MSRB NOTICE 2008-16 (March 18, 2008)

REQUEST FOR COMMENT REGARDING GROUP ORDERS UNDER RULE G-11, ON NEW ISSUE SYNDICATE PRACTICES, AND NOTICE OF TECHNICAL AMENDMENTS TO
RULES G-11 AND G-12

Request for Comment

The Municipal Securities Rulemaking Board (“MSRB”) is requesting comment on whether certain provisions of Rule G-11 raise privacy concerns for brokers, dealers or municipal securities dealers (“dealers”) participating in a new issue syndicate.  Rule G-11 sets forth basic requirements for dealers serving as senior managers or members of underwriting syndicates.  Specifically, Rule G-11(d) requires, among other things, that a dealer that submits a group order to a syndicate or a member of a syndicate must disclose the identity of the person for whom the order is submitted at the time of submission of the order.  Rule G-11(h)(ii)(B) requires the senior syndicate manager to provide to syndicate members a summary statement showing, among other things, the identity of each person submitting a group order to which an allocation has been made and the amount and maturity date of securities so allocated.

The MSRB recognizes the growing importance of protecting the privacy of a customer’s confidential information, including a customer’s identity, which is generally considered "financial" information if a financial institution obtains it in order to provide a financial product or service.  Thus, the MSRB is requesting comment on whether revealing the identity of the person for whom a group order is submitted, as required by Rule G-11, is in tension with the obligation to safeguard a customer’s financial information under the various regulatory regimes to which dealers are subject.[1]  In addition, the MSRB is requesting comment on whether such requirement may result in certain investors electing not to participate in an offering because of their concerns about having their identity revealed, and thus, possibly resulting in a higher net interest cost to issuers for such issues.  Specifically, the MSRB requests comments on whether these provisions should be deleted from the rule or should other modifications to the rule be made to address potential privacy concerns and potential impact on issuers, while continuing to provide syndicate members with information about group orders?

Comments about this notice should be submitted to the MSRB by May 2, 2008 and may be directed to Catherine A. Courtney, Assistant General Counsel.  Written comments will be available for public inspection upon request and also will be posted on the MSRB website.[2]

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Technical Amendments Filed

On March 18, 2008, the MSRB filed with the Securities and Exchange Commission (“SEC”) amendments to Rules G-11 and G-12.[3]  The MSRB has determined to consolidate the syndicate practice provisions into Rule G-11 by deleting the syndicate-related sections of Rule G-12 and inserting them into Rule G-11, as well as to make minor technical corrections to Rule G-11.  This consolidation will put the MSRB’s syndicate practice requirements into a single rule and thereby reduce the possibility of rule violations due to inadvertent failures to note the additional syndicate practice provisions that are currently embedded in Rule G-12 among other un-related provisions.

In addition, the Board has determined to delete Rule G-12(i), on good faith deposits, in order to clarify and modernize its rules to bring them into line with the realities of current market practice without compromising investor protection.   A good faith deposit was in the past generally delivered to a municipal bond issuer by a firm competing for the underwriting business of the issuer.  If the syndicate was not successful in purchasing the issue, Rule G-12(i) required the syndicate manager to return the deposit to the members of the syndicate within two business days following the return of the deposit from the issuer.  Under current market practice, generally such deposits are not advanced either because they are not required by issuers or are treated as an expense of the syndicate for which syndicate managers give an accounting to syndicate members pursuant to MSRB rules.

Questions about the amendments may be directed to Catherine A. Courtney, Assistant General Counsel.

March 18, 2008

TEXT OF AMENDMENTS[4]

Rule G-11: New Issue Syndicate Practices

(a)-(c) No change.

(d) Disclosure of Group Orders. Every broker, dealer or municipal securities dealer that submits a group order to a syndicate or to a member of a syndicate shall disclose at the time of submission of such order the identity of the person for whom the order is submitted. This section shall not apply to a qualified note syndicate as defined in subsection (a)(ix) paragraph (a)(x) above.

(e)-(f) No change.

(g) Designations and Allocations of Securities. The senior syndicate manager shall:

(i)-(ii) No change.

(iii) disclose, in writing, to each member of the syndicate all available information on designations paid to syndicate and non-syndicate members expressed in total dollar amounts within 10 business days following the date of sale and all information about designations paid to syndicate and non-syndicate members expressed in total dollar amounts with the sending of the designation checks pursuant to section (j) below rule G-12(k); and

(iv) No change.

(h) Disclosure of Syndicate Expenses and Other Information. At or before the final settlement of a syndicate account, the senior syndicate manager shall furnish to the other members of the syndicate:

(i) No change.

(ii) a summary statement showing:

(A) No change.

(B) the identity of each person submitting a group order to which securities have been allocated as well as the aggregate par value and maturity date of each maturity so allocated except that this subparagraph shall not apply to the senior syndicate manager of a qualified note syndicate as defined in subsection (a)(ix) paragraph (a)(x) above; and

(C) the aggregate par values and prices (expressed in terms of dollar prices or yields) of all securities sold from the syndicate account. This subparagraph shall not apply to a qualified note syndicate as defined in subsection (a)(ix) paragraph (a)(x) above.

 (i) Settlement of Syndicate or Similar Account. Final settlement of a syndicate or similar account formed for the purchase of securities shall be made within 60 calendar days following the date all securities have been delivered by the syndicate or account manager to the syndicate or account members.

(j) Payments of Designations. Any credit designated by a customer in connection with the purchase of securities as due to a member of a syndicate or similar account shall be distributed to such member by the broker, dealer or municipal securities dealer handling such order within 30 calendar days following the date the issuer delivers the securities to the syndicate.

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Rule G-12:  Uniform Practice

(a)-(h) No change.

(i) Good Faith Deposits. Good faith deposits shall be returned by the manager of a syndicate or similar account formed for the purchase of securities from an issuer, to the members of the syndicate or account within two business days following the date of settlement with the issuer, or, in the event the syndicate or account is not successful in purchasing the issue, within two business days following the return of the deposit from the issuer.

(j) Settlement of Syndicate or Similar Account. Final settlement of a syndicate or similar account formed for the purchase of securities shall be made within 60 days following the date all securities have been delivered by the syndicate or account manager to the syndicate or account members.

(k) Any credit designated by a customer in connection with the purchase of securities as due to a member of a syndicate or similar account shall be distributed to such member by the broker, dealer or municipal securities dealer handling such order within 30 calendar days following the date the issuer delivers the securities to the syndicate.

(i) (l) Interest Payment Claims. No change.