MSRB NOTICE 2010-31 (AUGUST 26, 2010)

SEC APPROVES ADDITIONAL INCREASES IN TRANSPARENCY OF MUNICIPAL AUCTION RATE SECURITIES AND VARIABLE RATE DEMAND OBLIGATIONS

On August 20, 2010, the Securities and Exchange Commission (SEC) approved the Municipal Securities Rulemaking Board’s (MSRB) proposed rule change[1] to enhance the interest rate and descriptive information currently collected from brokers, dealers and municipal securities dealers (collectively “dealers”) and made transparent by the MSRB on municipal Auction Rate Securities (“ARS”) and Variable Rate Demand Obligations (“VRDOs”).[2]  The rule change will add documents to the information currently collected and publicly disseminated that define auction procedures and interest rate setting mechanisms for ARS and liquidity facilities for VRDOs, as well as ARS bidding information and additional VRDO information.

The effective date of the rule change will be no later than May 20, 2011 and the MSRB will announce the effective date at least ninety (90) days in advance.

DESCRIPTION OF THE RULE CHANGE

The rule change amends: (i) MSRB Rules G-8, books and records, and G-34(c), variable rate security market information, to require dealers to (a) submit to the MSRB documents that define auction procedures and interest rate setting mechanisms for ARS and liquidity facilities for VRDOs; (b) report to the MSRB ARS bidding information; (c) report to the MSRB additional VRDO information; and (d) communicate to an ARS Program Dealer the fact that an order submitted for inclusion in an auction is on behalf of an ARS issuer or conduit borrower (collectively “rule amendment”); (ii) the MSRB Short-term Obligation Rate Transparency (“SHORT”) System Facility to collect and disseminate the documents identified in the rule amendment (“SHORT System Facility amendment”); and (iii) the MSRB EMMA Short-term Obligation Rate Transparency Service to make the documents collected in the SHORT System Facility amendment available on the MSRB’s Electronic Municipal Market Access (EMMA) web site (the “EMMA Short-term Obligation Rate Transparency Service amendment”).

SHORT and EMMA are components of an integrated suite of programs, services and systems (“MSRB market information programs”) for the collection of municipal securities market data and documents from dealers and other market participants and the dissemination of such data and documents to the public.  The MSRB market information programs leverage the components of the various individual programs, services and systems to enhance the overall efficiency and effectiveness of the MSRB market information programs.  In particular, processes, software, hardware or other components initially placed into service for a particular program, service or system may be utilized by other programs, services and systems within the MSRB market information programs to optimize the effectiveness of the MSRB market information programs and the individual components thereof.[3]

BACKGROUND

Since January 30, 2009 for ARS and April 1, 2009 for VRDOs, MSRB Rule G-34(c), on variable rate security market information, has required dealers that act as Program Dealers[4] for ARS or Remarketing Agents for VRDOs to report (either directly or through an agent) certain information following an ARS auction or VRDO interest rate reset to the SHORT System.[5]  Information generally is required to be reported to the SHORT System by no later than 6:30 P.M. Eastern Time on the day that an ARS auction or VRDO interest rate reset occurs and all collected information is made available to market participants for free in real-time on the MSRB’s Electronic Municipal Market Access (“EMMA”) web site.[6]  The specific items of interest rate and descriptive information about ARS and VRDOs currently required to be reported to the SHORT System are listed below.

The following is a list of the information currently required to be reported to the SHORT System by an ARS Program Dealer following an ARS auction:

  • CUSIP number;
  • Interest rate for the next reset period;
  • Identity of Program Dealer(s);
  • Number of days of the reset period;
  • Minimum denomination;
  • Date and time of the auction;
  • Date and time of posting of auction results by an Auction Agent;
  • Indication of whether the interest rate represents a “maximum rate,” an “all hold rate,” or a rate that was “set by auction;”
  • Minimum and maximum rates, if any, applicable at the time of the auction or, if not calculable as of the time of auction, indication that such rate or rates are not calculable;[7] and
  • Par amount auctioned, not including hold orders effective at any rate.

The following is a list of the information currently required to be reported to the SHORT System by a VRDO Remarketing Agent following a VRDO interest rate reset:

  • CUSIP number;
  • Interest rate for the next reset period;
  • Identity of Remarketing Agent;
  • Date of interest rate reset;
  • Length of the interest rate reset period;
  • Length of Notification Period;
  • Indication of whether interest rate is “set by formula,” “set by Remarketing Agent” or a “maximum rate;”
  • Minimum and maximum rates, if any, applicable at the time of the interest rate reset or, if not calculable as of the time of the interest rate reset, indication that such rate or rates are not calculable;[8]
  • Minimum denomination;
  • Type of liquidity facility(ies);[9] and
  • Expiration date of each liquidity facility. 

DESCRIPTION OF THE RULE AMENDMENT

The rule amendment will enhance the interest rate and descriptive information currently made available to market participants about ARS and VRDOs.  The rule amendment will require dealers to report to the MSRB documents that set forth auction procedures and interest rate setting mechanisms for ARS and liquidity facilities for VRDOs, as well as ARS bidding information and additional VRDO information.  All collected documents and information will be made available in real-time on EMMA.[10]  The documents and information about ARS and VRDOs that will be required to be provided to the MSRB under the rule amendment are described below.  

ARS Bidding Information

The rule amendment will require each ARS Program Dealer to report to the SHORT System “ARS bidding information,” which includes information about all orders placed by an ARS Program Dealer with an ARS Auction Agent for inclusion in an auction.  This information will augment the interest rate and descriptive information currently provided to market participants by also providing information that shows, for example, how the interest rate was determined for a successful auction.  The specific items of ARS bidding information an ARS Program Dealer will be required to report to the SHORT System are listed below.  All items will be required to be reported within the same timeframe as the ARS interest rate and descriptive information currently required to be reported under Rule G-34(c).  ARS bidding information will be required to be submitted to the SHORT System as data elements in the same manner as the interest rate and descriptive information currently required to be reported to the SHORT System.

  • Aggregate par amount of orders to sell at any interest rate and aggregate par amount of such orders that were executed;
  • Interest rate(s) and aggregate par amount(s) of orders to hold at a specific interest rate and aggregate par amount of such orders that were successfully held;
  • Interest rate(s) and aggregate par amount(s) of orders to buy and aggregate par amount of such orders that were executed;
  • Interest rate(s), aggregate par amount(s), and type of order – either buy, sell or hold – by a Program Dealer for its own account and aggregate par amounts of such orders, by type, that were executed; and
  • Interest rate(s), aggregate par amount(s), and type of order – either buy, sell or hold – by an issuer or conduit borrower for such Auction Rate Security.

ARS Issuer Bidding

One of the items of ARS bidding information that will be required to be submitted to the SHORT System by ARS Program Dealers are orders by issuers or conduit borrowers for the ARS.  The rule amendment will require dealers other than ARS Program Dealers that receive orders for inclusion in an auction for ARS from an issuer or conduit borrower of such ARS to disclose this fact when submitting such order to an ARS Program Dealer.  This will ensure that ARS Program Dealers are able to submit to the SHORT System orders by issuers or conduit borrowers for the ARS when such orders are not submitted directly to the ARS Program Dealer by the issuer or conduit borrower.

Additional VRDO Information

The rule amendment will require VRDO Remarketing Agents to submit additional items of VRDO information to the SHORT System in conjunction with the VRDO interest rate and descriptive information currently required to be reported under Rule G-34(c).  This information will provide additional details concerning the interest rate set for a VRDO, such as the effective date of the interest rate, and would facilitate the tendering of a position in a VRDO by investors by requiring VRDO Remarketing Agents to report the identity of the agent of the issuer of the VRDOs to which a holder may tender their security (“Tender Agent”). 

The additional VRDO information will also provide transparency related to the current holders of the VRDO.  Information about current holders of a VRDO would indicate, for example, that the interest rate set represents an interest rate paid to holders of the VRDO instead of instances when the VRDO is held entirely by a liquidity provider (as a “Bank Bond”) and that the interest rate set is therefore not set by market demand. 

The rule amendment will require a VRDO Remarketing Agent to report to the SHORT System the effective date that the interest rate reset is applicable as well as the following information available to the VRDO Remarketing Agent as of the time of the interest rate reset:

  • Identity of the Tender Agent;
  • Identity of the liquidity provider(s) including an indication of those VRDOs for which an issuer provides “self liquidity” and the identity of the party providing such self-liquidity;[11]
  • Par amount of the VRDO, if any, held as a Bank Bond; and
  • Par amount of the VRDO, if any, held by parties other than a liquidity provider, which includes the par amounts held by a VRDO Remarketing Agent and by investors.        

ARS and VRDO Documents

The rule amendment will require ARS Program Dealers and VRDO Remarketing Agents to submit certain documents to the SHORT System to ensure that market participants have centralized access to critical documents about ARS programs and VRDO issues.  For existing ARS programs, dealers will be required to submit the current versions of ARS documents defining current auction procedures and interest rate setting mechanisms to the SHORT System within ninety days after the effective date of the rule change.  For existing VRDO issues, dealers will be required to undertake and document[12] best efforts to obtain current versions of VRDO liquidity facility documents, including Letters of Credit, Stand-by Bond Purchase Agreements and any other document that establishes an obligation to provide liquidity, and submit such documents to the SHORT System within ninety days after the effective date of the proposed rule change.  On an ongoing basis, dealers will be required to submit any new or amended versions of these documents within five business days of receipt.

The MSRB recognizes that for some ARS programs, documents defining current auction procedures and interest rate setting mechanisms may already be available in the SHORT System.  This may occur in the case of an ARS with multiple Program Dealers in which one Program Dealer has already submitted to the SHORT System the required document.  In these cases, in lieu of submitting duplicate documents, dealers will be provided the capability to signify that a document required to be submitted has already been submitted to the SHORT System by identifying the relevant document.

Since January 1, 2010, all documents submitted to EMMA have been required to be word-searchable PDF files.  While this same requirement would apply to the submission of ARS and VRDO documents to the SHORT System, MSRB acknowledges that some of these documents for outstanding ARS and VRDOs are likely to be older documents that may not be available in electronic format or a format that would easily permit a dealer to produce a word-searchable PDF file of the document.  Accordingly, the rule amendment will only require ARS and VRDO documents submitted to EMMA to be word-searchable for new or amended versions of documents produced after the effective date of the rule change.

DESCRIPTION OF THE SHORT SYSTEM FACILITY AMENDMENT         

The SHORT System is an MSRB Facility for the collection and public dissemination of information about ARS and VRDOs.  The rule change amends this facility to provide for the collection and public dissemination of documents identified in the rule amendment.  

Submissions to the SHORT System

The SHORT System receives submissions of information and documents about securities bearing interest at short-term rates under MSRB Rule G-34, on CUSIP numbers, new issue and market information requirements.

Information and Documents to be Submitted.  The basic items of information and documents required to be submitted to the SHORT System are the same as those required to be submitted to the MSRB under MSRB Rule G-34(c).  Submitters of documents will be required to provide to the SHORT System related indexing information with respect to each document submitted, including an indication of the document type, date such document became available to the dealer, and CUSIP number(s) of the municipal securities to which such document relates.  A submitter required to submit a document that is already available in its entirety in the SHORT System will be permitted to, in lieu of submitting a duplicate document, identify the document already submitted and provide such items of related indexing information as are required by MSRB rules or the SHORT System input specifications and system procedures.  A submitter required to submit a document that is not able to be obtained through best efforts as provided in the rule amendment will be required to provide an affirmative indication that a document required to be submitted is not available for submission notwithstanding the submitter’s best efforts to obtain such document.  The complete list of data elements that will be required on a submission to the SHORT System would be available in input specifications and system procedures made available on www.msrb.org.  Submitters will be responsible for the accuracy and completeness of all information submitted to the SHORT System.

Submitters.  Submissions to the SHORT System may be made solely by authorized submitters using password-protected accounts in the MSRB’s user authentication system, MSRB Gateway.  MSRB Gateway is designed to be a single, secure access point for all MSRB applications.  Submitters of information to the SHORT System are required to obtain an account in MSRB Gateway in order to submit information to the SHORT System.  Through MSRB Gateway, submitters also have the ability to designate third-party agents to submit information to the SHORT System on the submitter’s behalf.  

Submissions may be made by the following classes of submitters:

  • ARS Program Dealer;
  • VRDO Remarketing Agent;
  • ARS Auction Agent; and
  • Designated Agent, which may submit any information otherwise permitted to be submitted by another class of submitter which has designated such agent, as provided below.

All ARS Auction Agents are allowed to submit information about an auction to the SHORT System without prior designation by an ARS Program Dealer.  Dealers optionally may designate agents to submit information on their behalf, and may revoke the designation of any such agents, through MSRB Gateway.  All actions taken by a Designated Agent on behalf of a dealer that has designated such agent shall be the responsibility of the dealer. 

Timing of Submissions.  Submitters are required to make submissions to the SHORT System within the timeframes set forth in MSRB Rule G-34(c) and related MSRB procedures.  Submissions of information to the SHORT System may be made throughout any RTRS Business Day, as defined in Rule G-14 RTRS Procedures, from at least the hours of 6:00 A.M. to 9:00 P.M. Eastern Time, subject to the right of the MSRB to make such processes unavailable at times as needed to ensure the integrity of the SHORT System and any related systems.  Submissions of documents will be able to be made throughout any day, subject to the right of the MSRB to make such processes unavailable between the hours of 3:00 A.M. and 6:00 A.M. each day, Eastern Time, for required maintenance, upgrades or other purposes, or at other times as needed to ensure the integrity of MSRB systems.  The MSRB provides advance notice of any planned periods of unavailability and shall endeavor to provide information to submitters as to the status of the submission interface during unanticipated periods of unavailability, to the extent technically feasible.

Method of Submission.  Information and documents may be submitted to the SHORT System through a secure, password-protected, web-based electronic submitter interface or through a secure, authenticated computer-to-computer data connection, at the election of the submitter.  When making submissions using the web-based interface, related information is entered manually into an on-line form and documents would be required to be uploaded as portable document format (PDF) files.  Computer-to-computer submissions utilize XML files for data and PDF files for documents.  Appropriate schemas and procedures for web-based and computer-to-computer submissions will be available in input specifications and system procedures made available on www.msrb.org.

Designated Electronic Format for Documents.  All documents submitted to the SHORT System will be required to be in portable document format (PDF), configured to permit documents to be saved, viewed, printed and retransmitted by electronic means.  If the submitted file is a reproduction of the original document, the submitted file must maintain the graphical and textual integrity of the original document.  Documents submitted to the SHORT System created on or after the effective date of the rule change will be required to be word-searchable (without regard to diagrams, images and other non-textual elements).

SHORT System Processing

The SHORT System provides a single portal for the submission of information and documents.  The SHORT System, as well as other MSRB systems and services, performs various data checks to ensure that information and documents are submitted in the correct format.  In addition, data checks are performed to monitor dealer compliance with MSRB Rule G-34(c) as well as to identify information submitted in correct formats that may contain errors due to information not falling within reasonable ranges of expected values for a given item of information.  All submissions generate an acknowledgement or error message, and all dealers that have information or documents submitted on their behalf by either an ARS Auction Agent or a Designated Agent are able to monitor such submissions. 

SHORT System Information and Document Dissemination

Information and documents submitted to the SHORT System that pass the format and data checks described above are processed and disseminated on a real-time basis.  Any changes to submissions also are processed upon receipt and updated information and documents are disseminated in real-time.  Information submitted to the SHORT System is, in general, disseminated to the EMMA short-term obligation rate transparency service within 15 minutes of acceptance, although during peak traffic periods dissemination may occur within one hour of acceptance.  Submissions of documents to the SHORT System accepted during the hours of 8:30 AM to 6:00 PM Eastern Time on an MSRB business day will generally be disseminated to the EMMA short-term obligation transparency service within 15 minutes of acceptance, although during peak traffic periods posting may occur within one hour of acceptance.  Submissions outside of such hours often will be posted within 15 minutes although some submissions outside of the MSRB’s normal business hours may not be processed until the next business day.  SHORT System information and documents, along with related indexing information, will be made available to the public through the EMMA portal for the life of the related securities.

DESCRIPTION OF THE EMMA SHORT-TERM OBLIGATION RATE TRANSPARENCY SERVICE AMENDMENT

The EMMA short-term obligation rate transparency service currently makes the information collected by the SHORT System available to the public, at no charge, on the EMMA portal.  The rule change would add the documents identified in the rule amendment to this service so that such documents would also be available to the public, at no charge, on the EMMA portal.

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Questions about this notice may be directed to Justin R. Pica, Director, Uniform Practice Policy, at 703-797-6716.

August 26, 2010

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TEXT OF RULE CHANGE[13]

RULE AMENDMENT

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) through (xxi)  No change.

            (xxii)  Records Concerning Compliance with Rule G-34(c). 

(A) A broker, dealer or municipal securities dealer that acts as a Program Dealer, as defined in Rule G-34(c)(i)(A)(1), for an Auction Rate Security shall maintain:

(1) through (2) No change.

(3) all information and documents required to be submitted to the Board by the broker, dealer or municipal securities dealer under Rule G-34(c)(i).

(B)  A broker, dealer or municipal securities dealer that acts as a Remarketing Agent, as defined in Rule G-34(c)(ii), for a Variable Rate Demand Obligation shall maintain:

(1) No change.

(2) all information and documents required to be submitted to the Board by the broker, dealer or municipal securities dealer under Rule G-34(c)(ii); and[.]

(3) for documents detailing provisions of liquidity facilities identified in Rule G-34(c)(ii)(B)(1) associated with the Variable Rate Demand Obligation for which the broker, dealer or municipal securities dealer acts as a Remarketing Agent that are unable to be obtained through best efforts, a record of such efforts undertaken.

(xxiii)  Records Concerning Compliance with Rule G-34(a)(ii)(C).  A broker, dealer or municipal securities dealer that acts as an underwriter in a primary offering of municipal securities subject to Rule G-34(a)(ii)(C)(1) shall maintain:

(A)  through (C)  No change.

(b) through (g) No change.

Rule G-34: CUSIP Numbers, New Issue, and Market Information Requirements

(a) - (b)  No change.

(c)  Variable Rate Security Market Information.  The Board operates a facility for the collection and public dissemination of information and documents about securities bearing interest at short-term rates (the Short-term Obligation Rate Transparency System, or SHORT System). 

(i)  Auction Rate Securities.  Auction Rate Securities are municipal securities in which the interest rate resets on a periodic basis under an auction process conducted by an agent responsible for conducting the auction process on behalf of the issuer or other obligated person with respect to such Auction Rate Securities (“Auction Agent”) that receives orders from brokers, dealers and municipal securities dealers.

(A)  Auction Rate Securities Data.

[(A)] (1)  Each broker, dealer or municipal securities dealer that submits an order directly to an Auction Agent for its own account or on behalf of another account to buy, hold or sell an Auction Rate Security through the auction process (“Program Dealer”) shall report, or ensure the reporting of, the following information about the Auction Rate Security and concerning the results of the auction to the Board:

[(1)] (a) CUSIP number;

[(2)] (b) Interest rate produced by the auction process and designation of whether the interest rate is a maximum rate, all hold rate, or rate set by auction;

[(3)] (c) Identity of all Program Dealers that submitted orders, including but not limited to hold orders;

[(4)] (d) Date and time of the auction;

[(5) Date and time the interest rate determined as a result of the auction process was communicated to Program Dealers;]

[(6)] (e) Length of time, in days, that the interest rate produced by the auction process is applicable;

[(7)] (f) Minimum denomination;

[(8) Par amount auctioned, not including hold orders effective at any rate; and]

[(9)] (g) Minimum and maximum rates, if any, applicable at the time of the auction or, if not calculable as of the time of auction, indication that such rate or rates are not calculable.

(h) Date and time the interest rate determined as a result of the auction process was communicated to Program Dealers;

(i) Aggregate par amount of orders to sell at any interest rate and aggregate par amount of such orders that were executed;

(j) Interest rate(s) and aggregate par amount(s) of orders to hold at a specific interest rate and aggregate par amount of such orders that were successfully held;

(k) Interest rate(s) and aggregate par amount(s) of orders to buy and aggregate par amount of such orders that were executed;

(l) Interest rate(s), aggregate par amount(s), and type of order – either buy, sell or hold – for a Program Dealer for its own account and aggregate par amounts of such orders, by type, that were executed; and

(m) Interest rate(s), aggregate par amount(s), and type of order – either buy, sell or hold – for an issuer or conduit borrower for such Auction Rate Security.

[(B)] (2)  Information identified in subparagraph (c)(i)(A) shall be provided to the Board by no later than 6:30 P.M. Eastern Time on the date on which an auction occurs if such date is an RTRS Business Day as defined in Rule G-14 RTRS Procedures section (d)(ii).  In the event that any item of information identified in subparagraph (c)(i)(A)(1) is not available by the deadline in this subparagraph (c)(i)[(B)](A)(2), such item shall be provided to the Board as soon as it is available.  In the event that an auction occurs on a non-RTRS Business Day, the information identified in subparagraph (c)(i)(A)(1) shall be reported by no later than 6:30 P.M. Eastern Time on the next RTRS Business Day.

[(C)] (3)  A Program Dealer may designate an agent to report the information identified in subparagraph (c)(i)(A)(1) to the Board, provided that an Auction Agent may submit information on behalf of a Program Dealer absent such designation by the Program Dealer.  The failure of a designated agent to comply with any requirement of this paragraph (c)(i) shall be considered a failure by such Program Dealer to so comply; provided that if an Auction Agent has, within the time periods required under subparagraph (c)(i)[(B)](A)(2), reported the information required under subparagraph (c)(i)(A)(1), the Program Dealer may rely on the accuracy of such information if the Program Dealer makes a good faith and reasonable effort to cause the Auction Agent to correct any inaccuracies known to the Program Dealer.

(4) For Auction Rate Securities in which there are multiple Program Dealers, each Program Dealer must only report for items (i) through (m) of the items of information identified in subparagraph (c)(i)(A)(1) information reflective of the Program Dealer’s involvement in the auction.  A designated agent as described in subparagraph (c)(i)(A)(3) reporting results of an auction on behalf of multiple Program Dealers must report for items (i) through (m) of the items information identified in subparagraph (c)(i)(A)(1) information reflective of the aggregate of all such Program Dealers’ involvement in the auction for which the designated agent is making a report.  A Program Dealer may rely on the reporting of information by an Auction Agent as provided in subparagraph (c)(i)(A)(3) if the Auction Agent has undertaken to report, and the Program Dealer does not have reason to believe that the Auction Agent is not accurately reporting, all items of information identified in subparagraph (c)(i)(A)(1), to the extent applicable, for an auction that is reflective of all Program Dealers that were involved in the auction.

[(D)] (5)  Information reported to the Board pursuant to this section (c)(i) shall be submitted in the manner described in the written procedures for SHORT System users and changes to submitted information must be made as soon as possible.

(6)  Every broker, dealer or municipal securities dealer that submits an order to a Program Dealer on behalf of an issuer or conduit borrower for such Auction Rate Securities shall disclose at the time of the submission of such order that the order is on behalf of an issuer or conduit borrower for such Auction Rate Securities.

(B) Auction Rate Securities Documents.

(1) Each Program Dealer shall submit to the Board current documents setting forth auction procedures and interest rate setting mechanisms associated with an outstanding Auction Rate Security for which it acts as a Program Dealer by no later than [insert date ninety business days after rule effectiveness] and shall submit to the Board any future, subsequently amended or new versions of such documents no later than five business days after they are made available to the Program Dealer.

(2) All submissions of documents required under subparagraph (c)(i)(B)(1) shall be made by electronic submissions to the SHORT System in a designated electronic format (as defined in Rule G-32) at such time and in such manner as specified herein and in the SHORT System Users Manual.

(ii) Variable Rate Demand Obligations.  Variable Rate Demand Obligations are securities in which the interest rate resets on a periodic basis with a frequency of up to and including every nine months, an investor has the option to put the issue back to the trustee, tender agent or other agent of the issuer or obligated person at any time, typically with specified advance notice (“Notification Period”), and a broker, dealer or municipal security dealer acts as a remarketing agent (“Remarketing Agent”) responsible for reselling to new investors securities that have been tendered for purchase by a holder.

(A)  Variable Rate Demand Obligations Data.

(1)  Each Remarketing Agent for a Variable Rate Demand Obligation shall report the following information to the Board about the Variable Rate Demand Obligation [and] applicable at the time of and concerning the results of an interest rate reset [to the Board]:

[(1)] (a) CUSIP number;

[(2)] (b) Interest rate and designation of whether the interest rate is a maximum rate, set by formula or set by the remarketing agent;

[(3)] (c) Identity of the Remarketing Agent;

[(4)] (d) Date and time of the interest rate reset;

[(5)] (e) Effective date and [L] length of time, in days, that the interest rate is applicable;

[(6)] (f) Minimum denomination;

[(7)] (g) Length of Notification Period;

[(8)] (h) Minimum and maximum rates, if any, applicable at time of the interest rate reset or, if not calculable as of the time of interest rate reset, indication that such rate or rates are not calculable; [and]

[(9)] (i) Identity of liquidity provider, [T] type and expiration date of each liquidity facility applicable to the Variable Rate Demand Obligation;[.]

[(10)] (j) Identity of the agent of the issuer to which bondholders may tender their security (“Tender Agent”); and

[(11)] (k) Aggregate par amount, if any, of the Variable Rate Demand Obligation held by a liquidity provider(s) (par amount held as “Bank Bonds”), and aggregate par amount, if any, of the Variable Rate Demand Obligation held by parties other than a liquidity provider(s), including the par amounts held by the Remarketing Agent and by investors.

[(B)] (2) Information identified in subparagraph (c)(ii)(A)(1) shall be provided to the Board by no later than 6:30 P.M. Eastern Time on the date on which an interest rate reset occurs if such date is an RTRS Business Day as defined in Rule G-14 RTRS Procedures section (d)(ii).  In the event that any item of information identified in subparagraph (c)(ii)(A)(1) is not available by the deadline in this subparagraph (c)(ii)[(B)](A)(2), such item shall be provided to the Board as soon as it is available provided that items (i) through (k) of the information identified in subparagraph (c)(ii)(A)(1) shall reflect the information available to the Remarketing Agent as of the date and time of the interest rate reset.  In the event that an interest rate reset occurs on a non-RTRS Business Day, the information identified in subparagraph (c)(ii)(A)(1) shall be reported by no later than 6:30 P.M. Eastern Time on the next RTRS Business Day.

[(C)] (3) A Remarketing Agent may designate an agent to report the information identified in subparagraph (c)(ii)(A)(1) to the Board.  The failure of a designated agent to comply with any requirement of this paragraph (c)(ii) shall be considered a failure by such Remarketing Agent to so comply.

[(D)] (4) Information reported to the Board pursuant to this section (c)(ii) shall be submitted in the manner described in the written procedures for SHORT System users and changes to submitted information must be made as soon as possible.

(B) Variable Rate Demand Obligations Documents.

(1) Each Remarketing Agent shall use best efforts to obtain and shall submit to the SHORT System the current versions of the following documents detailing provisions of liquidity facilities associated with the Variable Rate Demand Obligation for which it acts as a Remarketing Agent by no later than [insert date ninety business days after rule effectiveness] and shall submit to the SHORT System any future, subsequently amended or new versions of such documents no later than five business days after they are made available to the Remarketing Agent:

(a) Stand-By Bond Purchase Agreement;

(b) Letter of Credit Agreement; and

(c) any other document that establishes an obligation to provide liquidity.

(2) All submissions of documents required under this rule shall be made by electronic submissions to the SHORT System in a designated electronic format (as defined in Rule G-32) at such time and in such manner as specified herein and in the SHORT System Users Manual.

(3) In the event that a document described in subparagraph (c)(ii)(B)(1) is not able to be obtained through the best efforts of the Remarketing Agent, the Remarketing Agent shall submit notice to the SHORT System that such document will not be provided at such times as specified herein and in the SHORT System Users Manual.

[(c)] (d) No change.

[(d)] (e)  No change.

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SHORT SYSTEM FACILITY AMENDMENT

MUNICIPAL SECURITIES RULEMAKING BOARD
SHORT-TERM OBLIGATION RATE TRANSPARENCY SYSTEM

The Short-term Obligation Rate Transparency (“SHORT”) System is a facility of the Municipal Securities Rulemaking Board (“MSRB”) for the collection and dissemination of information and documents about securities bearing interest at short-term rates and making such information and documents publicly available through a dissemination service. 

Submissions to the SHORT System

The SHORT System receives submissions of information and documents about securities bearing interest at short-term rates under MSRB Rule G-34, on CUSIP numbers, new issue and market information requirements.

Information and Documents to be Submitted.  The basic items of information and documents required to be submitted to the SHORT System are the same as those required to be submitted to the MSRB under MSRB Rule G-34(c).  Submitters of documents shall provide to the SHORT System related indexing information with respect to each document submitted, including an indication of the document type, date such document became available to the broker, dealer or municipal securities dealer, and CUSIP number(s) of the municipal securities to which such document relates.  A submitter required to submit a document that is already available in its entirety in the SHORT System may, in lieu of submitting a duplicate document, identify the document already submitted and provide such items of related indexing information as are required by MSRB rules or the SHORT System input specifications and system procedures.  A submitter required to submit a document that is not able to be obtained through best efforts as provided in Rule G-34(c) must provide an affirmative indication that a document required to be submitted is not available for submission notwithstanding the submitter’s best efforts to obtain such document.  The complete list of data elements that are required on a submission to the SHORT System is available in input specifications and system procedures made available on www.msrb.org.  Submitters shall be responsible for the accuracy and completeness of all information submitted to the SHORT System.

Submitters.  Submissions to the SHORT System may be made solely by authorized submitters using password-protected accounts in the MSRB’s user authentication system, MSRB Gateway.  MSRB Gateway is designed to be a single, secure access point for all MSRB applications.  Submitters of information to the SHORT System are required to obtain an account in MSRB Gateway in order to submit information to the SHORT System.  Through MSRB Gateway, submitters also have the ability to designate third-party agents to submit information to the SHORT System on the submitter’s behalf.  

Submissions may be made by the following classes of submitters:

  • Auction Rate Security (“ARS”) Program Dealer;
  • Variable Rate Demand Obligation (“VRDO”) Remarketing Agent;
  • ARS Auction Agent; and
  • Designated Agent, which may submit any information otherwise permitted to be submitted by another class of submitter which has designated such agent, as provided below.

All ARS Auction Agents are allowed to submit information about an auction to the SHORT System without prior designation by an ARS Program Dealer.  Dealers optionally may designate agents to submit information on their behalf, and may revoke the designation of any such agents, through MSRB Gateway.  All actions taken by a Designated Agent on behalf of a dealer that has designated such agent shall be the responsibility of the dealer.

Timing of Submissions.  Submitters are required to make submissions to the SHORT System within the timeframes set forth in MSRB Rule G-34(c) and related MSRB procedures.  Submissions of information to the SHORT System may be made throughout any RTRS Business Day, as defined in Rule G-14 RTRS Procedures, from at least the hours of 6:00 A.M. to 9:00 P.M. Eastern Time, subject to the right of the MSRB to make such processes unavailable at times as needed to ensure the integrity of the SHORT System and any related systems.  Submissions of documents may be made throughout any day, subject to the right of the MSRB to make such processes unavailable between the hours of 3:00 A.M. and 6:00 A.M. each day, Eastern Time, for required maintenance, upgrades or other purposes, or at other times as needed to ensure the integrity of MSRB systems.  The MSRB shall provide advance notice of any planned periods of unavailability and shall endeavor to provide information to submitters as to the status of the submission interface during unanticipated periods of unavailability, to the extent technically feasible.

Method of Submission.  Information and documents may be submitted to the SHORT System through a secure, password-protected, web-based electronic submitter interface or through a secure, authenticated computer-to-computer data connection, at the election of the submitter.  When making submissions using the web-based interface, related information is entered manually into an on-line form and documents are uploaded as portable document format (PDF) files.  Computer-to-computer submissions utilize XML files for data and PDF files for documents.  Appropriate schemas and procedures for web-based and computer-to-computer submissions are available in input specifications and system procedures made available on www.msrb.org.

Designated Electronic Format for Documents.  All documents submitted to the SHORT System must be in portable document format (PDF), configured to permit documents to be saved, viewed, printed and retransmitted by electronic means.  If the submitted file is a reproduction of the original document, the submitted file must maintain the graphical and textual integrity of the original document.  Documents submitted to the SHORT System created on or after [insert effective date of SHORT System Facility amendment] shall be word-searchable (without regard to diagrams, images and other non-textual elements).

SHORT System Processing

The SHORT System provides a single portal for the submission of information and documents.  The SHORT System, as well as other MSRB systems and services, performs various data checks to ensure that information and documents are submitted [is] in the correct format.  In addition, data checks are performed to monitor dealer compliance with MSRB Rule G-34(c) as well as to identify information submitted in correct formats that may contain errors due to information not falling within reasonable ranges of expected values for a given item of information.  All submissions generate an acknowledgement or error message, and all dealers that have information or documents submitted on their behalf by either an ARS Auction Agent or a Designated Agent are able to monitor such [information] submissions. 

SHORT System [Data] Information and Document Dissemination

Information and documents submitted to the SHORT System that pass[es] the format and data checks described above [is] are processed and disseminated on a real-time basis.  Any changes to submissions also are processed upon receipt and updated information and documents [is] are disseminated in real-time.  Information submitted to the SHORT System is, in general, disseminated to the EMMA short-term obligation rate transparency service within 15 minutes of acceptance, although during peak traffic periods dissemination may occur within one hour of acceptance.  Submissions of documents to the SHORT System accepted during the hours of 8:30 A.M. to 6:00 P.M. Eastern Time on an MSRB business day are, in general, disseminated to the EMMA short-term obligation transparency service within 15 minutes of acceptance, although during peak traffic periods posting may occur within one hour of acceptance.  Submissions outside of such hours often are posted within 15 minutes although some submissions outside of the MSRB’s normal business hours may not be processed until the next business day.  SHORT System information and documents, along with related indexing information, shall be made available to the public through the EMMA portal for the life of the related securities.

The MSRB plans to offer subscriptions to the information and documents submitted to the SHORT System in the future.

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EMMA SHORT-TERM OBLIGATION RATE TRANSPARENCY SERVICE AMENDMENT

EMMA SHORT-TERM OBLIGATION RATE TRANSPARENCY SERVICE

The EMMA short-term obligation rate transparency service, established as a service of EMMA, makes information and documents disseminated from the MSRB’s Short-term Obligation Rate Transparency  (“SHORT”) System available to the public, at no charge, on the EMMA portal.

Public Availability of Short-term Obligation Rate Transparency Information

EMMA Portal.  Short-term obligation rate transparency information is posted on the EMMA portal within 5 minutes of receipt from the SHORT System, although during peak traffic periods posting may occur within 15 minutes of receipt.  Submissions of documents to the SHORT System accepted during the hours of 8:30 A.M. to 6:00 P.M. Eastern Time on an MSRB business day are, in general, disseminated to the EMMA short-term obligation rate transparency service within 15 minutes of acceptance, although during peak traffic periods posting may occur within one hour of acceptance.  Submissions outside of such hours often are posted within 15 minutes although some submissions outside of the MSRB’s normal business hours may not be processed until the next business day.  The short-term obligation rate transparency information available through the EMMA short-term obligation rate transparency service represents information provided to EMMA since the inception of the SHORT System in January 2009.  SHORT System information and documents, along with related indexing information, shall be made available to the public through the EMMA portal for the life of the related securities.

The EMMA portal provides on-line search functions utilizing available indexing information to allow users of the EMMA portal to readily access short-term obligation rate transparency information and documents.  Basic identifying information relating to specific municipal securities and/or specific issues accompanies the display of short-term obligation rate transparency information and documents.  The EMMA portal permits users to request periodic alerts, at no charge, regarding whether short-term obligation rate transparency information and documents for a specific security [has] have been posted.

The EMMA portal is available without charge to all members of the public.  The MSRB has designed EMMA, including the EMMA portal, as a scalable system with sufficient current capacity and the ability to add further capacity to meet foreseeable usage levels based on reasonable estimates of expected usage, and the MSRB will monitor usage levels in order to assure continued capacity in the future.

The MSRB reserves the right to restrict or terminate malicious, illegal or abusive usage for such periods as may be necessary and appropriate to ensure continuous and efficient access to the EMMA portal and to maintain the integrity of EMMA and its operational components. The MSRB is not responsible for the content of the information or documents submitted by submitters to the SHORT System displayed on the EMMA portal.

Subscriptions.  The MSRB plans to offer subscriptions to the information and documents submitted to the SHORT System in the future.  Under a subscription to the information and documents submitted to the SHORT System, users would be able to obtain the [short-term obligation rate transparency] information and documents provided through the EMMA short-term obligation rate transparency service other than by viewing on and downloading from the EMMA portal. 



[1] The proposed rule change was first filed with the SEC on March 10, 2010, and an amendment was filed on July 9, 2010.  See MSRB Notice 2010-06 (March 10, 2010) and MSRB Notice 2010-21 (July 9, 2010).

[2] See Securities Exchange Act Release No. 62755, August 20, 2010 (File No. SR-MSRB-2010-02).

[3] For example, certain elements of the SHORT System Facility amendment would rely on components previously placed into service pursuant to the EMMA primary market or continuing disclosure services for purposes of processing submissions made to the MSRB.

[4] An ARS Program Dealer is defined in Rule G-34(c) as a dealer that submits an order directly to an Auction Agent for its own account or on behalf of another account to buy, hold or sell ARS through the auction process.

[5] See Securities Exchange Act Release No. 59212, January 7, 2009 (File No. SR-MSRB-2008-07).

[6] The 6:30 P.M. Eastern Time deadline only applies to those ARS auctions and VRDO interest rate resets that occur during an “RTRS Business Day,” as defined in Rule G-14(d)(ii).  Information about ARS auctions and VRDO interest rate resets that occur outside of the hours of an “RTRS Business Day” is required to be submitted to the SHORT System by no later than 6:30 P.M. Eastern Time on the next “RTRS Business Day.”

[7] Some ARS and VRDOs have minimum and maximum rates that are set pursuant to formulas that are unable to be calculated at the time a submission to the SHORT System is required.  In these cases, a value of “NC” is required to be included in a submission to the SHORT System to show that the minimum and maximum rates are “not calculable.”  This exception does not apply to minimum and maximum rates that are linked to an index or bank lending rate, such as LIBOR.  Such rates are required to be computed and the resulting values included on a submission to the SHORT System.

[8] Id.                   

[9] Dealers are required to submit to the SHORT System whether each applicable liquidity facility is a letter of credit or standby bond purchase agreement.

[10] The MSRB plans to make all information and documents collected under the rule amendment available on a subscription basis. 

[11] Some VRDOs have liquidity provisions under which the liquidity is provided by the issuer, conduit borrower or affiliate instead of by a third-party.  Rule G-34(c) currently requires Remarketing Agents to report the type of liquidity facility applicable to a VRDO.  Currently, SHORT System specifications only provide two options for this data element – letter of credit and standby bond purchase agreement – and in conjunction with the rule change the MSRB will revise the specifications to also capture VRDOs that have “self liquidity.”

[12] For documents of existing VRDO issues that are unable to be obtained through best efforts, the rule amendment will require dealers to keep records of all efforts undertaken for a period of three years.  Such records of best efforts would include, for example, all written requests for documents to and any responses from an issuer or liquidity provider.

[13] Underlining indicates additions and brackets indicate deletions.