MSRB NOTICE 2009-60 (NOVEMBER 24, 2009)

MSRB PRIMARY MARKET AND CONTINUING DISCLOSURE SUBMISSION SERVICES - REMINDER OF UPCOMING WORD-SEARCHABLE DOCUMENT REQUIREMENT AND UPDATE ON OTHER SUBMISSION-RELATED MATTERS

Since June 1, 2009, underwriters have been required to submit official statements and certain other primary market documents to the Municipal Securities Rulemaking Board’s (“MSRB”) Electronic Municipal Market Access System (“EMMA”) under Rule G-32, on disclosures in connection with primary offerings, together with related indexing information of Form G-32 (“MSRB Primary Market Submission Service”).  Since July 1, 2009, EMMA has also served as the central submission venue for continuing disclosure documents submitted by issuers and obligated persons pursuant to continuing disclosure undertakings entered into consistent with Exchange Act Rule 15c2-12, as well as for other continuing disclosures submitted by issuers and obligated persons on a voluntary basis (“MSRB Continuing Disclosure Submission Service”). All submissions are made available to the public for free on the EMMA web portal and through real-time subscription services.

The MSRB would like to remind submitters of documents and information to EMMA of certain submission requirements and highlight several upcoming changes related to the MSRB Primary Market Submission Service and the MSRB Continuing Disclosure Submission Service.

MSRB Primary Market and Continuing Disclosure Submission Services - Word-Searchable PDF Submission Requirement Becomes Effective January 1, 2010

Currently, all document submissions to EMMA must be made as portable document format (PDF) files that are configured to permit documents to be saved, viewed, printed and transmitted by electronic means.  If the submitted document is a reproduction of the original document, it must maintain the graphical and textual integrity of the original document.  Beginning January 1, 2010, all documents submitted to the MSRB Primary Market Submission Service or to the MSRB Continuing Disclosure Submission Service must be word-searchable PDF files.  The word-searchable function will allow users to search for specific terms used within the submitted document through a search or find function available in most standard software packages. Diagrams, images and other non-textual elements are not required to be word-searchable due to current technical hurdles to uniformly producing such elements in word-searchable form without incurring undue costs.

The MSRB has previously observed that documents converted into PDF files from other electronic formats can generally be made word-searchable through such conversion process, although this may not be the case where the PDF file is created by scanning paper versions of original documents.[1]  Documents originally authored as PDF files or converted into PDF files from other electronic formats (sometimes referred to as “native PDF” or “PDF normal”[2]) generally are made word-searchable through such conversion process.  On the other hand, PDF files created by scanning paper versions of original documents generally can be made word-searchable only through an optical character recognition or other comparable process (“OCR”). 

Documents submitted to EMMA that have been made word-searchable through an OCR process must maintain the graphical and textual integrity of the original document.  This would typically be achieved by creating a single document that includes both a scanned image of the original document and a transparent layer consisting of the word-searchable OCR output (sometimes referred to as a “PDF searchable image” or “PDF image + text” file).  Submitters should not submit documents consisting of a visible word-searchable OCR output (sometimes referred to as “formatted text and graphics”) as such output generally does not maintain with sufficient accuracy the graphical and textual integrity of the original document without significant post-scanning manual processing by the producer of the document. 

The MSRB would strongly encourage submitters to submit all documents to EMMA as native PDF or PDF normal files, which by their nature are word-searchable and also would provide benefits to the submitter in that such files generally are more easily created and result in substantially smaller file size (thereby speeding the submission process) than scanned PDF searchable image files.  Native PDF or PDF normal files also would provide benefits to EMMA users because of their smaller, more easily downloadable file size.

MSRB Primary Market Submission Service - Elimination of Certain Underwriting Fee Exemptions Becomes Effective on December 1, 2009

On December 1, 2009 amendments to MSRB Rule A-13, on underwriting assessments, and Rule G-32, become effective that eliminate certain exemptions currently claimed by an underwriter on MSRB Form G-32.[3]  The amendments apply to primary offerings of municipal securities for which submissions of Form G-32 under MSRB Rule G-32(b)(i)(A) are initiated on or after December 1, 2009, at which time the only remaining exemptions will be for primary offerings of commercial paper[4] or municipal fund securities.  The MSRB Primary Market Submission Service will reflect this change for primary market submissions to EMMA initiated on or after December 1, 2009.[5]

MSRB Primary Market Submission Service - Standard of Care With Respect to Information Submitted by Underwriters

As the MSRB has previously noted, underwriters must exercise due care with respect to the accuracy of the items of information provided on Form G-32, although it is understood that much of this information may be subject to change until an issue has reached closing.[6]  Until closing, the underwriter is expected to update promptly any information previously provided by it on Form G-32 that may have changed or to correct promptly any inaccuracies in such information, and is responsible for ensuring that such information provided by it is accurate as of the closing date.  The underwriter is not obligated to update information provided by it on Form G-32 due to changes in such information occurring after the closing date,[7] although the underwriter does remain responsible for correcting any information it provided that was erroneous as of the later of the time the information was submitted or the closing date.

Information is deemed to be provided by the underwriter if it has been supplied by the underwriter directly to the MSRB Primary Market Submission Service or it has been pre-populated by the service’s web-based interface to the extent that such information is editable on such web-based interface by the underwriter.  The underwriter is obligated to review and make any necessary corrections to such editable data.  In particular, underwriters should review carefully the information regarding principal amount, interest rate and initial offering price, which may be pre-populated based on estimates and expectations provided by transaction participants to market utilities or information vendors.  In many cases, such information may change during the course of bringing an underwriting to completion.

The underwriter is not, however, responsible for any items of information pre-populated by the MSRB Primary Market Submission Service that are not editable by the underwriter.  With respect to the CUSIP numbers assigned by the CUSIP Service Bureau and other information that is presented during the submission process through the MSRB Primary Market Submission Service as non-editable information, the underwriter is not obligated to make corrections to such information.  However, the underwriter is obligated to ensure that each security in a primary offering is correctly associated with the submission the underwriter is making.  Thus, the underwriter is required to review the collection of security-specific information pre-populated by the MSRB Primary Market Submission Service during the submission process to ensure that all such securities have been properly associated with the submission.  The underwriter also is obligated to add additional information (including but not limited to any relevant CUSIP numbers) not pre-populated by the MSRB Primary Market Submission Service, to the extent necessary to fully associate all applicable securities with the submission, and to indicate that information for a security that has been pre-populated by the MSRB Primary Market Submission Service should be removed because such security is not in fact associated with the submission.  If the securities in an issue have been assigned CUSIP numbers, the underwriter is presumed to have correctly identified the securities associated with the submission if its submission includes all of the CUSIP numbers assigned to the securities covered by the submission, even if other non-editable information is not accurate.  Underwriters wishing to correct such other non-editable information should contact the CUSIP Service Bureau in order to ensure that such corrections are propagated to all users of the CUSIP information.

MSRB Primary Market Submission Service - Form G-32, Maturity Principal Amount and Underwriting Assessments

Underwriters are reminded that the maturity principal amount submitted through the MSRB Primary Market Submission Service is used to calculate the underwriter’s underwriting assessment under Rule A-13.  As noted above, underwriters must review their submissions for completeness and must exercise care in submitting information through the MSRB Primary Market Submission Service.  This will ensure the accuracy of both the information disseminated to the marketplace as well as the underwriting assessments reflected on the underwriter’s monthly invoice from the MSRB.[8]

The MSRB has received questions from dealers concerning the par amount required to be reported on electronic MSRB Form G-32 for “Maturity Principal Amount” for capital appreciation bonds and zero coupon securities since the effective date of changes to MSRB Rule G-32 on June 1, 2009.  Capital appreciation bonds are issued at an initial principal (or “par”) amount and, rather than paying interest to the holder on a periodic basis, accretes in value over the life of the security at a compounded rate until maturity.  Zero coupon securities also do not pay interest to the holder on a periodic basis but instead are sold at a deep discount with interest accreting in value until maturity at a rate represented by the initial offering yield.[9] For such capital appreciation bonds and zero coupon securities, dealers must report the par amount at the time of issuance, and not the par value at maturity, on Form G-32 for “Maturity Principal Amount.”[10]

An updated version of the Manual for Primary Market Submission on EMMA is available that clarifies the requirements for the “Maturity Principal Amount” and reflects the elimination of the underwriting fee exemptions described above. The manual also includes minor technical changes to the specifications used for computer-to-computer submissions to EMMA. 

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Questions about this notice may be directed to Leslie Carey, Associate General Counsel, or Justin Pica, Director, Uniform Practice Policy, at (703) 797-6600.  Questions about making primary market or continuing disclosure submissions to EMMA should be directed to the MSRB Market Information Department at 703-797-6668.

November 24, 2009



[1] See Exchange Act Release No. 59636 (March 27, 2009) (File No. SR-MSRB-2009-02), 74 FR 15190 (April 2, 2009) (the “MSRB Primary Market Submission Service Filing”).

[2] Some sources have used the term “PDF normal” in the past to refer to a scanned document, primarily because that was how PDF documents were normally produced at an earlier time.  However, this notice uses such term (consistent with the predominant current usage) to refer to documents that originate in electronic format and are converted to PDF.

[4] Revised Rule G-32 defines commercial paper as municipal securities having a maturity of nine months or less issued pursuant to a commercial paper program permitting such municipal securities to be rolled over upon maturity into new commercial paper.

[5] Dealers with pending submissions that were initiated through the MSRB primary market submission service prior to December 1, 2009 will continue to be able to make any appropriate changes relating to the exemptions that were in effect prior to that date.

[7] In connection with submissions of advance refunding documents or certain amendments to an official statement, underwriters may have submission deadlines that occur after the closing date.  See MSRB Notice 2009-07 (March 23, 2009).

[8] Rule A-13 requires payment within 30 days of the sending of an invoice that accompanies a billing statement.  Dealers should review their invoices carefully and should contact the MSRB prior to the next succeeding invoice date if they believe that there is a discrepancy between information submitted through the MSRB Primary Market Submission Service and the underwriting assessment reflected on such invoices.

[9] Zero coupon securities should be contrasted with current-interest paying securities that may be sold at a significantly smaller original issue discount from the par value of the security.

[10] The par value at maturity of a capital appreciation bond or zero coupon security effectively consists of the initial par value, representing the principal of the security, plus the accretion of interest over the life of the security. Thus, the MSRB treats the initial par value as the “Maturity Principal Amount.”