[Federal Register Volume 75, Number 200 (Monday, October 18, 2010)]
[Notices]
[Pages 63884-63887]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-26177]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63086; File No. SR-MSRB-2010-03]


Self-Regulatory Organizations; Municipal Securities Rulemaking 
Board; Order Approving Proposed Rule Change Relating to Amendments to 
the Continuing Disclosure Service of the MSRB's Electronic Municipal 
Market Access System (EMMA[supreg])

October 13, 2010.

I. Introduction

    On May 20, 2010, the Municipal Securities Rulemaking Board (the 
``MSRB'') filed with the Securities and Exchange Commission (the 
``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (the ``Exchange Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to amend the continuing 
disclosure service of the MSRB's Electronic Municipal Market Access 
system (``EMMA'') to provide for the posting of credit rating 
information on the EMMA public Web site. The proposed rule change was 
published for comment in the Federal Register on June 2, 2010.\3\ The 
Commission received two comment letters regarding the MSRB's proposed 
rule change.\4\ The MSRB responded to these comment letters in a letter 
dated September 16, 2010.\5\ This order approves the proposed rule 
change.
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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. 62175 (May 26, 
2010), 75 FR 30892.
    \4\ See letter from Deven Sharma, President, Standard & Poor's 
Ratings Services (``S&P''), to Elizabeth M. Murphy, Secretary, 
Commission, dated June 22, 2010 (``S&P Letter'') and letter from 
Susan Gaffney, Director, Federal Liaison Center, Government Finance 
Officers Association (``GFOA''), to Elizabeth M. Murphy, Secretary, 
Commission, dated July 23, 2010 (``GFOA Letter'').
    \5\ See letter from Ernesto A. Lanza, General Counsel, MSRB, to 
Elizabeth M. Murphy, Secretary, Commission, dated September 16, 2010 
(``MSRB Letter'').
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II. Background and Description of Proposal

    The proposed rule change would amend the EMMA continuing disclosure 
service to provide for the posting of

[[Page 63885]]

credit rating information on the EMMA public Web site. If and to the 
extent that one or more Nationally Recognized Statistical Rating 
Organizations (``NRSRO'') has agreed to provide credit rating and 
related information regarding municipal securities to the MSRB, at no 
charge, through an automated data feed for dissemination on the EMMA 
Web site, the EMMA Web site would display such credit rating and 
related information along with any documents and identifying 
information relating to the applicable municipal security otherwise 
displayed on the EMMA Web site. Currently, such other documents or 
information may include official statements, advance refunding 
documents, continuing disclosure documents, transaction price data, 
interest rate reset information, and identifying information relating 
to a specific municipal security.
    Under the proposed rule change, credit rating and related 
information normally would be posted within 15 minutes of successful 
transmission to the MSRB during the hours of 8:30 a.m. to 6 p.m. 
Eastern time, and any such information successfully transmitted outside 
of the MSRB's normal business hours would be posted as soon as 
practicable. The MSRB stated that under the proposed rule change it 
shall have no obligation to supplement, modify or confirm credit rating 
and related information received by it through an NRSRO's automated 
data feed based on information available from any other source, 
including but not limited to any such information made publicly 
available by an NRSRO by any means other than its automated data feed.
    In the MSRB Letter responding to comments, the MSRB requested that 
the proposal be approved with a revised effective 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 
proposal and shall be announced no later than five business days before 
the effective date. The MSRB stated that the revised effective date 
would provide additional time for any NRSRO that has not yet determined 
to participate in the EMMA ratings initiative to work with the MSRB to 
develop appropriate mechanisms to minimize potential threats to 
intellectual property rights and other commercial interests.\6\ The 
MSRB stated that the additional three month period also would provide 
any such NRSRO with a further opportunity to provide the MSRB with 
access to its automated data feed for development and testing purposes 
with a view to potentially making such NRSRO's ratings information 
available for display upon launch of the EMMA ratings initiative should 
such NRSRO reconsider its participation in the EMMA ratings initiative 
prior to such launch.\7\
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    \6\ See MSRB Letter, at 7.
    \7\ Id.
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III. Discussion of Comment Letters and Commission Findings

A. Discussion of Comment Letters

    The Commission received two comment letters on the proposed rule 
change filed by the MSRB; the MSRB responded to these comments. GFOA 
strongly supported the proposed rule change stating that ``we believe 
that there is nothing more relevant than making credit ratings 
available in one location, where the public can access the information 
quickly, efficiently, and at no cost to them.'' \8\ GFOA believed that 
all members of the public should have access to ratings information at 
the CUSIP level and that posting ratings information on EMMA at no 
charge to the public would create a ``level playing field'' for all 
investors and eliminate a two-tier system that unfairly allows 
institutional and sophisticated investors to more easily access 
information about a security than other investors.\9\ While GFOA 
recognized that rating agencies ``have every right to copyright their 
written analysis, rationale and other derivative products,'' GFOA also 
believed that the rating agencies ``should not be able to withhold the 
basic conclusion of a rating from open distribution through the EMMA 
system.'' \10\ GFOA stated that the proposed rule ``simply serves to 
take what already is public information and directs it to one 
location,'' which would be ``something that is a true benefit to 
investors and the public.'' \11\ GFOA further stated that having the 
rating agencies provide ratings information directly to EMMA is a more 
efficient way of disseminating information to investors, noting that 
issuers may not be aware of rating changes at the moment they 
occur.\12\ GFOA believed that the MSRB and the credit rating agencies 
currently have adequate technical expertise, portals and systems to 
send feeds to EMMA at little cost to the rating agencies or the 
MSRB.\13\ Lastly, GFOA believed that the MSRB should have safeguards in 
place to ensure that a rating is assigned to the correct CUSIP and a 
procedure in place that would quickly identify and correct any 
inaccuracies and notify investors of an incorrect rating.\14\
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    \8\ See GFOA Letter, at 1.
    \9\ Id.
    \10\ Id.
    \11\ Id.
    \12\ See GFOA Letter, at 2.
    \13\ Id.
    \14\ Id.
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    S&P, an NRSRO, supported the MSRB's goal of encouraging 
transparency, but believed that the ``[p]roposal's assumption that 
NRSROs may, or should, provide credit rating and related information 
regarding municipal securities to the MSRB, at no charge, is 
commercially untenable and does not appropriately account for the value 
of the NRSROs' intellectual property.'' \15\ In addition, S&P believed 
that including credit rating and related information on the EMMA public 
Web site would offer only limited incremental value to investors in 
municipal securities given the extensive disclosure requirements to 
which NRSROs are already subject.\16\
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    \15\ See S&P Letter, at 1.
    \16\ Id.
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    S&P believed that the Commission's NRSRO requirements provide for 
an appropriate level of disclosure and expressed concern that the 
proposed rule change ``does not specify the scope of the `credit and 
related information' regarding municipal securities that the MSRB would 
expect to be provided by the NRSROs.'' \17\ S&P expressed concern that 
to the extent the credit rating and related information expected to be 
provided by NRSROs pursuant to the proposed rule change would extend 
beyond the disclosure currently required by the Commission's NRSRO 
rules, S&P was concerned that such information may not be sufficiently 
tailored to meet the needs of retail investors.\18\ S&P further stated 
that existing disclosure is sufficient to enable investors to access 
S&P's ratings and effectively evaluate the quality of their ratings 
relative to the credit ratings produced by other NRSROs.\19\ S&P 
believed that the benefits of the proposed rule change to investors in 
municipal securities would not outweigh the burdens that it would 
impose on NRSROs that voluntarily provided such information.\20\
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    \17\ See S&P Letter, at 5.
    \18\ Id.
    \19\ Id.
    \20\ Id.
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    The MSRB responded to these comments by stating that it agreed with 
GFOA that the EMMA ratings initiative would provide substantial 
benefits to retail investors and would represent a significant increase 
in the level of investor protection provided by the MSRB's information 
systems and

[[Page 63886]]

marketplace rules.\21\ The MSRB stated that under the proposed rule 
change, each NRSRO ultimately determines the scope of the credit rating 
and related information to be provided through EMMA.\22\ The EMMA Web 
site would display the same automated data feed provided to other 
subscribers to the NRSRO's information.\23\ The MSRB indicated that 
``it is difficult to understand how displaying on the EMMA Web site 
information an NRSRO also makes available to other information 
services, which in turn make them available to their users, would 
result in such information being insufficiently tailored or otherwise 
problematic for the needs of retail investors.'' \24\ The MSRB stated 
that S&P's reference to information required to be disclosed under the 
Commission's NRSRO rules correctly reflects that the purpose of such 
information is, at least in part, to allow market participants to 
evaluate the relative quality of the various NRSROs' credit 
ratings.\25\ However, the MSRB noted that the display of ratings 
information on the EMMA Web site ``serves an entirely different 
purpose--that is, to provide investors with access to material 
information about municipal securities from NRSROs, not to provide a 
means by which investors can determine which NRSRO does its job the 
best.\26\ The MSRB further noted that the ``material information that 
would be displayed to EMMA Web site users would be precisely the same 
as the information that each NRSRO has determined is appropriate to be 
included in its automated data feed, thus suggesting that this is 
precisely the information that NRSROs believe is relevant for investors 
to have.'' \27\
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    \21\ See MSRB Letter, at 3.
    \22\ Id.
    \23\ See MSRB Letter, at 3-4.
    \24\ See MSRB Letter, at 4.
    \25\ Id.
    \26\ Id.
    \27\ Id.
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    S&P expressed concern that ``the [p]roposal does not adequately 
address how proprietary information that is provided to the MSRB would 
be protected'' and noted that making its ratings information available 
on EMMA would lessen its ability to enforce its rights against end-
users of the EMMA portal as against users of its own Web site.\28\ GFOA 
stated that any ``written communication about the rating to a public 
bond issuer creates a `public record' of that issue that must be 
disclosed and is certainly material.'' \29\ GFOA believed that ``the 
proposed rule simply serves to take what already is public information 
and direct it to one location * * * something that is a true benefit to 
investors and the public.'' \30\
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    \28\ See S&P Letter, at 3.
    \29\ See GFOA Letter, at 1.
    \30\ Id.
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    The MSRB responded to these comments by stating that a significant 
portion of the information that would be displayed through the EMMA 
ratings initiative is already available on the EMMA Web site in 
official statements and material event notices provided under Rule 
15c2-12 under the Exchange Act \31\ in connection with ratings 
changes.\32\ The MSRB stated that it was ``sensitive to the fact that 
such electronic display could raise concerns regarding intellectual 
property rights if appropriate measures are not instituted to limit the 
ability of EMMA Web site users to use data in a way that is 
inconsistent with such rights.'' \33\ The MSRB plans to ``display 
credit ratings at the individual security level and not in a fashion 
that would allow a user to view, copy or print credit ratings on a 
market-wide basis.'' \34\
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    \31\ 15 U.S.C. 78s(b)(1).
    \32\ See MSRB Letter, at 5.
    \33\ Id.
    \34\ Id.
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    According to the MSRB, the proposed rule change also would not 
provide for inclusion of credit ratings and related information 
obtained from NRSROs in its subscription products.\35\ S&P expressed 
concerns that the MSRB could later amend the proposal to include such 
information in a subscription service.\36\ In response, the MSRB stated 
that it has no current plans to do so and noted that any such amendment 
would be subject to the same rulemaking process as this proposal.\37\ 
The MSRB also noted that any NRSRO choosing to participate in the 
ratings initiative could include appropriate limitations or conditions 
on its agreement to participate in regard to future redissemination of 
credit rating information through a subscription service.\38\
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    \35\ Id.
    \36\ See S&P Letter, at 4.
    \37\ See MSRB Letter, at 5.
    \38\ Id.
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    The MSRB stated that it has experience working with information 
vendors to protect their intellectual property rights and expressed a 
willingness to work with any NRSRO to provide it with the necessary 
comfort that the risk of misuse of its proprietary interests can be 
appropriately minimized.\39\ Additionally, the MSRB expressed 
confidence that ratings information could be displayed through the EMMA 
Web site without creating a significant adverse effect on the financial 
interests of NRSROs.\40\ The MSRB believed that the proposal ``might in 
fact indirectly result in greater public interest in other products 
offered by the NRSROs.'' \41\
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    \39\ See MSRB Letter, at 6.
    \40\ Id.
    \41\ Id.
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    S&P believed that the proposal ``fails to recognize NRSROs' 
legitimate commercial needs and does not appreciate the significant 
negative effect on revenue that the provision of proprietary 
information at no cost would have on NRSROs.'' \42\ S&P also 
characterized the ratings initiative as ``commercially untenable'' 
without compensation from the MSRB.\43\ The MSRB responded that each 
individual NRSRO must ``make its own assessment of the advisability of 
providing its credit rating information to the MSRB for display on the 
EMMA Web site.'' \44\ However, the MSRB noted its belief that 
displaying ratings on the EMMA Web site should not have any more 
appreciable negative effect on NRSROs than displaying such information 
on their own respective Web sites.\45\ The MSRB stated that it if the 
proposal is approved by the Commission, the MSRB would proceed with 
such launch even if one or more of the NRSROs elects not to 
participate.\46\ However, the MSRB ``would be open to continuing a 
dialogue with any NRSRO that chooses not to participate in the initial 
launch of the EMMA ratings initiative so that, should such NRSRO choose 
later to determine to participate, the MSRB could more quickly 
incorporate such NRSRO's information alongside of credit rating 
information of any NRSROs that have participated since such launch.'' 
\47\
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    \42\ See S&P Letter, at 4.
    \43\ Id.
    \44\ See MSRB Letter, at 7.
    \45\ Id.
    \46\ Id.
    \47\ Id.
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B. Commission Findings

    The Commission has carefully reviewed the comment letters and the 
MSRB's response to the comment letters and finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to the MSRB.\48\ In particular, the 
Commission finds that the proposed rule change is consistent with the 
requirements of Section 15B(b)(2)(C) of the Exchange Act,\49\

[[Page 63887]]

which provides that MSRB'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 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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    \48\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition and capital 
formation. See 15 U.S.C. 78c(f).
    \49\ 15 U.S.C. 78o-3(b)(6).
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    In the Commission's view, the inclusion of credit rating and 
related information provided by NRSROs agreeing to provide such 
information for display on the EMMA Web site should serve to promote 
the statutory mandate of the MSRB to protect investors and the public 
interest. Although credit rating information is just one of many 
factors to consider in making an investment decision and in evaluating 
the credit worthiness and value of existing municipal securities 
holdings, the proposed rule change would make such information more 
easily accessible on an equal basis to all participants in the 
municipal securities market, including in particular retail investors 
in municipal securities who do not normally have access to information 
services customarily used by professional market participants. The 
proposal 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 October 13, 2011 and shall be announced no later than five usiness 
days before the effective date.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\50\ that the proposed rule change (SR-MSRB-2010-03), be, and 
hereby is, approved.
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    \50\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\51\
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    \51\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-26177 Filed 10-15-10; 8:45 am]
BILLING CODE 8011-01-P