MSRB Notice 2007-33 (November 15, 2007)

MSRB Files Pilot Portal for On-Line Dissemination of Official Statements and Related Information and Seeks Comments on Revised Draft Amendments to Establish an “Access Equals Delivery” Standard Under Rule G-32

The Municipal Securities Rulemaking Board (the “MSRB”) has filed a proposed rule change with the Securities and Exchange Commission (the “SEC”) to implement, on a pilot basis, an Internet-based portal (the “pilot portal”) to provide free public access to official statements (“OSs”) and advance refunding documents (“ARDs”) submitted by brokers, dealers and municipal securities dealers (“dealers”) acting as underwriters, primary distributors, placement agents or remarketing agents (collectively referred to as “underwriters”) to the MSRB’s Municipal Securities Information Library^® (“MSIL^®”) system under Rule G-36, on delivery of official statements, advance refunding documents and Forms G-36(OS) and G-36(ARD).[1]  The MSRB expects the pilot portal to become operational on the later of March 10, 2008 or 5 business days after SEC approval.

In addition, the MSRB is seeking comment on revised draft amendments to Rule G-32, on disclosures in connection with new issues, to establish an “access equals delivery” standard for OS dissemination in the new issue municipal securities market, based on the “access equals delivery” rule for prospectus delivery for registered securities offerings adopted by the SEC in 2005.[2]  Comments on the revised draft amendments are due by no later than December 17, 2007.

The pilot portal is expected to operate for a limited period of time as the MSRB transitions to a permanent integrated system for electronic submissions of all OSs and ARDs to the MSRB and for free public access to such documents through a centralized Internet-based portal (the “permanent system”) to be implemented in conjunction with the expected adoption by the MSRB of the “access equals delivery” standard.  The MSRB will seek input from the industry and the general public on the pilot portal to assist in optimizing the functionality of the permanent system.

OFFICIAL STATEMENT DELIVERIES UNDER CURRENT MSRB RULES

Under Rule G-32, a dealer selling a new issue municipal security to a customer during the period ending 25 days after bond closing (the “new issue disclosure period”) must deliver the OS to the customer on or prior to trade settlement.[3]  The rule includes inter-dealer delivery requirements for new issue municipal securities to assist selling dealers in meeting their customer delivery obligations.[4]

Rule G-36 requires underwriters to submit OSs, accompanied by Form G-36(OS), for most primary offerings of municipal securities to the MSRB within certain specified timeframes. In addition, if the offering is an advance refunding and an ARD has been prepared, the ARD and Form G-36(ARD) also must be sent by the underwriter to the MSRB.  OSs and ARDs may currently be submitted in either paper or electronic format.  These submissions are collected into the comprehensive MSIL system library.  The MSRB makes these documents available electronically to paid subscribers, many of whom provide value-added services with respect to such materials for their customers.  OSs and ARDs are also made available in paper form, subject to copying charges, at the MSRB’s public access facility in Alexandria, Virginia.

PILOT PORTAL

The proposed rule change would establish the pilot portal as an Internet-based public access portal providing free access to OSs and ARDs received by the MSRB under Rule G-36.  Copies of all OSs and ARDs received by the MSRB on or after implementation of the pilot portal will be made publicly available at the pilot portal, promptly after acceptance and processing, as portable document format (PDF) files for viewing, printing and downloading, and will remain publicly available for the life of the municipal securities through the pilot portal and/or the permanent system.  The pilot portal will provide on-line search functions utilizing the MSIL system computer index to ensure that users of the pilot portal are able to readily identify and access documents that relate to specific municipal securities based on a broad range of search parameters.  The pilot portal will be designed to provide a user searching for a particular municipal security with a comprehensive display of relevant information concerning such security available from the MSRB’s various information systems on a single screen or related set of screens.  The pilot portal will provide basic identifying information for the security, direct access to the OS available from the MSIL system collection, price information from the MSRB’s Real-Time Transaction Reporting System (“RTRS”) for the most recent trades in such security (as well as historical price information), and, if the security has been advance refunded by a refunding issue, any ARDs available from the MSIL system relating to such advance refunding.

The pilot portal will operate for a limited period of time as the MSRB transitions to a permanent integrated system for electronic submissions of all OSs and ARDs to the MSRB and free public access to such documents through a centralized Internet-based portal to be implemented in conjunction with the expected adoption by the MSRB of the “access equals delivery” standard.  The functions of the pilot portal, along with other key features of the current MSIL system and additional functional improvements (including but not limited to establishment of real-time subscriptions to the complete document collections processed through the permanent system for redissemination or other use by subscribers), will be incorporated into the permanent system.  The permanent system is expected to replace the MSIL system once this transition is completed and all critical functions and information stores (including but not limited to the complete OS/ARD back-log collection) of the MSIL system have been transferred to the new permanent system or are able to be handled by other MSRB processes.

Although the MSRB currently operates CDINet, a service of the MSIL system designed to process and disseminate continuing disclosure information and notices of material events submitted to the MSRB under Rule 15c2-12, the MSRB does not anticipate including information received through CDINet in the pilot portal due to the very limited level of submissions of disclosure information received by CDINet from issuers and their agents.[5]  The MSRB believes that making the limited collection of secondary market information available in CDINet accessible to the public through the pilot portal would represent a piecemeal approach that would not be beneficial to the public and could potentially be misleading under certain circumstances.  In particular, investors would be required to search through various other sources to find secondary market information for the bulk of the outstanding issues for which information is not available through CDINet and, even if secondary market information for a particular security is available through CDINet, investors would still need to search through the various other sources to ensure that no additional secondary market information about that security has been submitted elsewhere.

The MSRB recognizes the substantial benefits to the marketplace that would be realized should the SEC determine to modify the existing secondary market disclosure system under Rule 15c2-12 to provide for a centralized electronic submission and dissemination model.  The MSRB stands ready to expand its planned electronic submission system under the permanent system to also serve as the central electronic submission system for free filings of all secondary market disclosure under an amended Rule 15c2-12 and to integrate this complete collection of secondary market disclosure information with the MSRB’s OS/ARD collection and RTRS data to provide a free comprehensive centralized public access portal for primary market disclosure information, secondary market disclosure information and transaction price information.  An illustration of the potential for a comprehensive integrated display of these types of municipal securities information has been posted at the MSRB’s website for public comment.[6]

REVISED DRAFT AMENDMENTS TO RULE G-32

In a notice for comment published on January 25, 2007 (the “January 2007 Notice”),[7] the MSRB sought comment on draft rule changes to Rules G-32 and G-36 to implement an “access equals delivery” standard for OS dissemination (the “original draft amendments”).  The original draft amendments would consolidate current Rules G-32 and G-36 into a single substantially revised Rule G-32, on new issue disclosure practices, and Rule G-36 would be rescinded.[8]

The MSRB received comments from 12 commentators, who were nearly unanimous in their support of an “access equals delivery” standard.[9]  Based on those comments, the MSRB has determined to publish revised draft amendments reflecting certain changes to the proposed “access equal delivery” requirements.  These changes are discussed below.

Required Notice to Customers (Rule G-32(a)(iii)(B)).  The original draft amendments retained the basic OS dissemination requirements for dealers selling new issue municipal securities to customers but generally would deem such requirements to have been satisfied (other than in the case of sale of municipal fund securities) since OSs would be made publicly available through the central dissemination system.  The dealer would be required to provide to the customer, within two business days following trade settlement, either a copy of the OS or a written notice[10] stating that the OS is available from the central dissemination system, providing a web address where such OS may be obtained, and stating that a copy of the OS will be provided upon request.[11]  The January 2007 Notice stated that this provision would require the inclusion in the customer notice of the URL assigned for the specific OS referred to in the notice, rather than to an access portal’s home or search page.

Several commentators opposed the use of OS-specific URLs, instead suggesting a more general referral in the customer notice to the central access portals where investors would use a search function to locate the specific OS.  One commentator stated that, if unique URLs are ultimately required, such URLs should be as short as possible and be based on characteristics, such as CUSIP number, that would allow an automated method for notifying customers of such URLs.  Another commentator stated that, if specific URLs are required, the system should be designed to ensure that unique URLs do not inhibit the ability of the public to undertake searches to find OSs.  A third commentator recommended that a short, generic, plain English statement comparable to the corporate reference to a registration statement under the SEC’s “access equals delivery” rule be used.

The MSRB has revised the notice provision so that the dealer would be required to advise the customer as to how to obtain the OS from the central dissemination system and that a copy of the OS will be provided upon request.  The MSRB would view the obligation to provide the first portion of this notice as having been presumptively fulfilled if the notice provides the URL for the specific OS or for the search page of an access portal at which such OS may be found pursuant to a search conducted through such search page.  The MSRB seeks comment on whether this revised notice requirement is appropriate and, if not, what alternative formulations would be appropriate.

Underwriter Submissions of Official Statements for Limited Offerings (Rule G-32(b)(i)(C)).  The original draft amendments would require that underwriters submit OSs to the central dissemination system for all primary offerings of municipal securities for which OSs exist without any exceptions for specific types of offerings.  All OSs would be available to the public through the public access portals.

Two commentators stated that underwriters should not be required to provide OSs for issues described under Exchange Act Rule 15c2-12(d)(1)(i) (“limited offerings”) for purposes of public dissemination through the public access portals.  They were concerned about limited offerings that represent “private placements” where the issuer and underwriter do not intend on making a public offering and seek not to have the OS broadly disseminated.  One commentator viewed a submission requirement for limited offerings as possibly creating a disincentive to producing OSs for such offerings.  The other commentator suggested that, if the MSRB were to require submission of OSs for limited offerings, the MSRB could provide for access to the OS with password restriction if requested by the underwriter.  Both commentators suggested permitting voluntary submissions of OSs for limited offerings.

The MSRB has determined to seek comment on a provision that would make submission of OSs for limited offerings optional.  For those limited offerings in which the underwriter submits the OS to the dissemination system, the “access equals delivery” standard would fully apply and the OS would be available through the public access portals.  However, the underwriter could elect to withhold submission of the OS for a limited offering if it provides the following items to the dissemination system for posting on the public access portals:  (i) a certification affirming that the issue meets all of the requirements of Exchange Act Rule 15c2-12(d)(1)(i) as a limited offering; (ii) notice that the OS is not available on-line but that the underwriter will provide a copy to any customer purchasing such limited offering; and (iii) specific contact information for underwriter personnel to whom requests for copies of the OS should be made.  The MSRB seeks comment on whether this provision is appropriate or whether such a voluntary system would result in problems either in the new issue market or in secondary market trading.  Are there any alternative approaches that would be more appropriate?

Designated Electronic Format for Document Submissions (Rule G-32(b)(vi)(A) and Rule G-32(d)(vi)).  The original draft amendments would require that all documents submitted to the system be in a designated electronic format, which was defined as any electronic format for OSs and other documents that are acceptable for purposes of the central dissemination system.  The revised draft amendments include a more specific definition of that term, providing that an electronic document must be in an electronic format acceptable to the MSRB, word-searchable, and must permit the document to be saved, viewed, printed and retransmitted by electronic means using software generally available for free or on a commercial basis to non-business computer users. Documents in portable document format that are word-searchable and may be saved, viewed, printed and retransmitted by electronic means would be deemed to be in a designated electronic format.  The MSRB seeks comment on this revised definition.

Timing of Initiation of Submissions (Rule G-32(b)(vi)(B) and Rule G-32(d)(xii)).  In the January 2007 Notice, the MSRB stated that it anticipated that the Form G-32 submission process would be initiated by the submission of the CUSIP number information and initial offering prices for each maturity shortly after the bond sale, with the OS and additional required information provided as they become available.  The MSRB noted that paragraph (a)(ii)(C) of Rule G-34, on CUSIP numbers and new issue requirements, currently requires underwriters to disseminate CUSIP information by the time of the first execution of a transaction in virtually all new issues.  The revised draft amendments would require underwriters to initiate the submission process by no later than the Time of First Execution, as defined in Rule G-34.  The MSRB seeks comment on this time frame for initiating the submission process.

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Comments on the revised draft amendments should be submitted no later than December 17, 2007, and may be directed to Ernesto A. Lanza, Senior Associate General Counsel.[12]  Written comments will be available for public inspection at the MSRB’s public access facility and also will be posted on the MSRB web site.[13]

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TEXT OF PROPOSED RULE CHANGE TO IMPLEMENT PILOT PORTAL
[Filed with the SEC – comments should be submitted to the SEC]

OS/ARD Facility – Official Statement and Advance Refunding Document system (OS/ARD) of the MUNICIPAL SECURITIES INFORMATION LIBRARY^® system or MSIL^® system

[No change to existing text – the following text is inserted at the end of existing text]

Pilot Portal for Internet-Based Dissemination of OS/ARD Collection

In anticipation of the expected adoption by the Board of an “access equals delivery” standard for OS dissemination under Rule G-32, on disclosures in connection with new issues, the Board is implementing, on a pilot basis, an Internet-based public access portal (the “pilot portal”) to provide free access to OSs and ARDs submitted by underwriters to the MSIL system.  Copies of all OSs and ARDs received by the Board through existing document submission processes on or after implementation of the pilot portal will be made available to the public as PDF files for viewing, printing and downloading at the pilot portal promptly after acceptance and processing, and will remain publicly available for the life of the municipal securities. It is anticipated that OSs and ARDs submitted to the Board prior to implementation of the pilot portal also will become available through the pilot portal or the permanent system described below as such back-log collection is migrated to the pilot portal or permanent system platform.  OSs and ARDs will continue to be available under current terms through the daily and back-log collections produced by the MSIL system and at the public access facility throughout the service life of the pilot portal.

The pilot portal will provide on-line search functions utilizing the MSIL system computer index to ensure that users of the pilot portal are able to readily identify and access documents that relate to specific municipal securities.  Basic identifying information available from the MSIL system relating to specific municipal securities and/or specific issues will accompany the display of OSs and ARDs to help ensure that users have successfully accessed the materials they are seeking.  It is anticipated that additional information relating to such municipal securities and/or issues available from other Board systems (including but not limited to the Board’s Real-Time Transaction Reporting System) also may be made available to users in conjunction with OSs and ARDs accessed through the pilot portal.

The pilot portal is expected to operate for a limited period of time as the Board transitions to a permanent integrated system of electronic submissions of disclosure documents to the Board and real-time availability of such documents through a full-function public portal.  The permanent system (which will be the subject of a subsequent filing by the Board) will become operational simultaneously with the effective date for the Board’s proposed “access equals delivery” standard for OS dissemination under Rule G-32.  At that time, the functions of the pilot portal, along with other key features of the current MSIL system and additional functional improvements (including but not limited to establishment of real-time subscriptions to the complete document collections processed through the permanent system), will be incorporated into the permanent system.  The permanent system is expected to replace the MSIL system once this transition is completed and all critical functions and information stores (including but not limited to the complete OS/ARD back-log collection) of the MSIL system have been transferred to the new permanent system or are able to be handled by other Board processes.

 

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CLICK HERE TO VIEW AND SUBMIT COMMENTS ON SAMPLE COMPREHENSIVE DISCLOSURE DISPLAY

 

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TEXT OF REVISED DRAFT AMENDMENTS TO RULE G-32
[Comments should be submitted to the MSRB]

Rule G-32.  New Issue Disclosure Practices[14]

(a) Dealer Disclosures to New Issue Customers.

(i)-(ii) No additional changes.

(iii) Any dealer that sells any new issue municipal securities to a customer with respect to which the delivery obligation under subsection (a)(i) of this rule is deemed satisfied pursuant to subsection (a)(ii) of this rule shall provide to the customer, by no later than two business days following the settlement of such transaction, either:

(A) No additional changes.

(B) a notice advising the customer as to how to obtain to the effect that the official statement is available from the MSIL/Access system and that a copy of the official statement will be provided upon request, which notice shall include the uniform resource locator (URL) where the official statement may be obtained.

If a dealer provides notice to a customer pursuant to paragraph (a)(iii)(B), such dealer shall, upon request from the customer, promptly send a copy of the official statement to the customer.

(iv)-(v) No additional changes.

(b) Underwriter Submissions to MSIL/Access system.

            (i) Official Statements and Preliminary Official Statements.

(A) Subject to paragraphs (B) and (C) of this subsection (i), each underwriter in a primary offering of new issue municipal securities shall submit the official statement to the MSIL/Access system within one business day after receipt of the official statement from the issuer or its designated agent, but by no later than the closing date.

(B) No additional changes.

(C) Notwithstanding paragraphs (A) and (B) of this subsection, the underwriter in a primary offering of new issue municipal securities not subject to Securities Exchange Act Rule 15c2-12 by virtue of paragraph (d)(1)(i) thereof for which an official statement has been prepared shall not be required to submit the official statement to the MSIL/Access system if:

(1) the underwriter submits to the MSIL/Access system:

(a) the information required under subparagraph (b)(vi)(A)(1) of this rule with respect to such primary offering within the timeframes set forth therein;

(b) by no later than the closing date:

(i) a certification to the effect that all of the municipal securities in such primary offering are in authorized denominations of $100,000 or more and have been sold to no more than 35 persons each of whom the underwriter reasonably believes has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of the prospective investment and is not purchasing for more than one account or with a view to distributing the securities;

(ii) notice that an official statement has been prepared but has not been made available through the MSIL/Access system and that the underwriter will provide the official statement to all customers purchasing the new issue municipal securities from the underwriter or from any other dealer upon request; and

(iii) contact information, including mailing address, telephone number and e-mail address and the name of an associated person of the underwriter, for making requests for the official statement; and

(2) the underwriter delivers the official statement to each customer purchasing the new issue municipal securities from the underwriter or from any other dealer upon request, by the later of one business day after request or the settlement of the customer’s transaction.

(ii)-(v) No additional changes.

(vi) Submission Procedures and Form G-32 Information.

(A) All submissions required under this rule shall be made by means of Form G-32 and shall be submitted electronically to the MSIL/Access system in such format and manner, and shall include such information, as specified herein and in the Form G-32 Manual.  All official statements, preliminary official statements, advance refunding documents and amendments thereto submitted to the MSIL/Access system under this rule shall be in a designated electronic format.

(B) The underwriter in any primary offering of municipal securities for which a document or information is required to be submitted to the MSIL/Access system under this section (b) shall initiate such submission by no later than the Time of First Execution by providing such information as specified in the Form G-32 Manual.

(C) (B) Form G-32 and any related documents shall be submitted by the underwriter or by any submission agent designated by the underwriter pursuant to procedures set forth in the Form G-32 Manual.  The failure of a submission agent designated by an underwriter to comply with any requirement of this rule shall be considered a failure by such underwriter to so comply.

(c) No additional changes.

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

(i)-(v) No additional changes.

(vi) The term “designated electronic format” shall mean the computerized an electronic format of a word-searchable document designated in the current Form G-32 Manual as an acceptable electronic format for submission or preparation of documents pursuant to section (b) or (c) of this rule that permits such document to be saved, viewed, printed and retransmitted by electronic means using software generally available at the time such document is provided under this rule for free or on a commercial basis to non-business computer users. Documents in portable document format that are word-searchable and may be saved, viewed, printed and retransmitted by electronic means shall be deemed to be in a designated electronic format for purposes of this rule.

(vii)-(xi) No additional changes.

(xii) The term “Time of First Execution” shall have the meaning set forth in Rule G-34(a)(ii)(C)(1)(b).