MSRB NOTICE 2000-28 (SEPTEMBER 19, 2000)

ELECTRONIC SUBMISSION OF OFFICIAL STATEMENTS, ADVANCE REFUNDING DOCUMENTS AND FORMS G-36(OS) AND G-36 (ARD) TO THE MSRB

The Municipal Securities Rulemaking Board is requesting comment on the establishment of an optional system of electronic submissions by underwriters of official statements, advance refunding documents and Forms G-36(OS) and G-36(ARD) to the MSRB’s Municipal Securities Information Library® system. The MSRB is also requesting comment on draft amendments to rule G-36 to effectuate this optional electronic submission system.

INTRODUCTION

Rule G-36 of the Municipal Securities Rulemaking Board (the “MSRB” or “Board”) requires that a broker, dealer or municipal securities dealer (a “dealer”) that acts as managing or sole underwriter for most primary offerings send the official statement and Form G-36(OS) to the MSRB’s Municipal Securities Information Library® (MSIL®) system within certain time frames set forth in the rule.[1] In addition, if the offering is an advance refunding and an advance refunding document has been prepared, the advance refunding document and Form G-36(ARD) also must be sent to the MSIL® system by the managing or sole underwriter.[2] In an interpretive notice published by the MSRB in November 1998 (the “1998 MSRB Notice”), the MSRB described standards that dealers should meet in order to satisfy document delivery obligations under MSRB rules by means of electronic communications.[3] At that time, the MSRB deferred accepting submissions of official statements electronically under rule G-36 pending resolution of then on-going industry debate over electronic formatting of disclosure materials.[4]

Since publication of the 1998 MSRB Notice, the MSRB has undertaken, as one of its chief goals under its current long range plan, the role of serving as a catalyst for improving and modernizing disclosure practices in the primary and secondary municipal securities markets. In this role, the MSRB has hosted several disclosure forums focused both on industry-wide practices and practices in specific sectors where disclosure issues have been particularly troublesome.[5] Participants at each of these forums agreed that improvements in disclosure practices will be highly dependent on the establishment of reliable systems for electronic dissemination of information. In support of secondary market disclosure initiatives, the MSRB launched its current test program of electronic submission and dissemination of continuing disclosure information, known as CDINet Web Test.[6] In the primary market, in addition to making clear that dealers may meet their obligation to deliver official statements to new issue customers under rule G-32 by use of electronic media as provided in the 1998 MSRB Notice, the MSRB has remained attentive to developing industry practices (e.g., the increasing use of electronic preliminary and final official statements), attempts by industry groups to reach consensus on technical issues relating to electronic primary market disclosure (e.g., the work of the Task Force on Electronic Information Delivery of The Bond Market Association) and further interpretive guidance from the Securities and Exchange Commission (“SEC”) in its recent interpretation on the use of electronic media (the “2000 SEC Interpretation”).[7] At the same time, the MSRB has made efforts to understand the needs and desires of investors, who are the ultimate end-users of primary market disclosure.[8]

Although industry-wide consensus on certain key issues as they relate to electronic official statements continues to be elusive, the MSRB believes that it can take steps to implement an electronic system for submissions under rule G-36 without final resolution of such issues. Thus, the MSRB is seeking comment on the proposed establishment of an optional system of electronic submission by underwriters of official statements, advance refunding documents and Forms G-36(OS) and G-36(ARD) to the MSIL® system. The MSRB welcomes comment on all aspects of the system as described below. In addition, the MSRB is seeking comment on draft amendments to rule G-36 required to effectuate this electronic system.

DESCRIPTION OF PROPOSED ELECTRONIC SUBMISSION SYSTEM AND DRAFT AMENDMENTS

Choice of Submission Method

Underwriters would not be required to make submissions electronically and the MSRB would continue to accept submissions made on paper. Underwriters that make submissions of official statements and advance refunding documents, and the attendant forms, on paper would continue to be required to send two copies of each such document or form to the MSIL® system by certified or registered mail, or some other equally prompt means that provides a record of sending.[9] Electronic submissions would be made as described below.[10]

Types of Submissions

Underwriters would be permitted to use the electronic system for each type of submission currently required in connection with rule G-36. These include submissions of:

  • final official statements under rule G-36(b)(i) or official statements in final form under rule G-36(c)(i), together with Form G-36(OS);
  • advance refunding documents under rule G-36(b)(ii) or (c)(ii), together with Form G-36(ARD);
  • amended official statements under rule G-36(d), together with Form G-36(OS), or amended advance refunding documents, together with Form G-36(ARD), but only if the original official statement or advance refunding document was submitted through the electronic system;[11]
  • amended Form G-36(OS) or G-36(ARD) correcting a prior electronic submission of Form G-36(OS) or G-36(ARD);[12] and
  • notice of the cancellation of an issue for which a submission has previously been made to MSIL® under rule G-36(e).

Method of Electronic Submission

Electronic submissions would be made by underwriters through a secured, password-protected Internet website. A password would be assigned to an underwriter prior to or at the time of first use by such underwriter of the electronic system in a manner intended to assure authentication of submitters using the system. Each underwriter would be required to submit an e-mail address for purposes of receiving electronic records of submissions as well as to provide for follow-up by MSRB staff should any submission prove to be incomplete or incorrect.

Forms G-36(OS) and G-36(ARD) would be submitted by completion of an on-line form. On-line forms would elicit the same information as paper Forms G-36(OS) and G-36(ARD) and would be in substantially the same format. Notice of cancellation of an issue also would be effected by means of on-line entry of information by the underwriter. Official statements and advance refunding documents would be submitted by underwriters by uploading through the website simultaneously with the completed on-line forms.

Format of Uploaded Files

Submissions made by an underwriter generally would require the uploading of an official statement, an advance refunding document, an amended official statement or an amended advance refunding document. The MSRB is proposing that all documents submitted electronically be in Adobe Acrobat® portable document format (“PDF”).[13] Such documents may be in either a “native” PDF file or a scanned image PDF file. However, the MSRB believes that native PDF files, as a result of their searchable nature and their significantly smaller file size (as compared to scanned image PDF files), provide the greatest benefit to the municipal securities marketplace and recommends that such files be used where possible. For scanned image PDF files, underwriters would be required to use a resolution of 300 dpi.

The MSRB believes that PDF is the best suited format for purposes of an electronic system of official statement submissions at this time, particularly in view of the fact that the system will be designed to accept electronic submissions of documents regardless of whether the original document is in electronic or paper form. PDF generally allows for relatively easy conversion of document files from other electronic formats to PDF as well as for the handling of imaged files created from paper documents. Documents produced in either manner generally provide a reliable and secure reproduction of the paper version, which is an issue of some concern on the part of the issuer community. Finally, the MSRB believes it is preferable to restrict electronic submissions to a single format for the benefit of MSIL® subscribers, many of which already convert the imaged documents currently supplied to them by the MSRB to PDF.[14] The MSRB understands, however, that there are other formats that may be appropriate and would be interested in receiving comments regarding the proposed and possible alternative formats.

Because many of the files which underwriters would seek to upload may be quite large, the system would require that all PDF files be compressed for submission as an archive file using WinZip® in order to speed transmission times. Underwriters would be limited to submitting a single WinZip archive file with each form submission. If an official statement or advance refunding document consists of more than one document contained in separate PDF files, underwriters would be required to compress and bundle all such files into a single WinZip archive file.[15]

The MSRB reminds underwriters that the SEC has stated that, “[f]or any municipal securities offering subject to Rule 15c2-12, the paper and electronic versions of each of the preliminary, deemed final and final official statement must be the same.”[16] The MSRB believes that underwriters will be best able to ensure that the electronic version of the official statement or advance refunding document does not diverge from any paper version by submitting the entire document in a single PDF file, whenever possible. Where an underwriter submits an official statement or advance refunding document in multiple PDF files bundled into a single WinZip archive file, such underwriter should take steps to ensure that any user of the multiple files could effectively access the files in a manner comparable to the paper version without undue burden. The MSRB believes that an electronic document that does not provide access to information comparable to the paper version generally would not meet the SEC’s standard that paper and electronic versions of documents must be the same. Thus, an electronic submission by an underwriter that would not meet this “access” standard for acceptable delivery by electronic means of an official statement set forth in the 1998 MSRB Notice generally would not constitute a satisfactory submission of an official statement for purposes of rule G-36.[17]

Underwriter’s Certification

As with paper submissions, underwriters will be required to certify that the document submitted with Form G-36(OS) or G-36(ARD) is, in fact, the final official statement, official statement in final form, amended official statement or advance refunding document, as appropriate. In view of the SEC’s statement quoted above and other statements made by the SEC in the 2000 SEC Interpretation regarding what constitutes the final official statement for purposes of Rule 15c2-12, the MSRB is seeking comment on whether the required underwriter’s certification is more problematic for electronic documents than for paper documents.

Recordkeeping

The electronic system would provide an underwriter that makes an electronic submission with an electronic record of the submission by e-mail. This electronic record would include a control number assigned by the system confirming receipt of a submission and an electronic copy of the Form G-36(OS), Form G-36(ARD) or cancellation notice completed on-line by the underwriter. This electronic record, together with a copy of the electronic files submitted to the MSRB retained by the underwriter, is intended to satisfy the requirement under rule G-8(a)(xv)(B) that dealers maintain copies of Forms G-36(OS) and G-36(ARD) and records of sending such forms to the MSRB.[18]

Review of Submissions

The MSRB currently requires that any incomplete or incorrect submission be corrected by the submitter prior to the MSRB accepting the submission as in compliance with rule G-36. Thus, any submission through the electronic system would be subject to such automated and/or manual review as MSRB staff deems appropriate prior to final acceptance. The electronic record of submission sent by the system as described above should not be viewed as a record of acceptance by the MSRB.

Redelivery to Subscribers

The MSIL® system sends images of submissions under rule G-36 to subscribers on a daily basis. Although the MSIL® system currently provides subscribers with document images in tagged information file format (“TIFF”), the MSRB expects to provide subscribers with files in PDF format for both electronic and paper submissions upon introduction of the electronic system. Because electronic submissions would arrive at the MSRB immediately rather than after physical delivery by U.S. mail or other delivery service, subscribers should receive files of electronically submitted official statements and advance refunding documents one or more business days sooner than if they had been submitted in paper form.

* * * * *

Comments from all interested parties are welcome. Comments should be submitted no later than November 17, 2000 and may be directed to Ernesto A. Lanza, Associate General Counsel, or Thomas A. Hutton, Director, Municipal Securities Information Library® System. Written comments will be available for public inspection.

September 19, 2000

TEXT OF DRAFT AMENDMENTS [19]

Rule G-36. Delivery of Official Statements, Advance Refunding Documents and Forms G-36(OS) and G-36(ARD) to Board or its Designee

(a) No change.

(b) Delivery Requirements for Issues Subject to Securities Exchange Act Rule 15c2-12.

(i) Each broker, dealer or municipal securities dealer that acts as an underwriter in a primary offering of municipal securities subject to Securities Exchange Act rule 15c2-12 shall send to the Board or its designee by certified or registered mail, or some other equally prompt means that provides a record of sending, within one business day after receipt of the official statement from the issuer or its designated agent, but no later than 10 business days after any final agreement to purchase, offer, or sell the municipal securities, the following documents and written information: two copies of the final official statement; and two copies of completed Form G-36(OS) prescribed by the Board, including the CUSIP number or numbers for the issue.

(ii) If the issue advance refunds an outstanding issue of municipal securities and an advance refunding document is prepared by or on behalf of the issuer, each broker, dealer or municipal securities dealer that acts as an underwriter in such issue also shall send to the Board or its designee by certified or registered mail, or some other equally prompt means that provides a record of sending, within five business days of delivery of the securities by the issuer to the broker, dealer, or municipal securities dealer, the following documents and written information: two copies of the advance refunding documents if prepared by or on behalf of the issuer; and, if the advance refunding documents are prepared, two copies of the completed Form G-36(ARD) prescribed by the Board, including reassigned CUSIP number or numbers for the refunded issue, if any.

(c) Delivery Requirements for Issues not Subject to Securities Exchange Act Rule 15c2-12.

(i) Subject to paragraph (iii) below, each broker, dealer, or municipal securities dealer that acts as an underwriter in a primary offering of municipal securities not subject to Securities Exchange Act rule 15c2-12 for which an official statement in final form is prepared by or on behalf of the issuer shall send to the Board or its designee, by certified or registered mail, or some other equally prompt means that provides a record of sending, by the later of one business day after delivery of the securities by the issuer to the broker, dealer, or municipal securities dealer or one business day after receipt of the official statement in final form from the issuer or its designated agent, the following documents and written information: two copies of the official statement in final form; and two copies of completed Form G-36(OS) prescribed by the Board, including the CUSIP number or numbers for the issue.

(ii) if an official statement in final form and if the issue advance refunds an outstanding issue of municipal securities and both an official statement in final form and an advance refunding document are prepared by or on behalf of the issuer, each broker, dealer, or municipal securities dealer that acts as an underwriter in such issue also shall send to the Board or its designee by certified or registered mail, or some other equally prompt means that provides a record of sending, within five business days of delivery of the securities by the issuer to the broker, dealer, or municipal securities dealer, the following documents and written information: two copies of the advance refunding documents if prepared by or on behalf of the issuer; and, if the advance refunding documents are prepared, two copies of completed Form G-36(ARD) prescribed by the Board, including reassigned CUSIP number or numbers for the refunded issue, if any.

(iii) No change.

(d) Amended Official Statements. In the event a broker, dealer, or municipal securities dealer provides to the Board or its designee an official statement pursuant to sections (b) or (c), above, and the official statement is amended or "stickered" by the issuer during the underwriting period, such broker, dealer, or municipal securities dealer must send to the Board or its designee, by certified or registered mail, or some other equally prompt means that provides a record of sending, two copies of the amended official statement within one business day after of receipt of the amended official statement from the issuer, along with or its designated agent, the amended official statement and an amended Form G-36(OS) as prescribed by the Board, two copies of a statement including: the CUSIP number or numbers for the issue; the fact that the official statement previously had been sent to the Board or its designee and that the official statement has been amended.

(e)-(f) No change.

(g) Method of Submission. A broker, dealer or municipal securities dealer that submits documents or forms required to be sent to the Board or its designee pursuant to section (b), (c) or (d) above shall either:

(i) send two copies of each such document or form to the Board or its designee by certified or registered mail, or some other equally prompt means that provides a record of sending; or

(ii) submit an electronic version of each such document or form to the Board or its designee in such format and manner specified in the current Form G-36 Manual.


[1] For primary offerings subject to Exchange Act Rule 15c2-12, the final official statement and Form G-36(OS) must be sent to the MSIL® system within one business day after receipt of the official statement from the issuer, but no later than 10 business days after the sale date of the offering. For most primary offerings exempt from Rule 15c2-12 for which an official statement in final form is being prepared, such official statement and Form G-36(OS) must be sent to the MSIL® system by the later of one business day after the closing of the underwriting or one business day after receipt of the official statement from the issuer. Rule G-36(c)(iii) provides exemptions from the rule requirements for certain limited types of offerings. Municipal Securities Information Library and MSIL are registered trademarks of the MSRB.

[2] The advance refunding document and Form G-36(ARD) must be sent to the MSIL® system within five business days after the closing of the underwriting.

[3] See Rule G-32 Interpretation – Notice Regarding Electronic Delivery and Receipt of Information by Brokers, Dealers and Municipal Securities Dealers, November 20, 1998, MSRB Rule Book (July 1, 2000) at p. 160. These standards are the same as those established by the Securities and Exchange Commission for brokers, dealers, issuers and others in the corporate markets in interpretative releases published in 1995 and 1996. See “Use of Electronic Media by Broker-Dealers, Transfer Agents, and Investment Advisers for Delivery of Information,” Securities Act Release No. 7288, Exchange Act Release No. 37182 (May 9, 1996), 61 FR 24644 (May 15, 1996), and “Use of Electronic Media for Delivery Purposes,” Securities Act Release No. 7233, Exchange Act Release No. 36345 (October 6, 1995), 60 FR 53458 (October 13, 1995).

[4] The MSRB stated that “electronic submission [under rule G-36] is complicated by the requirement that Forms G-36(OS) and G-36(ARD) be accompanied by an official statement or advance refunding document, as appropriate. Given the current debate and lack of consensus among the various sectors of the municipal securities industry regarding electronic formatting of disclosure materials, and since the Board does not have the authority to dictate the format of issuer documents, the Board believes that any further action regarding electronic submissions under rule G-36 should await resolution of these issues.” See 1998 MSRB Notice at n. 5.

[5] The MSRB held an industry-wide forum in November 1998 and forums focused on land-secured financings and hospital financings in September 1999 and March 2000, respectively. The MSRB will reconvene the industry-wide discussion at a forum scheduled for January 11-12, 2001 in Washington, DC.

[6] See “Test Program for the Electronic Submission of Continuing Disclosure Information to the MSRB,” MSRB Reports, Vol. 19, No. 3 (Sept. 1999) at p. 51.

[7] See “Use of Electronic Media,” Securities Act Release No. 7856, Exchange Act Release No. 42728 (April 28, 2000), 65 FR 25843 (May 4, 2000).

[8] Some dealers have expressed concern that investors, including both retail and institutional investors, may not wish to receive official statements in electronic form or may require that they receive paper copies as well as electronic versions of official statements. Many institutional investors have agreed with this assessment, citing legal and compliance concerns under state fiduciary laws and certain federal securities laws (e.g., Investment Company Act Rule 2a-7) as well as concerns about telecommunication, computer and printing system capacities and certain human factors (e.g., preferences of analysts to review paper copies over on-screen text, etc.). To the extent that issuers begin producing official statements solely in electronic format while some investors continue to request paper copies, the use of electronic official statements may result in the shifting of some costs between issuers and dealers.

[9] Procedures for making submissions by paper are consolidated in draft ruleG-36(g)(i).

[10] Draft rule G-36(g)(ii) provides that procedures for making submissions using the electronic system would be set forth in the MSRB’s Form G-36 Manual, which would be revised accordingly upon implementation of the system.

[11] Thus, if the original official statement or advance refunding document was submitted in paper form, any amended official statement or amended advance refunding document also must be submitted in paper form.

[12] Such form amendments are provided for under Section I, Item C of Form G-36(OS) or G-36(ARD) and relate to amendments that solely correct or complete information contained in or omitted from a previously submitted Form G-36(OS) or G-36(ARD) (i.e., a submission not involving an amendment to the underlying official statement or advance refunding document). If the original Form G-36(OS) or G-36(ARD) was submitted in paper form, any amended form also must be submitted in paper form, accompanied by a copy of the original form. If the original form was submitted electronically, the electronic system would permit the underwriter to make the correction on-line without providing a copy of the original form; instead, the underwriter would be required to indicate the correct control number assigned to the original electronic submission, as described below under the heading “Recordkeeping.”

[13] Dealers would continue to be permitted to make deliveries of official statements to new issue customers under rule G-32 in any appropriate electronic format so long as the standards set forth in the 1998 MSRB Notice are met. In particular, the use of such format or medium should not be so burdensome that intended recipients cannot effectively access the information provided. See 1998 MSRB Notice at n. 10 and accompanying text.

[14] The SEC addressed certain concerns regarding the use of PDF files to meet securities law delivery obligations. See 2000 SEC Interpretation at n. 34 and accompanying text. Based on the guidance provided by the SEC on the use of PDF files, dealers using electronic versions of official statements received from the MSIL® system (directly or through a subscriber) to make required deliveries under MSRB rules may be well situated to assure compliance with the standards set forth in the 1998 MSRB Notice.

[15] Thus, for example, if an official statement consists of one PDF file for the main text and a second PDF file for one or more appendices, such files must be submitted in a single WinZip archive file. The system would not accept submission of both files separately.

[16] See 2000 SEC Interpretation at n. 46 and accompanying text. The MSRB believes that a similar standard is appropriate with respect to official statements in final form under rule G-36(c)(i), advance refunding documents under rule G-36(b)(ii) and (c)(ii) and amended official statements under rule G-36(d).

[17] See 1998 MSRB Notice at notes 9-10 and accompanying text. The underwriter could, for example, provide file names for the compressed PDF files in the WinZip archive file that clearly indicate the sequence of such PDF files that would match the sequence of the paper version, if any, or that otherwise reflect the organizational structure of the materials intended by the issuer.

[18] Of course, this electronic record must be maintained in a manner that complies with section (e) of rule G-9, on preservation of records.

[19] Underlining indicates additions; strikethrough indicates deletions.