MSRB NOTICE 2001-03 (JANUARY 30, 2001)

APPROVAL OF AMENDMENTS TO RULE G-38, ON CONSULTANTS, RULE G-8, ON BOOKS AND RECORDS, AND REVISIONS TO SECTION IV OF FORM G-37/G-38 AND THE ATTACHMENT PAGE TO THE FORM

On January 25, 2001, the Securities and Exchange Commission approved amendments to rule G-38, on consultants, rule G-8, on books and records, and revisions to Section IV of Form G-37/G-38 and the attachment page to the form. [1]   While the amendments became effective on the approval date, the Board expects dealers to begin using the revised Section IV of Form G-37/G-38 and the attachment page to the form with the reports they submit to the Board reflecting information for the first quarter of 2001 (due to be submitted to the Board by April 30, 2001).

REVIEW OF AMENDMENTS

Prior to the current amendments, the Board received inquiries from dealers that indicated confusion about certain information required to be reported in Section IV of Form G-37/G-38 as well as the attachment page to the form.  One area of confusion concerned whether an individual’s name must be disclosed on Form G-37/G-38 in each instance in which the dealer lists a consultant.  Part of this confusion was due to the format of Section IV of the form as well as the attachment page.  Dealers must list their consultants in Section IV of Form G-37/G-38 and they must provide additional information about each consultant on separate attachment pages.  Under Section IV, there was one column labeled “Name of Consultant” and another column labeled “Consultant Company Name.”  On the attachment page to the form, the first line indicated that a dealer was to report the “Name of Consultant” and the next line indicated the reporting of the “Consultant Company Name.” 

A dealer must determine whether its consultant is an individual or a company based upon its Consultant Agreement[2] with the consultant.[3]  If the Consultant Agreement is with an individual, then only the individual’s name should be reported on Form G-37/G-38 and not a company name.  Conversely, if the Consultant Agreement is with a company, only the company’s name should be reported and not an individual’s name.

The amendments revise rule G-38 to remove the separate references to the consultant’s company name from the requirements regarding the Consultant Agreement, the disclosure to issuers and the disclosure to the Board.  In addition, the amendments remove the requirement in rule G-8 for dealers to maintain a separate record of the company name.  The amendments also revise the formats of Section IV of Form G-37/G-38 and the attachment page to state “Name of Consultant (pursuant to Consultant Agreement)” and the reference to the “Consultant Company Name” has been deleted.  Thus, a dealer will provide the name of an individual, if the consultant is an individual, or of a company, if the consultant is a company, depending upon whether the dealer has entered into a Consultant Agreement with such individual or such company.  

Another area addressed by the amendments concerns the role of the consultant.  Pursuant to rule G-38, a dealer is required to include within the Consultant Agreement the role of the consultant, to disclose this role to the issuer and to the Board and, pursuant to rule G-8, to maintain a record of the role.  The Instructions for Completing and Filing Form G-37/G-38 state that, in describing a consultant’s role, a dealer should include the state or geographic area in which the consultant is working on behalf of the dealer.  In addition, the Board issued a Question and Answer notice on rule G-38 in which it stated that the role to be performed by a consultant may be described in general terms on Form G-37/G-38; however, dealers must include the state or geographic area in which the consultant is working on behalf of the dealer.[4]

The amendments revise rules G-38 and G-8 to explicitly require the reporting of the state or geographic area in which a consultant is working on behalf of a dealer in the description of the consultant’s role.  The amendments also revise the attachment page to Form G-37/G-38 to include a parenthetical phrase in the section for reporting the role to be performed by the consultant to note that dealers should report the state or geographic area in which the consultant is working on behalf of the dealer.

January 30, 2001

 

TEXT OF AMENDMENTS AND REVISIONS TO SECTIOIN IV OF FORM G-37/G-38 AND THE ATTACHMENT PAGE TO THE FORM[5]

Rule G-38. Consultants

(a) No change.

(b) Written Agreement.

(i) Each broker, dealer or municipal securities dealer that uses a consultant shall evidence the consulting arrangement by a writing setting forth, at a minimum, the name, company, business address, role (including the state or geographic area in which the consultant is working on behalf of the broker, dealer or municipal securities dealer) and compensation arrangement of each such consultant (“Consultant Agreement”). In addition, the Consultant Agreement shall include a statement that the consultant agrees to provide the broker, dealer or municipal securities dealer with a list by contributor category, in writing, of any reportable political contributions and any reportable political party payments during each calendar quarter made by:

(A) – (C) No change.

(ii) – (iv) No change.

(c) No change.

(d) Disclosure to Issuers. Each broker, dealer or municipal securities dealer shall submit in writing to each issuer with which the broker, dealer or municipal securities dealer is engaging or is seeking to engage in municipal securities business, information on consulting arrangements relating to such issuer, which information shall include the name of the consultant pursuant to the Consultant Agreement, [company,] business address, role (including the state or geographic area in which the consultant is working on behalf of the broker, dealer or municipal securities dealer) and compensation arrangement of any consultant used, directly or indirectly, by the broker, dealer or municipal securities dealer to attempt to obtain or retain municipal securities business with each such issuer. Such information shall be submitted to the issuer either:

(i) - (ii) No change.

(e) Disclosure to Board. Each broker, dealer and municipal securities dealer shall send to the Board by certified or registered mail, or some other equally prompt means that provides a record of sending, and the Board shall make public, reports of all consultants used by the broker, dealer or municipal securities dealer during each calendar quarter. Two copies of the reports must be sent to the Board on Form G-37/G-38 by the last day of the month following the end of each calendar quarter (these dates correspond to January 31, April 30, July 31, and October 31). Such reports shall include, for each consultant, in the prescribed format, the consultant’s name pursuant to the Consultant Agreement, company, business address, role (including the state or geographic area in which the consultant is working on behalf of the broker, dealer or municipal securities dealer), compensation arrangement, any municipal securities business obtained or retained by the consultant with each such business listed separately, and, if applicable, dollar amounts paid to the consultant connected with particular municipal securities business. Such reports shall indicate the total dollar amount of payments made to each consultant during the report period. In addition, such reports shall include the following information to the extent required to be obtained during such calendar quarter pursuant to paragraph (c)(i) of this rule:

(i) – (iii) No change.

Once a contribution or payment has been disclosed on a report, the dealer should not continue to disclose that particular contribution or payment on subsequent reports.

Rule G-8. Books and Records to be Made by Brokers, Dealers and Municipal Securities Dealers

(a) Description of Books and Records Required to be Made. Except as otherwise specifically indicated in this rule, every broker, dealer and municipal securities dealer shall make and keep current the following books and records, to the extent applicable to the business of such broker, dealer or municipal securities dealer:

(i) - (xvii) No change.

(xviii) Records Concerning Consultants Pursuant to Rule G-38. Each broker, dealer and municipal securities dealer shall maintain:

(A) a listing of the name of the consultant pursuant to the Consultant Agreement, company, business address, role (including the state or geographic area in which the consultant is working on behalf of the broker, dealer or municipal securities dealer) and compensation arrangement of each consultant;

(B) – (J) No change.

(xix) No change.

(b) - (f) No change.

* * * * * * * * * * *

FORM G-37/G-38

IV. CONSULTANTS

(specific information for each consultant must be attached)

 

NAME OF CONSULTANT (pursuant to Consultant Agreement):     

___________________________________________________________________

___________________________________________________________________

 

Signature: ___________________________                  Date: _____________________

                        (must be officer of dealer)

Name: ______________________________________________________________

Address:  ____________________________________________________________

                ____________________________________________________________

Phone: ______________________________________________________________

 

Submit two completed forms quarterly by
due date (specified by the MSRB) to:

Municipal Securities Rulemaking Board
1640 King Street
Suite 300
Alexandria, VA 22324

 

* * * * *

ATTACHMENT TO FORM G-37/G-38

(submit a separate attachment sheet for each consultant listed under IV)

Name of Consultant (pursuant to Consultant Agreement):

Consultant’s Business Address:

Role to be Performed by Consultant (including the state or geographic area in which the consultant is working on behalf of the broker, dealer or municipal securities dealer):

Compensation Arrangement:

Municipal Securities Business Obtained or Retained by Consultant (list each such business separately and, if applicable, indicate dollar amounts paid to consultant connected with particular municipal securities business):

Total Dollar Amount Paid to Consultant during Reporting Period:

Contributions Made to Issuer Officials by Consultant and Any Partner, Director, Officer or Employee of the Consultant Who Communicates with An Issuer Official to Obtain Municipal Securities Business for the Broker, Dealer or Municipal Securities Dealer or Any PAC Controlled by Any of These Entities or Persons:  

 State             Complete name and title (including any city/county/state or other political subdivision) of issuer official          

For each contribution, list contribution amount and contributor category    (i.e., company, individual, company controlled PAC or individual controlled PAC)

 

Payments Made to Political Parties of States and Political Subdivisions by Consultant and Any Partner, Director, Officer or Employee of the Consultant Who Communicates with An Issuer Official to Obtain Municipal Securities Business for the Broker, Dealer or Municipal Securities Dealer or Any PAC Controlled by Any of These Entities or Persons:

 

 State             Complete name and title (including any city/county/state or other political subdivision) of of political party          

For each payment, list payment amount and contributor category (i.e., company, individual, company controlled PAC or individual controlled PAC)



[1]           See Securities Exchange Act Release No. 43885 (January 25, 2001).

[2]           Rule G-38(b) states that each dealer that uses a consultant shall evidence the consulting arrangement by a writing (the “Consultant Agreement”) that sets forth, at a minimum, the name, business address, role and compensation arrangement of each such consultant.

[3]           See Question and Answer Notice: Rule G-38 dated May 20, 1998, MSRB Rule Book (January 1, 2001) at 228.  In this notice, concerning bank affiliates and the definition of payment, the Board stated that “each dealer (bank or securities firm) should determine whether the affiliate or individual employee(s) of the affiliate is its consultant(s), and must then ensure compliance with rule G-38, including the contractual arrangements and disclosures required by the rule.”

[4]           See rule G-38 Question and Answer number 1 dated November 18, 1996, MSRB Rule Book (January 1, 2001) at 228.  The rule G-38 Questions and Answers are also posted on the Board’s web site at www.msrb.org.

[5]            Underlining indicates additions; strikethrough indicates deletions.