(Volume 15, Number 3 ) October 1995
ROUTE TO: Manager, Muni Department Trading Sales Operations Compliance
The Board has filed proposed amendments to rules G-12 and G-34 on new issue requirements.
On August 14, 1995, the Board filed with the Securities and Exchange Commission (SEC or Commission) proposed amendments to rules G-12 and G-34 concerning the setting of settlement dates for "when, as and if issued" transactions, confirmations of inter-dealer transactions, the provision of new issue information to registered securities clearing agencies, and technical purposes of rule organization.[1] The amendments will become effective 30 days after approval by the Commission.
On February 28, 1995, the SEC approved amendments to Board rules G-12(b) and G-15(b) redefining regular-way settlement as three rather than five business days (T+3 settlement). Since that time the Board has been reviewing its rules to determine other appropriate changes to accommodate T+3 settlement within the municipal securities market. The proposed amendments will support T+3 settlement and are designed generally to facilitate automated clearance and settlement of municipal securities and support the Board's Transaction Reporting Program.
Rule G-12(f) requires all inter-dealer transactions eligible for automated comparison to be compared in an automated comparison system operated by a registered clearing agency. The amendment to rule G-12(b)(ii) would require that, for when, as and if issued (when-issued) transactions eligible for automated comparison, the settlement date of the transaction not be earlier than two business days after notification of the initial settlement date for the issue is provided by the managing underwriter to the registered clearing agency.[2] These changes reflect current capabilities of the automated comparison system to process when-issued transactions upon two days notice of settlement date from the underwriter.
Rule G-12(b) currently requires that, for the rare inter-dealer transactions not eligible for automated comparison, the settlement date of a when-issued transaction not be earlier than the fifth business day following the date the physical confirmation indicating final settlement date is sent (six days for syndicate transactions).[3] The amendment would require that the settlement date for ineligible when-issued transactions not be earlier than the third business day following the date that the confirmation indicating final settlement is sent.
The amendments also would amend rule G-12(c) on the sending of confirmations for inter-dealer transactions not eligible for automated comparison. For ineligible when-issued transactions the amendments would reduce the time period for sending: (i) the initial confirmation from two days to one day after trade; and (ii) the final confirmation from five business days to three business days prior to the settlement date. For ineligible regular-way transactions, the proposed rule change would change the requirement for sending a confirmation from one day after trade date to trade date.
The changes to rules G-12(b) and G-12(c) generally accelerate the timing for sending confirmations and allow for settlements of when-issued transactions on a shorter time frame. The Board believes that these changes will allow for more efficient clearance and settlement and will help conform the municipal securities market to the shorter settlement cycle. In addition, the amendments to rule G-34 would require underwriters to submit interest rate and final maturity information to the registered clearing agency offering comparison services as soon as it is known. The Board is aware of instances in which incomplete or inaccurate security descriptions for new issue municipal securities are available in the initial days of trading in the issue. The Board's Transaction Reporting Program and participants in the municipal securities market rely on accurate and complete security descriptions in the automated comparison system. The new requirement is designed to ensure that the registered securities clearing agencies have the information necessary to provide accurate descriptions and to calculate accurately final money amounts. Since the Board's Transaction Reporting Program is linked to the automated comparison system, this proposed amendment also will facilitate accurate prices and security descriptions in that system.
The proposed amendments move the requirement that underwriters provide the registered clearing agency with notification of settlement date as soon as it is known from rule G-12(b) to rule G-34. The placement of this requirement within rule G-34 is part of the Board's plan to include basic new issue requirements for underwriters within one rule.[4] The proposed rule change also makes technical changes in rule language to make clear the different processing requirements for transactions that are eligible vs. those that are ineligible for automated comparison.
August 14, 1995
G-12. UNIFORM PRACTICE (a) No change. (b) Settlement Dates. (i) No change. (ii) Settlement Dates. Settlement dates shall be as follows: (A) - (B) No change. (C) for "when, as and if issued" transactions, a date agreed upon by both parties, which date {shall not be earlier than the fifth business day following the date the confirmation indicating the final settlement date is sent, or with respect to transactions between the manager and members of a syndicate or account formed to purchase securities from an issuer, a date not earlier than the sixth business day following the date the confirmation indicating the final settlement date is sent; provided, however, that for when, as and if issued transactions compared through the automated comparison facilities of a registered clearing agency under section (f) of this rule, a managing underwriter shall provide the registered clearing agency with the settlement date as soon as it is known and shall immediately inform the registered clearing agency of any changes in such settlement date:} *(1) with respect to transactions required to be compared in an automated comparison system under rule G-12(f)(i), shall not be earlier than two business days after notification of initial settlement date for the issue is provided to the registered clearing agency by the managing underwriter for the issue as required by rule G-34(a)(ii)(D)(2); and (2) with respect to transactions not eligible for automated comparison, shall not be earlier than the third business day following the date that the confirmation indicating the final settlement date is sent;* and (D) No change. (c) Dealer Confirmations. *All municipal securities transactions that are ineligible for automated comparison in a system operated by a registered clearing agency shall be subject to the provisions of this section (c).* (i) Except as otherwise indicated in this section (c), each party to a transaction shall send a confirmation of the transaction to the other party *on* {within one business day following} the trade date. (ii) Confirmations of cash transactions shall be exchanged *by telephone* on the trade date,{which may be accomplished by telephone} with written confirmation sent within one business day following the trade date. (iii) For transactions effected on a "when, as and if issued" basis, initial confirmations shall be sent within {two} *one* business day{s} following the trade date. Confirmations from a syndicate or account manager to the members of the syndicate or account may be in the form of a letter, covering all maturities of the issue, setting forth the information hereafter specified in this section (c). Confirmations indicating the final settlement date shall be sent by the seller at least {five} *three* business days prior to the settlement date {or, with respect to transactions between the manager and members of a syndicate or account formed to purchase securities from an issuer, at least six business days prior to the settlement date; provided, however, that if the settlement date is accelerated pursuant to subparagraph (b)(ii)(C) above, final confirmations shall be sent by each seller immediately upon determination by it of the settlement date.} (iv){For transactions in new issue securities having a settlement date more than six business days following the trade date for which only one confirmation is sent, such confirmation shall be sent within two business days following the trade date.} *Reserved for future use.* (v) - (vi) No change. (d) - (l) No change.
Rule G-34. CUSIP Numbers and *New Issue Requirements,* {Dissemination of Initial Trade Date Information and Depository Eligibility} (a) New Issue Securities. (i) Assignment of *CUSIP* Numbers. (No change in text). (ii) *Application for Depository Eligibility, CUSIP* Number Affixture *and Initial Communications.* Each {municipal securities} broker, *dealer* or municipal securities dealer who acquires, whether as principal or agent, a new issue of municipal securities from the issuer of such securities for the purpose of distributing such new issue *("underwriter")* shall *carry out the following functions:,* {prior to the delivery of such securities to any person, affix to, or arrange to have affixed to, the securities certificates of such new issue the CUSIP number assigned to such new issue. If more than one CUSIP number is assigned to the new issue, each such number shall be affixed to the securities certificates of that part of the issue to which such number relates.} *(A) Except as otherwise provided in this subparagraph (ii)(A), the underwriter shall apply to a securities depository registered with the Securities and Exchange Commission, in accordance with the rules and procedures of such depository, to make such new issue depository-eligible. The application required by this subparagraph (ii)(A) shall be made as promptly as possible, but in no event later than one business day after award from the issuer (in the case of a competitive sale) or one business day after the execution of the contract to purchase the securities from the issuer (in the case of a negotiated sale). In the event that the full documentation and information required to establish depository eligibility is not available at the time the initial application is submitted to the depository, the underwriter shall forward such documentation as soon as it is available; provided, however, this subparagraph (ii)(A) of this rule shall not apply to:* *(1) an issue of municipal securities that fails to meet the criteria for depository eligibility at all depositories that accept municipal securities for deposit; (2) any new issue maturing in 60 days or less; (3) any new issue that is less than $1 million in par value; provided, however, that this exemption shall expire July 1, 1996.* *(B) The underwriter, prior to the delivery of such securities to any other person, shall affix to, or arrange to have affixed to, the securities certificates of such new issue the CUSIP number assigned to such new issue. If more than one CUSIP number is assigned to the new issue, each such number shall be affixed to the securities certificates of that part of the issue to which such number relates.* *(C) The underwriter, on initial trade date, shall communicate the following information to syndicate and selling group members:* *(1) the CUSIP number or numbers assigned to the issue and descriptive information sufficient to identify the CUSIP number corresponding to each part of the issue assigned a specific CUSIP number; and (2) the initial trade date. For purposes of this subparagraph (a)(ii)(C), initial trade date shall mean, for competitive issues, either the date of award, or the first date allocations are made to syndicate or selling group members, whichever date is later, and, for negotiated issues, either the date on which the contract to purchase the securities from the issuer is executed, or the first date allocations are made to syndicate or selling group members, whichever date is later.* *(D) For any new issue of municipal securities eligible for comparison through the automated comparison facilities of a registered clearing agency under section (f) of rule G-12, the underwriter shall provide the registered securities clearing agency responsible for comparing when, as and if issued transactions with:* *(1) final interest rate and maturity information about the new issue as soon as it is available; and (2) the settlement date of the new issue as soon as it is known and shall immediately inform the registered clearing agency of any changes in such settlement date.* {(iii) Application for Depository Eligibility.} {(A) Except as otherwise provided in this subparagraph (iii), each broker, dealer or municipal securities dealer who acquires, whether as principal or agent, a new issue of municipal securities from the issuer of such securities for the purpose of distributing such new issue shall apply to a securities depository registered with the Securities and Exchange Commission, in accordance with the rules and procedures of such depository, to make such new issue depository-eligible. The application required by this subparagraph (A) shall be made as promptly as possible, but in no event later than one business day after award from the issuer (in the case of a competitive sale) or one business day after the execution of the contract to purchase the securities from the issuer (in the case of a negotiated sale). In the event that the full documentation and information required to establish depository eligibility is not available at the time the initial application is submitted to the depository, the broker, dealer or municipal securities dealer shall forward such documentation as soon as it is available.} {(B) Subparagraph (iii)(A) of this rule shall not apply to an issue of municipal securities that fails to meet the criteria for depository eligibility at all depositories that accept municipal securities for deposit.} {(C) Subparagraph (iii)(A) of this rule shall not apply to any new issue maturing in 60 days or less.} {(D) Subparagraph (iii)(A) of this rule shall not apply to any new issue that is less than $1 million in par value, provided however, that this exemption shall expire July 1, 1996.} *(iii) Underwriting Syndicate. In the event a syndicate or similar account has been formed for the purchase of a new issue of municipal securities, the managing underwriter shall take the actions required of the underwriter under the provisions of this section (a).* {(iv) Underwriting Syndicate. In the event a syndicate or similar account has been formed for the purchase of a new issue of municipal securities, the managing underwriter shall take the actions required under the provisions of this rule.} (b) No Change. (c){Each municipal securities broker or municipal securities dealer who acquires, whether as principal or agent, a new issue of municipal securities from the issuer of such securities for the purpose of distributing the new issue shall on the initial trade date communicate the following information to syndicate and selling group members:} {(i) the CUSIP number or numbers assigned to the issue and descriptive information sufficient to identify the CUSIP number corresponding to each part of the issue assigned a specific CUSIP number; and} {(ii) the initial trade date. For purposes of this paragraph (c), initial trade date shall mean, for competitive issues, either the date of award, or the first date allocations are made to syndicate or selling group members, whichever date is later, and, for negotiated issues, either the date on which the contract to purchase the securities from the issuer is executed, or the first date allocations are made to syndicate or selling group members, whichever date is later.} {(d)} CUSIP Number Eligibility. The provisions of this rule shall not apply to an issue of municipal securities (or for the purpose of section (b) any part of an outstanding maturity of an issue) which does not meet the eligibility criteria for CUSIP number assignment.
[1] File No. SR-MSRB-95-14. Comments submitted to the Commission should refer to this file number. [2] The automated comparison system requires two days advance notice of the initial settlement date of an issue from the underwriter to process when-issued transactions for the underwriter and all other dealers. The system serves to inform dealers who have when isssued transactions in an issue of the issue's initial settlement date. Rule G-12(b) currently requires the underwriter to provide the initial settlement date for a new issue to the registered clearing agency offering automated comparison services as soon as it is known or immediatly upon a change. The amendments keep this requirement, but move it to rule G-34, as part of a reorganization of rules G-12 and G-34. [3] Nearly all new issue municipal securities are eligible for automated comparison with the exception of those that do not meet the CUSIP numbering eligibility requirements. [4] Rule G-34 currently requires underwriters, for new issue municipal securities, to : (i) apply for CUSIP numbers; (ii) apply for depository eligibility; and (iii) communicate CUSIP numbers and the initial trade date to syndicate and selling group members.
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