposes of establishing 
continuing disclosure submission accounts for such issuer and/or 
obligated persons in connection with their submissions to the EMMA 
system. The Connecticut Treasurer requested that the current voluntary 
process for providing contact information for representatives of the 
issuer or obligated person for purposes of establishing EMMA submission 
accounts not be made mandatory.
    The MSRB noted that its current voluntary process has been 
effective; therefore Amendment No. 1 would eliminate from Form G-32 the 
requirement that underwriters provide the contact information for a 
representative of the issuer and/or any obligated person.\29\
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    \29\ Id.
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IV. Discussion and Commission Findings

    The Commission has carefully considered the proposed rule change, 
the comment letters received, and the MSRB's responses to the comment 
letters and finds that the proposed rule change is consistent with the 
requirements of the Exchange Act and the rules and regulations 
thereunder applicable to the MSRB\30\ and, in particular, the 
requirements of Section 15B(b)(2)(C) of the Exchange Act\31\ and the 
rules and regulations thereunder. Section 15B(b)(2)(C) of the Exchange 
Act requires, among other things, that the MSRB'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.\32\ In 
particular, the Commission finds that the proposed rule change is 
consistent with the Exchange Act because it serves to remove 
impediments to and helps perfect the mechanisms of a free and open 
market in municipal securities and would serve to promote the statutory 
mandate of the MSRB to protect investors and the public interest. The 
information that underwriters would provide and that would be made 
available to the public with regard to the continuing disclosure 
undertakings of issuers and obligated persons would assist investors in 
understanding whether and when they should expect to have access to key 
continuing disclosure information in the future. Investors and other 
market participants would be able to include such assessment of on-
going access to information in the mix of factors upon which they may 
evaluate their investment decisions.
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    \30\ In approving this proposed rule change, the Commission 
notes that it has considered the proposed rule's impact on 
efficiency, competition and capital formation. 15 U.S.C. 78c(f).
    \31\ 15 U.S.C. 78o-4(b)(2)(C).
    \32\ Id.
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    The Commission believes that the MSRB has adequately responded to 
the concerns expressed in the comment letters. The Commission agrees 
with the MSRB that any additional burdens on underwriters are 
outweighed by the benefits of providing information to investors and 
other users in a user friendly manner. Investors, potential investors 
and other users of the EMMA system would not have to search through 
official statements to locate continuing disclosure information. The 
type of information to be reported by underwriters pursuant to the 
proposal is not substantially different from other information 
underwriters already submit to EMMA.
    Amendment No. 1 should adequately address commenters' concerns 
about the definition and identification of obligated parties and the 
expected date of filing of annual financial information. The additional 
disclosure and transparency made possible by this proposal will serve 
to promote the statutory mandate of the MSRB to protect investors and 
the public interest.

[[Page 30897]]

    The proposed rule change, as amended, will become effective on a 
date to be announced by the MSRB in a notice published on the MSRB Web 
site, which date shall be no later than one year after Commission 
approval of the proposed rule change and shall be announced no later 
than sixty (60) days prior to the effective date, as requested by the 
MSRB in Amendment No. 2.

V. Conclusion

    For the foregoing reasons, the Commission finds that the proposed 
rule change, as amended, is consistent with the Exchange Act and the 
rules and regulations thereunder applicable to the MSRB\33\ and, in 
particular, the requirements of Section 15B(b)(2)(C) of the Exchange 
Act\34\ and the rules and regulations thereunder.
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    \33\ In approving this proposed rule change, the Commission 
notes that it has considered the proposed rule's impact on 
efficiency, competition and capital formation. 15 U.S.C. 78c(f).
    \34\ 15 U.S.C. 78o-4(b)(2)(C).
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Exchange Act,\35\ that the proposed rule change (SR-MSRB-2009-09), as 
amended, be, and it hereby is, approved.
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    \35\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\36\
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    \36\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-13156 Filed 6-1-10; 8:45 am]
BILLING CODE 8010-01-P