Document ID: SEC-2013-1173-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Municipal Securities Rulemaking Board
Posted Date: 2013-06-28T04:00Z

[Federal Register Volume 78, Number 125 (Friday, June 28, 2013)]
[Notices]
[Pages 39048-39054]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-15463]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69835; File No. SR-MSRB-2013-04]

Self-Regulatory Organizations; Municipal Securities Rulemaking 
Board; Notice of Filing of a Proposed Rule Change Relating to a New 
MSRB Rule G-45, on Reporting of Information on Municipal Fund 
Securities

June 24, 2013.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that, on June 10, 2013, the Municipal Securities Rulemaking Board 
(``MSRB'') filed with the Securities and Exchange Commission (``SEC'' 
or ``Commission'') the proposed rule change as 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The MSRB is filing with the Commission a proposed rule change 
consisting of new Rule G-45, on reporting of information on municipal 
fund securities, and Form G-45, and amendments to Rules G-8, on books 
and records, and G-9, on preservation of records (the ``proposed rule 
change''). The MSRB will designate an implementation date for the 
proposed rule change that is not earlier than one year from the date of 
SEC approval.
    The text of the proposed rule change is available on the MSRB's Web 
site at www.msrb.org/Rules-and-Interpretations/SEC-Filings/2013-Filings.aspx, at the MSRB's principal office, and at the Commission's 
Public Reference Room.

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
    Summary of Proposed Rule Change. The proposed rule change will, for 
the first time, provide the MSRB with more comprehensive information 
regarding 529 College Savings Plans (``529 plans'' or ``plans'') 
underwritten by brokers, dealers or municipal securities dealers 
(``dealers'') by gathering data directly from such dealers. The MSRB 
regulates dealers that act in the capacity of underwriters of 529 
plans, as well as dealers that sell interests in 529 plans and 
municipal advisors to such plans. Interests in 529 plans have been 
deemed to be municipal securities by the Commission,\3\ and the MSRB 
has categorized such interests as municipal fund securities.\4\ MSRB 
rules govern the activities of dealers who transact business in 
municipal fund securities, and it is important that the MSRB have 
accurate, reliable and complete information about 529 plans 
underwritten by dealers in order to carry out its rulemaking 
responsibilities.
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    \3\ See letter dated February 26, 1999 from Catherine McGuire, 
Chief Counsel, Division of Market Regulation, SEC, to Diane G. 
Klinke, General Counsel of the Board, in response to letter dated 
June 2, 1998 from Diane G. Klinke to Catherine McGuire, published as 
Municipal Securities Rulemaking Board, SEC No-Action Letter, Wash. 
Serv. Bur. (CCH) File No. 032299033 (Feb. 26, 1999).
    \4\ The term municipal fund security is defined in MSRB Rule D-
12 to mean a municipal security issued by an issuer that, but for 
the application of Section 2(b) of the Investment Company Act of 
1940, would constitute an investment company within the meaning of 
Section 3 of the Investment Company Act of 1940.
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Current MSRB Requirements
    Today, the MSRB collects certain information regarding 529 plans 
from underwriters and issuers. Just as it does for municipal securities 
that are not municipal fund securities, the MSRB's Electronic Municipal 
Market Access (``EMMA[supreg]'') \5\ system serves as a centralized 
venue for the submission by underwriters of 529 plan primary offering 
disclosure documents (``plan disclosure documents'') and continuing 
disclosures, such as annual financial reports submitted to EMMA by 
issuers or their agents. However, the MSRB does not currently receive 
detailed underwriting or transaction information, as it does for other 
types of municipal securities.
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    \5\ EMMA is a registered trademark of the MSRB.
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    The proposed rule change will require dealers acting in the 
capacity of underwriters to submit to the MSRB, for the 529 plans they 
underwrite, on a semi-annual or, in the case of performance data, 
annual basis, certain information. The information includes plan 
descriptive information, assets, asset allocation information (at the 
investment option level), contributions, withdrawals, fee and cost 
structure, performance data, and other information. While some of the 
information, such as fees and costs, may be contained in plan 
disclosure documents submitted to EMMA, the information is not 
submitted in a manner that allows for analysis or comparison, since it 
is imbedded in static documents submitted in portable document format. 
The proposed rule change requires the information to be submitted 
electronically through new Form G-45, which is discussed in more detail 
below. The MSRB, and other regulatory authorities that are charged by 
statute with examining dealers for compliance with, and enforcing, MSRB 
rules, including the SEC and the Financial Industry Regulatory 
Authority (``FINRA''), will be able to utilize this information to 
analyze 529 plans, monitor their growth rate, size and investment 
options, and compare plans based on fees and costs and performance. By 
collecting this information, the MSRB will enhance its

[[Page 39049]]

understanding of the 529 plan market, the growth of plans and their 
investment options, and the differences among plans. Such information 
may inform the MSRB of the risks and impact of each plan and investment 
option and provide the MSRB and other regulators with additional 
information to monitor the market for wrongful conduct.
    At present, there is no central, reliable source for this 
information. While information vendors and an issuer-related 
association collect information regarding 529 plans, even assuming it 
would be the same information needed by the MSRB, the information 
submitted to these entities is done so voluntarily by 529 plan program 
managers or their affiliates or contractors. Consequently, it is not 
possible to confirm that all 529 plans will continue to submit 
information to these organizations or that all information requested 
will be provided. Further, it is not possible to test or otherwise 
confirm the accuracy of the information provided to these 
organizations. In short, the voluntary collection of limited 529 plan 
information by private organizations is not a substitute for actual 
data submitted by regulated dealers.
    Since the creation of the earliest 529 plans, the MSRB has issued 
interpretive guidance regarding dealer obligations in connection with 
transactions in interests in 529 plans. On March 31, 2006, the MSRB 
filed with the Commission an interpretation on customer protection 
obligations relating to the marketing of interests in 529 plans (the 
``2006 Notice'').\6\ The 2006 Notice addressed the basic customer 
protection obligations of dealers, including their disclosure 
obligations under MSRB Rule G-17. In the 2006 Notice, the MSRB noted 
that various organizations, including the College Savings Plans Network 
(``CSPN''), an affiliate of the National Association of State 
Treasurers, and certain private entities had established Web sites 
devoted to 529 plans.\7\
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    \6\ MSRB Notice 2006-07 (March 31, 2006).
    \7\ CSPN's Web site is located at www.collegesavings.org.
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    At that time, the MSRB urged market participants to develop a more 
comprehensive and user-friendly system of established industry sources 
for the 529 plan market. An established industry source is considered 
by the MSRB to be one which provides a broad variety of information 
that professionals can and do use to obtain material information about 
municipal securities.\8\ The MSRB stressed the importance of disclosure 
of material information regarding 529 plans and commented that it had 
long been an advocate for the best possible disclosure practices by 529 
plan market participants, though it lacked the authority to mandate 
specific disclosures by issuers. Over the years, the MSRB has worked 
with CSPN and individual states on, among other issues, disclosure 
principles and best practices, in order to better inform and protect 
investors.\9\ The disclosure principles cover a variety of topics that 
might be considered material to investors in making an informed 
investment decision, including the discussion of investment options, 
possible federal and state tax benefits, program management, investment 
management, risk factors, fees and costs, and investment performance.
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    \8\ See MSRB Notice 2006-07, Note 10 (March 31, 2006).
    \9\ CSPN published its Disclosure Principles Statement No. 5 
(``Disclosure Principles No. 5'') on May 3, 2011 
(www.collegesavings.org/legislativeInitiative.aspx), which assists 
states in improving the quality of disclosure to investors about 
their 529 plans. Based on comments to draft Rule G-45, the MSRB has 
modified certain reporting requirements to be consistent with 
Disclosure Principles No. 5, as more fully described below.
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    Given the complexity of 529 plans and their unique characteristics, 
such as individual state tax treatment, the MSRB urged market 
professionals to develop more comprehensive Web sites with features 
that would assist the general public in understanding the key terms and 
features of 529 plans.\10\ In the 2006 Notice, the MSRB noted that it 
would monitor the 529 plan market closely and consider whether further 
rulemaking regarding disclosures would be appropriate.
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    \10\ In this regard, CSPN, for example, developed a Web site 
that aggregates information regarding 529 plans and enables 
investors to compare plans by state and by feature. The MSRB views 
these established industry sources as helpful in providing investors 
and investment professionals who transact business in 529 plans with 
material information necessary for investors to make informed 
investment decisions.
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EMMA
    On June 1, 2009, the MSRB implemented an electronic system for free 
public access to primary market disclosure documents through EMMA.\11\ 
Thereafter, 529 plan underwriters have been obligated to submit plan 
disclosure documents to EMMA, pursuant to MSRB Rule G-32.\12\ On July 
1, 2009, the MSRB implemented the continuing disclosure service of 
EMMA.\13\ Since that date, 529 plan issuers or their agents have been 
submitting continuing disclosures regarding 529 plans to EMMA, such as 
audited financial statements, based on continuing disclosure agreements 
entered into pursuant to SEC Rule 15c2-12 (``Rule 15c2-12''), 
promulgated under the Act. Underwriters of 529 plans generally are 
obligated to determine that continuing disclosure agreements have been 
entered into in connection with the plans.\14\
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    \11\ MSRB Notice 2009-22 (May 22, 2009).
    \12\ Since May 2011, for 529 plans not underwritten by dealers, 
states have been permitted to voluntarily submit plan disclosure 
documents for public dissemination through EMMA.
    \13\ MSRB Notice 2008-47 (December 8, 2008).
    \14\ See Interpretation Relating to Sales of Municipal Fund 
Securities in the Primary Market (January 18, 2001).
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    The proposed rule change will assist the MSRB and other regulators 
that, pursuant to Section 15B of the Act, perform examinations and 
other oversight activities of dealers and municipal advisors, by 
providing them with important information regarding 529 plans 
underwritten by dealers. For example, the information will enable the 
MSRB or other regulators to, on a comprehensive basis, compare the 
asset allocation, fees and costs, and performance of similar investment 
options across plans and identify trends or changes. Such information 
also may be used to determine the nature or timing of risk-based dealer 
examinations.
    The information will be submitted to EMMA and retained in a 
database for regulatory use and will not, at this time, be disseminated 
publicly, though the MSRB's goal is to disseminate through EMMA the 
information that would be of benefit to investors. For example, the 
MSRB may display fee and expense or performance information on EMMA. 
Prior to such a public dissemination, the MSRB will file a proposed 
change to the EMMA or other facility with the SEC, and provide market 
participants with an opportunity to comment publicly on the proposal.
Proposed Rule G-45
    The proposed rule change will require each underwriter of a primary 
offering of municipal fund securities that are not interests in local 
government investment pools to report to the MSRB the information 
relating to such offering required by Form G-45 by no later than 60 
days following the end of each semi-annual reporting period ending on 
June 30 and December 31 each year and in the manner prescribed in the 
Form G-45 procedures and as set forth in the Form G-45 Manual.\15\ 
Interests in 529

[[Page 39050]]

plans are the only type of municipal fund security that will be covered 
by the proposed rule change. Such interests are sold through a 
continuous primary offering. Under the proposed rule, brokers, dealers 
or municipal securities dealers that are underwriters under Rule 15c2-
12(f)(8) \16\ will be required to submit the required information to 
the MSRB. The MSRB recognizes that, just as with municipal bonds, there 
may be more than one underwriter of a particular primary offering. In 
the case of 529 plans, program managers, their affiliates, including 
primary distributors, and/or their contractors, may fall within the 
statutory definition of underwriter. Consequently, the MSRB would deem 
the obligation to submit the required information fulfilled if any one 
of the underwriters submitted the required information. In this regard, 
on proposed Form G-45, each submitter would indicate the identity of 
each underwriter on whose behalf the information is submitted.
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    \15\ The Form G-45 Manual will be a new item created to assist 
persons in the submission of the information required under Rule G-
45 and is not part of the proposed rule change.
    \16\ 17 CFR 240.15c2-12(f)(8).
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    Originally, the MSRB proposed that the information be submitted 
within 30 days of the end of the reporting period.\17\ Commenters 
raised concerns about the deadline and, in response, the MSRB revised 
the proposal and extended the deadline to 60 days from the end of the 
reporting period to address the burdens on dealers in gathering and 
validating the information.\18\ Similarly, in the August Notice the 
MSRB initially proposed that underwriters report the required 
information quarterly. In response to comments to the August Notice, 
the MSRB in the November Notice changed the reporting period from 
quarterly to semi-annually to address the burdens of more frequent 
filings. Moreover, underwriters only will be required to submit 
performance data annually instead of quarterly or semi-annually. This 
change was also in response to concerns raised about the burden of 
quarterly submissions. In the November Notice, the MSRB also revised 
the proposal to eliminate the requirement to submit information on the 
percentage of plan contributions derived from automatic contributions, 
such as through ACH (Automated Clearing House) debit transfers from an 
account owner's bank account. The MSRB believes that the burden on 
dealers to submit this information outweighs its regulatory benefit. 
Finally, in the August Notice the MSRB initially proposed to collect 
information regarding the underlying portfolio investments in which 
each investment option invests. Based on comments to the initial 
proposal and in recognition of the additional burdens associated with 
supplying the individual portfolio data that is subsumed within an 
investment option, in the November Notice, the MSRB eliminated this 
requirement from the proposed rule change.
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    \17\ MSRB Notice 2012-40 (August 6, 2012) (the ``August 
Notice'').
    \18\ MSRB Notice 2012-59 (November 23, 2012) (the ``November 
Notice'').
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Rules G-8 and G-9
    The proposed rule change includes amendments to the MSRB's books 
and records rules to require underwriters obligated to submit 
information to the MSRB under proposed Rule G-45 to maintain the 
information required to be reported on Form G-45 for six years.
Proposed Form G-45
    The information required by Form G-45 will be submitted 
electronically by underwriters, either through automated upload or 
through a web portal, at the discretion of the underwriter. In order to 
minimize the burden on underwriters, once the information is initially 
submitted, future submissions will be pre-populated with certain basic 
information on the electronic form. Form G-45 requires the submission 
of the following information:
     Plan descriptive information: The underwriter will provide 
the MSRB with the name of the state, name of the plan, name of the 
underwriter and contact information, name of other underwriters on 
whose behalf the underwriter is submitting information, name of the 
program manager and contact information, plan Web site address and type 
of marketing channel (whether sold with or without the advice of a 
broker-dealer). This information will be pre-populated and will likely 
change infrequently.
     Aggregate plan information: The underwriter will provide 
the MSRB with total plan assets, as of the end of each semi-annual 
reporting period, total contributions for the most recent semi-annual 
reporting period, and total distributions for the most recent semi-
annual reporting period.
     Investment option information: For each investment option 
offered by the plan, the underwriter will provide the MSRB with the 
name and type of investment option (such as an age-based, 
conservative), the inception date of the investment option, total 
assets in the investment option as of the end of the most recent semi-
annual period, the asset classes in the investment option, the actual 
asset class allocation of the investment option as of the end of the 
most recent semi-annual period, the name of each underlying investment 
in each investment option as of the end of the most recent semi-annual 
period, the investment option's performance for the most recent 
calendar year (as well as any benchmark and its performance for the 
most recent calendar year), total contributions to and distributions 
from the investment option for the most recent semi-annual reporting 
period and the fee and expense structure in effect as of the end of the 
most recent semi-annual reporting period. In order to ease the burden 
on underwriters submitting the information, the MSRB modified the 
proposal to permit the performance and fee and expense information to 
be submitted in a format consistent with Disclosure Principles No. 5, 
which commenters inform the MSRB is the industry norm for reporting 
such information.
2. Statutory Basis
    The MSRB believes that the proposed rule change is consistent with 
Section 15B(b)(2)(C) of the Act,\19\ which provides that the MSRB's 
rules shall

    \19\ 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 and 
municipal financial products, to remove impediments to and perfect 
the mechanism of a free and open market in municipal securities and 
municipal financial products, and, in general, to protect investors, 
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municipal entities, obligated persons, and the public interest.

    The statute requires the MSRB to protect both investors and 
municipal entities. In fulfilling its responsibility, the MSRB must 
understand the market and possess basic, reliable information regarding 
individual 529 plans and their investment options. The proposed rule 
change will provide the MSRB with such information. The information 
will allow the MSRB to assess the impact of each plan on the market, 
evaluate trends and differences, and gain an understanding of the 
aggregate risk taken by investors by the allocation of assets in each 
investment option. Having this information will better position the 
MSRB to protect investors and the public interest.
    Additionally, the MSRB has a statutory obligation to prevent 
fraudulent and manipulative acts and practices and to promote just and 
equitable principles of trade. Typically, underwriters of 529 plans 
draft or participate in drafting the plan

[[Page 39051]]

disclosure documents, as well as marketing material for 529 plans. The 
MSRB or other regulators may use the information submitted on Form G-45 
to, among other things, determine if the disclosure documents or 
marketing material prepared or reviewed by underwriters are consistent 
with the data submitted to the MSRB.
    Finally, while commenters have suggested that underlying 
investments in 529 plans are typically registered investment companies 
regulated by the SEC and therefore oversight by the MSRB would be 
duplicative, the investment options are unique to 529 plans and are not 
regulated as registered investment companies by the SEC. It is 
therefore important that the MSRB collect information about 529 plan 
investment options.

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

    The MSRB does not believe that the proposed rule change would 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act, since it would provide 
information necessary for the MSRB to carry out its regulatory 
responsibilities under the Act and would apply equally to all dealers 
that serve as underwriters of 529 plans. Moreover, the MSRB believes 
that such underwriters collect and retain the information required by 
the proposed rule change and utilize it for a variety of purposes, 
including reporting to issuers and other market participants. The 
information that the proposed rule change requires underwriters to 
submit to EMMA will be required to be submitted on an equal and non-
discriminatory basis. As described above, the MSRB will realize 
substantial benefits in obtaining reliable, accurate information about 
529 plans, promoting greater regulatory oversight and investor 
protection. In addition, the proposed rule change will not impose any 
burden on dealers that sell interests in 529 plans, as the obligation 
to submit information semi-annually to the MSRB will only be imposed on 
underwriters. On balance, the MSRB believes that the benefits of the 
proposed rule change greatly exceed any potential increased burden it 
imposes on dealers.
    In the November Notice requesting comment on the proposed rule 
change, the MSRB explained that, in order to ease the burden on 
dealers, the proposed rule change ``eliminate[d] the requirement to 
submit information on underlying investments and the requirement to 
submit the percentage of plan contributions derived from automatic 
contributions, based on comments that some plans do not track such 
information.'' The November Notice also provided that ``in order to 
facilitate the submission of information, the MSRB will take steps to 
pre-populate certain data fields on Form G-45, subsequent to the 
initial filing by underwriters.'' As explained earlier, the MSRB made 
other substantive changes to the proposal to ease the burden on 
dealers, such as changing the reporting period from quarterly to semi-
annually (except for performance, which would be reported annually), 
extending the reporting deadline from 30 days after the end of the 
reporting period to 60 days after the end of the reporting period, and 
conforming the reporting format for fees and performance to the 
Disclosure Principles No. 5. The MSRB believes these changes, taken 
together, reduce the reporting burden significantly.
    Among the suggested alternatives to the proposed rule change are 
(a) a manual review of information in plan disclosure documents 
submitted to EMMA or on plan Web sites; or (b) a review of data 
supplied by information vendors voluntarily. Neither of these 
alternatives will satisfy the regulatory needs of the MSRB. A manual 
review of information would be insufficient because some of the 
information sought by the MSRB is not disclosed in public documents. 
For example, plans may not publish information on their assets, 
contributions, distributions, performance or benchmark performance at 
the investment option level. Moreover, monitoring EMMA and other Web 
sites for the publication of new information would be time consuming 
and inefficient. While information supplied by dealers to information 
vendors may be of interest, it is unreliable from a regulatory 
standpoint. Additionally, the MSRB would be relying on such information 
vendors for important regulatory information. On balance, the MSRB 
believes that semi-annual reporting of limited information, which is 
readily available to underwriters, will not pose an unreasonable burden 
on dealers.

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

    On November 23, 2012, the MSRB issued a request for comment on a 
draft rule requiring underwriters to submit 529 plan data to the 
MSRB.\20\ The November Notice outlined the requirements of draft MSRB 
Rule G-45 and Form G-45, including the requirement that underwriters 
submit information required by Form G-45 semi-annually, except for 
performance information which would be submitted annually, a 60 day 
deadline to report the information after the end of the reporting 
period, and an implementation period of at least one year following 
approval of the rule change by the Commission.\21\
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    \20\ See footnote 18.
    \21\ The November Notice described revisions to a draft rule 
that was first proposed in the August Notice.
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Publication of Collected Information
    In response to the November Notice, the MSRB received eight letters 
that comment on the proposed rule change.\22\ A number of commenters 
raise concerns about the possibility of public dissemination of the 
data collected on the EMMA Web site.\23\ The concerns are that 
investors may be confused if information is displayed out of context 
and that some of the information may be proprietary.\24\ The MSRB 
stated in the November Notice that the information would be collected 
for regulatory purposes and that no information collected under 
proposed Rule G-45 would be displayed on EMMA without a subsequent rule 
filing. The MSRB intends to collect and analyze the information before 
making any determinations regarding the dissemination of any of the 
data through EMMA. UESP further notes that, although the MSRB indicated 
that the information would be used for regulatory purposes, the draft 
rule contains no such assurance. This commenter requests that the MSRB 
further address the issue before the draft rule is finalized. As noted 
above, the MSRB does not intend to disseminate through EMMA the 
information to be collected under the proposed rule change, though it 
does have a goal of disseminating more information on 529 plans, where 
it would benefit investors. The MSRB is mindful of the concerns raised 
by commenters that information out of context might be confusing or 
misleading to investors. Consequently, it will study the data collected 
and consider these concerns before filing a

[[Page 39052]]

proposal to disseminate any of the information collected.
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    \22\ Comment letters were received from the College Savings 
Foundation (``CSF''), College Savings Plans Network (``CSPN''), 
College Savings Plans of Maryland (``CSPM''), Financial Research 
Corporation (``FRC''), Investment Company Institute (``ICI''), 
Securities Industry and Financial Markets Association (``SIFMA''), 
Utah Educational Savings Plan (``UESP'') and Coalition of Mutual 
Fund Investors (``CMFI'') (this letter raises concerns with fees 
associated with omnibus accounting of 529 plans and does not 
directly address the proposed rule change).
    \23\ See comments from CSF, CSPN, CSPM, SIFMA and UESP.
    \24\ See, e.g., comment from CSPM.
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Implementation Period and Reporting Deadline
    In terms of the implementation period and lag time for reporting 
information, two commenters suggest that the one year implementation 
period is too short and that 18 to 24 months is needed.\25\ For 
example, FRC suggests that two years is more appropriate, given the 
need for dealer system changes and to ensure data integrity. It draws 
its perspective from its role as an information vendor that analyzes 
information submitted voluntarily by 529 plan intermediaries. While the 
MSRB is sensitive to the burdens and systems implications of the 
proposed rule change, its experience in developing similar systems in 
the past suggests that a one year implementation period is more 
appropriate. The dealer community has been on notice for many months of 
these proposed changes, and should begin preliminary preparations for 
extracting the necessary data. In the November Notice, the MSRB 
proposed a one year implementation period based on comments to the 
August Notice from ICI, SIFMA and CSPM suggesting that one year would 
be an appropriate time frame to allow underwriters to modify their 
systems to comply with a mandatory reporting regime. It is important 
that the MSRB begin collecting the information as soon as possible, as 
there is no authoritative, reliable source for this information, as 
discussed above, and the MSRB agrees with such commenters that one year 
should be sufficient to prepare for the submissions.
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    \25\ See comments from CSF and FRC.
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    FRC also suggests that, based on its experience as an information 
vendor, the 60 day reporting deadline should be extended to 120 days. 
Interestingly, FRC collects 529 plan information quarterly and requests 
that its survey participants submit information within 30 days from the 
end of the quarter. Based on input from underwriters and other 
commenters, the MSRB believes that a 60 day deadline is appropriate. 
For example, SIFMA and ICI support a 60 day reporting deadline, as does 
CSPM for performance data, although it believes 30 days is sufficient 
for assets, contributions and distributions, according to comment 
letters submitted in response to the August Notice. Moreover, the 
Commission requires registered investment companies to file portfolio 
holding information within 60 days of the end of the reporting period 
on Form N-Q. Consequently, the MSRB believes the 60 day deadline is 
appropriate.
Duplication of Effort
    FRC recommends that the MSRB not collect information at all, or at 
least not at the investment option level, because data is sent to the 
MSRB by the commenter and some of the information is contained in plan 
disclosure documents submitted by underwriters to EMMA. While the MSRB 
appreciates the cooperation of this commenter in producing its reports 
voluntarily to the MSRB, the reports are no substitute for data 
mandated by rule, which can be validated through regulatory 
examination. Further, the receipt of information in a disclosure 
document is not equivalent to its receipt in electronic data fields. 
Finally, FRC suggests that the proposed rule change would raise the 
expenses of 529 plans and burden investors unnecessarily. It comments 
that the requirement for underwriters to submit data will entail 
additional costs, which may be passed onto the 529 plans, and 
indirectly, investors. The MSRB believes that the additional burden on 
underwriters of submitting readily available information semi-annually 
will be modest, compared with the benefit of obtaining reliable, 
accurate information to assist with its regulatory activities.
Scope of MSRB Rulemaking Authority
    FRC suggests that the MSRB only has authority over ``advisor-sold'' 
plans and should only collect information regarding these plans. The 
distinction between ``advisor-sold'' plans and ``direct-sold'' plans is 
a marketing distinction that has no bearing on the jurisdiction of the 
MSRB. The MSRB's jurisdiction extends to dealers or municipal advisors 
with respect to all their municipal fund securities and municipal 
advisory activities. Consequently, underwriters of ``direct-sold'' and 
``advisor-sold'' plans must submit information required by the proposed 
rule change to the MSRB.
Use of CSPN Disclosure Principles
    Commenters \26\ generally support the MSRB's proposed use of the 
reporting format in Disclosure Principles No. 5 for reporting 529 plan 
fees and performance. CSF suggests that the use of Disclosure 
Principles No. 5 will make the transition to the reporting process less 
cumbersome and more efficient. Nevertheless, several commenters suggest 
that, for clarification and flexibility, the MSRB adopt certain 
relevant provisions in Disclosure Principles No. 5, allow for 
explanatory text and footnotes to the reporting tables on fees and 
performance, and permit different tabular presentations that are at 
least as specific as those examples provided in Disclosure Principles 
No. 5.\27\ The MSRB has adopted these recommendations in the proposed 
rule change and will permit submitters to add explanatory text and 
footnotes to the reporting tables on fees and performance, as well as 
different tabular presentations that are at least as specific as those 
examples provided in Disclosure Principles No. 5. The specifications 
for reporting will be contained in the G-45 Manual, which will be 
published on www.msrb.org, sufficiently in advance of the effective 
date to provide submitters with adequate notice and time to comply.
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    \26\ See comments from CSF, CSPN, ICI and SIFMA.
    \27\ See comments from CSF, CSPN, ICI and SIFMA.
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    CSF also requests that plans be able to report fees as of the most 
recent offering document, since most plans issue offering documents 
once per year and proposed Rule G-45 would require semi-annual 
reporting. As CSF correctly notes, the proposed rule change requires 
semi-annual reporting of the fee and cost table. If the fees and costs 
have not changed since the most recent offering document, underwriters 
can simply insert the information from that offering document. If the 
fees and costs have changed, however, underwriters would be required to 
update the table to reflect those changes. In order to make it as easy 
as possible to submit information, the MSRB intends to pre-populate the 
electronic Form G-45 with certain information submitted previously by 
underwriters. For example, basic plan descriptive information will be 
pre-populated. Additionally, the fee and cost tables will be pre-
populated. If there are no changes to the fee and cost table from the 
prior filing, underwriters need not make changes to the table.
    ICI also requests that the MSRB make clear that, to the extent a 
plan does not separately compute and disclose one or more fees listed 
in the fee and cost tables, it should not require underwriters to 
artificially create such fees solely for purposes of Form G-45. The 
proposed rule change would not require underwriters to calculate and 
artificially segment fees for purposes of completing Form G-45. Rather, 
underwriters would simply report fees and costs as they are calculated 
and reported to account holders.

[[Page 39053]]

Required Submitters
    Several commenters state that only the underwriter or primary 
distributor should be required to file proposed Form G-45.\28\ The MSRB 
acknowledges the efficiencies in having a complete set of Form G-45 
data submitted by a single party, and believes that where such a 
submission provides a complete set of data on a 529 Plan, no additional 
submissions should be required. However, the MSRB also is concerned 
that limiting the filing requirement solely to the primary distributor 
may leave gaps in the information reported. In principle, the MSRB 
supports filing by a single party, but only to the extent such party 
aggregates the data from all persons acting as underwriters. Under the 
proposed rule change, each underwriter has a separate obligation to 
submit information required on Form G-45; provided, however, that the 
obligation will be deemed satisfied if produced by another underwriter, 
such as the primary distributor, on its behalf.
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    \28\ See comments from CSPN, ICI and SIFMA.
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    ICI notes that 529 plans have only one underwriter, the primary 
distributor, and that many other entities are involved in operating and 
maintaining a plan, such as the plan's program manager, record-keeper, 
investment manager, custodian and state sponsor. ICI suggests that none 
of these entities would qualify as an underwriter under the proposed 
rule. MSRB disagrees. Under SEC Rule 15c2-12(f)(8),\29\ an underwriter 
is defined broadly and may include one or more of the entities 
identified by ICI. Nevertheless, if a program manager, for example, is 
an underwriter pursuant to SEC rules, its obligation to submit 
information would be deemed satisfied if the primary distributor or 
another underwriter submitted all of the information required by 
proposed Rule G-45 on its behalf.
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    \29\ 17 CFR 240.15c2-12(f)(8).
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    CSPN also notes that underwriters may not have the legal right to 
information transmitted by selling dealers to a plan's record-keeper 
because they are not, in some instances, acting as the plan's record-
keeper and therefore do not have access to or control such information. 
In essence, CSPN contends that these underwriters serve a very limited 
function and do not receive information from selling dealers about 
transactions in 529 plan accounts. The proposed rule change will only 
require underwriters to produce information that they possess or have a 
legal right to obtain, such as information in the possession of an 
underwriter's subcontractor. ICI acknowledges that it would be 
appropriate to require production of such information: ``[ICI] concurs 
that it is appropriate to require a plan's underwriter to report 
information it owns or controls even if the underwriter has delegated 
responsibility for collecting or maintaining the information to another 
entity.'' The MSRB believes that, in most cases, the record-keeper will 
be an underwriter or a subcontractor of an underwriter. Although 
selling dealers will have no obligation to submit information to the 
MSRB under the proposed rule change, those selling dealers that enter 
into omnibus accounting arrangements with program managers or others 
will transmit information to underwriters or their subcontractors that 
must be included in the information submitted to the MSRB. Depository 
Trust & Clearing Corporation (``DTCC'') and its affiliate, National 
Securities Clearing Corporation (``NSCC'') worked with an industry 
group to modify the 529 plan aggregation file produced by NSCC to 
include 529 plan daily activity and position changes, so that a nightly 
file may be transferred to the program manager or others showing all 
activity and positions in 529 plan accounts for which the selling 
dealer performs accounting services. In an omnibus accounting 
arrangement, the selling dealer places purchase and sale orders in an 
aggregated fashion on behalf of the dealer and maintains records of 
individual account holder purchases and sales through subaccounts. 
Through this arrangement, orders are placed in an omnibus manner and do 
not identify the underlying account owners or beneficiaries. 
Nevertheless, the MSRB believes that underwriters have possession or 
the legal right to the 529 aggregation files and, therefore, have 
information regarding all activity and positions in the 529 plans they 
underwrite. The MSRB further understands that DTCC/NSCC created the 529 
aggregation files at the request of the program managers and state 
sponsors because they must have information regarding each customer 
subaccount in order to monitor the contributions and withdrawals so 
that no beneficiary accumulates more funds in an account than is 
permitted by the Internal Revenue Service under the Internal Revenue 
Code. Consequently, the MSRB understands that underwriters have 
information as to customer activity and positions, notwithstanding the 
omnibus accounting arrangements entered into by certain selling 
dealers.
Definitions and Format
    Finally, commenters \30\ suggest slight definitional and formatting 
changes that have been incorporated into the proposed rule change. For 
example, pursuant to the suggestion of CSPN, the MSRB has changed the 
definition of ``marketing channel,'' ``reallocation,'' and ``underlying 
investment.'' The MSRB will also permit submitters to identify the 
``marketing channel'' of each plan by a drop down menu on the 
electronic Form G-45, which will be further detailed in the G-45 
Manual. Also, pursuant to a suggestion by ICI and SIFMA, the MSRB has 
moved Form G-45(ii)(D) on the fee and expense structure to (iii)(L). As 
for the ICI recommendation that information regarding asset allocation 
be reported in ranges rather than precise amounts, the MSRB believes 
that precision is needed to provide accurate information regarding the 
asset allocations and to distinguish one plan's investment options from 
another.
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    \30\ See comments from CSPN, ICI and SIFMA.
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III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate 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 or disapprove 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 invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change 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 email to rule-comments@sec.gov. Please include 
File Number SR-MSRB-2013-04 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission,

[[Page 39054]]

100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-MSRB-2013-04. This file 
number should be included on the subject line if email 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 Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of the MSRB. 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-2013-04 and should be 
submitted on or before July 19, 2013.
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    \31\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\31\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-15463 Filed 6-27-13; 8:45 am]
BILLING CODE 8011-01-P