Document ID: SEC-2006-0581-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Municipal Securities Rulemaking Board
Posted Date: 2006-05-05T04:00Z

[Federal Register: May 5, 2006 (Volume 71, Number 87)]
[Notices]               
[Page 26575-26577]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr05my06-140]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53747; File No. SR-MSRB-2005-11]

 
Self-Regulatory Organizations; Municipal Securities Rulemaking 
Board; Notice of Filing of Amendment No. 2 to Proposed Rule Change 
Relating to Definition of Solicitation Under MSRB Rules G-37 and G-38

May 1, 2006.
    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 March 17, 2006, the Municipal Securities Rulemaking Board (``MSRB'' 
or ``Board'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') Amendment No. 2 to the proposed rule change 
as described

[[Page 26576]]

in Items I, II, and III below, which Items have been substantially 
prepared by the MSRB. The proposed rule change, incorporating Amendment 
No. 1 (the ``original proposed rule change''), was published for 
comment in the Federal Register on December 20, 2005.\3\ The Commission 
received one comment letter regarding the proposal.\4\ The Commission 
is publishing this notice to solicit comments on the proposed rule 
change, as amended by Amendment No. 2, from interested persons.
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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. 52948 (December 13, 
2005), 70 FR 75514.
    \4\ See letter to Jonathan G. Katz, Secretary, Commission, from 
Leslie M. Norwood, Vice President and Assistant General Counsel, The 
Bond Market Association, dated January 10, 2006.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    In response to comments on the original proposal, the MSRB is 
proposing Amendment No. 2 to the original proposed rule change. The 
original proposed rule change consists of an interpretive notice 
relating to the definition of solicitation for purposes of Rule G-37, 
on political contributions and prohibitions of municipal securities 
business, and Rule G-38, on solicitation of municipal securities 
business. The original proposed rule change, as amended by Amendment 
No. 2, is hereinafter referred to as the ``Solicitation Guidance.'' The 
text of Amendment No. 2 is available on the MSRB's Web site (http://www.msrb.org
), at the MSRB's principal office, and at the Commission's 

Public Reference Room. The discussion section of this notice focuses on 
the changes made in Amendment No. 2. For an explanation of the original 
proposed rule change, see the release cited in footnote 3.

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 Sections 
A, B, and C below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The MSRB previously filed the original proposed rule change to 
provide guidance on the definition of ``solicitation'' as used in Rules 
G-37 and G-38. Among other things, the original proposed rule change 
incorporated, by means of footnote 2 thereof and the text accompanying 
such footnote, guidance on the meaning of solicitation under Rule G-37 
previously provided in certain Question and Answer interpretations (the 
``Rule G-37 solicitation Qs&As''). In response to comments received by 
the Commission from a commentator on the original proposed rule 
change,\5\ the MSRB has determined to file Amendment No. 2 and 
simultaneously withdraw the Rule G-37 solicitation Qs&As. The MSRB has 
also determined to withdraw simultaneously obsolete guidance previously 
provided in Question and Answer interpretations under former Rule G-38 
relating to consultants (the ``former Rule G-38 Qs&As'') since, as a 
result of the adoption of current Rule G-38 in 2005, the consultant 
provisions to which the former Rule G-38 Qs&As relate have been 
superseded and are no longer in effect.\6\
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    \5\ See supra note 4.
    \6\ See File No. SR-MSRB-2006-1 relating to the withdrawal of 
the Rule G-37 solicitation Qs&As and the former Rule G-38 Qs&As (the 
``companion proposed rule change'').
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    The commentator on the original proposed rule change stated that, 
in certain respects, the guidance on solicitation and related matters 
provided in the original proposed rule change may not be wholly 
consistent with guidance previously provided by the MSRB and that such 
prior guidance should be withdrawn. The commentator noted in particular 
an apparent inconsistency between the original proposed rule change and 
a former Rule G-38 Q&A published on March 4, 1999 relating to 
circumstances where joint ventures between dealers might give rise to 
one of the dealers being considered a consultant under former Rule G-
38.
    The MSRB agrees that it would be appropriate to consolidate its 
guidance on the definition of solicitation for purposes of Rules G-37 
and G-38 in the Solicitation Guidance and therefore is filing Amendment 
No. 2. Amendment No. 2 deletes the footnote in the original proposed 
rule change referencing the Rule G-37 Solicitation Qs&As (which are 
being withdrawn in the companion proposed rule change) and instead 
inserts the substantive language of such Qs&As into the text of the 
Solicitation Guidance. Amendment No. 2 and the withdrawal of the Rule 
G-37 solicitation Qs&As and former Rule G-38 Qs&As do not effect a 
substantive change in the MSRB's guidance on the definition of 
solicitation as set forth in the original proposed rule change.
    With respect to the commentator's discussion of former Rule G-38 
Q&A of March 4, 1999, the range of professionals covered by the final 
paragraph of the Solicitation Guidance relating to communications by 
non-affiliated professionals is broader than the range of professionals 
previously designated within an exception to the definition of 
consultant under former Rule G-38.\7\ Such professionals would not be 
subject to current Rule G-38 under the Solicitation Guidance only so 
long as they are not being paid directly or indirectly by the dealer 
for communicating with an issuer for the purpose of obtaining or 
retaining municipal securities business for the dealer (i.e., the 
professionals are paid solely for the provision of professional 
services with respect to the business). Professional services provided 
by a non-affiliated person in connection with municipal securities 
business for which payments may be made under the final paragraph of 
the Solicitation Guidance must in fact constitute bona fide services 
and not be illusory in nature. Finally, the MSRB notes that the 
application of the Solicitation Guidance is dependent upon the specific 
facts and circumstances and the MSRB has no opinion on how the 
Solicitation Guidance would be applied in any particular scenario.
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    \7\ Former Rule G-38 identified only those persons providing 
legal, accounting or engineering advice as qualifying for the 
exception under appropriate conditions, whereas the Solicitation 
Guidance identifies those non-affiliated persons providing legal, 
accounting, engineering or other professional services as not being 
subject to current Rule G-38 under appropriate conditions.
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2. Statutory Basis
    The MSRB believes that the proposed rule change, as amended by 
Amendment No. 2, is consistent with Section 15B(b)(2)(C) of the Act,\8\ 
which provides that the MSRB's rules shall:
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    \8\ 15 U.S.C. 78o-4(b)(2)(C).

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

[[Page 26577]]

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general, to protect investors and the public interest.

The MSRB believes that the original proposed rule change, as amended by 
Amendment No. 2, is consistent with the Act because it will further 
investor protection and the public interest by ensuring that dealers 
understand their obligations under MSRB rules designed to maintain 
standards of fair practice and professionalism, thereby helping to 
maintain public trust and confidence in the integrity of the municipal 
securities market.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The MSRB does not believe that the original proposed rule change, 
as amended by Amendment No. 2, will result in any burden on competition 
that is not necessary or appropriate in furtherance of the purposes of 
the Act since it would apply equally to all dealers.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments on Amendment No. 2 were neither solicited nor 
received.

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.
    The MSRB has requested accelerated approval of the proposed rule 
change. The Commission is not granting accelerated approval at this 
time in order to allow interested persons to comment on this proposal 
and on the companion proposed rule change relating to the withdrawal of 
obsolete Question-and-Answer Interpretive Guidance under former Rule G-
38, on consultants, and certain Question-and-Answer Interpretive 
Guidance relating to the definition of ``solicitation'' under Rule G-
37, on political contributions and prohibition on municipal securities 
business.\9\ The MSRB also requested that the Commission approve 
Amendment No. 2 and the original proposed rule change simultaneously 
with the companion proposed rule change. The Commission expects to 
consider these proposals simultaneously after the close of their 
respective comment periods.
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    \9\ See File No. SR-MSRB-2006-01.
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change, as amended, is consistent with the Act. Comments may be 
submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml.
); or     Send an e-mail to rule-comments@sec.gov. Please include 

File Number SR-MSRB-2005-11 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, Station Place, 100 F 
Street, NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-MSRB-2005-11. This file 
number should be included on the subject line if e-mail is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml
). Copies of the submission, all subsequent amendments, all 

written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for inspection and 
copying in the Commission's Public Reference Room. Copies of such 
filing also will be available for inspection and copying at the MSRB's 
offices. All comments received will be posted without change; the 
Commission does not edit personal identifying information from 
submissions. You should submit only information that you wish to make 
available publicly. All submissions should refer to File Number SR-
MSRB-2005-11 and should be submitted on or before May 26, 2006.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
[FR Doc. E6-6804 Filed 5-4-06; 8:45 am]

BILLING CODE 8010-01-P