[Federal Register Volume 78, Number 204 (Tuesday, October 22, 2013)]
[Notices]
[Pages 62736-62745]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-24558]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-70607; File No. SR-MSRB-2013-08]
Self-Regulatory Organizations; Municipal Securities Rulemaking
Board; Notice of Filing of a Proposed Rule Change Consisting of
Amendments to MSRB Rule G-11, on Primary Offering Practices, Relating
to Changes in a Bond Authorizing Document
October 3, 2013.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that, on September 19, 2013, the Municipal Securities Rulemaking Board
(the ``MSRB'' or ``Board'') filed with the Securities and Exchange
Commission (the ``SEC'' or ``Commission'') the proposed rule change as
described in Items I, II, and III below, which Items have been prepared
by the MSRB. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The MSRB is filing with the Commission a proposed rule change
consisting of amendments to MSRB Rule G-11, on primary offering
practices (the ``proposed rule change''). The MSRB requests an
effective date for the proposed rule change of 60 days following the
date of SEC approval.
The text of the proposed rule change is available on the MSRB's Web
site at www.msrb.org/Rules-and-Interpretations/SEC-Filings/2013-Filings.aspx, at the MSRB's principal office, and at the Commission's
Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the MSRB included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The MSRB has prepared summaries, set forth in Sections
A, B, and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The proposed rule change would amend MSRB Rule G-11 to prohibit,
with carefully defined exceptions, brokers, dealers and municipal
securities dealers (``dealers'') from providing consents to changes in
a bond authorizing document, such as trust indentures and bond
resolutions (``authorizing document'' or ``bond authorizing
document''). The proposed rule change would enhance protections for
existing owners of bonds (``owners'' or ``bond owners'') from changes
to authorizing documents consented to by a dealer in lieu of bond
owners by prescriptively prohibiting such consents in certain
circumstances.
Background
Amendments to authorizing documents are often requested by
municipal entity issuers (``issuers'') or bond owners to modernize
outdated provisions or to address operational or other concerns that
have arisen after the initial issuance of bonds. Such amendments are
typically achieved by the vote of owners of a specified percentage of
the aggregate principal amount of bonds, as determined by the
authorizing document. The principal amount necessary usually will vary,
depending upon the type of amendments sought.
The process of obtaining consents from bond owners and related
costs can be significant. Since many municipal securities are issued in
book-entry form and registered as a single ``global'' certificate in
the name of a depository, the identity of beneficial owners of the
bonds is frequently unknown to issuers and trustees. Identifying such
owners and obtaining consents requires an extensive process of inquiry
through layers of nominee ownership and often
[[Page 62737]]
results in cost and delay in achieving the requisite number of
consents.
To address some of these burdens, issuers frequently have requested
underwriters, as temporary owners of bonds during the initial
distribution period and representing the aggregate principal amount of
bonds underwritten, to provide consents to changes to authorizing
documents. This alternative allows issuers to avoid the potential cost
and delay of obtaining consents from beneficial owners by direct
solicitation.
Although this lessens the burdens on issuers, the MSRB is concerned
about the practice of having a dealer, acting as an underwriter or in
some cases a remarketing agent, consent to changes in authorizing
documents that adversely affect the interests of existing bond owners.
The MSRB believes that while existing bond owners may be considered as
having agreed to provisions relating to amendments to the authorizing
documents at the time of purchase, such owners are not likely to have
contemplated that a dealer, acting as an underwriter or remarketing
agent with no prior or future long-term economic interest in the bonds
could provide such consent unless such ability had been specifically
authorized in the authorizing documents and disclosed to bond owners.
The MSRB believes that the proposed rule change will protect
investors and balance the concerns of issuers about the cost and
efficiency of obtaining consents to their authorizing documents. The
proposed rule change does not grant an affirmative right to dealers to
provide consents, and does not alter the dealer's obligations
applicable under other MSRB rules, including its fair dealing
obligations under Rule G-17. Rather, the proposed rule change will
limit the circumstances under which a dealer may provide consents at
the request of an issuer to amendments to bond authorizing documents
within the context of the dealer's fair dealing obligations.
Requests for comment. The MSRB published a series of requests for
comment concerning the practice of dealers providing consents to
changes to authorizing documents. The first request for comment \3\
concerned the application of MSRB Rule G-17 to the provision of bond
owner consents by underwriters of municipal securities (``Draft G-17
Notice''). The Draft G-17 Notice would have provided that, where a
proposed amendment reduced the security for existing bond owners, the
provision of consents by underwriters would be a violation of their
Rule G-17 duty of fair dealing unless: (i) The authorizing document
expressly provided that bond owner consents could be provided by an
underwriter and (ii) the offering documents for the existing securities
expressly disclosed that bond owner consents could be provided by
underwriters of other securities issued under the authorizing document.
The MSRB believed that while existing bond owners typically were aware
of the consent provisions in authorizing documents, they would not have
contemplated (without such express disclosure) that an owner with no
prior or future long-term economic interest in the bonds, such as an
underwriter or a remarketing agent, could provide a bond owner's
consent and thereby affect the security for existing bond owners.
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\3\ MSRB Notice 2012-04 (February 7, 2012).
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The MSRB received 10 comment letters on the Draft G-17 Notice,
discussed in more detail in Part 5 below. Commenters said, among other
things, that restricting the use of underwriters to provide consents
could result in potential cost and inefficiency to issuers when seeking
to modernize outdated provisions in their authorizing documents.
Commenters also said that identifying a ``reduction in security'' could
be difficult and could result in varying interpretations, depending on
the underwriter or the issuer, and also could lead to unintended
consequences by prohibiting amendments that, while technically could be
considered a reduction in security, were nevertheless seen by bond
owners as being in their long-term best interest.\4\
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\4\ See undated letter from the Michael J. Smith, Assistant
Treasurer, Los Angeles County Metropolitan Transportation Authority,
to Ronald W. Smith, Corporate Secretary, Municipal Securities
Rulemaking Board. Another commenter argued that there could be a
technical reduction in security even though the overall financial
strength of the issuer could be improved by such action (see
Comments of Haynsworth Sinkler Boyd, P.A. Regarding Draft
Interpretation of MSRB Rule G-17 Restricting Underwriter Consents to
Amendments to Outstanding Security Documents dated March 5, 2012
from Kathleen Crum McKinney and Theodore B. DuBose). Examples of
technical reductions in security noted in this comment letter
included the release of real estate securing the bonds to implement
projects expected to result in increased tax benefits or revenue to
the issuer, or amendments relating to the funding of debt service
reserve funds with cash or credit facilities. Depending upon facts
and circumstances, an underwriter or an issuer could view a short-
term reduction in security as a long-term benefit for the bond
owners.
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The MSRB acknowledged the issues raised by commenters in response
to the Draft G-17 Notice but remained concerned about protecting the
rights of existing bond owners that could be materially affected by
amendments consented to by a party that had no prior or future long-
term economic interest in the bonds. The MSRB also recognized the need
for greater clarity in identifying the particular types of consents and
circumstances under which dealers may not provide such consents.
Moreover, because the formulation of Draft Rule G-17, as well as some
comments suggested that the provisions of Draft G-17 Notice could be
read to waive a dealer's fair dealing obligations under certain
circumstances, the MSRB ultimately determined that such issues would be
more effectively addressed as an amendment to MSRB Rule G-11. By
including the proposed rule change as an amendment to Rule G-11, the
MSRB intends to clarify that the proposed rule does not eliminate the
obligation of a dealer under Rule G-17, when considering requests from
an issuer to consent to changes to an authorizing document, and a
dealer, in such circumstances, would also be required to consider
whether such action is consistent with its duties of fair dealing.
The MSRB subsequently published two additional requests for comment
proposing amendments to MSRB Rule G-11 (``G-11 Amendments''). The G-11
Amendments would limit the ability of dealers to provide consents to
changes in authorizing documents except in specified circumstances. The
first request for comment \5\ proposed amending Rule G-11 by adding new
section (k) (now proposed section (l)) to the rule. The second request
\6\ proposed adding two further exceptions. The G-11 Amendments and the
comments to both requests for comment are discussed collectively below
in Part 5.
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\5\ MSRB Notice 2012-36 (July 5, 2012).
\6\ MSRB Notice 2012-58 (November 21, 2012).
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Summary of Proposed Rule Change
The G-11 Amendments would prohibit a dealer from providing consent
to any amendment to authorizing documents for municipal securities,
either as an underwriter, a remarketing agent, an agent for owners, or
in lieu of owners, except that this particular prohibition would not
apply in the limited circumstances set forth in proposed section (l) of
Rule G-11.
Proposed subparagraph (l)(i)(A) would except from the prohibition a
dealer, acting as an underwriter, that provides bond owner consents to
changes in authorizing documents if such documents expressly allowed an
underwriter to provide such consents and the offering documents for the
issuer's existing securities expressly disclosed that consents could be
provided by underwriters of other
[[Page 62738]]
securities issued under the same authorizing documents. This provision
acknowledges the types of provisions currently included in some
issuers' authorizing documents that specifically allow underwriters to
provide bond owner consents. Without including this exception, the
proposed rule change could be read to limit the ability of issuers to
recognize the benefits and flexibility of the provisions in their own
authorizing documents where otherwise permissible.
Proposed subparagraph (l)(i)(B) would except from the prohibition a
dealer that owns the relevant securities other than in the capacity of
an underwriter or a remarketing agent. This provision acknowledges the
rights of dealers as owners of securities and avoids any unintended
derogation of a dealer's rights as owner. Whether a dealer owns the
securities for the purposes of the proposed rule change will depend on
whether it purchased such securities without a view to distribution.
Proposed subparagraph (l)(i)(C) would except a dealer acting as a
remarketing agent to whom the relevant securities had been tendered as
a result of a mandatory tender, provided that all securities affected
by the amendment (other than securities retained by an owner in lieu of
a tender and for which such bond owner had delivered consent) had been
tendered. If a bond owner elected to exercise its right to ``hold''
bonds subject to a mandatory tender in lieu of tendering, the
remarketing agent would be prohibited from providing consents to any
amendment to an authorizing document unless it also received the
specific written consent of such bond owner to such change.
Proposed subparagraph (l)(i)(D) would except an underwriter that
provides an ``omnibus'' consent to changes to authorizing documents
solely as agent for and on behalf of bond owners that delivered
separate written consents to such amendments. An underwriter providing
an ``omnibus'' consent under this subparagraph would not be viewed as
substituting its judgment for that of bond owners, but rather as an
agent facilitating the collection and delivery of consents. This
exception would benefit the issuer and the existing bond owners in that
the underwriter, in tabulating consents to support its ``omnibus''
consent, would be required to authenticate ownership and requisite
corporate authority of the purchaser of bonds to provide a consent,
thereby reducing the burden on the issuer and its trustee of such duty.
Proposed subparagraph (l)(i)(E) would except an underwriter that
provides consent on behalf of prospective purchasers to amendments to
authorizing documents if the amendments would not become effective
until all existing bond owners (other than the prospective purchasers
for whom the underwriter had provided consent) had also consented.\7\
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\7\ This exception recognizes a limited circumstance in which an
underwriter's consent to amendments to authorizing documents,
provided in lieu and on behalf of new purchasers of bonds, would be
permitted. In this case, the underwriter's consent would not become
effective until existing owners of all bonds (other than the
prospective purchasers for whom the underwriter had provided
consent) affected by such amendment and outstanding at the time such
consent became effective had also provided consent. As a practical
matter, this alternative might be considered when an issuer was in
the process of accumulating consents from all owners of outstanding
bonds and had not completed acquiring the consents prior to issuing
a new series of bonds. In that case, an underwriter's consent on
behalf of new purchasers would not become effective until all other
bond owners affected by the amendment had also provided their
consent, and such other consents were currently effective. This
exception would not affect an underwriter's ability to provide
consents as permitted in subparagraph (l)(i)(D) of the proposed rule
change.
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Proposed paragraph (l)(ii) would define certain terms for purposes
of proposed section (l), specifically the terms ``authorizing
document,'' ``bond owner,'' and ``bond owner consent.''
Consents not affected by the G-11 Amendments. Consents from dealers
solely in their capacity as an underwriter or a remarking agent and
required or permitted in connection with their administrative duties
under authorizing documents would not be subject to the proposed rule
change. For example, if an authorizing document provided that a dealer,
in its role as remarketing agent, was required to consent to a change
relating to the manner or timing for tendering bonds prior to such
provision becoming effective, the dealer serving as remarketing agent
would not be prohibited by the G-11 Amendments from providing such
consent. However, if the authorizing document also required consent
from bond owners to such change, the remarketing agent would be
prohibited under the Rule G-11 Amendments from providing consent on
behalf of bond owners unless it came within an exception.\8\
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\8\ A dealer would be required, however, to consider whether
such action is consistent with its duties of fair dealing.
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The G-11 Amendments would not affect other methods used by issuers
to obtain consents from owners of newly issued bonds, such as consents
received from bond owners upon initial purchase of the bonds. However,
the G-11 Amendments would prohibit the dealer from providing any
consent for or in lieu of bond owners except as provided by the
proposed rule change.
Application of MSRB Rule G-17. The proposed rule change is designed
to ensure that consents obtained from dealers when acting as an
underwriter or remarketing agent are obtained in a fair manner. As
noted above, the proposed rule change would not grant an affirmative
right to dealers to provide consents to changes to authorizing
documents, but rather would prohibit such consents subject to limited
exceptions. As such, it would not alter or supplant the dealer's
obligations applicable under other MSRB rules, including its fair
dealing obligations under Rule G-17.\9\ As with other rules of the
MSRB, both prescriptive and principles based, dealers are required to
observe the duty of fair dealing to all persons, even in the absence of
fraud and compliance with the specific provisions of any rule does not
limit this duty.
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\9\ The proposed rule change and the concurrent application of
Rule G-17 will address the possible conflicts of interest on the
part of a dealer when consenting to changes at the request of an
issuer. A conflict of interest may arise when a dealer, with a
financial interest in completing the transaction, is asked by an
issuer to consent to changes in its authorizing documents that may
adversely affect existing bond owners. In this case, the interest of
the dealer may be in conflict with the dealer's duty of fair dealing
to all persons in connection with the conduct of its municipal
securities business. This duty extends to all persons, not just to
those with whom a dealer is transacting business (see Notice of
Filing of Fair Practice Rules, Municipal Securities Rulemaking Board
Manual (CCH 1977-1987 Transfer Binder, ]10,030, September 20, 1977),
and Notice of Approval of Fair Practice Rules, Municipal Securities
Rulemaking Board Manual (CCH 1977-1987 Transfer Binder, ]10,090,
October 24, 1978). By limiting the circumstances under which a
dealer could provide consent to narrowly defined exceptions that
also require a continuing consideration of and compliance with its
G-17 obligations, the proposed rule change will aid the dealer in
managing any potential conflict that may arise in this context.
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Given the limited circumstances in the proposed rule change in
which a dealer may provide consent to changes to authorizing documents,
the MSRB does not consider it necessary at this time to provide
guidance describing the application of Rule G-17 to particular
instances. It may, upon evidence of potential violations of Rule G-17
in the context of the proposed rule change, consider more explicit
guidance concerning the application of Rule G-17 to the proposed rule
change.
2. Statutory Basis
The MSRB believes The MSRB believes [sic] that the proposed rule
change is consistent with Section 15B(b)(2)(C) of the Act,\10\ which
provides that the MSRB's rules shall:
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\10\ 15 U.S.C. 78o-4(b)(2)(C).
[[Page 62739]]
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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 MSRB believes that the proposed rule change is consistent with
the Act. Protecting investors is a key component of the Act and its
protections apply equally to existing bond owners and new purchasers of
municipal securities. The proposed rule change will protect investors
by prohibiting consents from a dealer that does not share a bond
owner's prior or long-term economic interest in the bonds, except under
carefully prescribed circumstances. As described above, the proposed
rule change will protect the expectation of investors that amendments
would be affected in compliance with the terms of the authorizing
documents or, in certain instances, with the specific consent by owners
having comparable long-term economic interests in the bonds.
The MSRB believes that the protections afforded investors by the
proposed rule change will also aid in perfecting the mechanism of an
open market by improving investor confidence in the process of amending
authorizing documents and making such process more transparent.
B. Self-Regulatory Organization's Statement on Burden on Competition
The MSRB does not believe that the proposed rule change will impose
any burden on competition not necessary or appropriate in furtherance
of the purposes of the Act.
In the first request for comment on the G-11 Amendments, the MSRB
solicited comments on, among other topics, the potential benefits and
burdens of and alternatives to the proposed rule change. On these
points, the MSRB asked:
Would the Draft Rule G-11 Amendment help to protect
investors, and are there other benefits that would be realized from
adopting the Draft Rule G-11 Amendment?
Would the Draft Rule G-11 Amendment have any negative
effects on issuers, investors or other market participants?
Are issuers able to obtain consents from beneficial
holders of bonds effectively and efficiently through existing
mechanisms?
What would be the burdens on issuers or other market
participants of adopting a rule that limits obtaining bond owner
consents in the manner contemplated by the Draft Rule G-11 Amendment?
Are there alternative methods the MSRB should consider to
providing the protections sought under the Draft Rule G-11 Amendment
that would be more effective and/or less burdensome, resulting in an
appropriate balance between the need for a cost effective and efficient
manner of obtaining consents and the duty of dealers under Rule G-17 to
deal fairly with all persons?
Potential burdens of the proposed rule change. The specific
comments and responses received on the request for comment are
discussed in Part 5. The commenters addressing the question of burdens
arising from the G-11 Amendments cited the potential cost and delay in
effecting amendments by limiting the ability of underwriters to provide
consents, and noted that as a result both investors and issuers would
be precluded from realizing the benefits of the G-11 Amendments.
Another cited a possible burden on issuers because of the lack of
clarity concerning the question of which party would bear the cost of
obtaining consents. Others noted the lack of cost effective
alternatives.
In proposing the G-11 Amendments and the resulting proposed rule
change, the MSRB recognized a potential burden on issuers if they were
limited in their ability to request consents from underwriters and
remarketing agents to changes they believed were necessary to modernize
their authorizing documents. The MSRB recognized that issuers may incur
additional costs when preparing authorization and disclosure provisions
for the authorizing and offering documents, or if required to increase
efforts to remarket bonds with amended features following a mandatory
tender of bonds. Other costs may be associated with the provisions of
the proposed rule change affecting an issuer's options when
accumulating consents over time, requiring it or its trustee to
maintain records of outstanding bond owners and related consents.
However, since maintaining these records is currently required under an
authorizing document, costs associated with this alternative, if chosen
by an issuer, should not impose an additional burden.
The proposed rule change also may impose burdens on dealers by: (i)
Requiring a remarketing agent to obtain written consents from bond
owners that elect to ``hold'' in lieu of tendering their bonds in a
mandatory tender and (ii) requiring an underwriter to obtain consents
from new purchasers at the time of purchase. In both cases, the
proposed rule change may require the remarketing agent or underwriter,
as the case may be, to obtain consents from appropriately authorized
representatives of the new purchasers which may require identifying
persons other than those placing the purchase order with the
underwriter or remarketing agent.
The MSRB does not believe that the proposed rule change will impose
any burden on competition not necessary or appropriate in furtherance
of the purposes of the Act. The MSRB believes that the proposed rule
change protects existing bond owners while addressing the concerns
raised by commenters by providing a range of potential options to allow
issuers to obtain bond owner consents from dealers. The proposed rule
change and any resulting burden, are appropriate in furtherance of the
purposes of the Act.
Expected benefits of the proposed rule change. The proposed rule
change is expected to protect investors by prohibiting consents to
changes to authorizing documents by parties with no long-term economic
interest in the bonds, except in specified circumstances. The proposed
rule change is also expected to provide a benefit to issuers and
dealers because it will provide clarity about the practice of obtaining
bond owner consents from dealers to changes in the authorizing
documents, and will provide issuers with a range of potential
alternatives to obtain bond owner consents without the anticipated
delay and cost of a direct solicitation of existing bond owners.
Potential alternatives to proposed rule change. The MSRB considered
various alternatives to address the issue of dealers providing consents
in lieu of bond owners to changes in authorizing documents. The MSRB
first considered relying solely on the fair dealing component of Rule
G-17, but believed that without interpretive guidance, this alternative
would not be likely to result in any change in the behavior of dealers.
The MSRB next considered the alternative presented in the G-17 Notice,
which provided that an underwriter would be in violation of Rule G-17
if it consented to changes that would result in a ``reduction in
security'' unless the authorizing documents allowed an underwriter to
provide consent and the practice was disclosed in the related offering
document. Some commenters to the G-17 Notice were concerned about the
lack of a definition of a ``reduction in security'' and, given the
range of possible interpretations, their ability to comply with the
provision. Further, the
[[Page 62740]]
MSRB recognized that the G-17 Notice limited the violation to a
``reduction in security'' and did not address consents by dealers to
other types of amendments. The MSRB believes that the proposed rule
change simplifies matters by prohibiting the practice entirely except
in narrowly defined circumstances. While a dealer continues to be
obligated to consider and comply with its Rule G-17 obligations in the
context of the exceptions, the circumstances are limited and the Rule
G-17 considerations are not limited to a ``reduction in security.''
As another alternative, the MSRB could retain the prohibition in
the proposed rule change and reduce or eliminate entirely the
exceptions. The MSRB does not consider this approach to be in the best
interest of investors or issuers, since issuers will be precluded from
adopting amendments necessary to modernize their authorizing documents
except by direct solicitation of bond owners. Also, issuers whose
authorizing documents already included provisions allowing underwriters
to consent to amendments will not be able to rely on those provisions.
Investors might also be precluded from realizing the benefits of
modernized documents. The MSRB believes that the exceptions noted in
the proposed rule change will provide dealers a range of potential
options to provide the necessary consents while recognizing the
concerns of both issuers and existing bond owners.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
As noted above, the proposed rule change was informed by comments
received from market participants to the Draft G-17 Notice and the G-11
Amendments. The MSRB received 10 comment letters to the Draft G-17
Notice,\11\ and 11 comment letters to the G-11 Amendments. While the G-
11 Amendments adopted a different approach to addressing the issue of
dealers providing bond owner consents to amendments to authorizing
documents, many of the comments received in response to the Draft G-17
Notice influenced the drafting of the proposed rule change and are
discussed below.
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\11\ Comment letters were received from: BondView.com
(``BondView''); Government Finance Officers Association (``GFOA'');
Haynsworth Sinkler Boyd, P.A. (``Haynsworth''); Ice Miller LLP
(``Ice Miller''); Indiana Housing & Community Development Authority
(``IHCDA''); Indianapolis Airport Authority (``IAA''); Los Angeles
County Metropolitan Transportation Authority (``MTA''); National
Association of Bond Lawyers (``NABL''); National Federation of
Municipal Analysts (``NFMA''); and Squire Sanders LLP (``Squire
Sanders'').
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Discussion of Comments
Support for the Draft G-17 Notice
Comment. BondView and NFMA supported the Draft G-17 Notice.
BondView commended the leadership of the MSRB on improving market
transparency because retail investors do not have the same tools as
institutional investors. NFMA said that it supported the Draft G-17
Notice because it attempts to prevent consents by underwriters that
diminish security for bond owners. It noted that prospective purchasers
have the choice whether to purchase the bonds with the amended security
features and existing bond owners do not have this choice.
MSRB Response. The MSRB believes that the G-11 Amendments similarly
will improve market transparency and enhance protections for existing
bond owners.
Draft G-17 Notice Too Broad; May Have Unintended Consequences
Comment. Some commenters said that the Draft G-17 Notice was too
broad, and may have unintended consequences that would harm
investors.\12\ GFOA said that the Draft G-17 Notice would prohibit
amendments that would be beneficial to both bond owners and issuers,
and Haynsworth and MTA said that it would preclude amendments where
there was a technical reduction in security but the financial strength
of the enterprise was likely to be enhanced. Haynsworth said that the
Draft G-17 Notice would create an ambiguity because it failed to take
into account consideration of the entire credit analysis and looked at
the ``reduction in security'' in isolation. NFMA said that while some
changes to authorizing documents might not seem immediately important,
if the credit were to deteriorate, the impact of the change may
increase. MTA said that the facts and circumstances in day-to-day
transactions were too complex and varied to resolve through an
interpretive statement to Rule G-17.
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\12\ GFOA, Haynsworth, Ice Miller, IHCDA, IAA and MTA.
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Comment. Ice Miller, IHCDA and IAA suggested that the Draft G-17
Notice be narrowly drafted to address specific problems, and GFOA
suggested that the Draft G-17 Notice include examples of acceptable and
unacceptable practices. Ice Miller, IHCDA and IAA suggested that the
Draft G-17 Notice address only amendments where the fundamental
security for the bonds was deleted, released or substantially reduced,
and that it include a definition of a reduction in fundamental
security, or define a security that could not be changed or reduced.
MSRB Response. The MSRB believes that the proposed rule change will
address a number of these issues. The proposed rule change does not
specify a reduction in security as a factor to be included when
considering a proposed amendment to an authorizing document. Rather,
the revised approach prohibits dealers from providing consent to any
proposed amendment to an authorizing document, irrespective of the type
of amendment, except in specified instances and in the context of a
dealer's fair dealing obligations. Thus, while a ``reduction in
security'' and its short- and long-term implications may be part of a
dealer's fair dealing analysis, it may not be the sole factor in its
analysis.
Terms of Governing Instruments Should Control; Prior Bond Owners
Consented to Amendment Provisions
Comment. Various commenters said that to the extent the terms of
the authorizing documents included provisions for amendments, existing
bond owners had agreed to such provisions and those provisions should
control. NABL said that the provisions of authorizing documents
allowing an issuer to rely on consents from any bond owner to amend its
authorizing documents are not limited by the length of time the bond
owner has owned the bonds. This commenter and others said that the
Draft G-17 Notice implied that the consents were being obtained
unfairly, even though the consents were obtained in accordance with the
authorizing documents and state law.\13\ NABL said that, where
purchasers had not bargained for certain protections, the MSRB should
not be adding such protections to the business terms of transactions.
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\13\ NABL, Ice Miller, IHCDA and IAA.
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Comment. NABL said that the Draft G-17 Notice could adversely
affect issuers and obligated persons and impair their rights under
existing bond documents. This commenter also said that the scope of the
Draft G-17 Notice could be read to cause an underwriter to breach a
Rule G-17 duty if it participated in a new transaction that may be
adverse to bond owners but permitted under the bond documents.
MSRB Response. The MSRB believes that the proposed rule change will
address many of these issues. The proposed rule change does not alter
an issuer's contractual right to request an underwriter to consent to
changes to an
[[Page 62741]]
authorizing document. The proposed rule change addresses the ability of
an underwriter to provide consents under limited circumstances. The
proposed rule change does not waive a dealer's fair dealing obligation
when considering such request. The MSRB believes that the proposed rule
change, articulated, as with other MSRB rules, as a prohibition with
specified exceptions, will clarify the permitted behavior without
interfering with the application of Rule G-17, which applies to all of
a dealer's municipal securities activities.
Draft G-17 Notice Would Interfere With an Issuer's Ability To Modernize
Indentures and Obtain Consents in an Efficient Manner
Comment. Ice Miller, IHCDA and IAA said that issuers should be able
to modernize their indentures and amend other authorizing documents in
an efficient manner, and that having an underwriter provide consents to
amendments was an efficient way to accomplish this goal. These
commenters also said that an underwriter is only facilitating the
issuer's and new bond owners' ability to exercise a right to which they
were entitled, and the Draft G-17 Notice would interfere with that
process. NABL said that issuers should be able to obtain consents in
accordance with their bargained-for rights under their authorizing
documents and state law, and should not be forced to pursue a lengthier
and costly process.
Comment. NFMA said that it recognized that issuers have a
legitimate need to update and modernize their authorizing documents and
that it understood the difficulty in obtaining consent of a majority of
bond owners. It suggested that more detail and guidance be provided to
help define acceptable thresholds for changes to authorizing documents.
GFOA also suggested providing more examples of acceptable and
unacceptable practices in obtaining bond owner consents through
underwriters.
Comment. GFOA, Ice Miller, IHCDA and IAA noted the expense and
difficulty of locating and obtaining consents from bond owners because
most bonds are held in a book entry system.
MSRB Response. The MSRB recognizes the need of issuers to modernize
their authorizing documents and the difficulty of obtaining consents
when bonds are held in a book-entry system. As noted above, the G-11
Amendments would not alter the issuer's contractual right to request
consent from an underwriter to changes to an authorizing document. The
G-11 Amendments would prohibit a dealer's ability to provide consents
to changes in authorizing documents except under specified
circumstances. The MSRB believes that the proposed rule change will
achieve an appropriate balance between the interests of issuers to
amend their authorizing documents in a timely and efficient manner and
the obligations of an underwriter or dealer, including its fair dealing
obligations, when asked to provide such consent.
Obtaining Consents From Underwriters Is an Accepted Practice
Comment. NABL and Squire Sanders said that the practice of
underwriters consenting to amendments as initial bond owners was a long
standing practice, and Ice Miller, IHCDA and IAA said that there had
been no significant resistance to the practice on the part of existing
bond owners. NABL noted that in such cases the new bonds were issued
with full disclosure of the amendment process, and that any requisite
filings had been made under SEC Rule 15c2-12. Ice Miller, IHCDA and IAA
said that they were unaware of any ratings decline or other
controversies that had resulted from this practice and that the Draft
G-17 Notice may have the effect of questioning the validity of prior
votes or the long standing practice of obtaining underwriter consents.
MSRB Response. Protecting investors is a key component of the Act
and applies equally to existing bond owners and new purchasers of
municipal securities. The MSRB believes that amendments to authorizing
documents by those that do not share existing bond owners' long-term
economic interests, except in specified circumstances, generally are
not consistent with the Act, irrespective of prior practice. The MSRB
also recognizes that, while limiting the practice may result in added
costs and other consequences to issuers, the proposed rule change, as
noted above, allows issuers a range of potential cost-effective options
and will achieve an appropriate balance, for purposes of Rule G-11,
between the rights of existing bond owners and the interests of issuers
to amend their authorizing documents in a timely and efficient manner.
DTC Process
Comment. Various commenters noted that the process of verifying
bond ownership through DTC, as well as effectively explaining proposed
amendments to existing bond owners, was difficult and that there was no
simple way to confirm the beneficial ownership or to communicate with
beneficial owners except at the time of purchase.\14\ NABL suggested
that some changes be made to the DTC process to improve consent
solicitations, such as a solicitation process similar to the one used
for corporate securities.
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\14\ Squire Sanders, Ice Miller, IHCDA and IAA.
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MSRB Response. The MSRB recognizes that the process used by DTC
might benefit from streamlining, but notes that it is not in a position
to amend the DTC process.\15\ The MSRB believes that the proposed rule
change will provide issuers a range of potential options to obtain
consents other than by a direct solicitation of bond owners and the
proposed rule change will not foreclose future collaboration with
issuers and DTC on ways to create a more effective process.
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\15\ The MSRB notes that explaining amendments to authorizing
documents to existing bond owners should not be more difficult than
explaining the same provisions to new bond owners.
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Underwriters Do Not Owe a Duty Under Rule G-17 to Existing Bond Owners
Comment. Ice Miller, IHCDA and IAA said that an underwriter did not
owe a duty under Rule G-17 to prior bond owners because it was not
dealing with those bond owners within the meaning of Rule G-17. These
commenters said that an underwriter owed a duty of fair dealing only to
new bond owners. NABL said that an issuer did not owe a duty to owners
of its bonds under state law except to comply with the terms of the
authorizing documents. Further, this commenter said that the Draft G-17
Notice was inconsistent with the parties' ability to freely negotiate
benefits and protections.
MSRB Response. MSRB Rule G-17 on fair dealing applies to dealers in
the conduct of their municipal securities business when dealing with
all persons and is not limited in the manner suggested by some of the
commenters. Further, as noted above, the MSRB does not believe the
Draft G-17 Notice was inconsistent with the parties' rights to
negotiate protections since it only limited the exercise of certain
rights by other parties, such as underwriters, not bond owners. The
proposed rule change similarly will address the duties only of dealers
and not other market participants under Rule G-11 and will provide a
range of potential options allowing issuers to amend authorizing
documents. The proposed rule change would not alter a dealer's fair
dealing obligations in connection with these activities.
Suggested Alternatives
Comment. NABL suggested that, because of the material adverse
impact on issuers of the Draft G-17 Notice,
[[Page 62742]]
comments should be conducted under a rulemaking process so that market
participants and other affected parties would have a better opportunity
to review the issues and bring their concerns to the MSRB and the SEC.
Squire Sanders suggested alternative language to the Draft G-17
Notice.\16\
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\16\ Squire Sanders suggested the following language:
It would not be a violation of Rule G-17 for an underwriter to
consent to amendments to an authorizing document that would reduce
the security for existing bondholders if the underwriter is giving
consent as to newly issued bonds it is purchasing and the offering
document for the new bonds (1) clearly describes the proposed
amendments in the manner required by the authorizing document, and
(2) conspicuously indicates that, by their purchase of the new
bonds, the buyers are deemed to have given their consent to the
amendments and to have directed and authorized the underwriter to
execute, on their behalf, any written consent to the amendments that
is required by the authorizing documents.
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MSRB Response. The proposed rule change is part of a rulemaking
process that provides extensive opportunity for review and public
comment. Indeed, the MSRB solicited comments three times in developing
the proposed rule change. With respect to the alternative language
proposed by a commenter, the MSRB notes that this language would serve
only as notice to new purchasers and would not protect existing bond
owners.
Disclosure of Ability of Underwriter To Consent to Amendments
Comment. BondView suggested that the ability of an underwriter to
consent to a material dilution of a security should be prominently
displayed and explicitly stated in the official statement or
preliminary official statement in the risk section and, if possible, in
a separate section. This commenter also said that the existence of the
process should be made known by any bond salesperson to any prospective
purchaser prior to purchase. Ice Miller, IHCDA and IAA noted that the
placement of disclosure of the ability of underwriters to consent to
changes needs to be consistent across industry practice.
MSRB Response. The MSRB does not disagree with the suggestions from
these commenters, but does not believe that the suggestions are, by
themselves, sufficient to address concerns of existing holders about
consents provided by dealers with no prior or future long-term economic
interest in the bonds. For that reason, subparagraph (l)(i)(A) of the
proposed rule change would require not only explicit disclosure in an
offering document of the ability of an underwriter to provide consent
to changes in an authorizing document, but would also require specific
authorization in the bond authorizing document for such underwriter's
consent. In addition, and as noted above, a dealer would also have to
consider whether a proposed change under these circumstances would be
consistent with its fair dealing obligations.
G-11 Amendments
As noted above, the MSRB published two additional requests for
comment on proposed amendments to MSRB Rule G-11 concerning a dealer's
ability to provide consents to amendments to authorizing documents. The
MSRB received 11 comment letters \17\ to the first and second requests
for comment on the G-11 Amendments. The commenters' responses are
addressed below.
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\17\ Comment letters to the first request for comment concerning
the G-11 amendments were received from: Investment Company Institute
(``ICI''); Municipal Electric Authority of Georgia (``MEAG'');
National Association of Independent Public Finance Advisors
(``NAIPFA''); National Federation of Municipal Analysts (``NFMA'');
New York City Municipal Water Finance Authority (``NY Water'');
Nuveen Asset Management (``Nuveen''); Rhode Island Health and
Educational Building Corporation (``RI''); Securities Industry and
Financial Markets Association (``SIFMA''); and Standish Mellon Asset
Management (``Standish Mellon''). NAIPFA and MEAG also submitted
comments to the second request for comment concerning the G-11
Amendments.
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Support for the Proposed Rule Change
Comment. Various commenters supported the proposed rule change \18\
and others generally opposed it or expressed reservations.\19\ ICI said
that limiting the practice of underwriters providing consent to changes
in authorizing documents would result in greater protection for the
interests of existing bonds owners. Standish Mellon said that
underwriters do not necessarily share the interests of investors about
the legal provisions of municipal bond issues. Nuveen said allowing
underwriters to consent to changes violated a sense of fairness since
they have no continued financial interest in the securities being
affected.
---------------------------------------------------------------------------
\18\ ICI, NAIPFA, NFMA, Nuveen, RI, and Standish Mellon.
\19\ MEAG, NY Water and SIFMA.
---------------------------------------------------------------------------
Comment. RI said that the practice of underwriters providing
consent may be unfair and deceptive and that there was no need for the
underwriter to perform any role in giving consent. NFMA said that the
practice of underwriters obtaining consents is unfair because it is
exercising a right not explicitly contemplated by existing bond owners.
MSRB Response. The MSRB believes that the proposed rule change
achieves a balance between the needs of issuers to effect changes to
their authorizing documents in an efficient and cost effective manner,
and the interests of existing bond owners to be able to have a voice in
the amendment process. The proposed rule change will limit the ability
of dealers to provide consents except in specified circumstances and
will provide a range of potential options to issuers to obtain
consents.
Underwriters Providing Consents Is a Long Standing Practice;
Alternatives Costly
Comment. MEAG said that obtaining underwriter consents is a long
standing and common practice in the municipal securities market and
there are no other reasonable and cost-effective alternatives. This
commenter also said that, without the ability of an underwriter (as an
initial owner of new bonds) to consent to changes, some amendments to
authorizing documents would be delayed or would force an issuer to
undertake a costly and time consuming general consent solicitation.
MSRB Response. As noted above, the proposed rule change does not
alter an issuer's contractual right to request an underwriter to
consent to changes to an authorizing document. The proposed rule change
permits such consents under specified conditions, assuming that such
consent is consistent with an underwriter's fair dealing obligation.
The MSRB believes that this range of potential options will address
issuers' concerns about cost and delay in obtaining consents.
G-11 Amendments Would Impose Additional Contractual Obligations
Comment. MEAG said that the procedure for amending an authorizing
document is a matter of state law and the terms of the document. This
commenter also noted that proposed paragraph (k)(iii) (now proposed
subparagraph (l)(i)(E)) was too onerous, and that to require all bond
owners that would be affected by an amendment to consent would have the
effect of changing the contractual arrangements of the authorizing
documents and would be costly and labor intensive.
Comment. SIFMA said that, even if the authorizing documents and the
disclosure documents expressly permitted bond owner consents to be
provided by underwriters, the proposed rule now bars this type of
consent and suggested that such change would be overreaching beyond the
bounds of investor protection. SIFMA suggested that certain provisions
in the Draft G-17 Notice be re-introduced, namely the provision that
allowed an underwriter
[[Page 62743]]
to provide consent if the authorizing documents explicitly allowed such
consent.
MSRB Response. The MSRB notes that subparagraph (l)(i)(E) of the
proposed rule change reflects the original intent of both the Draft G-
17 Notice and the G-11 Amendments, specifically, that existing bond
owners be allowed a voice in the amendment process and not be
overridden by the vote of a temporary owner such as an underwriter.
MEAG's proposal is not consistent with the proposed rule change because
it would allow an underwriter to vote the principal amount of bonds
underwritten in lieu of the purchasing bond owners and have such vote
``count'' towards achieving the overall requisite number of consents
required for the amendment. The MSRB notes that, if an issuer wishes to
have the consents of the new purchasers counted immediately, it can
request the underwriter implement subparagraph (l)(i)(D) of the
proposed rule change and obtain individual consents from each new
purchaser. The MSRB agrees to a certain extent with SIFMA's comment and
notes that subparagraph (l)(i)(A) of the proposed rule change now
excepts consents provided by underwriters if the practice is authorized
in the authorizing documents and disclosed in the related offering
documents. As noted above, the underwriter would be required to
consider the request in light of its fair dealing obligations under
Rule G-17.
Include Dealers Acting in Other Capacities
Comment. NFMA and RI supported the proposed exception included in
the G-11 Amendments for remarketing agents, and stated that the
exceptions were appropriate and sufficient. MEAG said that auction
agents should be included because their function was ministerial,
similar to that of a remarketing agent. Standish Mellon disagreed with
the proposed exceptions for a dealer as an owner and as a remarketing
agent, stating that it would allow the dealer too much discretion for
self definition.
MSRB Response. The MSRB believes that the exceptions to the
particular prohibition in the G-11 Amendments for dealers serving as
underwriters and remarketing agents is sufficient and that creating
exceptions for dealers in other functional capacities will create
unnecessary complications and will not contribute to effectively
protecting existing bond owners.
Positive and Negative Benefits of the Proposed Rule Change
Comment. ICI, NAIPFA, NFMA, Nuveen, Standish Mellon and RI
generally supported the proposal, saying that the G-11 amendments would
protect investors.
Comment. MEAG said that the G-11 Amendments would not benefit
investors because they could preclude investors from realizing the
benefits that could be derived from certain types of amendments. MEAG
also said the G-11 Amendments might have a negative effect on issuers
and investors because they would require issuers to undertake a costly
process because there was no reasonable or cost-effective alternative,
or might cause an issuer to delay the effectiveness of amendments until
it had acquired sufficient consents and thereby delay or preclude
investors from realizing the benefits of the amendments.
Comment. RI said that the G-11 Amendments would protect investors
and would also require that consent provisions be more detailed and
clear, and that issuers and investors would benefit from more certainty
in the market. RI said it may be more complex for issuers to modify
older documents, but it believed it could be done and suggested that
trustees could provide consent with a legal opinion, and that older
issues could be refunded.
Comment. NY Water and SIFMA suggested that the proposed rule change
provide for an exception where the authorizing documents and official
statement expressly provide for and disclose that an underwriter would
be able to provide bond owner consent. NY Water noted that provisions
specifically allowing underwriters to consent were designed to address
the inability under an authorizing document to permit a deemed consent.
Further, NY Water noted that where authorizing documents now include
these provisions, failure to include this exception would have the
effect of amending the issuer's existing authorizing documents without
the issuer's consent. SIFMA noted that altering such express authority
substantively changes the contractual rights and expectations of the
parties.
Comment. NFMA said that the G-11 Amendments did not present a
burden and called for additional disclosure.
MSRB Response. The MSRB recognizes the benefits to be gained by
issuers and existing bond owners by timely amendments to authorizing
documents and believes that the proposed rule change offers issuers a
sufficient range of potential options to effect desired amendments in
an efficient manner.
The MSRB also recognizes that certain issuers' authorizing and
offering documents expressly authorized and disclosed the ability of
underwriters to provide bond owner consents, and that following the
publication of the Draft G-17 Notice, some issuers amended their
documents to provide such authorization and disclosure. As a result,
the MSRB, in its second request for comment on the G-11 Amendments,
added a subparagraph (now subparagraph (l)(i)(A)) to except consents
provided by an underwriter where the authorizing documents and the
offering documents include such authorization and disclosure. MEAG
agreed with this approach in its comments.
Comment. NAIPFA requested that the G-11 Amendments be revised to
require that the obligation of obtaining consents be placed on the
party to the transaction requesting the amendments to the authorizing
documents, unless the parties agreed otherwise. The commenter said that
the underwriter is typically the party that recommends the amendments
and that the underwriter is often in the best position to obtain the
bond owner consents. This commenter believed that such provision would
improve market efficiency and lessen the financial and administrative
impact that may otherwise be felt by issuers.
MSRB Response. The MSRB believes that the parties to the
transaction are in the best position, at the time the necessity for
consent is ascertained, to determine the appropriate party to bear the
financial and administrative burden of obtaining the consents. In some
cases, an issuer may choose to have its trustee or financial advisor
manage the process; in other cases, the issuer may determine that the
underwriter or other party is the appropriate party to assume all or
part of the burden of obtaining consents. Including a provision placing
the obligation on the underwriter ``unless otherwise agreed to by the
parties'' may imply that the MSRB believes that such responsibilities
belong with the underwriter and may adversely affect an issuer's
negotiating position. Accordingly, the MSRB believes that this matter
is best left to negotiation by the parties and has not included such a
provision in the G-11 Amendments.
Comment. NFMA said that the G-11 Amendments should differentiate
between amendments that merely modernize authorizing documents (with no
adverse impact) and those that dilute security, which were not
desirable.
MSRB Response. As the MSRB noted in response to similar comments by
[[Page 62744]]
NFMA relating to the Draft G-17 Notice, the MSRB believes that the
proposed rule change will address a number of these issues. Unlike the
Draft G-17 Notice, the proposed rule change does not list specific
factors that a dealer must consider prior to providing a consent to
changes to authorizing documents. The proposed rule change prohibits
dealers from providing consent to any proposed amendment to an
authorizing document, except in limited instances and in the context of
a dealer's fair dealing obligations. The MSRB believes that the
exceptions in the proposed rule change, and the overarching application
of a dealer's fair dealing obligations, will address the difficulty of
determining a ``reduction in security'' and achieve protection for
existing bond owners.
Ability of Issuers To Obtain Consents Through Existing Mechanisms and
Alternative Methods
Comment. MEAG and RI said the process of using DTC to obtain bond
owner consents was costly and difficult. MEAG said the G-11 Amendments
would preclude issuers from using a long standing practice of obtaining
consents to amendments and would require issuers to undertake a more
costly process. NFMA said that locating bond owners was not the issue,
and that even if bond owners were located, they would consent only in
limited circumstances. RI suggested that market participants, using
technology and the web-based Electronic Municipal Market Access
(``EMMA[supreg]'') system,\20\ could develop a system of notification
and request for consents to amendments.
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\20\ EMMA is a registered trademark of the MSRB.
---------------------------------------------------------------------------
MSRB Response. As discussed above, the MSRB believes that the
proposed rule change will provide a sufficient range of potential
options to allow issuers to obtain bond owner consents in a cost-
sensitive and efficient manner.
Alternative Methods To Providing the Protections Sought Under the Rule
G-11 Amendments That Would Be More Effective and/or Less Burdensome
Comment. MEAG said it was unaware of more effective/less burdensome
alternatives. MEAG also said that the rule should be prospective and
that underwriters should be able to provide consents only if bond
documents provided for bond owner consent and the offering documents
disclosed such practice. MEAG did not believe that relying on ``deemed
consents'' would be more effective, because in its case, the bond
indentures did not recognize the concept of a ``deemed consent.'' NFMA
said that standards addressing a material dilution could be developed.
RI said industry participants could develop a system (via technology)
of notification and requests for consents from beneficial owners, which
process would be especially helpful when amending older documents when
no new financing was involved.
MSRB Response. As noted above, the proposed rule change will
address MEAG's comment by allowing underwriters to provide such
consents if the authorizing and offering documents provide for and
disclose such practice, assuming the underwriter has determined that
providing such consent would be consistent with its fair dealing
obligations. With respect to the other comments, the MSRB encourages
other market participants to develop alternatives to allow issuers to
conduct direct solicitations of bond owners, if desired.
Other Comments
Other comments received, while not in direct response to the
questions posed, are included here.
Comment. NFMA said that there should be better disclosure to
existing bond owners if there was the ability to change the security
for bonds with the consent of less than 100% of such owners, or when a
material change was made to the authorizing documents, and that the
MSRB should require conspicuous notice in a material event notice
posted on EMMA.
MSRB Response. The MSRB notes that it does not have the statutory
authority to amend SEC Rule 15c2-12 to include other event notices, but
it has introduced facilities on EMMA to allow voluntary disclosure by
various market participants, particularly in connection with the
introduction of additional voluntary disclosure options for issuers and
obligated persons \21\ and invitations to issuers to submit information
about bank loan and other financings.\22\
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\21\ MSRB Notice 2011-27 (May 23, 2011). Issuers and their
designated agents have the ability to make available, on a voluntary
basis, through EMMA preliminary official statements and other
related pre-sale documents as well as official statements, advance
refunding documents and related information.
\22\ MSRB Notice 2012-18 (April 3, 2012).
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Comment. NFMA and Nuveen noted that amendments to authorizing
documents, as well as the practice of underwriters banking consents,
should be disclosed. These commenters also stated that where a material
change in a security has resulted from a deemed consent, such event
should be included in a material event notice on EMMA.
Comment. MEAG and SIFMA said that the exception for cases where
100% of existing owners had also consented should be revised to permit
underwriters to consent in cases where consents were obtained from the
requisite percentage of bond owners, as permitted by the authorizing
documents. MEAG said that this exception, allowing an underwriter to
consent if 100% of bond owners affected by the amendment (other than
those on behalf of whom the dealer was consenting) had also consented,
was too restrictive and would change the terms of a document that
required less than 100% consent to effect amendments. This commenter
also suggested that this provision be revised to make the effectiveness
of the provision be conditioned upon the receipt of consents, rather
than the ability of the underwriter to execute the consent.
MSRB Response. The MSRB notes that this requirement of 100% consent
is applicable only under circumstances where an issuer requests an
underwriter to consent in lieu of bond owners of newly issued bonds
instead of obtaining the consent from the underlying purchasers, which
scenario is addressed in subparagraph (l)(i)(D).\23\ The MSRB agrees
with the comment relating to the effectiveness of the underwriter's
consent and has amended subparagraph (l)(i)(E) of the proposed rule
change to reflect this comment.
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\23\ This provision does not change the ability of an issuer,
without seeking the consent of an underwriter, to effect changes to
its authorizing documents with consents that meet the requisite
threshold in compliance with the terms of the authorizing documents.
This provision only applies when the issuer is seeking the consent
of an underwriter in lieu of new purchasers of bonds.
---------------------------------------------------------------------------
Comment. MEAG also requested a clarification concerning paragraph
(k)(iii) (now proposed subparagraph (l)(i)(C)) of the proposed rule
change that allows a remarketing agent to consent to changes to an
authorizing document provided that all bonds affected by the consent
are held by the remarketing agent as a result of a mandatory tender. It
suggested that this subparagraph be revised to clarify that the
remarketing agent was not required to ``hold'' bonds tendered to it as
a result of a mandatory tender if it obtained the specific consent to
the proposed amendment from the bond owner electing to ``hold in lieu''
of tendering.
MSRB Response. The MSRB agrees with the suggestion and has
incorporated this change in subparagraph (l)(i)(C) of the proposed rule
change.
[[Page 62745]]
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 of up to 90 days (i) as
the Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove such proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-MSRB-2013-08 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-2013-08. 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, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available
for inspection and copying at the principal office of the MSRB. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-MSRB-2013-08 and should be
submitted on or before November 12, 2013.
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\24\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\24\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-24558 Filed 10-21-13; 8:45 am]
BILLING CODE 8011-01-P