[Federal Register Volume 75, Number 63 (Friday, April 2, 2010)]
[Notices]
[Pages 16878-16886]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-7463]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-61793; File No. SR-MSRB-2010-02]
Self-Regulatory Organizations; Municipal Securities Rulemaking
Board; Notice of Filing of Proposed Rule Change to MSRB Rule G-34,
CUSIP Numbers and New Issue Requirements, To Enhance the Interest Rate
and Descriptive Information Currently Collected and Made Transparent by
the MSRB on Municipal Auction Rate Securities and Variable Rate Demand
Obligations
March 26, 2010.
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 10, 2010, the Municipal Securities Rulemaking Board (``MSRB'')
filed with the Securities and Exchange Commission (``Commission'' or
``SEC'') 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.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
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 to
enhance the interest rate and descriptive information currently
collected and made transparent by the MSRB on
[[Page 16879]]
municipal Auction Rate Securities (``ARS'') and Variable Rate Demand
Obligations (``VRDOs''). The proposed rule change would: (i) Amend
Rules G-8, books and records, and G-34(c), variable rate security
market information, to require brokers, dealers and municipal
securities dealers (collectively ``dealers'') to submit to the MSRB (a)
documents that define auction procedures and interest rate setting
mechanisms for ARS and liquidity facilities for VRDOs (``short-term
obligation document disclosure rule change''); (b) ARS bidding
information (``ARS bidding information rule change''); and (c)
additional VRDO information (``VRDO information rule change'')
(collectively, the ``rule change proposal''); (ii) amend the MSRB
Short-term Obligation Rate Transparency (``SHORT'') System Facility to
collect and disseminate information identified in the ARS bidding
information rule change and the VRDO information rule change and
documents identified in the short-term obligation document disclosure
rule change (the ``SHORT System Facility amendment proposal''); and
(iii) amend the MSRB EMMA Short-term Obligation Rate Transparency
Service to make the documents collected in the SHORT System Facility
amendment proposal available on the MSRB's Electronic Municipal Market
Access (EMMA) Web site (the ``EMMA Short-term Obligation Rate
Transparency Service amendment'').
The MSRB has requested that the proposed rule change, which may be
implemented in phases, be made effective on such date or dates as would
be announced by the MSRB in notices published on the MSRB Web site,
which dates would be no later than nine months after Commission
approval of the proposed rule change and would be announced no later
than sixty (60) days prior to the effective dates.
The text of the proposed rule change 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. If approved, the rule text for the
Short-term Obligation Rate Transparency System, as well as for the EMMA
Short-Term Obligation Rate Transparency Service, would be available on
the MSRB Web site at http://www.msrb.org/msrb1/rulesandforms under the
heading Information Facilities.
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. 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 proposed rule change would enhance the interest rate and
descriptive information currently collected and made transparent by the
MSRB on municipal Auction Rate Securities (``ARS'') and Variable Rate
Demand Obligations (``VRDOs''). The proposed rule change would: (i)
Amend MSRB Rules G-8, books and records, and G-34(c), variable rate
security market information, to require brokers, dealers and municipal
securities dealers (collectively ``dealers'') to submit to the MSRB (a)
documents that define auction procedures and interest rate setting
mechanisms for ARS and liquidity facilities for VRDOs; (b) ARS bidding
information; and (c) additional VRDO information (collectively ``rule
change proposal''); (ii) amend the MSRB Short-term Obligation Rate
Transparency (``SHORT'') System Facility to collect and disseminate the
documents identified in the rule change proposal (``SHORT System
Facility amendment proposal''); and (iii) amend the MSRB EMMA Short-
term Obligation Rate Transparency Service to make the documents
collected in the SHORT System Facility amendment proposal available on
the MSRB's Electronic Municipal Market Access (EMMA) Web site (the
``EMMA Short-term Obligation Rate Transparency Service amendment'').
SHORT and EMMA are components of an integrated suite of programs,
services and systems (``MSRB market information programs'') for the
collection of municipal securities market data and documents from
dealers and other market participants and the dissemination of such
data and documents to the public. The MSRB market information programs
leverage the components of the various individual programs, services
and systems to enhance the overall efficiency and effectiveness of the
MSRB market information programs. In particular, processes, software,
hardware or other components initially placed into service for a
particular program, service or system may be utilized by other
programs, services and systems within the MSRB market information
programs to optimize the effectiveness of the MSRB market information
programs and the individual components thereof.\3\
---------------------------------------------------------------------------
\3\ For example, certain elements of the SHORT System Facility
amendment proposal would rely on components previously placed into
service pursuant to the EMMA primary market or continuing disclosure
services for purposes of processing submissions made to the MSRB.
---------------------------------------------------------------------------
Background
Since January 30, 2009 for ARS and April 1, 2009 for VRDOs, MSRB
Rule G-34(c), on variable rate security market information, has
required dealers that act as Program Dealers \4\ for ARS or Remarketing
Agents for VRDOs to report (either directly or through an agent)
certain information following an ARS auction or VRDO interest rate
reset to the SHORT System.\5\ Information generally is required to be
reported to the SHORT System by no later than 6:30 p.m. Eastern Time on
the day that an ARS auction or VRDO interest rate reset occurs and all
collected information is made available to market participants for free
in real-time on the MSRB's Electronic Municipal Market Access
(``EMMA'') Web site.\6\ The specific items of interest rate and
descriptive information about ARS and VRDOs currently required to be
reported to the SHORT System are listed below.
---------------------------------------------------------------------------
\4\ An ARS Program Dealer is defined in Rule G-34(c) as a dealer
that submits an order directly to an Auction Agent for its own
account or on behalf of another account to buy, hold or sell ARS
through the auction process.
\5\ See Securities Exchange Act Release No. 34-59212, January 7,
2009 (File No. SR-MSRB-2008-07).
\6\ The 6:30 p.m. Eastern Time deadline only applies to those
ARS auctions and VRDO interest rate resets that occur during an
``RTRS Business Day,'' as defined in Rule G-14(d)(ii). Information
about ARS auctions and VRDO interest rate resets that occur outside
of the hours of an ``RTRS Business Day'' is required to be submitted
to the SHORT System by no later than 6:30 p.m. Eastern Time on the
next ``RTRS Business Day.''
---------------------------------------------------------------------------
The following is a list of the information currently required to be
reported to the SHORT System by an ARS Program Dealer following an ARS
auction:
CUSIP number;
Interest rate for the next reset period;
Identity of Program Dealer(s);
Number of days of the reset period;
Minimum denomination;
Date and time of the auction;
Date and time of posting of auction results by an Auction
Agent;
Indication of whether the interest rate represents a
``maximum rate,'' an ``all hold rate,'' or a rate that was ``set by
auction;''
[[Page 16880]]
Minimum and maximum rates, if any, applicable at the time
of the auction or, if not calculable as of the time of auction,
indication that such rate or rates are not calculable; \7\ and
---------------------------------------------------------------------------
\7\ Some ARS and VRDOs have minimum and maximum rates that are
set pursuant to formulas that are unable to be calculated at the
time a submission to the SHORT System is required. In these cases, a
value of ``NC'' is required to be included in a submission to the
SHORT System to show that the minimum and maximum rates are ``not
calculable.'' This exception does not apply to minimum and maximum
rates that are linked to an index or bank lending rate, such as
LIBOR. Such rates are required to be computed and the resulting
values included on a submission to the SHORT System.
---------------------------------------------------------------------------
Par amount auctioned, not including hold orders effective
at any rate.
The following is a list of the information currently required to be
reported to the SHORT System by a VRDO Remarketing Agent following a
VRDO interest rate reset:
CUSIP number;
Interest rate for the next reset period;
Identity of Remarketing Agent;
Date of interest rate reset;
Length of the interest rate reset period;
Length of Notification Period;
Indication of whether interest rate is ``set by formula,''
``set by Remarketing Agent'' or a ``maximum rate;''
Minimum and maximum rates, if any, applicable at the time
of the interest rate reset or, if not calculable as of the time of the
interest rate reset, indication that such rate or rates are not
calculable; \8\
---------------------------------------------------------------------------
\8\ Id.
---------------------------------------------------------------------------
Minimum denomination;
Type of liquidity facility(ies); \9\ and
---------------------------------------------------------------------------
\9\ Dealers are required to submit to the SHORT System whether
each applicable liquidity facility is a letter of credit or standby
bond purchase agreement.
---------------------------------------------------------------------------
Expiration date of each liquidity facility.
Description of the Rule Change Proposal
The proposed rule change would enhance the interest rate and
descriptive information currently made available to market participants
about ARS and VRDOs. The proposed rule change would require dealers to
report to the MSRB documents that set forth auction procedures and
interest rate setting mechanisms for ARS and liquidity facilities for
VRDOs, as well as ARS bidding information and additional VRDO
information. All collected documents and information would be made
available in real-time on EMMA.\10\ The documents and information about
ARS and VRDOs that would be required to be provided to the MSRB under
the proposed rule change are described below.
---------------------------------------------------------------------------
\10\ In the future, the MSRB also plans to make all information
collected under the rule change proposal available on a subscription
basis.
---------------------------------------------------------------------------
ARS Bidding Information
The proposed rule change would require each ARS Program Dealer to
report to the SHORT System an electronic document containing ``ARS
bidding information,'' which would include information about all orders
placed by an ARS Program Dealer with an ARS Auction Agent for inclusion
in an auction. This information would augment the interest rate and
descriptive information currently provided to market participants by
also providing information that would show, for example, how the
interest rate was determined for a successful auction. The specific
items of ARS bidding information an ARS Program Dealer would be
required to report to the SHORT System are listed below. All items
would be required to be reported within the same timeframe as the ARS
interest rate and descriptive information currently required to be
reported under Rule G-34(c). The ARS bidding information document would
be required to be submitted to the SHORT System as a word-searchable
portable document format (``PDF'') file.
Interest rate(s) and aggregate par amount(s) of orders to
sell at a specific interest rate and aggregate par amount of such
orders that were executed;
Aggregate par amount of orders to sell at any interest
rate and aggregate par amount of such orders that were executed;
Interest rate(s) and aggregate par amount(s) of orders to
hold at a specific interest rate and aggregate par amount of such
orders that were successfully held;
Interest rate(s) and aggregate par amount(s) of orders to
buy and aggregate par amount of such orders that were executed;
Interest rate(s), aggregate par amount(s), and type of
order--either buy, sell or hold--by a Program Dealer for its own
account and aggregate par amounts of such orders, by type, that were
executed; and
Interest rate(s), aggregate par amount(s), and type of
order--either buy, sell or hold--by an issuer or conduit borrower for
such Auction Rate Security and aggregate par amounts of such orders, by
type, that were executed.
Additional VRDO Information
The proposed rule change would require VRDO Remarketing Agents to
submit additional items of VRDO information to the SHORT System in
conjunction with the VRDO interest rate and descriptive information
currently required to be reported under Rule G-34(c). This information
would provide additional details concerning the interest rate set for a
VRDO, such as the effective date of the interest rate, and would
facilitate the tendering of a position in a VRDO by investors by
requiring VRDO Remarketing Agents to report the identity of the agent
of the issuer of the VRDOs to which a holder may tender their security
(``Tender Agent'').
The additional VRDO information would also provide transparency
related to the current holders of the VRDO. Information about current
holders of a VRDO would indicate, for example, that interest rate set
represents an interest rate paid to holders of the VRDO instead of
instances when the VRDO is held entirely by a liquidity provider (as a
``Bank Bond'') and that the interest rate set is therefore not set by
market demand. A complete list of the specific items of additional VRDO
information a VRDO Remarketing Agent would be required to report to the
SHORT System under the proposed rule change are listed below.
Effective date that the interest rate reset is applicable;
Identity of the Tender Agent;
Identity of the liquidity provider(s) including a
indication of those VRDOs for which an issuer provides ``self
liquidity'' and the identity of the party providing such self-
liquidity; \11\
---------------------------------------------------------------------------
\11\ Some VRDOs have liquidity provisions under which the
liquidity is provided by the issuer, conduit borrower or affiliate
instead of by a third-party. Rule G-34(c) currently requires
Remarketing Agents to report the type of liquidity facility
applicable to a VRDO. Currently, SHORT System specifications only
provide two options for this data element--letter of credit and
standby bond purchase agreement--and in conjunction with proposed
rule change the MSRB would revise the specifications to also capture
VRDOs that have ``self liquidity.''
---------------------------------------------------------------------------
Information available to the VRDO Remarketing Agent as of
the time of the interest rate reset of the par amount of the VRDO, if
any, held as a Bank Bond; and
Information available to the VRDO Remarketing Agent as of
the time of the interest rate reset of the aggregate par amount of the
VRDO, if any, held by parties other than a liquidity provider, which
includes the par amounts held by a VRDO Remarketing Agent and by
investors.
ARS and VRDO Documents
The proposed rule change would require ARS Program Dealers and VRDO
Remarketing Agents to submit certain documents to the SHORT System to
[[Page 16881]]
ensure that market participants have centralized access to critical
documents about ARS programs and VRDO issues. For existing ARS
programs, dealers would be required to submit the current versions of
ARS documents defining current auction procedures and interest rate
setting mechanisms to the SHORT System within ninety days after the
effective date of the proposed rule change. For existing VRDO issues,
dealers would be required to undertake and document \12\ best efforts
to obtain current versions of VRDO liquidity facility documents,
including Letters of Credit, Stand-by Bond Purchase Agreements and any
other document that establishes an obligation to provide liquidity, and
submit such documents to the SHORT System within ninety days after the
effective date of the proposed rule change. On an ongoing basis,
dealers would be required to submit any new or amended versions of
these documents within one business day of receipt.
---------------------------------------------------------------------------
\12\ The proposed rule change would require dealers to keep
records for a period of three years of all best efforts undertaken
to obtain documents for existing VRDO issues. Such records of best
efforts would include, for example, all written requests for
documents to and any responses from an issuer or liquidity provider.
---------------------------------------------------------------------------
The MSRB recognizes that for some ARS programs, documents defining
current auction procedures and interest rate setting mechanisms may
already be available in the SHORT System. This may occur in the case of
an ARS with multiple Program Dealers in which one Program Dealer has
already submitted to the SHORT System the required document. In these
cases, in lieu of submitting duplicate documents, dealers would be
provided the capability to signify that a document required to be
submitted has already been submitted to the SHORT System by identifying
the relevant document.
Since January 1, 2010, all documents submitted to EMMA have been
required to be word-searchable PDF files. While this same requirement
would apply to the submission of ARS and VRDO documents to the SHORT
System, MSRB acknowledges that some of these documents for outstanding
ARS and VRDOs are likely to be older documents that may not be
available in electronic format or a format that would easily permit a
dealer to produce a word-searchable PDF file of the document.
Accordingly, the proposed rule change would only require ARS and VRDO
documents submitted to EMMA to be word-searchable for new or amended
versions of documents produced after the effective date of the proposed
rule change.
Description of the Short System Facility Amendment Proposal
The SHORT System is an MSRB Facility for the collection and public
dissemination of information about ARS and VRDO. The amendment to this
facility would provide for the collection and public dissemination of
documents identified in the rule change proposal.
Submissions to the SHORT System
The SHORT System receives submissions of information and documents
about securities bearing interest at short-term rates under MSRB Rule
G-34, on CUSIP numbers, new issue and market information requirements.
Information and Documents to be Submitted. The basic items of
information and documents that would be required to be submitted to the
SHORT System are the same as those required to be submitted to the MSRB
under MSRB Rule G-34(c). Submitters of documents would be required to
provide to the SHORT System related indexing information with respect
to each document submitted, including an indication of the document
type, date such document became available to the dealer, and CUSIP
number(s) of the municipal securities to which such document relates. A
submitter required to submit a document that is already available in
its entirety in the SHORT System would be permitted to, in lieu of
submitting a duplicate document, identify the document already
submitted and provide such items of related indexing information as are
required by MSRB rules or the SHORT System input specifications and
system procedures. A submitter required to submit a document that is
not able to be obtained through best efforts as provided in the
proposed rule change would be required to provide an affirmative
indication that a document required to be submitted is not available
for submission notwithstanding the submitter's best efforts to obtain
such document. The complete list of data elements that would be
required on a submission to the SHORT System would be available in
input specifications and system procedures made available on http://www.msrb.org. Submitters would be responsible for the accuracy and
completeness of all information submitted to the SHORT System.
Submitters. Submissions to the SHORT System may be made solely by
authorized submitters using password-protected accounts in the MSRB's
user authentication system, MSRB Gateway. MSRB Gateway is designed to
be a single, secure access point for all MSRB applications. Submitters
of information to the SHORT System are required to obtain an account in
MSRB Gateway in order to submit information to the SHORT System.
Through MSRB Gateway, submitters also have the ability to designate
third-party agents to submit information to the SHORT System on the
submitter's behalf.
Submissions may be made by the following classes of submitters:
ARS Program Dealer;
VRDO Remarketing Agent;
ARS Auction Agent; and
Designated Agent, which may submit any information
otherwise permitted to be submitted by another class of submitter which
has designated such agent, as provided below.
All ARS Auction Agents are allowed to submit information about an
auction to the SHORT System without prior designation by an ARS Program
Dealer. Dealers optionally may designate agents to submit information
on their behalf, and may revoke the designation of any such agents,
through MSRB Gateway. All actions taken by a Designated Agent on behalf
of a dealer that has designated such agent shall be the responsibility
of the dealer.
Timing of Submissions. Submitters are required to make submissions
to the SHORT System within the timeframes set forth in MSRB Rule G-
34(c) and related MSRB procedures. Submissions of information to the
SHORT System may be made throughout any RTRS Business Day, as defined
in Rule G-14 RTRS Procedures, from at least the hours of 6 a.m. to 9
p.m. Eastern Time, subject to the right of the MSRB to make such
processes unavailable at times as needed to ensure the integrity of the
SHORT System and any related systems. Submissions of documents would be
able to be made throughout any day, subject to the right of the MSRB to
make such processes unavailable between the hours of 3 a.m. and 6 a.m.
each day, Eastern Time, for required maintenance, upgrades or other
purposes, or at other times as needed to ensure the integrity of MSRB
systems. The MSRB provides advance notice of any planned periods of
unavailability and shall endeavor to provide information to submitters
as to the status of the submission interface during unanticipated
periods of unavailability, to the extent technically feasible.
Method of Submission. Information and documents may be submitted to
the SHORT System through a secure, password-protected, Web-based
electronic submitter interface or through a secure, authenticated
computer-to-computer data connection, at the
[[Page 16882]]
election of the submitter. When making submissions using the Web-based
interface, related information is entered manually into an on-line form
and documents would be required to be uploaded as portable document
format (PDF) files. Computer-to-computer submissions utilize XML files
for data and PDF files for documents. Appropriate schemas and
procedures for Web-based and computer-to-computer submissions would be
available in input specifications and system procedures made available
on http://www.msrb.org.
Designated Electronic Format for Documents. All documents submitted
to the SHORT System would be required to be in portable document format
(PDF), configured to permit documents to be saved, viewed, printed and
retransmitted by electronic means. If the submitted file is a
reproduction of the original document, the submitted file must maintain
the graphical and textual integrity of the original document. Documents
submitted to the SHORT System created on or after the effective date of
the proposed rule change would be required to be word-searchable
(without regard to diagrams, images and other non-textual elements).
SHORT System Processing
The SHORT System provides a single portal for the submission of
information and documents. The SHORT System, as well as other MSRB
systems and services, performs various data checks to ensure that
information and documents are submitted in the correct format. In
addition, data checks are performed to monitor dealer compliance with
MSRB Rule G-34(c) as well as to identify information submitted in
correct formats that may contain errors due to information not falling
within reasonable ranges of expected values for a given item of
information. All submissions generate an acknowledgement or error
message, and all dealers that have information or documents submitted
on their behalf by either an ARS Auction Agent or a Designated Agent
are able to monitor such submissions.
SHORT System Information and Document Dissemination
Information and documents submitted to the SHORT System that pass
the format and data checks described above are processed and
disseminated on a real-time basis. Any changes to submissions also are
processed upon receipt and updated information and documents are
disseminated in real-time. Information submitted to the SHORT System
is, in general, disseminated to the EMMA short-term obligation rate
transparency service within 15 minutes of acceptance, although during
peak traffic periods dissemination may occur within one hour of
acceptance. Submissions of documents to the SHORT System accepted
during the hours of 8:30 a.m. to 6 p.m. Eastern Time on an MSRB
business day would generally be disseminated to the EMMA short-term
obligation transparency service within 15 minutes of acceptance,
although during peak traffic periods posting may occur within one hour
of acceptance. Submissions outside of such hours often would be posted
within 15 minutes although some submissions outside of the MSRB's
normal business hours may not be processed until the next business day.
SHORT System information and documents, along with related indexing
information, would be made available to the public through the EMMA
portal for the life of the related securities.
The MSRB plans to offer subscriptions to the information and
documents submitted to the SHORT System in the future.
Description of the EMMA Short-Term Obligation Rate Transparency Service
Amendment Proposal
The EMMA short-term obligation rate transparency service currently
makes the information collected by the SHORT System available to the
public, at no charge, on the EMMA portal. The amendment to this service
would add the documents identified in the rule change proposal to this
service so that such documents would also be available to the public,
at no charge, on the EMMA portal.
2. Statutory Basis
The MSRB has adopted the proposed rule change pursuant to Section
15B(b)(2)(C) of the Act,\13\ which provides that the MSRB's rules
shall:
---------------------------------------------------------------------------
\13\ 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 general, to protect investors and
---------------------------------------------------------------------------
the public interest.
The MSRB believes that the proposed rule change is consistent with
the Act. The proposed rule change would serve as an additional
mechanism by which the MSRB works toward removing impediments to and
helping to perfect the mechanisms of a free and open market in
municipal securities by providing a centralized venue for free public
access to information about and documents relating to ARS and VRDO. The
proposed rule change would provide greater access to information about
and documents relating to ARS and VRDO to all participants in the
municipal securities market on an equal basis thereby removing
potential barriers to obtaining such information. These factors serve
to promote the statutory mandate of the MSRB to protect investors and
the public interest.
B. Self-Regulatory Organization's Statement on Burden on Competition
The MSRB does not believe the proposed rule change will impose any
burden on competition not necessary or appropriate in furtherance of
the purposes of the Act, since it would apply equally to dealers in
municipal securities.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
On March 17, 2008, the MSRB requested comment on a proposed plan
for increasing the information available for ARS (``March 2008 ARS
Notice''),\14\ on May 23, 2008, the MSRB requested comment on a
proposed plan for increasing the information available for VRDOs (``May
2008 VRDO Notice''),\15\ and on July 14, 2009 the MSRB requested
comment on the draft amendments to Rule G-34(c) (``July 2009
Notice'').\16\ These notices, the comments received, and the MSRB's
responses are discussed below.
---------------------------------------------------------------------------
\14\ See MSRB Notice 2008-15 (March 17, 2008).
\15\ See MSRB Notice 2008-24 (May 23, 2008).
\16\ See MSRB Notice 2009-43 (July 14, 2009).
---------------------------------------------------------------------------
March 2008 ARS Notice
The March 2008 ARS Notice proposed a plan to create a centralized
system for the collection and dissemination of critical market
information about ARS. The March 2008 ARS Notice proposed the
collection and dissemination of the current interest rate and certain
descriptive information for ARS programs, bidding information detailing
the orders placed by an ARS Program Dealer with an ARS Auction Agent
for inclusion in an auction (``ARS bidding information'') and documents
concerning ARS that were not required to be filed with the MSRB under
former Rule G-36, on delivery of official statements, advance refunding
[[Page 16883]]
documents and Forms G-36(OS) and G-36(ARD).
May 2008 VRDO Notice
The May 2008 VRDO Notice proposed a plan to collect and disseminate
critical market information about VRDOs using the same system proposed
in the March 2008 ARS Notice for ARS. The May 2008 VRDO Notice proposed
collecting and disseminating the current interest rate and certain
descriptive information for VRDOs and documents concerning VRDOs that
were not required to be filed with the MSRB under former Rule G-36,
such as the letter of credit or standby bond purchase agreement.
July 2009 Notice
The July 2009 Notice requested comment on draft amendments to Rule
G-34(c). The draft amendments would require ARS Program Dealers to
report ARS bidding information and VRDO Remarketing Agents to report
additional descriptive information about VRDOs to the MSRB Short-term
Obligation Rate Transparency (``SHORT'') System. The draft amendments
also would require ARS Program Dealers and VRDO Remarketing Agents to
submit ARS documents defining current auction procedures and interest
rate setting mechanisms and VRDO liquidity facility documents,
including current Letters of Credit and Stand-by Bond Purchase
Agreements (collectively ``short-term obligation documents''). For
existing ARS and VRDOs, the draft amendments would require dealers to
provide the current versions of documents to the MSRB within thirty
days after the effective date of the draft amendments and on an ongoing
basis dealers would be required to provide any new or amended versions
of these documents within one business day of receipt.
Discussion of Comments
The MSRB received comments on the March 2008 ARS Notice from seven
commentators,\17\ on the May 2008 VRDO Notice from nine
commentators,\18\ and on the July 2009 Notice from five
commentators.\19\ After reviewing the comments on the March 2008 ARS
Notice and May 2008 VRDO Notice, the MSRB approved a phased-in approach
to the collection and dissemination of ARS and VRDO information and
documents. The first phase of this approach included changes to MSRB
Rule G-34 to require dealers to report ARS and VRDO interest rate and
descriptive information to the MSRB and implementation of the SHORT
System, which became effective on January 30, 2009 for ARS and April 1,
2009 for VRDOs.\20\ The principal comments of the March 2008 ARS
Notice, May 2008 VRDO Notice and July 2009 Notice concerning the
collection of ARS bidding information, additional VRDO descriptive
information and short-term obligation disclosure documents are
discussed below.
---------------------------------------------------------------------------
\17\ See letters from Paula Stuart, Chief Executive Officer,
Digital Assurance Certification, LLC (``DAC'') to Justin Pica, dated
April 21, 2008; Jack B. McPherson to Mr. Pica, dated March 27, 2008;
[email protected] to Mr. Pica, e-mail dated April 23, 2008; Michael
Decker, Co-Chief Executive Officer, and Mike Nicholas, Co-Chief
Executive Officer, Regional Bond Dealers Association (``RBDA'') to
Mr. Pica, dated April 21, 2008; Joseph S. Fichera, Senior Managing
Director and CEO, Saber Partners, LLC (``Saber Partners'') to Mr.
Pica, dated July 9, 2008; Leslie M. Norwood, Managing Director and
Associate General Counsel, Securities Industry and Financial Markets
Association (``SIFMA'') to Mr. Pica, dated April 21, 2008; and, Jeff
Yankauer to Mr. Pica, e-mail dated April 17, 2008.
\18\ See letters from Paula Stuart, Chief Executive Officer,
Digital Assurance Certification LLC (``DAC'') to Mr. Pica, dated
July 1, 2008; Daniel Thieke, Vice President, Depository Trust and
Clearing Corporation (``DTCC'') to Mr. Pica, dated June 26, 2008;
Christine Walsh, Managing Director, Merrill Lynch to Mr. Pica, dated
June 26, 2008; S. Lauren Heyne, Chief Compliance Officer, RW Smith
and Associates, Inc. (``RW Smith'') to Mr. Pica, dated June 30,
2008; Joseph S. Fichera, Senior Managing Director and CEO, Saber
Partners to Mr. Pica, dated July 9, 2008; Leslie M. Norwood,
Managing Director and Associate General Counsel, SIFMA to Mr. Pica,
dated June 30, 2008; Dara L. Smith, Managing Director, SunTrust
Robinson Humphrey (``SunTrust'') to Mr. Pica, dated June 27, 2008;
Joseph A. Whitehead, Thornton Farish Inc. (``Thornton Farish'') to
Mr. Pica, dated June 30, 2008; and, Belle Walker, Senior Vice
President, W.R. Taylor and Company, LLC (``W.R. Taylor'') to Mr.
Pica, dated August 7, 2008.
\19\ See letters from Patricia W. Wilson, Senior Managing
Director Global Alternatives, Allstate Investments, LLC
(``Allstate'') to Mr. Pica, dated September 1, 2009; Robert J.
Stracks, Counsel, BMO Capital Markets GKST Inc. to Mr. Pica, dated
September 1, 2009; Carl Giles, Managing Director Capital Markets,
First Southwest Company (``First Southwest'') to Mr. Pica, dated
August 31, 2009; Michael Decker, Co-Chief Executive Officer, and
Mike Nicholas, Co-Chief Executive Officer, RBDA to Mr. Pica, dated
September 1, 2009; and Leslie M. Norwood, Managing Director and
Associate General Counsel, SIFMA to Mr. Pica, dated September 1,
2009.
\20\ See Securities Exchange Act Release No. 59212, January 7,
2009 (File No. SR-MSRB-2008-07). The principal comments of the March
ARS Notice and May VRDO Notice concerning the collection of ARS and
VRDO interest rate and descriptive information as well as the
implementation of the SHORT System were discussed in File No. SR-
MSRB-2008-07.
---------------------------------------------------------------------------
Additional VRDO Data
The draft amendments in the July 2009 Notice identified items of
information that a VRDO Remarketing Agent would be required to report
to the SHORT System in conjunction with the VRDO interest rate and
descriptive information currently required to be reported on the day
that an interest rate reset occurs. The specific items of information
proposed included:
Effective date that the interest rate reset is applicable;
Identity of the Tender Agent;
Identity of the liquidity provider;
Par amount, if any, held by VRDO Remarketing Agent, at
time of interest rate reset;
Par amount, if any, held by a liquidity facility (``Bank
Bond'') at time of interest rate reset and interest rate paid to the
liquidity provider; and
Par amount, if any, held by a party other than the
Remarketing Agent or as a Bank Bond.
In response to July 2009 Notice, First Southwest and SIFMA stated
concerns relating to the draft amendment's requirement to report the
additional VRDO information to the SHORT System, which are primarily
focused on whether a VRDO Remarketing Agent would be able to obtain and
report accurate information for several of the additional items of VRDO
information. For example, with respect to reporting the identity of the
Tender Agent and liquidity provider, First Southwest stated that it
would be ``difficult and burdensome to be required to be continually
updating [this] information, which can and does change frequently,
between two parties where [the VRDO Remarketing Agent] has no legal
standing and should be the responsibility of the bank or tender agent
that is party to those transactions.'' However, RBDA generally
supported the additional items of VRDO information and stated that
``the information proposed to be disclosed for VRDOs is material to
evaluating VRDO investments'' but acknowledged that ``Remarketing
Agents may not have ready access to all of the information * * *
proposed to be submitted * * * [and] would support other reasonable
initiatives to achieve the ends outlined in the [July 2009 Notice] * *
*.''
The MSRB believes that information concerning the identity of the
Tender Agent and liquidity provider is material to market participants
and, in particular, investors of VRDOs. With respect to Tender Agents,
the July 2009 Notice also solicited comment on whether a VRDO
Remarketing Agent could also provide the contact information for the
Tender Agent and the MSRB believes some of the concerns stated by SIFMA
about providing the identity of the Tender Agent were focused on
challenges in obtaining and keeping current contact information for the
Tender Agent. MSRB acknowledges that it may be difficult to obtain and
keep current contact information for a Tender Agent, particularly for
smaller Tender Agents that use the name and contact information for an
individual instead of
[[Page 16884]]
a division within a company for submitting tender requests, but the
MSRB believes that a basic requirement to provide the identity of the
Tender Agent is reasonable and that it is important that investors be
able to have access to the identity of the Tender Agent to facilitate
an investor tendering its position in VRDOs.
In response to the July 2009 Notice proposal to require reporting
of the par amounts of a VRDO held as a Bank Bond, by the VRDO
Remarketing Agent and by investors at the time of the interest rate
reset, SIFMA stated that making such information transparent ``would be
detrimental to the municipal securities market by giving competitors a
trading advantage against one another.'' MSRB is sensitive to SIFMA's
concerns related to reporting and making transparent the individual par
amounts of the VRDO held as a Bank Bond,\21\ by the VRDO Remarketing
Agent and by investors. One of the purposes of requiring this
information to be reported is to provide market participants with an
indication that the interest rate set by the VRDO Remarketing Agent
represents an interest rate paid to holders of the VRDO instead of
instances when the VRDO is held entirely as a Bank Bond and that the
interest rate set is therefore not set by market demand.\22\ As an
alternative to the requirement in the July 2009 Notice, the proposed
rule change includes a requirement for a VRDO Remarketing Agent to
report the ``par amount remarketed,'' which would be the aggregate of
VRDOs held by the VRDO Remarketing Agent and investors, but not Bank
Bonds, and separately report the par amount held as Bank Bonds. This
should provide a sufficient indication that the interest rate set
reflects a market interest rate paid to holders of the VRDO while
preventing individual par amounts held by VRDO Remarketing Agents from
being disclosed to the public.
---------------------------------------------------------------------------
\21\ The July 2009 Notice also proposed collecting the interest
rate paid to a liquidity provider for VRDOs held as a Bank Bond.
SIFMA noted that many VRDO Remarketing Agents are not made aware of
the interest rate paid on Bank Bonds. The MSRB acknowledges that
this requirement may present significant compliance challenges for
dealers and has accordingly decided not to proceed with it at this
time.
\22\ This information also is intended to provide a centralized
source of information about holdings of VRDOs. SIFMA notes that
information collected by the SEC in its Financial and Operational
Combined Uniform Single (``FOCUS'') Reports, while not an identical
requirement, provides such a centralized source of information about
the holdings of VRDOs by Remarketing Agents.
---------------------------------------------------------------------------
ARS Bidding Information
The July 2009 Notice identified ARS Bidding Information that an ARS
Program Dealer would be required to submit to the SHORT System as
individual data elements in connection with a report of the ARS
interest rate and descriptive information currently required to be
reported following an auction. In response to the July 2009 Notice,
First Southwest and SIFMA both noted that reporting ARS Bidding
Information to the SHORT System as individual data elements would be
costly and time consuming, particularly, as SIFMA noted, ``for a
product that is winding down.'' SIFMA further noted that ``there have
not been any new ARS issues in over a year and a half, and none are
expected.'' Instead of submitting information as individual data
elements, SIFMA suggested that ``the disclosure of this information to
[the MSRB] by way of document, instead of breaking out each data
element, would help minimize the burden.''
The MSRB acknowledges that reporting ARS Bidding Information to the
SHORT System as individual data elements would result in ARS Program
Dealers incurring programming expenses as well as increasing the
ongoing cost of compliance with reporting information to the SHORT
System. Further, current interest rate information from the SHORT
System indicates that approximately 80% of all ARS continue to
experience failed auctions,\23\ so one of the purposes of having ARS
Bidding Information as individual data elements, to compute a ``bid-to-
cover ratio'' \24\ that would show the demand for the ARS, may not at
this time justify the expense incurred by ARS Program Dealers to report
such information as individual data elements to the SHORT System.
Nonetheless, the MSRB believes that having a centralized source of ARS
Bidding Information, even if such information is only available as a
document, would be of benefit to market participants as it would
further the MSRB's investor protection mission. This document-based
approach would provide for indexing of each such submission to the
appropriate security so that the information would be easy to find,
even if the information contained within such documents could not
easily be exported to a data file or otherwise manipulated.
---------------------------------------------------------------------------
\23\ In light of the high number of failed auctions, Allstate
suggests requiring ARS Program Dealers to provide the formula used
to compute the maximum rate, including the ``net loan rate.'' MSRB
does not believe that this information is readily available to ARS
Program Dealers but notes that a separate requirement for certain
ARS documents to be submitted to the MSRB and made available
publicly should aide in determining how maximum rates are set.
\24\ In response to the April 2008 ARS Notice, Saber Partners
identified this statistic as one that ``can give great insight into
the liquidity of an auction.''
---------------------------------------------------------------------------
In response to specific items of ARS Bidding information identified
in the July 2009 Notice, SIFMA noted that when an ARS Program Dealer
receives orders to buy from other dealers for submission to an ARS
auction, such orders may be aggregated by the other dealer making it
impossible for the ARS Program Dealer to provide accurate information
on the number of unique bidders other than the Program Dealer bidding
for its own account. MSRB acknowledges that orders submitted to an ARS
Program Dealer may be aggregated by the submitting party and believes
that disclosing such aggregated orders may be misleading to market
participants. Thus, the MSRB has not included this requirement in the
proposed rule change. SIFMA also noted that separately requiring an ARS
Program Dealer to report bidding information for orders submitted by an
issuer or conduit borrower would be unnecessary since issuers and ARS
Program Dealers have made such information available on public Web
sites. The MSRB notes that while the EMMA Continuing Disclosure Service
provides a document category for issuers to voluntarily disclose an
intent to bid on its ARS, this does not provide for a centralized
source of all orders submitted by an issuer or conduit borrower, which
would be provided by the proposed rule change.\25\
---------------------------------------------------------------------------
\25\ MSRB notes that issuers or conduit borrowers may instruct a
third party, such as an investment adviser, to submit orders to an
ARS Program Dealer on their behalf. In these cases, MSRB
acknowledges that the ARS Program Dealer would not know that such
orders are on behalf of issuers or conduit borrowers and would not
be able to include this fact when making submissions of ARS Bidding
Information to the SHORT System.
---------------------------------------------------------------------------
Short-term Obligation Documents
The draft amendments in the July 2009 Notice proposed requiring ARS
Program Dealers and VRDO Remarketing Agents to submit to the MSRB
current and any new or amended versions of the following documents:
ARS documents defining auction procedures and interest
rate setting mechanisms;
VRDO documents consisting of liquidity facilities,
including Letter of Credit Agreements and Stand-by Bond Purchase
Agreements.
In response to the July 2009 Notice First Southwest and SIFMA both
stated
[[Page 16885]]
concerns with the requirement to submit ARS and VRDO documents for
outstanding issues to the MSRB. First Southwest noted that to obtain
some of these documents, dealers ``would need to go back to the
creators of those documents to comply with the rule'' but nevertheless
noted that ``in general, the requested documents are available.'' \26\
SIFMA also stated a concern that some documents for outstanding VRDOs
may contain information that was not intended to be made public. In
response to the May 2008 VRDO Notice DAC also noted that dealers ``may
not always be a party to or have control over all of the documents.''
MSRB recognizes that dealers' ability to comply with the requirement
proposed in the July 2009 Notice for VRDOs would, in some cases, be
subject to the ability of the dealer to obtain a document from a third
party. Therefore, MSRB has incorporated into the proposed rule change a
``best efforts'' provision coupled with a recordkeeping requirement
that would require dealers to make and document all efforts to obtain a
VRDO document for which the dealer does not already have access.
---------------------------------------------------------------------------
\26\ Both First Southwest and SIFMA also noted that Official
Statements typically contain summaries of the information contained
in the documents identified in the draft amendments and note that if
an investor wanted to obtain the actual document, they could request
the documents identified in the draft amendments from either the
issuer or a dealer. In particular, SIFMA noted in response to the
April 2008 ARS Notice that ARS Official Statements generally already
contain much of the information. MSRB notes that the proposed rule
change would permit dealers to reference documents already submitted
in lieu of submitting duplicate documents.
---------------------------------------------------------------------------
First Southwest and SIFMA also stated concerns with the timeframes
proposed for submitting ARS and VRDO documents to the MSRB due to the
high number of ARS and VRDO issues, which SIFMA states is approximately
16,500 VRDOs and 1,750 ARS, and the fact that dealers may not have such
documents in a format that would allow for easy electronic submission
of the document to the MSRB. Given the high numbers of these
securities, First Southwest and SIFMA both stated that 180 days,
instead of the 30 days proposed in the July 2009 Notice, would be a
more appropriate amount of time to submit the documents to the MSRB.
MSRB recognizes that there are a large number of documents that would
need to be obtained, converted into an electronic format and submitted
to the MSRB. However, MSRB believes that it is important for investors
and other market participants to have centralized access to these
documents. Acknowledging the large number of documents and the fact
that, for outstanding issues, dealers may need time to request
documents from third parties, MSRB has provided 90 days from the date
of effectiveness of a rule in the proposed rule change for dealers to
submit outstanding ARS and VRDO documents to the MSRB. However, MSRB
notes that dealers should not wait until a rule is in effect to begin
the process of requesting documents and converting them into the
appropriate electronic format.\27\
---------------------------------------------------------------------------
\27\ As previously described, the MSRB has requested flexibility
with respect to the setting of effective dates for the proposed rule
change. The MSRB notes that it would be prudent for dealers to use
the time between the approval date of the proposed rule change and
the effective date to begin collecting such required documents and
converting them into electronic format.
---------------------------------------------------------------------------
In response to the July 2009 Notice proposal that any new or
amended versions of documents be submitted to the MSRB within one day
of receipt, SIFMA suggested that dealers be required to submit a
document within 5-days of receipt so that the deadline would be
consistent with the deadline for submitting advance refunding documents
to the MSRB. MSRB believes that it is important that market
participants have access to documents that are current and therefore
has retained in the proposed rule change the timeframe for an ARS
Program Dealer or VRDO Remarketing Agent to provide such new or amended
versions of documents to the MSRB no later than one business day after
receipt by the dealer.\28\
---------------------------------------------------------------------------
\28\ RBDA also suggested that MSRB look into utilizing optical
character recognition technology to facilitate performing word
searches on EMMA of documents that are scanned and not ``native''
PDFs. MSRB notes that all documents submitted to EMMA since January
1, 2010 are required to be word-searchable and that the proposed
rule change would require documents created after the effective date
of the proposed rule change to also be word-searchable.
---------------------------------------------------------------------------
Public Availability of Collected Information and Documents
In response to the April 2008 ARS Notice, Mr. Yankauer recommended
that the MSRB make information collected about ARS available ``to the
general public without any fee to view the information.'' MSRB agrees
with Mr. Yankauer's recommendation and notes that the interest rate and
descriptive information currently collected by the SHORT System is
available at no charge on the EMMA Web site. MSRB also notes that it
plans to make all information and documents collected under the
proposed rule change available at no charge on the EMMA Web site.
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 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 e-mail to [email protected]. Please include
File Number SR-MSRB-2010-02 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-MSRB-2010-02. 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 Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street, NE.,
Washington, DC 20549, on official
[[Page 16886]]
business days between the hours of 10 a.m. and 3 p.m. Copies of such
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-2010-02 and should be submitted on or before April
23, 2010.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\29\
---------------------------------------------------------------------------
\29\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-7463 Filed 4-1-10; 8:45 am]
BILLING CODE 8011-01-P