[Federal Register Volume 77, Number 217 (Thursday, November 8, 2012)]
[Notices]
[Pages 67047-67052]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-27266]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-68134; File No. SR-MSRB-2012-08]
Self-Regulatory Organizations; Municipal Securities Rulemaking
Board; Notice of Filing of Proposed Rule Change Consisting of
Amendments to Streamline New Issue Information Submission Requirements
Under MSRB Rules G-32 and G-34
November 1, 2012.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is
hereby given that on October 23, 2012, the Municipal Securities
Rulemaking Board (``MSRB'') filed with the Securities and Exchange
Commission (``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.
---------------------------------------------------------------------------
\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
consisting of amendments to Rules G-8, on books and records, G-14 RTRS
Procedures, G-32, on disclosures in connection with primary offerings,
G-34, on CUSIP numbers, new issue, and market information requirements,
and the Electronic Municipal Market Access
[[Page 67048]]
(EMMA[supreg]) \3\ system facility (the ``proposed rule change''). The
MSRB requested an effective date for the proposed amendments no later
than May 6, 2013, or such earlier date to be announced by the MSRB in a
notice published on the MSRB Web site with at least a thirty day
advance notification prior to the effective date.
---------------------------------------------------------------------------
\3\ EMMA is a registered trademark of the MSRB.
---------------------------------------------------------------------------
The text of the proposed rule change is available on the MSRB's Web
site at www.msrb.org/Rules-and-Interpretations/SEC-Filings/2012-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
The proposed rule change amends Rules G-32 and G-34 to allow
underwriters to satisfy certain of their submission requirements under
Rule G-32 in connection with new issues of municipal securities by
their submission of data, pursuant to Rule G-34, to the New Issue
Information Dissemination Service (``NIIDS'') operated by the
Depository Trust and Clearing Corporation (``DTCC''). In addition, the
proposed rule change revises deadlines for the submission of data to
NIIDS, removes certain exceptions from the NIIDS submission
requirements under Rule G-34 for certain short term instruments,
modifies the EMMA system to include certain elements of the NIIDS data
on the EMMA Web site, and eliminates language describing auction rate
securities as having a short ``effective maturity,'' as further
described below under ``Summary of Proposed Rule Change'' and under
``Discussion of Comments.''
Background
Rule G-32 requires underwriters to submit selected information
about most new issues of municipal securities to the MSRB by completing
electronic Form G-32 through EMMA's Primary Market Disclosure Service.
This information includes, among other items, the issuer name and issue
description for the new issue and, for each maturity of the new issue,
the CUSIP numbers, principal amounts and initial offering prices or
yields. Separately, Rule G-34 requires underwriters for most new issues
to submit comprehensive information to NIIDS. Information required to
be submitted to NIIDS generally includes all of the information
required for dealers to produce a ``when, as and if issued'' \4\
customer trade confirmation and also includes many of the same items of
information included in Form G-32.
---------------------------------------------------------------------------
\4\ The term, ``when, as and if issued'' is used to describe the
time period in the life of a new issue of municipal securities from
the original date of the sale by the issuer to the delivery of the
securities to, and payment by, the underwriter. Sales made during
the ``when, as and if issued'' period (also called the ``when-
issued' period'') are subject to issuance of the securities.
---------------------------------------------------------------------------
New Issue EMMA Submission Requirements Under Rule G-32. EMMA is an
information facility of the MSRB for receiving electronic submissions
of official statements, initial offering prices and other information
about new issues as well as on-going municipal securities disclosure
and other key documents and related information. EMMA makes such
documents and information, together with trade price and interest rate
information, available to the public at no charge on an Internet Web
site or by paid subscription. The submission of data under Rule G-32 to
EMMA's Primary Market Disclosure Service in connection with new issues
is required to be commenced by no later than the end of the day of
first execution of transactions in the offered municipal securities.\5\
The submission of documents relating to issues of municipal securities,
including official statements or preliminary official statements (if
applicable), and of certain additional items of information, is subject
to other submission deadlines as outlined in Rule G-32.\6\
---------------------------------------------------------------------------
\5\ Under Rule G-32(b)(vi)(C)(1) and Section 2.6.2 of the EMMA
Dataport Manual (Information by the Date of First Execution of
Transactions), underwriters are required to initiate the Form G-32
submission process by no later than the date of first execution of
transactions in securities sold in the offering by submitting
certain issue-specific information about the new issue. ``Date of
first execution'' is defined in Rule G-32(d)(xi) as: ``the date on
which the underwriter executives its first transactions with a
customer or another broker, dealer or municipal securities dealer in
any security offered in a primary offering; provided that, for
offerings subject to Rule G-34(a)(ii)(C), `date of first execution'
shall mean the date corresponding to the Time of First Execution as
defined in Rule G-34(a)(ii)(C)(1)(b); further provided that, solely
for purposes of this rule, the date of first execution shall be
deemed to occur by no later than the closing date.''
\6\ Securities 2.6.4 and 2.6.5 of the EMMA Dataport Manual set
out the basic timeframes for submitting documents and information to
EMMA in connection with a new issue.
---------------------------------------------------------------------------
New Issue NIIDS Submission Requirements Under Rule G-34. NIIDS is a
centralized system for collecting from underwriters and disseminating
to market participants standardized electronic information describing
new issue securities. It was developed to ensure that all market
participants have access to information necessary for processing
transactions once the underwriter executes its first transactions in
the new issue. The information submitted by underwriters to NIIDS,
required to be completed by no later than two hours after Time of
Formal Award \7\ for most new issues of municipal securities,\8\ is
disseminated in real time to DTCC participants and other subscribers,
such as information vendors. Submissions to NIIDS also provide a
mechanism for underwriters to communicate the Time of Formal Award and
Time of First Execution \9\ to market participants that may trade in
the new issue to promote orderly trade execution and processing on the
first day of trading in a new issue. Consistent communication of these
events ensures that all market participants have sufficient data to
process and time to prepare pending trades in new issues for execution,
real-time trade reporting \10\
[[Page 67049]]
and sending of when-issued customer confirmations.
---------------------------------------------------------------------------
\7\ ``Time of Formal Award'' is defined in Rule G-
34(a)(ii)(C)(1)(a) as: ``for competitive issues, the later of the
time the issuer announces the award or the time the issuer notifies
the underwriter of the award, and, for negotiated issues, the later
of the time the contract to purchase the securities from the issuer
is executed or the time the issuer notifies the underwriter of its
execution. If the underwriter and issuer have agreed in advance on a
Time of Formal Award, that time may be submitted to the new issue
information dissemination system in advance of the actual Time of
Formal Award.''
\8\ Rule G-34(a)(ii)(C) currently provides exceptions to the
submission requirements for certain short-term instruments,
including variable rate instruments, auction rate products and
commercial paper. In addition, this requirement does not apply to
new issues that do not meet the eligibility criteria for CUSIP
number assignments or that consist of municipal fund securities
(such as interests in 529 college savings plans) under the general
exemption provided in Rule G-34(d).
\9\ ``Time of First Execution'' is defined in Rule G-
34(a)(ii)(C)(1)(b) as: ``the time the underwriter plans to execute
its first transaction [sic] in the new issue. The underwriter shall
designate a Time of First Execution that is no less than two hours
after all information required by paragraph (a)(ii)(C) has been
transmitted to the new issue information dissemination system.''
\10\ ``Real-time trade reporting'' refers to the reporting of
certain information about each purchase and sale transaction
effected in municipal securities to the MSRB's Real-Time Transaction
Reporting System (``RTRS''), as prescribed by Rule G-14, Rule G-14
RTRS Procedures and the RTRS Users Manual.'
---------------------------------------------------------------------------
Planned Integration of EMMA and NIIDS New Issue Submission
Requirements. The MSRB launched EMMA as a pilot on March 31, 2008.\11\
On September 30, 2008, amendments to Rule G-34 became effective that
instituted the requirement for underwriters to provide new issue
information to NIIDS.\12\ During the early stages of planning for EMMA,
the MSRB had planned on integrating into EMMA's Primary Market
Disclosure Service the NIIDS data submitted by underwriters under Rule
G-34 for the purpose of also fulfilling the data submission
requirements under Rule G-32 and making such information available to
the public through the EMMA Web site. Due to divergent development
schedules and limited opportunities to ensure effective
interoperability between the two systems, the Primary Market Disclosure
Service was launched on June 1, 2009 requiring a separate submission of
new issue data to EMMA through Form G-32, although at that time the
MSRB continued to plan for future integration of the submission
processes under Rules G-32 and G-34.\13\
---------------------------------------------------------------------------
\11\ See Release No. 34-57577 (March 28, 2008), 73 FR 18022
(April 2, 2008) (File No. SR-MSRB-2007-06) (November 15, 2007).
\12\ See Release No. 34-57750 (May 7 [sic], 2008), 73 FR 25815
(May 7, 2008) (File No. SR-MSRB-2007-08) (November 27, 2007).
\13\ See MSRB Notice 2009-07 (March 23, 2009), in which the MSRB
noted that it would advise market participants of any future
development of a functionality providing for the use of NIIDS data
to fulfill Rule G-32 information submission requirements.
---------------------------------------------------------------------------
The MSRB believes there would be significant benefits in
integrating the NIIDS data into the EMMA submission process. While the
information required to be submitted under Rule G-32 is less extensive
than the information required for a NIIDS submission pursuant to Rule
G-34, re-keying information under both Rules G-32 and G-34 is time
consuming and this duplication of effort may increase the possibility
of error. In addition to reducing the submission burden on
underwriters, elimination of this duplicative data entry would result
in improved data quality on EMMA and throughout the marketplace. It
would allow both underwriters and enforcement agencies to concentrate
their compliance activities on ensuring exacting data submissions
through this single pipeline through which data would flow uniformly to
EMMA as well as to other market data vendors receiving the NIIDS
subscription feed.
The integration of the NIIDS data into the EMMA submission process
also would accelerate the availability of Form G-32 data on EMMA by
displaying such information in real time upon receipt from NIIDS by no
later than two hours after the Time of Formal Award as provided under
Rule G-34, rather than by the close of business on the date of first
execution as currently provided under Rule G-32. In particular, use of
the NIIDS data to populate EMMA will allow for more rapid intra-day,
rather than end of day, dissemination of the maturity schedule,
interest rates and initial offering prices \14\ for new issues within
two hours after the Time of Formal Award. Furthermore, additional NIIDS
data elements not currently available through EMMA, such as the Time of
Formal Award and Time of First Execution as announced by the
underwriter, would be displayed on EMMA. To enhance transparency for a
broader scope of new issues of municipal securities, the MSRB is also
proposing to eliminate exceptions under Rule G-34 for submitting data
for certain new issues to NIIDS.
---------------------------------------------------------------------------
\14\ Initial offering prices or yields currently must be, and
would continue to be, disclosed for all maturities, including those
otherwise designated as ``not reoffered,'' through both EMMA and
NIIDS. See Release No. 34-67908 (September 21, 2012), 77 FR 59427
(September 27, 2012) (File No. SR-MSRB-2012-06) (June 28, 2012).
---------------------------------------------------------------------------
Summary of Proposed Rule Change
The proposed rule change revises Rule G-32 to provide that an
underwriter's obligations to submit data about a new issue under that
rule would be fulfilled through submission of such data through NIIDS
as required pursuant to Rule G-34. Data for certain types of offerings
not required to use NIIDS (as described below) would continue to be
subject to existing Rule G-32 data submission requirements. In
addition, certain data elements that are not included in NIIDS, such as
underwriting spread (if not included in the official statement), the
existence of a continuing disclosure undertaking and the timing for
issuer submission of annual financial information, would be required to
be submitted to EMMA pursuant to existing timeframes set forth in Rule
G-32 and the EMMA Dataport Manual.
Rule G-34 currently requires that information about most new issues
of municipal securities be submitted to NIIDS by no later than two
hours following the Time of Formal Award of a new issue. Rule G-34
currently exempts certain types of short-term instruments (including
variable rate instruments, auction rate products, and commercial
paper), as well as municipal fund securities (such as interests in 529
college savings plans) and issues ineligible for CUSIP number
assignment. The proposed rule change revises Rule G-34 to remove the
exception for underwriters to submit to NIIDS information about short-
term instruments such as variable rate instruments, auction rate
products and notes maturing in less than nine months, but would retain
this exception for commercial paper issues, municipal fund securities
and issues ineligible for CUSIP number assignment. The proposed rule
change adds a narrow exception from the requirement to provide a
minimum of two hours advance notice of the planned Time of First
Execution for offerings of variable rate instruments with a planned
settlement cycle of one day or less.
The proposed rule change revises the EMMA facility by adding to the
EMMA display and to the EMMA primary market subscription the Time of
First Execution and Time of Formal Award.
In addition, the proposed rule change includes amendments to Rule
G-8 to conform recordkeeping requirements to amended Rules G-32 and G-
34, and amendments to the Rule G-14 RTRS Procedures and Rules G-32 and
G-34 to make certain non-substantive technical changes. The technical
amendments to Rule G-32 correct a cross-reference to Exchange Act Rule
15c2-12, correct a mis-numbered paragraph defining the term ``obligated
person'' and eliminate section (e), which operated as a transitional
provision in June 2009 from the former pre-EMMA official statement
submission process under former Rule G-36 to the EMMA-based submission
process under current Rule G-32. The technical amendments to Rule G-34
improve the organization of certain provisions of the rule.
Finally, the technical amendments to section (a)(ii)(B) of the Rule
G-14 RTRS Procedures under Rule G-14 revise language in such RTRS
Procedures that is parallel to the language regarding short-term
instruments that is being removed from Rule G-34 by the amendments
described above. Such amendments would more clearly describe the types
of securities to which the end-of-day RTRS reporting exception for
short-term instruments applies and also eliminate language describing
auction rate securities as having a short ``effective maturity.'' The
MSRB believes that auction rate securities should not be characterized
as having an effective short-term maturity
[[Page 67050]]
and has previously noted that, unlike other short-term municipal
securities with long-term maturity dates and short-term interest rate
reset periods (such as variable rate demand obligations), auction rate
securities generally do not have ``put'' features or liquidity
facilities that allow holders to tender their securities back to an
issuer-appointed representative on a periodic basis.\15\ Thus, the MSRB
is eliminating the use of the term ``effective maturity'' in the
context of auction rate securities in order to avoid any potential
implication that holders of auction rate securities have assurances of
liquidity on a short-term basis.
---------------------------------------------------------------------------
\15\ See MSRB Notice 2008-09 (February 19, 2008), in which the
MSRB published an alert regarding investor protection concerns
arising in the market for auction rate securities after widespread
auction failures began to occur at the beginning of 2008. The MSRB
also published educational information regarding this key difference
in the EMMA Education Center upon launch of the EMMA pilot on March
31, 2008, which states: ``An important distinction between auction
rate securities and variable rate demand obligations is that
investors in auction rate securities do not have a `put' right.
Thus, there is no assurance that the investor will be able to sell
its holdings during an auction. Instead, investors are dependent on
the success of the auction process. Among many other factors, the
pool of purchase bids that may be entered can vary widely from
auction to auction, and bids entered by broker-dealers, banks and
other market professionals that have the effect of supporting market
liquidity, if permitted, generally are not required under the legal
documents and therefore investors cannot be assured that such bids
will be entered in any particular auction. See http://emma.msrb.org/EducationCenter/WhatAreBonds.aspx. The MSRB thereafter launched its
Short-term Obligation Rate Transparency (``SHORT'') system on
January 30, 2009 pursuant to which certain key information regarding
periodic auctions for auction rate securities is made available to
the public through EMMA.
---------------------------------------------------------------------------
Effective Date of Proposed Rule Change
The MSRB requested an effective date for the proposed amendments no
later than May 6, 2013, or such earlier date to be announced by the
MSRB in a notice published on the MSRB Web site with at least a thirty
day advance notification prior to the effective date.
2. Statutory Basis
The MSRB believes that the proposed rule change is consistent with
Section 15B(b)(2)(C) of the Exchange Act, which provides that the
MSRB's rules shall:
Be designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, to
foster cooperation and coordination with persons engaged in
regulating, clearing, settling, processing information with respect
to, and facilitating transactions in municipal securities 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,
municipal entities, obligated persons, and the public interest.
The proposed rule change is consistent with Section 15B(b)(2)(C) of
the Exchange Act. There will be significant benefits in integrating the
NIIDS data into the EMMA submission process that will assist in
removing impediments to and perfecting the mechanism of a free and open
market, and that will also improve protections to all market
participants. The current requirement to re-key significant amounts of
information under both Rules G-32 and G-34 is time consuming and this
duplication of effort may increase the possibility of error. In
addition to reducing the submission burden on underwriters, elimination
of this duplicative data entry will result in improved data quality on
EMMA and throughout the marketplace. It will allow both underwriters
and enforcement agencies to concentrate their compliance activities on
ensuring exacting data submissions through this single pipeline through
which data would flow uniformly to EMMA as well as to other market data
vendors receiving the NIIDS subscription feed.
The integration of the NIIDS data into the EMMA submission process
will also accelerate the availability of Form G-32 data on EMMA by
displaying such information in real time upon receipt from NIIDS, which
will occur by no later than two hours after the Time of Formal Award as
provided under Rule G-34, rather than by the close of business on the
date of first execution as currently provided under Rule G-32.
Furthermore, additional NIIDS data elements not currently available
through EMMA, such as the Time of Formal Award and Time of First
Execution as announced by the underwriter, will be displayed on EMMA.
Finally, the proposed rule change eliminates exceptions under Rule
G-34 for submitting data for certain new issues to NIIDS. Thus,
enhanced real-time access to primary market data would become available
to the marketplace, both through NIIDS data disseminated by DTCC to
information vendors and EMMA data disseminated by the MSRB to market
participants and the general public, for a broader scope of new issues
of municipal securities.
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 Exchange Act, since it would apply
equally to all dealers that serve as underwriters of new issues of
municipal securities. The enhanced and more timely information flow
resulting from the proposed rule change would make such information
available to all persons on an equal and non-discriminatory basis.
The marketplace and the general public would realize the
substantial benefits of more prompt, more complete and more accurate
information about new issue municipal securities, resulting in greater
marketplace efficiency that enhances liquidity and the quality of
pricing. In addition, the proposed rule change would reduce the burden
on dealers that serve as underwriters for new issues of municipal
securities. Such dealers would benefit from the reduced burden of
significantly diminished levels of duplicative data entry into two
separate information systems--including the burden of entering such
data and of undertaking appropriate quality control--with only a
minimal, one-time burden of reviewing and, if necessary, making minor
modifications to their internal policies and procedures with respect to
data submissions under MSRB rules. In addition to the reduced burden to
dealers resulting from the more efficient use of dealer resources to
ensure the accuracy of data submissions through this single pipeline,
the resultant improvement in data quality upon initial submission would
reduce the burden of making corrections at a later time when errors are
detected by market participants and would reduce the incidence of
potential problems with secondary market activity that can arise from
inaccuracies in the indicative data used by market participants to
price and process transactions.
Some underwriters of new issues bearing short-term interest rates
previously exempted from the NIIDS submission requirements under Rule
G-34 would be required to modify their new issue information
dissemination processes to use NIIDS for such dissemination, rather
than the currently permissible use of other means of announcing
relevant new issue information promptly in a manner reasonably designed
to reach market participants that may trade the new issue. Such
underwriters, however, have not previously been exempted from the EMMA
submission requirements under Rule G-32, and the proposed rule change
would provide for much of the data currently required to be provided
through EMMA under Rule G-32 to instead be provided through NIIDS under
Rule G-34. Thus, such underwriters would realize a reduced burden of
compliance with Rule G-32
[[Page 67051]]
while facing a potential incremental change in the burden under Rule G-
34. Whether such incremental change in burden under Rule G-34 is an
increase or decrease would depend on whether, and to what extent, using
NIIDS to disseminate new issue information is more or less burdensome
than the alternative means currently used by such underwriters to
comply with Rule G-34 and the procedures and processes they currently
maintained for using two or more separate data submission processes for
new issues rather than a single process through NIIDS. If and to the
extent that such balance results in a net burden rather than a net
benefit, the bulk of such net burden likely would occur as up-front
costs of modifying procedures and likely would be minimal on an ongoing
basis.
On balance, the MSRB believes that the benefits of the proposed
rule change greatly exceed any potential increased burden resulting
therefrom.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
On April 10, 2012, the MSRB requested comment on a proposal to
streamline new issue information submission requirements under Rules G-
32 and G-34 by allowing underwriters to satisfy certain of their
submission requirements under Rule G-32 by their submission of data to
NIIDS pursuant to Rule G-34.\16\ Specifically, the MSRB sought comment
on whether: (i) The timeframe under Rule G-32 for submission of data
for issues not subject to the NIIDS requirement or of data elements not
included in NIIDS should be accelerated to coincide with the Time of
First Execution, which typically would be within two-to-four hours
after the Time of Formal Award; \17\ (ii) removing the exception in
NIIDS for certain short-term instruments would present compliance
challenges; (iii) additional items of information available through
NIIDS that are not currently available through EMMA should be added to
the EMMA display; (iv) to extend the business day for purposes of
determining timeframes for compliance with Rule G-34 deadlines; \18\ or
(v) to shorten the time after the formal award occurs for first
executions of transactions and other related timeframes under Rule G-
34. The MSRB received comment letters from the Securities Industry and
Financial Markets Association (``SIFMA'') and TD Securities (USA) LLC
(``TD'').
---------------------------------------------------------------------------
\16\ See MSRB Notice 2012-19 (April 10, 2012).
\17\ Rule G-34 generally requires that underwriters submit
required data to NIIDS within two hours of the Time of Formal Award,
and that such NIIDS data be disseminated to the marketplace for at
least two hours prior to the Time of First Execution.
\18\ Rule G-34 currently provides that only the hours between
9:00 a.m. and 5:00 p.m. Eastern Time on a Business Day for the
MSRB's Real-time Transaction Reporting System (RTRS) are used for
purposes of the timeframes set out in the rule.
---------------------------------------------------------------------------
Discussion of Comments
SIFMA stated that it ``believe[s] this move towards straight-
through processing will be beneficial for market participants by
reducing transaction costs and increasing data integrity.'' TD stated
that it ``welcome[d] the effort to have one centralized system and one
pass in establishing the information necessary to satisfy the
regulations.'' The MSRB discusses additional comments from these
commenters below.
Accelerating the deadline for completing submission of Form G-32
data not eligible to be submitted to NIIDS. While no written comments
were received on this question, the MSRB understands from conversations
with various industry participants that accelerating the submission
requirements for Form G-32 data not eligible to be submitted to NIIDS
may present compliance challenges for some industry participants,
particularly those that make manual submissions of information to NIIDS
and Form G-32. Thus, the MSRB determined not to accelerate such
timeframes but instead retain the existing timeframe for submission of
those Form G-32 data elements not able to be populated using NIIDS
data. Similarly, for those securities that are not eligible for
submission to NIIDS and therefore would continue to be submitted
through Form G-32, the MSRB is retaining all existing timeframes for
submission.
Removing the exception for certain short term instruments from the
data submission requirements under Rule G-34. SIFMA noted that while
eliminating the exception under Rule G-34 for short term notes with
maturities of nine months or less would not be a challenge, eliminating
the exception for variable rate demand obligations (``VRDOs'') would
present operational challenges. SIFMA noted that daily and weekly VRDOs
are usually priced, allocated, ticketed and settled on the same or next
day. Removing the exception for VRDOs under Rule G-34 would subject
VRDOs to deadlines for both data submission and Time of First Execution
under Rule G-34. As SIFMA noted, issuers and underwriters already
typically agree in advance to a Time of Formal Award to avoid DTCC
disincentive fees for short settlements, which means that underwriters
generally are able to comply with the data submission requirements for
trade eligibility under Rule G-34. Based on additional feedback from
SIFMA, the larger concern results from the fact that purchasers of
VRDOs require same day cash settlement within a short period of time
following time of pricing and formal award and, as a result, the
mandatory minimum two hour time period between Time of Formal Award and
Time of First Execution required by Rule G-34 would present operational
challenges to ensure same day cash settlement.
The purpose of the required two hour advanced notification
timeframe between disseminating NIIDS data and the announced Time of
First Execution is to ensure that dealers with pending trades in new
issues are able to receive and enter into trade processing systems
NIIDS data before the first transactions in the new issue are executed.
For VRDOs, there typically are not multiple dealers with pending
transactions in new issues, so the two hour advanced notification
timeframe is not as important as for other types of new issues with a
broad distribution. However, the MSRB believes that it is important
that as many types of securities as possible benefit from the
centralized data collection and dissemination of information provided
by NIIDS. Accordingly, the proposed rule change removes the exception
for short-term instruments (including VRDOs and auction rate securities
but not including commercial paper) from Rule G-34 with respect to the
requirement to submit information to NIIDS and announce the Time of
Formal Award and Time of First Execution, which can be done within the
existing timeframes of typical VRDO offerings. However, the proposed
rule change also adds a narrow exception from the requirement to
provide a minimum two hours of advance notice of the planned Time of
First Execution for offerings of variable rate instruments with a
planned settlement cycle of one day or less.
Dissemination of Additional NIIDS information on EMMA. SIFMA
supported the dissemination of the Time of First Execution and Time of
Formal Award on EMMA but suggested that the addition of more NIIDS data
to EMMA be carefully considered to avoid obscuring important data.
SIFMA suggested that those that require additional NIIDS data consider
a subscription feed for such data. The MSRB agrees that careful
selection of NIIDs data is necessary and will consider this issue as it
reviews the full range of NIIDS data for potential
[[Page 67052]]
inclusion on EMMA at a future date. The MSRB determined that the only
new data elements from NIIDS to be added to the EMMA display and to the
EMMA primary market subscription product at this time are Time of First
Execution and Time of Formal Award.
Extending Rule G-34 Business Day hours. SIFMA said that, while
expanding the 9:00 a.m. to 5:00 p.m. Eastern timeframe for the
deadlines in Rule G-34 may not be problematic for dealers operating in
the Eastern Time zone, expanding these hours could cause significant
staffing challenges to those dealers operating in other time zones.
SIFMA suggested the MSRB not alter the existing 9:00 a.m. to 5:00 p.m.
Eastern timeframe in Rule G-34. The MSRB decided against changing the
Rule G-34 Business Day hours.
Shortening advanced notification timeframe between the submission
of all data to NIIDS and the Time of First Execution. TD said that the
two hour window between the time of disseminating NIIDS data and first
executions was ``tough enough'' especially for smaller shops that were
limited in staff, and that shortening the time period would create
undue pressure and add little to transparency. SIFMA stated that,
because most dealers receive the NIIDS data from one or more
information providers, the two hour dissemination period is frequently
needed to integrate the data into their own systems, irrespective of
the type of underwriting. However, SIFMA suggested that, where a dealer
has submitted data to NIIDS to make an issue ``trade eligible'' between
3:00 p.m. and 5:00 p.m. on a trading day, Rule G-34's current carry-
forward of the two hour dissemination period through to the first hours
of the following day may not be necessary because the dealer has been
able to disseminate and integrate the data through information
providers overnight. SIFMA therefore suggested that underwriters of any
issue that is made ``trade eligible'' between 3:00 p.m. and 5:00 p.m.
Eastern Time should be permitted to elect to waive the two business
hour dissemination period and set the Time of First Execution to be
9:00 a.m. Eastern Time the following morning.\19\ SIFMA noted that this
option would enable dealers to reduce the risk of carrying these
securities.
---------------------------------------------------------------------------
\19\ Currently, an underwriter disseminating NIIDS data at, for
example, 4:00 p.m. Eastern Time would not be able to set a Time of
First Execution for earlier than 10:00 a.m. Eastern Time the
following business day since the two hour advanced notification
timeframe must occur between the hours of 9:00 a.m. to 5:00 p.m.
Eastern Time.
---------------------------------------------------------------------------
Recognizing these operational challenges, the MSRB decided against
shortening the required two hour minimum period between the time an
underwriter disseminates NIIDS information and the Time of First
Execution that can be set by an underwriter. However, the MSRB decided
that underwriters setting a Time of First Execution for the business
day following the day NIIDS data is disseminated should be able to set
a Time of First Execution for the following day as early as 9:00 a.m.
Eastern Time without having to wait until the full two-hour period has
elapsed. Acknowledging that dealers would have sixteen hours between
5:00 p.m. Eastern Time and the earliest possible Time of First
Execution at 9:00 a.m. Eastern Time to integrate disseminated NIIDS
data and prepare for the underwriter's announced Time of First
Execution, the MSRB believes that it would be appropriate that
underwriters wanting to set a Time of First Execution as early as 9:00
a.m. Eastern Time should be able to do so.
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 (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 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 Exchange 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 [email protected]. Please include
File Number SR-MSRB-2012-08 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-2012-08. 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 on official business
days between the hours of 10:00 a.m. and 3:00 p.m. Copies of such
filing also will be available for inspection and copying at the
principal offices 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-2012-08, and should be submitted on or before
November 29, 2012.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
---------------------------------------------------------------------------
\20\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-27266 Filed 11-7-12; 8:45 am]
BILLING CODE 8011-01-P