67342 Federal Register / Vol. 66, No. 249 / Friday, December 28, 2001 / Notices

3This Order exempts certain firms from the

delivery requirement under Rule 17a–5(c), in part,

based on the protections afforded by the

Commission’s financial responsibility rules. The

condition that a broker-dealer makes its balance

sheet available on its Website is not an alternative

method of delivering this information to customers

under Rule 17a–5(c).

1 15 U.S.C. 78s(b)(1) and 17 CFR 240.19b–4

thereunder.

2 Italics indicates additions; brackets denote

deletions.

direct link to the broker-dealer’s balance

sheet; and

(c) If the Websites for two or more

broker-dealers can be accessed from the

same home page, a hyperlink directing

the Internet user to the home page of

each broker-dealer. Upon reaching the

broker-dealer’s home page, the home

page contains a hyperlink providing a

direct link to the particular brokerdealer’s balance sheet.

Each of the above hyperlinks is placed

on the broker-dealer’s Website, in either

textual or button format, as a separate,

prominent link, in a manner that is

clearly visible.3

(4) The broker-dealer maintains a tollfree number that customers can call to

request a paper or electronic copy of its

balance sheet.

(5) If a customer requests a paper or

electronic copy of the broker-dealer’s

balance sheet, the firm sends it

promptly at no cost to the customer.

(6) If the broker-dealer’s net capital

falls below the early warning levels of

Rule 17a–11 and the broker-dealer fails

to cure the relevant deficiency within 24

hours, or if the broker-dealer’s auditors

determine that a material inadequacy

exists with regard to any of the financial

disclosures contained in the audited

financial statements or in the brokerdealer’s internal controls, the firm

returns to sending its balance sheet as

required under Rule 17a–5(c), including

footnotes, by the next date that financial

disclosures are required, until the

deficiency or material inadequacy is

cured.

(7) The broker-dealer submits to the

Commission, addressed to Division of

Market Regulation, United States

Securities and Exchange Commission,

450 5th Street, NW., Washington, DC

20549–1001, no later than 60 days after

each distribution of its published

statement containing the Net Capital

Disclosure:

(a) A report on the number of requests

that the broker-dealer has received for

copies of its balance sheet via its tollfree number and the number of times its

balance sheet has been viewed on its

Website. The report contains the

number of requests received in the

month following its Website publishing

of its recent balance sheet and, except

in the case of the first Website

publishing, in the preceding six months;

and

(b) Written investor complaints

regarding the exemption received by the

broker-dealer in the preceding six

months.

Accordingly,

It is ordered, under Exchange Act

Section 17(e)(1)(C) and Rule 17a–5(l)(3),

that the exemption from Exchange Act

Section 17(e)(1)(B) and Rule 17a–5(c)

granted in Exchange Act Release No.

42222 is extended to December 31,

2002.

By the Commission.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 01–31918 Filed 12–27–01; 8:45 am]

BILLING CODE 8010–01–U

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–45174; File No. SR–MSRB–

2001–07]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the Municipal Securities Rulemaking

Board Relating to Minimum

Denominations

December 19, 2001.

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

Securities Exchange Act of 1934 (the

‘‘Exchange Act’’) and Rule 19b–4

thereunder,1 notice is hereby given that

on October 16, 2001, Municipal

Securities Rulemaking Board (‘‘MSRB’’)

filed with the Securities and Exchange

Commission (‘‘Commission’’) a

proposed rule change (File No. SR–

MSRB–2001–07) (the ‘‘proposed rule

change’’) described in Items I, II, and III

below, which Items have been prepared

by the MSRB. 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 MSRB is filing a proposed rule

change concerning minimum

denominations consisting of an

amendment to its rule G–15, on

confirmation, clearance and settlement

of transactions with customers, an

amendment to its rule G–8, on books

and records to be made by brokers,

dealers and municipal securities

dealers, and an interpretation of its rule

G–17, on conduct of municipal

securities activities.

The text of the proposed rule change

follows.2

G–15 Confirmation, Clearance, [and]

Settlement [of] and Other Uniform

Practice Requirements with Respect to

Transactions with Customers

(a) through (e) No change.

(f) Minimum Denominations

(i) Except as provided in this section

(f), a broker, dealer or municipal

securities dealer shall not effect a

customer transaction in municipal

securities issued after June 1, 2002 in an

amount lower than the minimum

denomination of the issue.

(ii) The prohibition in subsection (f)(i)

of this rule shall not apply to the

purchase of securities from a customer

in an amount below the minimum

denomination if the broker, dealer or

municipal securities dealer determines

that the customer’s position in the issue

already is below the minimum

denomination and that the entire

position would be liquidated by the

transaction. In determining whether this

is the case, a broker, dealer or

municipal securities dealer may rely

either upon customer account

information in its possession or upon a

written statement by the customer as to

its position in an issue.

(iii) The prohibition in subsection

(f)(i) of this rule shall not apply to the

sale of securities to a customer in an

amount below the minimum

denomination if the broker, dealer or

municipal securities dealer determines

that the securities position being sold is

the result of a customer liquidating a

position below the minimum

denomination, as described in

subsection (f)(ii) of this rule. In

determining whether this is the case, a

broker, dealer or municipal securities

dealer may rely upon customer account

records in its possession or upon a

written statement provided by the party

from which the securities are

purchased. A broker, dealer or

municipal securities dealer effecting a

sale to a customer under this subsection

(iii) shall at or before the completion of

the transaction, give or send to the

customer a written statement informing

the customer that the quantity of

securities being sold is below the

minimum denomination for the issue

and that this may adversely affect the

liquidity of the position unless the

customer has other securities from the

issue that can be combined to reach the

minimum denomination. Such written

statement may be included on the

customer’s confirmation or may be

Federal Register / Vol. 66, No. 249 / Friday, December 28, 2001 / Notices 67343

1Occasionally, bond documents may state a

minimum transaction amount that applies only to

primary market transactions, but with a clear

indication by the issuer that transactions may occur

at lower amounts in the secondary market. The

MSRB is not aware of non-authorized transaction

amounts occurring for issuers of these types. In

general, however, bond documents describing a

minimum ‘‘denomination’’ would appear to the

intended to apply to both primary and secondary

market transactions. 2Proposed rule change SR–MSRB–2001–07, filed

with the Securities and Exchange Commission on

October 16, 2001. 3Even for municipal securities issued after June

1, 2002, below-minimum denomination

transactions may need to be effected in compliance

with proposed MSRB rule G–15(f) to liquidate

below-minimum denomination positions created

through the exercise of a will, division of a martial

estate, as a result of an investor giving a portion of

a position as a gift, etc. In addition, the exercise of

a sinking fund or other partial redemption by an

issuer can sometimes result in customers holding

below-minimum denomination amounts.

provided on a document separate from

the confirmation.

Rule G–8. Books and Records To Be

Made by Brokers, Dealers and

Municipal Securities Dealers

(a) Description of Books and Required

to be Made

(i) through (viii) No change.

(ix) Copies of Confirmation, Periodic

Statements and Certain Other Notices to

Customers. A copy of all confirmation of

purchase or sale of municipal securities,

of all periodic written statements

disclosing purchases, sales or

redemptions of municipal fund

securities pursuant to rule G–

15(a)((viii), of written disclosures to

customers, if any, as required under rule

G–15(f)(iii) and, in the case of a broker,

dealer or municipal securities dealer

other than a bank dealer, of all other

notices sent to customers concerning

debits and credits to customer accounts,

or, in the case of a bank dealer, notices

of debts and credits for municipal

securities, cash and other items with

respect to transactions in municipal

securities.

Rule G–17. Conduct of Municipal

Securities Activities

Notice of Interpretation of Rule G–17

Concerning Minimum Denominations

Muncipal securities issuers sometimes

set a relatively high minimum

denomination, typically $100,000, for

certain issues. This may be done so that

the issue can qualify for one of several

exemptions from Securities Exchange

Act Rule 15c2–12, meaning that the

issue would not be subject to certain

primary market or continuing disclosure

requirements. In other situations,

issuers may set a high minimum

denomination even though the issue is

subject to Securities Exchange Act Rule

15c2–12. This may be because of the

issuer’s (or the underwriter’s) belief that

the securities are not an appropriate

investment for those retail investors who

would be likely to purchase securities in

relatively small amounts.

Several issuers have expressed

concern to the MSRB upon discovering

that their issuers with high minimum

denotations were trading in the

secondary market in transaction

amount much lower than the stated

minimum denomination.1 Based on

information obtained from the MSRB

Transactions Reporting Program, it

appears that there are significant

numbers of these types of transactions.

In the past, brokers, dealers and

municipal securities dealers

(collectively ‘‘dealers’’) effecting such

transactions likely would have had the

problem brought to their attention when

attempting to make delivery of a

certificate to the customer. This is

because the transfer agent would not

have been able to honor a request for a

certificate with a par value below the

minimum denomination. Today,

however, increased use of book-entry

deliveries and safekeeping

arrangements for retail customers

largely preclude the need for individual

certificates for customers and there is no

other systemic screening to identify

transactions that are in below-minimum

denomination amounts.

Rule G–17 states: ‘‘In the conduct of

its municipal securities activities, each

broker, dealer, and municipal securities

dealer shall deal fairly with all persons

and shall not engage in any deceptive,

dishonest, or unfair practice.’’ The

MSRB has interpreted this rule to mean,

among other things, that dealers are

required to disclose, at or before a

transaction in municipal securities with

a customer, all material facts

concerning the transaction, including a

compete description of the security. The

MSRB has proposed an amendment to

rule G–15 that would prohibit

transactions in below-minimum

denomination amounts for municipal

securities issued after June 1, 2002, with

certain limited exceptions.2 The MSRB

anticipates that some transaction in

below-minimum denomination amounts

may continue to occur for issues prior

to June 1, 2002, as well as under the

limited exception to the proposed

amendment to rule G–15.3 In either

case, the MSRB believes that any time

a dealer is selling to a customer a

quantity of municipal securities below

the minimum denomination for the

issue, the dealer should consider this to

be a material fact about the transaction.

The MSRB believes that a dealers’s

failure to disclose such a material fact

to the customer, and to explain how this

could affect the liquidity of the

customer’s position, generally would

constitute a violation of the dealer’s

duty under rule G–17 to disclose all

material facts about the transaction to

the customer.

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

MSRB 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 MSRB has

prepared summaries, set forth in Section

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

Official documents for municipal

securities issues sometimes state a

‘‘minimum denomination’’ larger than

the normal $5,000 par value. An issuer

may state a high minimum

denomination (typically $100,000) to

qualify for one of several exemptions

from Exchange Act Rule 15c2–12, the

rule designed to ensure production of

certain disclosure documents in the

primary and secondary markets. Aside

from this rule, an issuer may also

sometimes set high minimum

denominations for issues because of a

concern that the securities may not be

appropriate for those retail investors

who would be likely to purchase

securities in relatively small amounts.

Several issuers have expressed

concern to the MSRB upon discovering

that their issues with high minimum

denominations were trading in the

secondary market in transaction

amounts much lower than the stated

minimum denomination. Based on

information obtained from the MSRB

Transaction Reporting Program, it

appears that there are significant

numbers of these types of transactions.

In the past, brokers, dealers and

municipal securities dealers

(collectively ‘‘dealers’’) effecting such

transactions likely would have had the

problem brought to their attention when

attempting to make delivery of a

certificate to the customer. This is

because the transfer agent would not

have been able to honor a request for a

67344 Federal Register / Vol. 66, No. 249 / Friday, December 28, 2001 / Notices

3A below-minimum denomination position may

be created, for example, by call provisions that

allow calls in amounts less than the minimum

denomination, investment advisors who may split

positions they purchase among several clients or

the division of an estate as a result of a death or

divorce. Such below-minimum denomination

positions also may be created as a result of a gift.

4 ‘‘Minimum Denominations,’’ MSRB Reports,

Vol. 21, No. 1 (May 2001) at 15.

certificate with a par value below the

minimum denomination. Today,

however, increased use of book-entry

deliveries and safekeeping arrangements

for retail customers largely preclude the

need for individual certificates for

customers and there is no other

systemic screening to identify

transactions that are in below-minimum

denomination amounts. However, since

municipal securities today

predominantly stay in a book-entry

environment, with ownership recorded

on the books and records of depositories

and other nominees, a restriction on the

par value of certificates does not

effectively restrict the size of

transactions.

The purpose of the proposed rule

change is to help ensure that dealers

observe the minimum denominations

stated in the official documents of

municipal securities issues. As

discussed below, the MSRB received

nine comments from issuer and dealer

organizations urging that any

prohibition on below-minimum

denomination trading be prospective in

its application with respect to currently

outstanding versus future issues of

municipal securities. The MSRB agrees

that it is appropriate for the rule to be

prospective in this manner so that

issuers, dealers and other market

participants will be aware of the

secondary market implications of high

minimum denominations at the time the

decision is made to incorporate them

into an issue’s terms. Accordingly, the

proposed rule change includes an

amendment to MSRB rule G–15 that, for

securities issued after June 1, 2002,

would prohibit transactions in belowminimum denomination amounts, with

two limited exceptions.

The general prohibition of the rule G–

15 amendment is designed to prevent

dealers from effecting transactions that

break up securities positions into

amounts below the issue’s

denomination. The two exceptions in

the amendment to rule G–15 are

designed to help preserve liquidity of

customer’s below-minimum

denomination positions that may occur

through actions other than a dealer

effecting transactions in belowminimum denomination amounts.3

First, a dealer may purchase a belowminimum denomination position from a

customer provided that the customer

liquidates his/her entire position.

Second, a dealer may sell such a

liquidated position to another customer

but would be required to provide

written disclosure, either on the

confirmation or separately, to the effect

that the security position is below the

minimum denomination and that

liquidity may be adversely affected by

this fact.

Under MSRB rule G–8, on books and

records, customer confirmations must

be kept for three years in a dealer’s

books and records. To ensure

consistency in the recordkeeping

requirements for separate written

disclosures given to a customer under

the rule G–15 amendment and the

recordkeeping requirements for

customer confirmations, the proposed

rule change includes an amendment to

rule G–8 that would require dealers to

keep a record of these separate written

disclosures for a minimum of three

years.

Although certain written disclosures

would be required, after the trade, for

those transactions done under the

second exemption to the rule G–15

amendment, the MSRB also seeks to

address a more general need for time-oftrade disclosure in the proposed rule

change. Rule G–17 states: ‘‘In the

conduct of its municipal securities

activities, each broker, dealer, and

municipal securities dealer shall deal

fairly with all persons and shall not

engage in any deceptive, dishonest, or

unfair practice.’’ The MSRB has

interpreted this rule to mean, among

other things, that dealers are required to

disclose, at or before the sale of

municipal securities to a customer, all

material facts concerning the

transaction, including a complete

description of the security. The

proposed rule change includes an

interpretation of rule G–17 stating that

any time a dealer is selling to a

customer a quantity of municipal

securities below the minimum

denomination for the issue, the dealer

should consider this to be a material fact

about the transaction. The MSRB

believes that a dealer’s failure to

disclose such a material fact to the

customer, and to explain how this could

affect the liquidity of the customer’s

position, generally would constitute a

violation of the dealer’s duty under rule

G–17 to disclose all material facts about

the transaction of the customer.

While the rule G–15 amendment

applies only to municipal securities

issued after June 1, 2002, the

interpretation of rule G–17 applies to all

transactions in municipal securities

regardless of the date of issuance of the

security traded. This helps ensure that

all future investors are made aware at or

prior to the time of trade that the

securities position they are about to

purchase is below the minimum

denomination and that the liquidity of

that position may be adversely affected

by this fact.

2. Basis

The MSRB believes the proposed rule

change is consistent with Section

15(b)(2)(C) of the Exchange Act, which

provides that the MSRB’s rules:

. . . be designed to prevent fraudulent and

manipulative acts and practices, to promote

just and equitable principals of trade . . .

and to protect investors and the public

interest . . .

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The MSRB does not believe that the

proposed rule change will impose any

burden on competition in that it applies

equally to all dealers in municipal

securities.

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Member, Participants, or Others

On March 14, 2001, the MSRB

published a notice seeking comment on

an exposure draft of the proposed rule

change (‘‘March 2001 draft

amendment’’) 4 the terms of which

substantially were the same as the rule

G–15 amendment. The March 2001 draft

amendment differed from the one in the

proposed rule change in that it would

have restricted transactions in all

municipal securities, while the one in

the proposed rule change applies only

to municipal securities issued after June

1, 2002. In addition, the proposed rule

change includes an interpretation of

rule G–17 and a rule G–8 recordkeeping

requirement, while the March 2001 draft

amendment did not.

The MSRB received comments on the

March 2001 draft amendment from the

following fifteen commentators: A.G.

Edwards & Sons, Inc. (‘‘A.G. Edwards’’);

Association for Investment Management

and Research (‘‘AIMR’’); Colorado

Health Facilities Authority (‘‘Colorado

HFA’’); First Miami Securities, Inc.

(‘‘First Miami’’); Idaho Health Facilities

Authority (‘‘Idaho HFA’’); Indiana

Health Facility Financing Authority

(‘‘IHFFA’’); Maryland Health and Higher

Educational Facilities Authority

(‘‘Maryland HHEFA’’); MEK Securities

LLC (‘‘MEK Securities’’); National

Council of Health Facilities Finance

Authorities (‘‘NCHFFA’’); New Jersey

Federal Register / Vol. 66, No. 249 / Friday, December 28, 2001 / Notices 67345

5Colorado HFA, Idaho HFA, IHFFA, Maryland

HHEFA, NJHCFFA, and Wisconsin HEFA.

6Six Issuers, NCHFFA, SIA Operations, Stoever

Glass and TBMA.

7A.G. Edwards, RMOA and TBMA.

8MEK Securities, RMOA, SIA Operations and

TBMA. The proposed rule change would not, as

suggested in the A.G. Edwards letter and TBMA

letter, restrict inter-dealer transactions since rule G–

15 applies only to customer transactions.

9Six Issuers and NCHFFA, RMOA and TBMA.

10The accuracy of vendor information on

minimum denominations was called into question

in the comment letters of A.G. Edwards and TBMA.

MEK Securities suggested an enhancement to the

MSRB’s web site that would include a list of CUSIP

numbers and their respective minimum

denominations. Since private vendors have been

active in collecting descriptive information on

municipal securities for a number of years, the

MSRB believes that information generally is

available, even though, as in any information

database there may be errors. The MSRB does not

believe that it should explore undertaking this

information function itself unless the vendor

response to the proposed rule change is shown to

be ineffective.

11Based on representations from the three major

information vendors, each has a field for minimum

denominations.

Health Care Facilities Financing

Authority (‘‘NJHCFFA’’); Regional

Municipal Operations Association

(‘‘RMOA’’); Securities Operations

Division—Securities Industry

Association (‘‘SIA Operations

Division’’); Stoever Glass and Co.

(‘‘Stoever Glass’’); The Bond Market

Association (‘‘TBMA’’); and Wisconsin

Health and Educational Facilities

Authority (‘‘Wisconsin HEFA’’).

Among these commentators there was

general though not unanimous support.

All six municipal securities issuers who

commented (‘‘Six Issuers’’) 5 and the

NCHFFA stated ‘‘the draft amendment

strikes an appropriate balance between

enforcing the bondholder protections

contained in the bond documents and

not unduly impairing the liquidity of

bonds currently held in unauthorized

denominations by unsuspecting

bondholders.’’ AIMR stated that they

‘‘view the MSRB’s attempt to hold

dealers accountable for complying with

set minimum denominations as a

positive step in reinforcing certain

safeguards for existing and potential

investors.’’ A.G. Edwards also supported

the March 2001 draft amendment

because ‘‘it will provide a level of

comfort and certainty for customers and

member firms when dealing with such

situations, which usually are not of their

own making.’’ The SIA Operations

Division stated that it ‘‘supports the

intent of the MSRB to ensure

compliance with issuer guidelines

relating to minimum denominations in

transactions effected for customers.’’

Some commentators, however,

expressed basic disagreement over the

use of minimum denominations as a

means to restrict purchasers to certain

types of investors. Stoever Glass stated

that a ‘‘minimum purchase requirement

does not properly address the intended

purpose, if the purpose is to limit the

purchase of such securities to

sophisticated accredited investors.’’

First Miami stated, ‘‘Since many

investors will increase their purchase to

the $100,000 minimum, they will be

taking on more risk than they are

normally inclined to. If they don’t want

to invest the minimum $100,000, they

are then unfairly denied access to these

securities.’’

The TBMA emphasized the burden

that the March 2001 draft amendment

would place on dealers and on investors

currently holding below-minimum

denomination positions. The RMOA

emphasized the operational difficulties

that the March 2001 draft amendment

would impose on dealers. Several

commentators noted the potential loss

of liquidity of current below-minimum

denomination positions 6 and the fact

that below-minimum denomination

positions can be created by a variety of

factors other than dealer action.7

1. Prospective Application

The MSRB agrees with those

commentators who noted that, even

with the two exceptions, the proposed

restrictions would made it more

difficult for dealers to transact in belowminimum denomination positions.8 to

use the exceptions, a dealer must: (a)

establish that a proposed transaction fits

into one of the exceptions; and (b)

provide separate written disclosure to

any customer buying into a belowminimum denomination position. These

requirements would likely make belowminimum denomination positions

currently held by investors more

difficult for dealers to sell.

Because of the effect that the March

2001 draft amendment’s trading

restriction would have placed on belowminimum denomination positions, nine

commentators suggested that the draft

amendment apply only to securities

issued after some date in the future.9

The MSRB adopted this suggestion and

believes it will help to minimize the

negative effect on liquidity for existing

bondholders with below-minimum

denomination positions and allow

issuers, dealers and information vendors

to change their current practices and

systems if necessary to accommodate

the proposed rule change.10 The MSRB

views this as a significant cost to

vendors and dealers, but not a major

one.11 The MSRB believes that June 1,

2002 would be an appropriate effective

date for such a rule so that issues issued

after that date would be covered by the

rule.

2. Confirmation Disclosure or Separate

Written Disclosure

For those securities issued after the

effective date, the March 2001 draft

amendment would have required a

dealer to provide a separate written

disclosure to a customer purchasing a

below-minimum denomination

position. RMOA suggested that it would

be easier for the dealer in this case

simply to provide confirmation

disclosure. The MSRB concluded that

confirmation disclosure would be easier

for some dealers, but noted that other

dealers may find it easier to send a

separate written document rather than

to change their automated systems that

produce customer confirmations. Since

either form of written disclosure should

serve the same purpose, the MSRB

chose to give dealers the option of

providing written disclosure on a

separate written document or on a trade

confirmation.

3. Institutional Customers

A proposal was made by Stoever

Glass to limit sales of below-minimum

denomination positions to accredited

investors, in lieu of the restrictions

proposed by the March 2001 draft

amendment. The MSRB considered

whether it would be possible to restrict

sales of below-minimum denomination

positions to ‘‘institutional accounts,’’ as

defined under MSRB rule G-8(a)(xi),

without a separate written disclosure.

While this exemption probably would

fit within the issuer’s objective, it would

be inconsistent with the approach taken

in the Exchange Act Rule 15c2–12 and

the MSRB did not adopt it.

4. Customer Ability To Sell Part of

Below-Minimum Denomination

Position Instead of Whole Position

Liquidated

A.G. Edwards, TBMA and SIA

Operations Division stated that they

believe it is unfair to the investor

holding a below-minimum

denomination position to be required to

sell the entire position at one time. The

MSRB believes that allowing partial

sales by the customer in these cases

would act against the basic purpose of

the rule. For example, an institutional

investor holding a position of $95,000

could sell out the position at $5,000 or

$10,000 per transaction, effectively

reaching the retail market with the

securities and creating a number of

below-minimum denomination

positions where there was once only

one. The MSRB also notes that, with the

prospective application of the rule,

67346 Federal Register / Vol. 66, No. 249 / Friday, December 28, 2001 / Notices

12There may be unique situations when dealers

effect transactions in violation of the rule and

cannot reverse the transactions under the second

exception. For example, a dealer may

unintentionally sell an unauthorized amount of

securities to a customer already holding an

authorized amount. The transaction would be a

violation of the rule, albeit an unintentional one.

The MSRB believes the enforcement agencies have

enough flexibility that they are not required to

further penalize the dealer if the dealer corrects the

situation by reversing the transaction.

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

2 17 CFR 240.19b–4.

3See Securities Exchange Act Release No. 44830

(September 21, 2001), 66 FR 49728 (September 28,

2001) (SR–PCX–2001–37).

4The PCX proposes to change only the amounts

of the fees that it charges for transactions in the

options that are included in the proposed amended

Schedule of Rates. Any fees currently being charged

for transactions in options that are not listed in this

amendment to the Schedule of Rates would not be

affected by the proposed rule change. Telephone

conversation between Mai Shiver, Senior Attorney,

PCX, and Patrick Joyce, Special Counsel, Division

of Market Regulation, Commission, on December

10, 2001.

current investors would not be affected

and that future investors in issues

issued after June 1, 2002 will have

notice of the effect of minimum

denominations on their municipal

securities positions.

5. Other Suggestions

A.G. Edwards and TBMA both

recommended that dealers should be

able to correct an erroneous transaction

done in a below-minimum

denomination amount. If a dealer

mistakenly sells a below-minimum

denomination position to a customer,

such a correction generally would be

possible under the second exception in

the proposed rule change.12 Other

commentators suggested that the rule

should not apply if the issuer failed to

state the purpose of its denomination

restriction in bond documents or if a

below-minimum denomination position

was created by an action of the issuer,

such as by a partial call. The MSRB

notes that issuers do not generally state

the purpose of the denominations they

choose. Moreover, Rule 15c2–12

provides disclosure exemptions that

apply to an issue regardless of whether

the issuer states the purpose of its

minimum denomination in bond

documents or exercises calls that take

an investor’s authorized position into a

below-minimum denomination amount.

Therefore, the MSRB has not adopted

these suggestions.

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 self-regulatory

organization consents, the Commission

will:

(a) by order approve 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 inviting to

submit written data, views, and

arguments concerning the forgoing,

including whether the proposed rule

change is consistent with the Act.

Persons making written submission

should file six copies thereof with the

Secretary, Securities and Exchange

Commission, 450 Fifth Street, NW.,

Washington, DC 20549–0609. Copies of

the submissions, 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 MSRB’s principal offices. All

submissions should refer to File SR–

MSRB–2001–07 and should be

submitted by January 18, 2002.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority, 17 CFR 200.30–3(a)(12).

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 01–31917 Filed 12–27–01; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–45167; File No. SR–PCX–

2001–49]

Self-Regulatory Organizations; Notice

of Filing and Immediate Effectiveness

of Proposed Rule Change by the

Pacific Exchange, Inc. Relating to

Changes in Marketing Fees

December 18, 2001.

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 December

3, 2001, the Pacific Exchange, Inc.

(‘‘PCX’’) filed with the Security and

Exchange Commission (‘‘Commission’’)

the proposed rule change as described

in Items I, II and III below, which the

PCX has prepared. 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 PCX proposes to change its

marketing fee for certain options and to

declare a marketing fee for recently

listed options. A copy of the proposed

new Schedule of Fees and Charges for

Exchange Services is available at the

PCX 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

PCX included statements concerning the

purpose of and basis for the proposed

rule change and discussed any

comments it had received on the

proposed rule change. The text of these

statements may be examined at the

places specified in Item IV below. The

PCX has prepared summaries, set forth

in Sections A, B, and C below, of the

most significant aspects of the

statements.

A. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

1. Purpose

The PCX recently adopted a paymentfor-order-flow program under which it

charges a marketing fee ranging from $0

to $1.00 per contract on a per-issue

basis.3 The PCX segregates the funds

from this fee by trading post and makes

the funds available to Lead Market

Makers for their use in attracting orders

in the options traded at the posts. The

PCX charges the marketing fees in the

amounts set forth in its Schedule of Fees

and Charges for Exchange Services,

hereinafter referred to as the ‘‘Schedule

of Rates.’’

The PCX proposes to amend its

Schedule of Rates in order to change the

marketing fee that it charges for certain

options and to adopt new marketing fees

for newly listed options, beginning with

the start of the December trade month

and continuing until further notice.

Only the amount of the fee is being

changed.4 The PCX believes that the