MSRB NOTICE 2005-37 (JUNE 23, 2005)

NOTICE OF FILING OF PROPOSED AMENDMENTS Relating to Official Statement Delivery Requirements Under Rule G-32, Rule G-36 and Rule G-11

On June 23, 2005, the Municipal Securities Rulemaking Board (“MSRB”) filed with the Securities and Exchange Commission (“SEC”) a proposed rule change to amend Rule G-32 (on delivery of official statements to new issue customers), Rule G-36 (on delivery of official statements and advance refunding documents to the Board), and Rule G-11 (on new issue municipal securities during the underwriting period).  The proposed rule change is intended to improve the efficiency of official statement dissemination in the municipal securities marketplace and the timeliness of official statement deliveries to customers.[1]

SUMMARY OF PROPOSED AMENDMENTS

Dissemination of Electronic Official Statements by Managing and Sole Underwriters

The proposed rule change establishes new clause (i)(C) of Rule G-32(c), which requires the managing or sole underwriter for new issues of municipal securities to provide a printable electronic version of the official statement (if an electronic version has been prepared and the issuer does not object to its distribution) to any dealer that requests an electronic version and provides an e-mail address or other delivery instructions acceptable to the managing or sole underwriter.  This obligation is in addition to the managing or sole underwriter’s obligation to send paper copies of the official statement in the required quantities (i.e., one printed copy plus not less than one additional printed copy per $100,000 par value purchased by the dealer for sale to customers).  However, if the requesting dealer consents, the managing or sole underwriter is permitted to provide such dealer solely with the electronic official statement in lieu of paper copies otherwise required under the rule.[2]

The proposed rule change does not specify a particular file format for the electronic version of the official statement, other than that the electronic version be printable.  Portable document format (PDF) files (and, in the future, any other file formats that it may hereafter accept for purposes of official statement submissions to the MSRB’s web-based Electronic OS/ARD Submission System (the “e-OS System”) established under Rule G-36) are acceptable formats for purposes of the proposed rule change, so long as such files are printable.  In addition, other file formats that are printable using commercially available software then in common usage in the municipal securities industry, or with software that is bundled with such files, also would be acceptable so long as the dealer that makes the delivery promptly delivers a substitute paper version of the official statement if the recipient of the electronic file so requests and a paper version has not previously been sent to such recipient.

The electronic version of the official statement must include every item of information included in the paper version.  For example, if a dealer were to consent to receiving solely an electronic version of the official statement pursuant to clause (c)(i)(C) of Rule G-32 but portions of the official statement are not available in electronic form, a managing or sole underwriter could not discharge its obligation to deliver paper versions of the official statement under clause (c)(i)(A) by sending the portions of the official statement available in electronic form and separately forwarding a paper copy of those portions not available in electronic form.  In the case where the entire official statement is not available in electronic format, the requirement to disseminate an electronic version upon request under clauses (c)(ii) and (c)(i)(C) would not apply.  The MSRB generally would view an electronic version of an official statement to be available only where the issuer has prepared, authorized and delivered the version as a single electronic file, or where multiple files delivered as a single unit are clearly interconnected by hyperlinks or other clear method of organization that ensures that an investor viewing one file would be put on adequate notice that additional accompanying files must be accessed in order to review the official statement in its entirety.

The proposed rule change also does not limit the manner of delivery of the electronic file.  For example, the rule language permits the requesting dealer under clause (c)(i)(C) or an underwriter under clause (c)(ii) to provide an e-mail address or instructions for other forms of electronic delivery.  An underwriter or dealer financial advisor should be able to meet this electronic delivery obligation in a number of different ways, including by posting the electronic version at an accessible website.  At a minimum, any such form of passive delivery of the electronic version of the official statement must provide the recipient with timely notice that the official statement has been posted (e.g., by e-mail notice to the e-mail address provided by the requesting dealer), allow access to the document at no cost, permit the recipient to print and re-transmit the document (i.e., re-transmit a downloaded file of the document or permit the original recipient to forward to another dealer the information necessary to allow such other dealer to have access to the document equivalent to the access afforded to the original recipient), and ensure continued accessibility throughout the “new issue disclosure period” described below.  The MSRB believes that best practice would entail transmission of the electronic version in a manner that would take advantage of the ability to make electronic files available substantially instantaneously or otherwise on demand, although certain technological limitations and variations among users would need to be taken into consideration in determining the best method for disseminating a particular document.[3]

Dissemination of Electronic Official Statements by Financial Advisors 

Revised Rule G-32(c)(ii) applies to any dealer that acts as the issuer’s financial advisor and prepares the official statement for the issuer.  If an electronic version of the official statement has been prepared and the issuer does not object to its distribution, the dealer financial advisor is required to make available to the managing or sole underwriter (in addition to a printed version of the official statement) a printable electronic version of the official statement, upon request by the underwriter for such an electronic version and if the underwriter provides an e-mail address or other delivery instructions acceptable to the dealer financial advisor.  However, if the managing or sole underwriter consents, the dealer financial advisor is permitted to provide such underwriter solely with the electronic official statement in lieu of paper copies otherwise required under the rule.

Redefining the Time Period of Official Statement Dissemination

The proposed rule change deletes the definition of “underwriting period” in Rule G-32(d)(ii) and replaces it with the new term “new issue disclosure period.”  The new issue disclosure period is defined as the period commencing with the first submission to an underwriter of an order for the purchase of new issue municipal securities or the purchase of such securities from the issuer, whichever first occurs, and ending 25 days after the final delivery by the issuer of the securities to or through the underwriting syndicate or sole underwriter.  The definition of “new issue municipal securities” in Rule G-32(d)(i) is revised to mean municipal securities (other than commercial paper) that are sold by a dealer during the issue’s new issue disclosure period.

The proposed rule change makes related changes to Rules G-36 and G-11.  Clause (a)(iv) is added to Rule G-36 to include a reference to the definition of new issue disclosure period in Rule G-32(d)(ii), and section (d) of Rule G-36 is revised to provide that amendments to official statements made by the issuer during the new issue disclosure period must be sent to the MSRB by the underwriter within the required timeframe.  The definition of underwriting period is removed from section (a) of Rule G-11 and the title of the rule is revised to more accurately reflect the subject of the rule.

Clarifying Amendment to Rule G-36

The proposed rule change adds a definition of “underwriter” in new clause (a)(v) of Rule G-36, consisting of a cross-reference to the definition of that term provided in Rule 15c2-12 adopted by the SEC under the Act.  The new language merely clarifies which definition applies to this term but does not change its meaning since, by virtue of Rule D-1,[4] that term already has the same meaning as provided in Rule 15c2-12.

*          *          *          *          *

Questions concerning this notice should be directed to Ghassan Hitti, Assistant General Counsel.

June 23, 2005

TEXT OF AMENDMENTS [5]

Rule G-32.  Disclosures in Connection with New Issues

(a)-(b) No change.

(c) Responsibility of Managing Underwriters, Sole Underwriters and Financial Advisors.

(i) Managing Underwriters and Sole Underwriters.  When an official statement in final form is prepared by or on behalf of an issuer, the managing underwriter or sole underwriter, upon request, shall:

(A) send to all brokers, dealers and municipal securities dealers that purchase the new issue municipal securities an official statement in final form and other information required by paragraph (a)(ii) of this rule and not less than one additional official statement in final form per $100,000 par value of the new issue purchased by the broker, dealer or municipal securities dealer and sold to customers.  Such items shall be sent no later than the business day following the request or, if an official statement in final form is being prepared but has not been received from the issuer or its agent, no later than the business day following such receipt.  Such items shall be sent by first class mail or other equally prompt means, unless the purchasing broker, dealer or municipal securities dealer arranges some other method of delivery and pays or agrees to pay for such delivery.

(B) [In addition, the managing underwriter or sole underwriter, upon request, shall] provide all purchasing brokers, dealers and municipal securities dealers with instructions on how to order additional copies of the official statement in final form directly from the printer.

(C) provide promptly to all brokers, dealers and municipal securities dealers that purchase the new issue municipal securities a printable electronic version of the official statement in final form, but only if:  (1) a printable electronic version has been prepared and the issuer does not object to distribution of such electronic version; and (2) the broker, dealer or municipal securities dealer requests to receive an electronic version and provides the managing underwriter or sole underwriter with an electronic mail address or other instructions acceptable to the managing underwriter or sole underwriter for electronic delivery of such version.  With the consent of the purchasing broker, dealer or municipal securities dealer, sending of a printable electronic version of the official statement in final form to the purchasing broker, dealer or municipal securities dealer as provided in this subparagraph (C) shall fully satisfy the requirements of subparagraphs (A) and (B) of this paragraph (c)(i) with respect to the official statement in final form.

(ii) Financial Advisors.  A broker, dealer or municipal securities dealer that, acting as financial advisor, prepares an official statement in final form on behalf of an issuer, shall make the official statement in final form available to the managing underwriter or sole underwriter promptly after the issuer approves its distribution.  If a printable electronic version of the official statement in final form has been prepared and the issuer does not object to its distribution, such printable electronic version shall also be made available to the managing underwriter or sole underwriter promptly upon request and delivery to the financial advisor of an electronic mail address or other instructions acceptable to the financial advisor for electronic delivery of such version.  With the consent of the managing underwriter or sole underwriter, such printable electronic version shall fully satisfy the requirement of this paragraph (c)(ii) with respect to the official statement in final form to be made available by the financial advisor.

(d) Definitions.  For purposes of this rule, the following terms have the following meanings:

(i) The term “new issue municipal securities” shall mean municipal securities that are sold by a broker, dealer or municipal securities dealer during the issue’s new issue disclosure [underwriting] period, but shall not include commercial paper.

(ii) The term “new issue disclosure [underwriting] period” shall mean[:] the period commencing with the first submission to an underwriter of an order for the purchase of new issue municipal securities or the purchase of such securities from the issuer, whichever first occurs, and ending 25 days after the final delivery by the issuer of the securities of the issue to or through the underwriting syndicate or sole underwriter.

[(A) for securities purchased from an issuer by a syndicate, the period defined in paragraph (a)(ix) of rule G-11, on sales of new issue municipal securities during the underwriting period; and

(B) for securities purchased from an issuer by one broker, dealer or municipal securities dealer, the period commencing with the first submission to broker, dealer or municipal securities dealer of an order for the purchase of the securities or the purchase of such securities from the issuer, whichever first occurs, and ending at such time as the following two conditions both are met:  (1) the issuer delivers the securities to the broker, dealer or municipal securities dealer, and (2) the broker, dealer or municipal securities dealer no longer retain an unsold balance of the securities purchased from the issuer or 21 calendar days elapse after the date of the first submission of an order for the securities, whichever first occurs.]

(iii)-(iv) No change.

* * * * * * * * * *

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) Definitions.  For purposes of this rule, the following items have the following meanings:

(i)-(iii) No change.

(iv) The term “new issue disclosure period” shall mean the period defined in Rule G-32(d)(ii).

(v) The term “underwriter” shall mean any person defined in Securities Exchange Act rule 15c2-12(f)(8).

(b)-(c) 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 section (b) or (c) above, and the official statement is amended or “stickered” by the issuer during the new issue disclosure [underwriting] period, such broker, dealer, or municipal securities dealer must send to the Board or its designee, within one business day after receipt of the amended official statement from the issuer or its designated agent, the amended official statement and an amended Form G-36(OS) as prescribed by the Board, 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)-(g) No change.

* * * * * * * * * *

Rule G-11.  [Sales of] New Issue Syndicate Practices [Municipal Securities During the Underwriting Period]

(a) Definitions.  For purposes of this rule, the following terms have the following meanings:

(i)-(viii) No change.

[(ix) The term “underwriting period” means the period commencing with the first submission to a syndicate of an order for the purchase of new issue municipal securities or the purchase of such securities from the issuer, which first occurs, and ending at such time as the issuer delivers the securities to the syndicate or the syndicate no longer retains an unsold balance of securities, whichever last occurs.]

(ix) [(x)] The term “qualified note syndicate” means any syndicate formed for the purpose of purchasing and distributing a new issue of municipal securities that matures in less than two years where:

(A)-(B) No change.

(b)-(h) No change.

---