[Federal Register Volume 78, Number 191 (Wednesday, October 2, 2013)]
[Notices]
[Pages 60985-60991]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-24020]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-70531; File No. SR-MSRB-2013-04]
Self-Regulatory Organizations; Municipal Securities Rulemaking
Board; Order Instituting Proceedings to Determine Whether to Disapprove
Proposed Rule Change Relating to a New MSRB Rule G-45, on Reporting of
Information on Municipal Fund Securities
September 26, 2013.
I. Introduction
On June 10, 2013, the Municipal Securities Rulemaking Board
(``MSRB'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change consisting of new MSRB Rule G-45 (reporting of
information on municipal fund securities) and MSRB
[[Page 60986]]
Form G-45; amendments to MSRB Rule G-8 (books and records); and MSRB
Rule G-9 (preservation of records). The proposed rule change was
published for comment in the Federal Register on June 28, 2013.\3\ The
Commission received five comment letters on the proposal.\4\ On August
9, 2013, the MSRB granted an extension of time for the Commission to
act on the filing until September 26, 2013. This order institutes
proceedings under Section 19(b)(2)(B) of the Act \5\ to determine
whether to disapprove the proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Securities Exchange Act Release No. 69835 (June 24, 2013),
78 FR 39048 (``Notice'').
\4\ See letters to Elizabeth M. Murphy, Secretary, Commission,
from Tamara K. Salmon, Senior Associate Counsel, Investment Company
Institute, dated July 16, 2013 (``ICI Letter''); David L. Cohen,
Managing Director, Associate General Counsel, Securities Industry
and Financial Markets Association, dated July 18, 2013 (``SIFMA
Letter''); Roger Michaud, Chairman, College Savings Foundation,
dated July 19, 2013 (``CSF Letter''); Michael L. Fitzgerald,
Chairman, College Savings Plans Network, dated July 19, 2013 (``CSPN
Letter''); and Michael B. Koffler, Partner, Sutherland Asbill &
Brennan, dated July 19, 2013 (``Sutherland Letter'').
\5\ 15 U.S.C. 78s(b)(2)(B).
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II. Description of the Proposed Rule Change
The MSRB's Electronic Municipal Market Access (``EMMA'') system
currently serves as a centralized venue for the submission by
underwriters of 529 plan primary offering disclosure documents (``plan
disclosure documents'') and continuing disclosures, such as annual
financial reports submitted by issuers or their agents. However, the
MSRB does not currently receive detailed underwriting or transaction
information as it does for other types of municipal securities.
Accordingly, the proposed rule change would, for the first time,
provide the MSRB with more comprehensive information regarding 529
plans underwritten by brokers, dealers, or municipal securities dealers
by gathering data directly from such persons.
The MSRB proposes to adopt new Rule G-45 to require each
underwriter of a primary offering of municipal fund securities \6\ that
are not interests in local government investment pools to report to the
MSRB on new Form G-45 the information relating to such offering by no
later than 60 days following the end of each semi-annual reporting
period ending on June 30 and December 31.\7\ In addition, the MSRB
would require that performance data be submitted annually. As described
in further detail below, the required information would include plan
descriptive information, assets, asset allocation information (at the
investment option level), contributions, withdrawals, fee and cost
structure, performance data, and other information.\8\
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\6\ The term ``municipal fund security'' is defined in MSRB Rule
D-12 to mean a municipal security issued by an issuer that, but for
the application of Section 2(b) of the Investment Company Act of
1940, would constitute an investment company within the meaning of
Section 3 of the Investment Company Act of 1940.
\7\ The proposed rule change would require an underwriter to
report such information in the manner prescribed in the Form G-45
procedures and as set forth in the Form G-45 Manual. The MSRB
provides that the Form G-45 Manual would be a new manual created to
assist persons in the submission of the information required under
proposed Rule G-45. This manual was not submitted as part of the
proposed rule change.
\8\ Interests in 529 plans are the only type of municipal fund
security that would be covered by the proposed rule change.
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Under proposed Rule G-45, the obligation to submit the requested
information to the MSRB would be placed on brokers, dealers, or
municipal securities dealers that are underwriters under Rule 15c2-
12(f)(8) of the Act.\9\ The MSRB notes that there may be more than one
underwriter in a particular primary offering, stating that in the case
of 529 plans, program managers, their affiliates, including primary
distributors, and/or their contractors, may fall within the definition
of underwriter. However, the MSRB would deem the obligation to submit
the required information fulfilled if any one of the underwriters
submits the required information. Accordingly, on Form G-45, each
submitter could indicate the identity of each underwriter on whose
behalf the information is submitted.
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\9\ 17 CFR 240.15c2-12(f)(8).
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Form G-45 would require the submission of the following
information:
Plan Descriptive Information: The underwriter would provide the
MSRB with the (i) Name of the state, (ii) name of the plan, (iii) name
of the underwriter and contact information, (iv) name of other
underwriters on whose behalf the underwriter is submitting information,
(v) name of the program manager and contact information, (vi) plan Web
site address and (vii) type of marketing channel (whether sold with or
without the advice of a broker-dealer).
Aggregate Plan Information: The underwriter would provide the MSRB
with (i) total plan assets, as of the end of each semi-annual reporting
period, (ii) total contributions for the most recent semi-annual
reporting period, and (iii) total distributions for the most recent
semi-annual reporting period.
Investment Option Information: For each investment option offered
by the plan, the underwriter would provide the MSRB with (i) the name
and type of investment option (e.g., age-based, conservative), (ii) the
inception date of the investment option, (iii) total assets in the
investment option as of the end of the most recent semi-annual period,
(iv) the asset classes in the investment option, (v) the actual asset
class allocation of the investment option as of the end of the most
recent semi-annual period, (vi) the name of each underlying investment
in each investment option as of the end of the most recent semi-annual
period, (vii) the investment option's performance for the most recent
calendar year (as well as any benchmark and its performance for the
most recent calendar year), (viii) total contributions to and
distributions from the investment option for the most recent semi-
annual reporting period and (ix) the fee and expense structure in
effect as of the end of the most recent semi-annual reporting period.
The MSRB proposes to permit the performance and fee and expense
information to be submitted in a format consistent with the College
Savings Plans Network's (``CSPN'') published Disclosure Principles
Statement No. 5 (``Disclosure Principles''), which commenters informed
the MSRB is the industry norm for reporting such information.
Lastly, the MSRB proposes to amend its books and records rules
under MSRB Rules G-8 and G-9 to require underwriters obligated to
submit information to the MSRB under proposed Rule G-45 to maintain the
information required to be reported on new Form G-45 for six years.
III. Summary of Comments Received
As noted above, the Commission received five comment letters on the
proposed rule change.\10\ Four of the commenters expressed general
support for the MSRB's desire to collect more comprehensive information
relating to 529 plans.\11\ However, all of the commenters \12\ raised
concerns or sought clarification about certain specific aspects of the
proposal, including: (i) The scope of the definition of
``underwriter;'' \13\ (ii) the disclosure obligations of underwriters,
including their ability to obtain, and verify the accuracy of, the
requested
[[Page 60987]]
information; \14\ (iii) the need for publication of the Form G-45
Manual; \15\ (iv) the MSRB's plans to publicly disseminate information
filed on Form G-45; \16\ (v) the regulatory basis for the proposed rule
change and value of the requested information on Form G-45; \17\ and
(vi) requests for certain modifications to the content of Form G-
45.\18\
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\10\ See supra notes 4.
\11\ See ICI Letter, SIFMA Letter, CSPN Letter, CSF Letter.
\12\ See supra note 4.
\13\ See ICI Letter, SIFMA Letter, CSPN Letter, CSF Letter. One
commenter also questioned the MSRB's interpretation of ``direct-
sold'' versus ``advisor-sold'' plans in relation to the scope of the
rule and its application to underwriters. See Sutherland Letter.
\14\ See ICI Letter, CSPN Letter, CSF Letter.
\15\ See ICI Letter, SIFMA Letter.
\16\ See ICI Letter, SIFMA Letter, CSPN Letter, CSF Letter.
\17\ See Sutherland Letter.
\18\ See ICI Letter, SIFMA Letter, Sutherland Letter.
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A. Definition of ``Underwriter''
Several commenters objected to the MSRB's description of the
meaning of the term ``underwriter'' as used in Rule G-45 and stated
that the MSRB should clarify the scope of the definition.\19\ These
commenters cited the MSRB's statements in the Notice suggesting that
529 plans may have multiple underwriters; that Rule 15c2-12(f)(8) under
the Act, which the MSRB incorporates into Rule G-45, defines
``underwriter'' broadly; and that other entities (in addition to
primary distributors) involved in operating or maintaining a plan, such
as the plan's program manager, their affiliates and/or contractors,
could be deemed underwriters for purposes of the rule. One commenter
asserted that 529 plans typically have only one underwriter \20\ and
argued, along with other concurring commenters,\21\ that many other
entities involved in operating and maintaining a plan, such as the
plan's program manager, recordkeeper, investment manager, custodian,
and state sponsor, in most cases, would not and should not be
underwriters for purposes of Rule G-45.\22\
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\19\ See ICI Letter, SIFMA Letter, CSPN Letter, CSF Letter.
\20\ See ICI Letter.
\21\ See SIFMA Letter, CSPN Letter, and CSF Letter, which stated
that they concur and/or endorse the ICI's commenter.
\22\ See ICI Letter.
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Several commenters emphasized that, to fall within the definition
of ``underwriter'' under Rule G-45, the person or entity must be a
broker, dealer, or municipal securities dealer.\23\ One commenter
argued that a plan's program manager, recordkeeper, investment manager,
custodian, and state sponsor generally are not brokers or dealers and
therefore would not qualify as underwriters under the MSRB's
definition.\24\ Accordingly, this commenter requested that the MSRB
clarify that the term ``underwriter'' would not include such entities
if they provide services to the plan on behalf of the plan or its state
sponsor and not as a broker, dealer, or municipal securities
dealer.\25\
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\23\ See CSPN Letter, CSF Letter, ICI Letter.
\24\ See ICI Letter.
\25\ See ICI Letter.
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Two commenters also specifically argued that a state sponsor should
not be treated as an underwriter for purposes of Rule G-45, as they are
not brokers, dealers, or municipal securities dealers.\26\ These
commenters stated that language in the Notice implied that state
sponsors could be deemed underwriters and thus requested confirmation
that proposed Rule G-45 would not apply to municipal securities issuers
exempted under Section 3(d) of the Act.\27\
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\26\ See CSPN Letter, CSF Letter.
\27\ See CSPN Letter, CSF Letter.
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Although not directly discussing the definition of ``underwriter,''
one commenter argued that the proposed rule and form should not apply
to ``direct-sold'' plans because, by definition, such plans are sold
without the involvement of a broker-dealer.\28\ This commenter stated
that the distinction between ``direct-sold'' and ``advisor-sold'' plans
is not simply a ``marketing distinction,'' as MSRB had categorized it
in the Notice, but is ``critical in assessing the MSRB's jurisdiction
as it delineates between those 529 [p]lans that are sold through
broker-dealers and those that are not.'' \29\ Accordingly, this
commenter concluded that ``direct-sold'' plans are not subject to the
MSRB's jurisdiction.\30\
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\28\ See Sutherland Letter.
\29\ See Sutherland Letter.
\30\ See Sutherland Letter.
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Finally, one commenter expressed opposition to the imposition of
the reporting requirements of new Rule G-45 on ``broker dealers that
are not underwriters but that instead have entered into contracts with
the plan's underwriter (primary distributor) to sell plan shares to
retail investors.'' \31\
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\31\ See SIFMA Letter.
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B. Underwriter Reporting Obligation
All five commenters believed the MSRB should clarify the disclosure
obligations of underwriters.\32\ Four of these commenters stated that
the MSRB is seeking information that many primary distributors will not
be able to provide.\33\ All of the commenters suggested that the MSRB
clarify or confirm that underwriters would not be responsible for
certain information that is outside of their possession, custody, or
control.\34\ For example, one commenter requested that the MSRB clarify
that, when an underwriter, in its normal course of business, does not
create, own, control, or possess information necessary for Form G-45,
the underwriter is not required to obtain such information.\35\ Another
commenter requested that the MSRB clarify that an underwriter is
required to provide the requisite information only to the extent such
information relates to the distribution by the underwriter of municipal
fund securities and is in the underwriter's possession or maintained by
another entity on the underwriter's behalf for purposes of complying
with MSRB rules.\36\
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\32\ See ICI Letter, SIFMA Letter, CSPN Letter, CSF Letter,
Sutherland Letter.
\33\ See ICI Letter, CSPN Letter, CSF Letter, Sutherland Letter.
\34\ See ICI Letter, SIFMA Letter, CSPN Letter, CSF Letter,
Sutherland Letter.
\35\ See ICI Letter.
\36\ See CSPN Letter.
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Several commenters raised concerns that contractual provisions or
privacy laws might not permit an underwriter to obtain the information
required by the proposed rule and form.\37\ In this regard, one
commenter sought confirmation that, where the sharing of information
between an underwriter and a recordkeeper would violate contractual
provisions, the information would be deemed to be outside of the
possession or control of the underwriter and not subject to the
reporting obligations of Rule G-45.\38\ Another commenter noted that,
in the context of omnibus agreements, whether the required information
is available to an underwriter is dependent on comprehensive servicing
agreements between the plan, the underwriter, and the selling
dealers.\39\ Thus, this commenter noted that the agreements may not
provide the underwriter with legal access to certain information and,
as such, an underwriter should not be required to report such
information on Form G-45.\40\
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\37\ See CSF Letter, CSPN Letter, SIFMA Letter, Sutherland
Letter.
\38\ See Sutherland Letter.
\39\ See SIFMA Letter.
\40\ See SIFMA Letter.
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Two commenters raised concerns about the MSRB's suggestion that an
underwriter's disclosure obligation extends to ``information in the
possession of an underwriter's subcontractor.'' \41\ These commenters
believed this suggestion ``will produce confusion and disparate
reporting results'' depending on factors unrelated to Rule G-45
regulatory compliance.\42\ In particular, the commenters noted that,
while some information may be in the possession of an underwriter's
[[Page 60988]]
``subcontractor,'' other information may be in the possession of an
unaffiliated or affiliated entity that is not a subcontractor, and
privacy laws and contractual requirements may apply differently.\43\
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\41\ See CSPN Letter, CSF Letter.
\42\ See CSPN Letter, CSF Letter.
\43\ See CSPN Letter, CSF Letter.
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One commenter questioned the meaning of the MSRB's statement in the
Notice that underwriters would be required to produce only information
that they possess or ``have a legal right to obtain.'' \44\ The
commenter stated that ``unless the primary distributor has a specific,
enforceable legal right, such as one existing under law (such as a
right created by a statutory provision) or arising from a specific
contractual provision, to obtain specified information maintained by a
third party, the primary distributor does not have a legal right to
obtain the information for purposes of the proposal.'' \45\ As such,
the commenter asserted that an underwriter may not be able to provide
information in the possession of an underwriter's subcontractor.\46\
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\44\ See Sutherland Letter.
\45\ See Sutherland Letter.
\46\ See Sutherland Letter.
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Two commenters also provided comments relating specifically to
omnibus accounts, stating that Rule G-45 and Form G-45 should recognize
that, to the extent an underwriter does not, in the normal course of
business, have access to information on the accounts underlying an
omnibus accounting arrangement, the underwriter should not be required
to report such information.\47\ These commenters also stated that, ``in
practice, the mere fact that there is an omnibus relationship between a
selling dealer and a plan's underwriter does not necessarily mean the
underwriter has full transparency into all account information,
including account owners, beneficiaries, contributions, and
withdrawals, underlying the omnibus account.'' \48\
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\47\ See ICI Letter, SIFMA Letter.
\48\ See ICI Letter, SIFMA Letter.
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Lastly, two commenters contended that, if the underwriter is able
to obtain the required information from a third party, the MSRB should
clarify that the underwriter is not responsible for ensuring the
accuracy or completeness of the information before including it on Form
G-45.\49\
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\49\ See ICI Letter, Sutherland Letter.
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C. Publication of the Form G-45 Manual
Two commenters believed that the MSRB should be required to publish
for comment the contents of the Form G-45 Manual (``Manual'') because
the Manual will contain important substantive information concerning
the reporting obligations under Form G-45.\50\ One commenter stated
that the ``Manual's contents will not be limited to technical
specifications or design or system considerations relating to the
mechanics of the electronic filing process.'' \51\ This commenter
asserted that, apart from the addition of boxes for notes regarding
performance data and fee and expense data, neither Form G-45 nor Rule
G-45 reflects the MSRB's statements in the Notice that information may
be submitted in a manner consistent with the Disclosure Principles.\52\
As such, the commenter concluded that the details regarding how to
report data consistent with these Disclosure Principles would
necessarily have to be set forth in the Manual.\53\ Another commenter
similarly stated that it believed that the Manual would incorporate the
detailed substantive instructions of the Disclosure Principles.\54\
Both commenters also suggested that the one-year implementation period
should commence after the Manual has been published for comment and
approved by the Commission.\55\
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\50\ See ICI Letter, SIFMA Letter.
\51\ See ICI Letter.
\52\ See ICI Letter.
\53\ See ICI Letter. Similarly, another commenter noted that,
while the MSRB explained in the Notice that the information required
on Form G-45 will be reported consistently with the reporting
formats under the Disclosure Principles, proposed Rule G-45 and Form
G-45 are silent on this point. See SIFMA Letter.
\54\ See SIFMA Letter.
\55\ See ICI Letter, SIFMA Letter.
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D. Publication of the G-45 Data
Three commenters believed that confidential or proprietary
information reported on Form G-45 should not be made available to the
general public.\56\ For example, one commenter stated that the data
collected pursuant to Rule G-45 ``should be used to inform the MSRB's
regulatory initiatives and priorities and not to compete with other
more mature, robust, and comprehensive public sources of information on
529 plans.'' \57\ Another commenter stated that the MSRB should be
required to file a proposed rule change subject to Commission approval
if the MSRB desires to publicly disseminate certain 529 plan data
reported on Form G-45.\58\
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\56\ See ICI Letter, CSPN Letter, CSF Letter.
\57\ See ICI Letter.
\58\ See SIFMA Letter.
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E. Regulatory Value of Required Information and Regulatory Basis for
the Proposal
While four commenters expressed general support for the MSRB's
effort to collect more comprehensive information on 529 plans for
regulatory purposes,\59\ one commenter believed that the MSRB failed to
provide a ``compelling rationale as to how the requested information
would be useful to the MSRB, the SEC and FINRA given the nature of the
requested information, the limited reach of the rule . . . , and the
comprehensive regulatory system the MSRB has implemented for broker-
dealers distributing 529 plans.'' \60\ In particular, the commenter
asserted that the requested information has limited value as a
regulatory tool because such information cannot impact the value of
mutual funds or other investments in which plan investment options
invest.\61\ In this regard, the commenter argued that, unlike the
prices of municipal bonds, which are set by the market, the prices of
529 plans are based on the net asset value of the mutual funds in which
such investment options invest.\62\ This commenter also questioned the
MSRB's assertion in the Notice that the information will ``inform the
MSRB of the risks and impact of each plan and investment option'' and
``allow the MSRB to assess the impact of each plan on the market.''
\63\ In contrast, the commenter stated that the requested information
merely provides information regarding fund flows and does not indicate
the risks or impact of any plan or investment option on investors.\64\
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\59\ See ICI Letter, SIFMA Letter, CSF Letter and CSPN Letter.
\60\ See Sutherland Letter.
\61\ See Sutherland Letter.
\62\ See Sutherland Letter.
\63\ See Sutherland Letter.
\64\ See Sutherland Letter.
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The commenter further asserted that the requested information would
be substantially incomplete because the information obtained would not
include data on ``direct-sold'' 529 plans, which the commenter stated
represents more than half of the assets in the 529 plan industry.\65\
The commenter also noted that certain data is already available in the
public domain that includes both ``broker-sold'' and ``direct-sold''
plans, and therefore such existing data would be more comprehensive
than the information collected by the MSRB under the proposal.'' \66\
Finally, the commenter argued that the MSRB's jurisdiction does not
extend to
[[Page 60989]]
regulating the 529 plan market because the ``MSRB's role is limited to
regulating broker-dealers that distribute and sell municipal
securities.'' \67\
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\65\ See Sutherland Letter.
\66\ See Sutherland Letter.
\67\ See Sutherland Letter.
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F. Contents of Form G-45
Some commenters provided suggestions for modifications to the
specific information requested by Form G-45 or sought clarification on
how to report certain information on the form.\68\ These comments are
summarized below.
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\68\ See ICI Letter, Sutherland Letter, SIFMA Letter.
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i. Investment Option Information
One commenter requested that the MSRB clarify in Form G-45 how to
report an investment option that is used for multiple purposes.\69\
This commenter also recommended that the MSRB clarify how underwriters
should report fee, expense, and performance information for a mutual
fund that issues multiple classes of shares with fees and expenses that
vary from class to class.\70\ Another commenter questioned how
underwriters are supposed to report asset class and asset class
percentages, and suggested that the two items related to asset class be
eliminated.\71\ This commenter asserted that investment options do not
have or invest in asset classes, thus the use of the phrase ``asset
classes in investment option'' is unclear.\72\
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\69\ See ICI Letter.
\70\ See ICI Letter.
\71\ See Sutherland Letter.
\72\ See Sutherland Letter.
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One commenter also recommended that the investment option
information be reported in ranges rather than precise amounts, where
appropriate (e.g., asset class allocation percentages), because the use
of ranges would relieve underwriters of having to revise previously
reported information whenever there is a de minimus change to such
information.\73\ This commenter further suggested that if the MSRB
elects not to use ranges, it should consider revising the updating
requirements such that an update is not required to previously reported
information unless there has been more than a de minimus change to such
information.\74\
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\73\ See ICI Letter.
\74\ See ICI Letter.
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ii. Performance Information
One commenter raised several issues with respect to performance
information and advanced the following specific recommendations with
regard thereto: (i) The MSRB should resolve a discrepancy between the
definition of ``performance'' in Rule G-45(d)(viii) that means ``total
returns of the investment option expressed as a percentage net of all
generally applicable fees and costs'' and the requirement in Form G-45
that requires performance be reported both ``including sale charges''
and ``excluding sales charges''; (ii) the MSRB should clarify whether a
plan that is directly distributed and that has no ``sales charges,'' is
expected to report the same information under ``Investment Performance
(Including Sales Charges)'' and ``Investment Performance (Excluding
Sales Charges)'' or just the later; (iii) the MSRB should clarify that
fees that are not specific to any particular investment option are not
required to be included in the performance calculation; (iv) the MSRB
should resolve a discrepancy between a statement in the Notice that
Form G-45 requires ``performance for the most recent calendar year''
and the Form G-45 requirement for disclosure of each investment
option's 1, 3, 5 and 10 year performance, as well as the option's
performance since inception; and (v) the MSRB should include a comment
box under each of the two sections of Form G-45 relating to Investment
Performance to avoid confusion as to whether the comments relate to
performance excluding or including a sales charge.\75\ Furthermore,
this commenter recommended that the MSRB clarify that a 529 plan is
only required to report benchmark information if the 529 plan, in fact,
uses a benchmark.\76\
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\75\ See ICI Letter.
\76\ See ICI Letter.
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iii. Underlying Investments
Three commenters objected to the requirement to provide data
regarding underlying investments on Form G-45.\77\ In particular, two
commenters recommended deleting the ``Underlying Investments'' section
from Form G-45.\78\ The other commenter suggested that the Commission
should reject the proposed rule change as it relates to underlying
investments, arguing that the MSRB does not have the legal authority or
jurisdiction to mandate the filing of such information because such
underlying investments are not municipal securities.\79\ Two commenters
also stated that this information is beyond what is required by the
Disclosure Principles and is inconsistent with the MSRB's previous
response to comments stating that it had eliminated from its initial
proposal the collection of information regarding the underlying
portfolio investments.\80\ Moreover, one commenter recommended that if
the MSRB determines in the future that there would be regulatory value
in having this information, the MSRB should revise Form G-45 at that
time.'' \81\
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\77\ See ICI Letter, SIFMA Letter, and Sutherland Letter.
\78\ See ICI Letter, SIFMA Letter.
\79\ See Sutherland Letter.
\80\ See ICI Letter, SIFMA Letter.
\81\ See ICI Letter.
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Another commenter believed that the MSRB's request for information
on ``the name of each underlying investment in each investment option .
. .'' is inaccurate because 529 plan account owner funds invest solely
in the 529 plan and nothing else.\82\ This commenter noted that the
plan trust is the sole legal and beneficial owner of the underlying
investments.\83\ This commenter therefore believed that it is
inappropriate to request information about underlying investments
because they are not part of what investors purchase and are not
municipal securities.'' \84\
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\82\ See Sutherland Letter.
\83\ See Sutherland Letter.
\84\ See Sutherland Letter.
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iv. Marketing Channel
One commenter questioned the value of requesting information on the
``marketing channel,'' which the MSRB described to be commonly known as
either ``advisor-sold'' or ``direct sold.'' \85\ As discussed above,
this commenter argued that the requirements of the rule should not
apply to ``direct-sold'' plans, since they do not involve a broker-
dealer offering the securities.\86\ As such, the commenter asserted
that only broker-dealers would be providing the required information
about ``advisor-sold'' plans, unless non-broker-dealers also made
voluntary filings.\87\ Such voluntary filings, the commenter urged,
would only cause investor confusion.\88\
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\85\ See Sutherland Letter.
\86\ See Sutherland Letter; see also supra notes 28-30 and
accompanying text.
\87\ See Sutherland Letter.
\88\ See Sutherland Letter.
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v. Program Managers
One commenter suggested that all information requests related to
program managers should be deleted from Form G-45 because the MSRB
lacks jurisdiction ``to seek information about an entity hired by 529
[p]lan trustees to provide services to the plan when neither the issuer
nor the entity are regulated by the MSRB.'' \89\ The commenter further
questioned the relevance of such information to the MSRB's role as a
securities regulator of
[[Page 60990]]
broker-dealers distributing municipal securities.\90\
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\89\ See Sutherland Letter.
\90\ See Sutherland Letter.
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vi. Fees and Expenses
One commenter objected to the MSRB's request for information on
Form G-45 related to plan fees and expenses, including State fees,
audit fees, asset-based fees, annual account maintenance fees, and bank
administration fees.\91\ The commenter suggested that because the MSRB
does not have jurisdiction over the regulation of 529 plans, it should
not require primary distributors to submit data concerning securities
product fees that are unrelated to the primary distributor.\92\
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\91\ See Sutherland Letter.
\92\ See Sutherland Letter.
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G. Cost/Benefit of Data Collected
Three commenters addressed the costs of the proposed rule change
versus the benefits of collecting the required information.\93\ One
commenter stated that, while the MSRB concluded in the Notice that the
benefits of its proposal will outweigh the costs, the MSRB failed to
quantify either the benefits or the costs.\94\ Two commenters suggested
that the Commission consider adding a waiver and/or sunset provision
designed to mitigate the cost burden of an underwriter's disclosure
duty.\95\ These two commenters stated that the addition of ``a waiver
application process will allow the affected underwriter to request
relief from providing data that is not reasonably practicable to
obtain.'' \96\ Similarly, these commenters believed a sunset provision
could also ``ease the administrative burden to underwriters required to
submit information on Form G-45.'' \97\ In addition, these commenters
suggested that the MSRB reexamine its need to collect each data point
after a specified period of time and revise Rule G-45 accordingly in
the event the MSRB determines that certain data points are no longer
relevant.\98\
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\93\ See CSPN Letter, CSF Letter, Sutherland Letter.
\94\ See Sutherland Letter.
\95\ See CSPN Letter, CSF Letter.
\96\ See CSPN Letter, CSF Letter.
\97\ See CSPN Letter, CSF Letter.
\98\ See CSPN Letter, CSF Letter. The CSPN Letter and CSF Letter
suggested three years.
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IV. Proceedings To Determine Whether To Disapprove SR-MSRB-2013-04 and
Grounds for Disapproval Under Consideration
The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Act \99\ to determine whether the proposed rule
change should be disapproved. Institution of such proceedings appears
appropriate at this time in view of the legal and policy issues raised
by the proposal, as discussed below. Institution of disapproval
proceedings does not indicate that the Commission has reached any
conclusions with respect to any of the issues involved. Rather, as
described in greater detail below, the Commission seeks and encourages
interested persons to comment on the proposed rule change to inform the
Commission's analysis whether to approve or disapprove the proposed
rule change.
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\99\ 15 U.S.C. 78s(b)(2)(B).
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Pursuant to Section 19(b)(2)(B) of the Act,\100\ the Commission is
providing notice of the grounds for disapproval under consideration. In
particular, Section 15B(b)(2)(C) of the Act requires, among other
things, that the rules of the MSRB 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 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.\101\
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\100\ Id.
\101\ 15 U.S.C. 78o-4(b)(2)(C).
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As discussed above, the MSRB's proposal would require underwriters
of 529 plans to report certain information to the MSRB regarding the
plans. The MSRB believes that its proposal would better position the
MSRB to protect investors and the public interest because the
information collected under the proposed rule would allow the MSRB to
assess the impact of each 529 plan on the market, evaluate trends and
differences among plans, and gain an understanding of the aggregate
risk taken by investors by the allocation of assets in each investment
option. In the MSRB's view, the information about activity in 529 plans
is necessary to assist the MSRB in evaluating whether its current
regulatory scheme for 529 plans is sufficient or whether additional
rulemaking is necessary to protect investors and the public interest.
Four of the commenters expressed general support for the MSRB's
desire to collect more comprehensive information relating to 529 plans.
However, as discussed in detail above, all of the commenters raised
concerns about various aspects of the proposal. Most notably, several
commenters questioned the MSRB's description of the meaning of the term
``underwriter'' and suggested that the MSRB should clarify the scope of
the definition as used in proposed Rule G-45. In their view, the MSRB's
description of the definition of ``underwriter'' is overbroad and
encompasses many other entities involved in the operation and
maintenance of a 529 plan that would not, in fact, meet the Commission
definition of underwriter and thus should not be deemed to be
underwriters for purposes of Rule G-45.
Commenters also questioned the scope of the underwriter's reporting
obligations under the proposed rule. In particular, commenters asserted
that underwriters would be, in many cases, unable to obtain the
required information and requested clarification as to whether
underwriters would be relieved from the obligation to provide
information not in the underwriter's possession or control or if the
underwriter is unable to obtain the information due to contractual
provisions. Further, commenters sought confirmation that, to the extent
that underwriters could obtain the information from third parties, they
would not be held liable for the accuracy and completeness of the
requested information.
The Commission believes that these comments raise questions as to
whether the MSRB's proposal is consistent with the requirements Section
15B(b)(2)(C) of the Act, including whether it would remove impediments
to and perfect the mechanism of a free and open market in municipal
securities and municipal financial products, and, in general, protect
investors, municipal entities, obligated persons, and the public
interest. In particular, the comments raise concerns that the proposed
rule change is unclear as to whom the obligations of the rule apply and
is being interpreted in a manner that is potentially inconsistent with
statutory and Commission rule definitions of ``underwriters'' and
``broker dealers.'' This uncertainty could result in noncompliance or
needless compliance by entities and/or unnecessary duplicative
reporting. Further, respondents may not be able to ascertain the scope
of their obligations to provide the requested information under the
proposed rule, including the extent to which they are responsible for
providing, and verifying the accuracy of, information not in their
possession. In light of the confusion related to whom the proposed rule
applies, questions are raised as to whether the disclosure obligations
are sufficiently balanced to support the MSRB's statutory obligation
[[Page 60991]]
to protect both investors and municipal entities without being overly
burdensome.
As summarized above, commenters also pointed out various aspects of
Form G-45 that they believe needs further clarification. Accordingly,
the Commission believes that, without further clarification, the
proposal may result in incomplete or incorrectly reported data. As
such, the MSRB would not able to fulfill its stated regulatory goals of
obtaining accurate, reliable, and complete data in order to further
assess and carry out its rulemaking responsibilities in this area.
For the foregoing reasons, the Commission believes the issues
raised by the proposed rule change can benefit from additional
consideration and evaluation in light of the requirements of Section
15B(c)(2)(C) of the Act.
V. Procedure: Request for Written Comments
The Commission requests that interested persons provide written
submissions of their views, data, and arguments with respect to the
concerns identified above, as well as any others they may have with the
proposal. In particular, the Commission invites the written views of
interested persons concerning whether the proposed rule change is
inconsistent with Section 15B(b)(2)(C) or any other provision of the
Act, or the rules and regulation thereunder. Although there do not
appear to be any issues relevant to approval or disapproval which would
be facilitated by an oral presentation of views, data, and arguments,
the Commission will consider, pursuant to Rule 19b-4, any request for
an opportunity to make an oral presentation.\102\
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\102\ Section 19(b)(2) of the Act, as amended by the Securities
Act Amendments of 1975, Public Law 94-29 (June 4, 1975), grants the
Commission flexibility to determine what type of proceeding--either
oral or notice and opportunity for written comments--is appropriate
for consideration of a particular proposal by a self-regulatory
organization. See Securities Act Amendments of 1975, Senate Comm. on
Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st
Sess. 30 (1975).
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Interested persons are invited to submit written data, views, and
arguments regarding whether the proposed rule change should be
disapproved by November 18, 2013. Any person who wishes to file a
rebuttal to any other person's submission must file that rebuttal by
December 2, 2013.
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-2013-04 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-2013-04. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-MSRB-2013-04 and should be
submitted on or before November 18, 2013. Rebuttal comments should be
submitted by December 2, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\103\
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\103\ 17 CFR 200.30-3(a)(57).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-24020 Filed 10-1-13; 8:45 am]
BILLING CODE 8011-01-P