(Volume 15, Number 3) October 1995
Route To: Manager, Muni Department Sales Operations Compliance
Amendment Approved The amendment (1) clarifies the current customer confirmation requirements by reorganizing the rule and incorporating previous Board interpretations into the language of the rule; (2) revises certain requirements in areas where the Board believes that more disclosure is necessary; and (3) includes certain other modifications to the current confirmation disclosure requirements.
Questions about the amendment may be directed to Marianne I. Dunaitis, Assistant General Counsel.
On July 11, 1995, the Securities and Exchange Commission (SEC or Commission) approved an amendment to rule G-15 (a), regarding customer confirmations.[1] The amendment (1) clarifies the current customer confirmation requirements by reorganizing the rule and incorporating previous Board interpretations into the language of the rule; (2) revises certain requirements in areas where the Board believes that more disclosure is necessary; and (3) includes certain other modifications to the current confirmation disclosure requirements. The amendment will become effective on November 15, 1995.
As part of the Board's ongoing customer protection review, the Board reviewed rule G-15(a) regarding customer confirmations and decided that it would be beneficial to improve, in certain areas, the disclosure provided on the confirmation. In June 1994, the Board published a Request for Comments on a draft amendment to rule G-15(a). The draft amendment reorganized the rule and incorporated previous Board interpretations into the rule, revised certain requirements where the Board believed more disclosure would be appropriate, and included other relatively minor modifications to simplify and clarify the requirements of the rule and to promote better compliance. After reviewing these matters and the comments received, the Board approved an amendment to rule G-15(a) which includes a number of revisions to the draft amendment. The amendment also responds to recent revisions by the SEC to its Rule 10b-10, the confirmation rule applicable to transactions in securities other than municipal securities, and to the SEC's proposed Rule 15c2-13 which would have required certain disclosures to be made on confirmations for transactions in municipal securities.[2]
Reorganization of Current Rule Including Codification of Interpretations Rule G-15(a) provides requirements for the format and content of confirmations to customers. The amendment clarifies rule G-15(a) by reorganizing the rule and incorporating Board interpretations into the rule. Most requirements in the revised rule are subdivided by subject matter into three broad categories that comprise the content of municipal securities confirmations -- terms of the transaction, securities identification, and the features of the securities ("securities description"). Under each category, Board rules and interpretations are organized by specific confirmation requirement. For example, under the securities identification section of the amendment, all existing rules and Board interpretive notices specifying how the interest rate should be expressed on the confirmation for various categories of municipal securities transactions have been codified.[3] This reorganization should assist operations personnel in programming automated systems for generating municipal securities confirmations since it will no longer be necessary to review all previous interpretive notices on confirmations to find those that may address the statement of interest rate for a particular type of municipal security.
The amendment revises some requirements that the Board feels will strengthen the disclosure and customer protection objectives of the rule while updating the requirements of the customer confirmation.
Disclosure if a Security is Unrated In November 1994, the SEC approved amendments to Rule 10b-10 of the Securities Exchange Act, the confirmation rule applicable to transactions in securities other than municipal securities. At the same time, the SEC deferred consideration of proposed Rule 15c2-13 that would have established certain confirmation requirements applicable to transactions in municipal securities. The SEC's amendments to Rule 10b-10 require, among other things, that dealers disclose if a debt security, other than a governmental security, has not been rated by a nationally recognized statistical rating organization. The SEC had proposed a similar requirement for municipal securities confirmations in its proposed Rule 15c2-13. The SEC noted that this disclosure is not intended to suggest that an unrated security is inherently riskier than a rated security; instead, this disclosure is intended to alert customers that they may wish to obtain further information or clarification from their dealer. Previously, the Board indicated in its comment to the SEC that, if the SEC determined information as to whether a security is unrated was needed by investors in debt securities, the Board would amend rule G-15 to include this requirement. The amendment includes this provision in rule G-15(a)(i)(C)(3)(f).
Call Provisions Currently, for many bonds, only a designation of "callable" is required by rule G-15(a)(i)(E), along with the following legend provided by rule G-15(a)(iii)(F) which can be indicated in a footnote or otherwise: "Call features may exist which could affect yield; complete information will be provided upon request."
The amendment in rule G-15(a)(i)(C)(2)(a) revises the existing confirmation requirements regarding call features. It requires that the date and price of the next pricing call always be disclosed.[4] It also requires the following notation on the confirmation if any call features exist in addition to the next pricing call --"Additional call features exist that may affect yield; complete information will be provided upon request." The amendment in rule G-15(a)(i)(E) requires this notation to be on the front of the confirmation. This substitutes for the current legend requirement, which typically has resulted in call legends being pre-printed on the back of the confirmation.
The Board believes that disclosure of call features is particularly important to customers and that the pre-printed legend on the back of the confirmation has not always been effective in alerting customers to the existence of call features. The amendment puts customers clearly on notice as to the presence of call features on the front of the confirmation, including a specific date and price for the next pricing call (one of the most important elements of call information) and the existence of any other call features in addition to this call.
Revenue Bonds and Additional Obligors Currently, with regard to revenue bonds, rule G-15(a)(i)(E) provides that the disclosure of the source of revenue on the confirmation is required only "if necessary for a materially complete description of the securities." The amendment in rule G-15(a)(i)(C)(1)(a) requires dealers to put the primary revenue source for revenue bonds on the confirmation (e.g., project name) and deletes the language "if necessary for a materially complete description of the securities." The Board believes that requiring disclosure of the primary revenue source of revenue bonds on the confirmation will help ensure that customers receive important information about such bonds.
Additional Obligors Currently, with regard to additional obligors, confirmation disclosure of such information is required under rule G-15(a)(i)(E) only "if necessary for a materially complete description of the securities." In such instances, the confirmation must disclose the name of any company or other person in addition to the issuer obligated, directly or indirectly, with respect to debt service or, if there is more than one such obligor, the statement "multiple obligors" may be shown. The amendment in rule G-15(a)(i)(C)(1)(b) deletes the language "if necessary for a materially complete description of the securities;" thus the amendment requires dealers always to identify the additional obligor on the confirmation or indicate "multiple obligors" if there are more than one additional obligors. The Board believes this will simplify and clarify the intent of the rule. The amendment also clarifies that, if a letter of credit is used, the identity of the bank issuing the letter of credit must be noted.
Limited Tax Currently, rule G-15(a)(i)(E) provides that the description of the bonds should specify if they are "limited tax." Traditionally, a limited tax bond is a general obligation bond secured by the pledge of a specified tax (usually the property tax) or category of taxes which is limited as to rate or amount. However, the meaning of this "limited tax" designation has become ambiguous as various states have implemented a variety of tax limitation measures and the Board is unaware of any clear standards that may be used to separate limited and unlimited tax municipal securities. The amendment thus deletes the "limited tax" designation requirement.
Dealers Acting as Agent and Receiving "Other Remuneration" Currently, rule G-15(a)(ii) provides that, in agency transactions, remuneration paid by the customer always must be disclosed, but if a dealer receives "other" remuneration (i.e., remuneration from a source other than the customer), it is sufficient to indicate that other remuneration was received and that details will be furnished to the customer upon written request. The Board has received inquiries whether the "discount" received by a dealer in an inter-dealer transaction undertaken as agent for a customer should be considered as "other remuneration." The amendment in rule G-15(a)(i)(A)(1)(e) clarifies this by stating that in an agency transaction for a customer, if a dealer acquires a bond from another dealer at a discount (e.g., "net" price less concession) and the customer pays the "net" price, the inter-dealer discount or concession received by the dealer cannot be considered "other remuneration," but rather should be considered remuneration received from the customer. Thus, the amendment clarifies that the amount of the "discount" or concession must be disclosed on the confirmation in these agency transactions pursuant to rule G-15(a)(i)(A)(6)(f).
"Ex-legal" Delivery Designation Currently, rule G-15(a)(iii)(I)(1) requires that the confirmation must note whether a transaction is "ex-legal." This term refers to the absence of a written copy of the legal opinion attached to the bond certificate for physical delivery. This provision was adopted when nearly all deliveries of municipal securities were accomplished with physical deliveries of certificates which included a copy of the legal opinion. With the movement away from physical deliveries and the high percentage of book-entry-only securities in the markets, the Board believes that this requirement is no longer necessary and the amendment deletes the "ex-legal" delivery designation.
Zero Coupon Bonds Currently, rule G-15(a)(v) provides a number of specific confirmation requirements for zero coupon bonds, including disclosure that the interest rate is 0% and, if the securities are callable and available in bearer form, a statement to that effect which can be satisfied by the following legend: "No periodic payments -- callable below maturity value without prior notice by mail to holder unless registered." The amendment retains these requirements.
In addition, the amendment in rule G-15(a)(i)(A)(6)(h) requires that the amount of any premium paid over accreted value for callable zero coupon bonds be included on confirmations. The accreted value for a zero coupon bond reflects the increase in the security's value as it approaches the maturity date. For zero coupon bonds that are callable, the call price is generally at the accreted value. The Board believes it is important for customers to know that such securities may be affected by an early call and that a premium over the accreted value is being paid in the purchase price. In general, a customer purchasing a typical, interest-paying municipal security understands that a price above "100" indicates the customer is paying a premium price and that, if the security contains any call features, such features should be considered carefully. The importance of reviewing call features, however, is not as apparent with callable zero coupon securities, where a customer may not be aware of the relationship between a potential call price and the accreted value of the security being purchased. Accordingly, the amendment requires dealers to disclose on the confirmation any premium paid over the accreted value for callable zero coupon bonds.
Original Issue Discount Securities Currently, a dealer must disclose on the confirmation whether securities are sold as "original issue discount" securities pursuant to rule G-15(a)(iii)(H). The amendment in rule G-15(a)(i)(C)(4)(c) also requires the dealer to disclose the initial public offering price for such securities. The Board believes that this information is particularly important to customers since it may be needed for tax purposes and also may be important if the security is subject to an early call.
Disclosure regarding CMOs The SEC's amendment to its Rule 10b-10 provides that the dealer must include a statement on the confirmation indicating that the actual yield of collateralized mortgage obligations (CMOs) may vary according to the rate at which the underlying receivables or other financial assets are prepaid, and a statement of the fact that information concerning the factors that affect yield (including, at a minimum, estimated yield, weighted average life, and the prepayment assumptions underlying yield) will be furnished upon the written request of a customer. The amendment in rule G-15(a)(i)(D)(2) includes a similar provision for municipal CMOs.
First Interest Payment Date (including if not semi-annual) Currently, rule G-15(a)(iii)(A) is ambiguous as to whether the first interest payment date must be included on the confirmation in all instances in which there is no regular semi-annual interest payment, or only if the first payment date is necessary for purposes of calculation of final monies. The amendment in rule G-15(a)(A)(6)(g) clarifies that the first interest payment date is required on the confirmation only in those cases in which it is necessary for the calculation of final money. For example, it would not be required for transactions in the issue occurring after the first interest payment date.
Yield Information Currently, there is not a specific exemption for statement of yield on transactions in defaulted bonds, bonds that prepay principal and variable rate securities that are not sold on basis of yield to put. The amendment in rule G-15(a)(i)(A)(5)(d) includes specific exemptions for these types of transactions.
Multi-Transaction Data Should Not Be Aggregated on One Confirmation Currently, rule G-15(a) provides that, at or before the completion of a transaction in municipal securities, dealers must provide the customer with a written confirmation of the transaction. The current rule does not specifically indicate that customers should receive a separate confirmation for each transaction. The Board previously has stated that, if a customer purchased from a dealer several different securities of one issuer, it would be inappropriate for the dealer to aggregate on the confirmation the accrued interest for all the bonds acquired or to aggregate yield data and disclose the "yield to the average life" rather than providing yield to maturity information for each bond acquired.[5] The amendment in rule G-15(a)(ii) clarifies that a separate confirmation must be provided for each municipal securities transaction whenever several transactions are done at one time.
Clarification of Confirmation Format The amendment requires that all disclosures, with certain exceptions, be clearly and specifically indicated on the front of the confirmation. To address concerns about the "crowding" of information on the front side of the confirmation, the amendment allows certain requirements to be met by statements on the back of the confirmation, namely: (1) the required legend for zero coupon bonds; (2) the requirement that permits a dealer in agency transactions, rather than naming the person from whom the securities were purchased or to whom they were sold, to include a statement that this information will be furnished upon the written request of the customer; and (3) the requirement that permits a dealer, rather than indicating the time of execution, to include a statement that the time of execution will be furnished upon the written request of the customer. In addition, consistent with the SEC's amendment to Rule 10b-10, the amendment does not require the disclosure statement for transactions in municipal collateralized mortgage obligations required in rule G-15(a)(i)(D)(2) to be on the front of the confirmation.
July 11, 1995
G-15(a). Customer Confirmations (i) At or before the completion of a transaction in municipal securities with or for the account of a customer, each broker, dealer or municipal securities dealer shall give or send to the customer a written confirmation that complies with the requirements of this paragraph (i): (A) Transaction information. The confirmation shall include information regarding the terms of the transaction as set forth in this subparagraph (A): (1) The parties, their capacities, and any remuneration from other parties. The following information regarding the parties to the transaction and their relationship shall be included: (a) name, address, and telephone number of the broker, dealer, or municipal securities dealer, provided, however, that the address and telephone number need not be stated on a confirmation sent through the automated confirmation facilities of a clearing agency registered with the Securities and Exchange Commission; (b) name of customer; (c) designation of whether the transaction was a purchase from or sale to the customer; (d) the capacity in which the broker, dealer or municipal securities dealer effected the transaction, whether acting: (i) as principal for its own account, (ii) as agent for the customer, (iii) as agent for a person other than the customer, or (iv) as agent for both the customer and another person; (e) if the broker, dealer or municipal securities dealer is effecting a transaction as agent for the customer or as agent for both the customer and another person, the confirmation shall include: (i) either (A) the name of the person from whom the securities were purchased or to whom the securities were sold for the customer, or (B) a statement that this information will be furnished upon the written request of the customer; and (ii) either (A) the source and amount of any remuneration received or to be received (shown in aggregate dollar amount) by the broker, dealer or municipal securities dealer in connection with the transaction from any person other than the customer, or (B) a statement indicating whether any such remuneration has been or will be received and that the source and amount of such other remuneration will be furnished upon written request of the customer. In applying the terms of this subparagraph (A)(1)(e), if a security is acquired at a discount (e.g., "net" price less concession) and is sold at a "net" price to a customer, the discount must be disclosed as remuneration received from the customer pursuant to subparagraph (A)(6)(f) of this paragraph rather than as remuneration received from "a person other than the customer." (2) Trade date and time of execution. The trade date shall be shown. In addition, either (a) the time of execution, or (b) a statement that the time of execution will be furnished upon written request of the customer shall be shown. (3) Par value. The par value of the securities shall be shown, with special requirements for the following securities: (a) Zero coupon securities. For zero coupon securities, the maturity value of the securities must be shown if it differs from the par value. (4) Settlement date. The settlement date as defined in section (b) of this rule shall be shown. (5) Yield and dollar price. Yields and dollar prices shall be computed and shown in the following manner, subject to the exceptions stated in subparagraph (A)(5)(d) of this paragraph: (a) For transactions that are effected on the basis of a yield to maturity, yield to a call date, or yield to a put date: (i) The yield at which the transaction was effected shall be shown and, if that yield is to a call date or to a put date, this shall be noted, along with the date and dollar price of the call or put. (ii) A dollar price shall be computed and shown in accordance with the rules in subparagraph (A)(5)(c) of this paragraph, and such dollar price shall be used in computations of extended principal and final monies shown on the confirmation. (b) For transactions that are effected on the basis of a dollar price: (i) The dollar price at which the transaction was effected shall be shown. (ii) A yield shall be computed and shown in accordance with subparagraph (A)(5)(c) of this paragraph, unless the transaction was effected at "par." (c) In computing yield and dollar price, the following rules shall be observed: (i) The yield or dollar price computed and shown shall be computed to the lower of call or nominal maturity date, with the exceptions noted in this subparagraph (A)(5)(c). (ii) For purposes of computing yield to call or dollar price to call, only those call features that represent "in whole calls" of the type that may be used by the issuer without restriction in a refunding ("pricing calls") shall be considered in computations made under this subparagraph (A)(5). (iii) Yield computations shall take into account dollar price concessions granted to the customer, commissions charged to the customer and adjustable tender fees applicable to puttable securities, but shall not take into account incidental transaction fees or miscellaneous charges, provided, however, that as specified in subparagraph (A)(6)(e) of this paragraph, such fees or charges must be indicated on the confirmation. (iv) With respect to the following specific situations, these additional rules shall be observed: (A) Declining premium calls. For those securities subject to a series of pricing calls at declining premiums, the call date resulting in the lowest yield or dollar price shall be considered the yield to call or dollar price to call. (B) Continuously callable securities. For those securities that, at the time of trade, are subject to a notice of a pricing call at any time, the yield to call or dollar price to call shall be computed based upon the assumption that a notice of call may be issued on the day after trade date or on any subsequent date. (C) Mandatory tender dates. For those securities subject to a mandatory tender date, the mandatory tender date and dollar price of redemption shall be used in computations in lieu of nominal maturity date and maturity value. (D) Securities sold on basis of yield to put. For those transactions effected on the basis of a yield to put date, the put date and dollar price of redemption shall be used in computations in lieu of maturity date and maturity value. (E) Prerefunded or called securities. For those securities that are prerefunded or called to a call date prior to maturity, the date and dollar price of redemption set by the prerefunding shall be used in computations in lieu of maturity date and maturity value. (v) Computations shall be made in accordance with the requirements of rule G-33. (vi) If the computed yield or dollar price shown on the confirmation is not based upon the nominal maturity date, then the date used in the computation shall be identified and stated. If the computed yield or dollar price is not based upon a redemption value of par, the dollar price used in the computation shall be shown (e.g., 5.00% yield to call on 1/1/99 at 103). (vii) If the computed yield required by this paragraph (5) is different than the yield at which the transaction was effected, the computed yield must be shown in addition to the yield at which the transaction was effected. (d) Notwithstanding the requirements noted in subparagraphs (A)(5)(a)through (c) of this paragraph, above: (i) Securities that prepay principal. For securities that prepay principal periodically, a yield computation and display of yield is not required, provided, however, that if a yield is displayed, there shall be included a statement describing how the yield was computed. (ii) Municipal Collateralized Mortgage Obligations. For municipal collateralized mortgage obligations, a yield computation and display of yield is not required, provided however, that if a yield is displayed, there shall be included a statement describing how the yield was computed. (iii) Defaulted securities. For securities that have defaulted in the payment of interest or principal, a yield shall not be shown. (iv) Variable rate securities. For municipal securities with a variable interest rate, a yield shall not be shown unless the transaction was effected on the basis of yield to put. (v) Securities traded on a discounted basis. For securities traded on a discounted basis, a yield shall not be shown. (6) Final Monies. The following information relating to the calculation and display of final monies shall be shown: (a) total dollar amount of transaction; (b) amount of accrued interest, with special requirements for the following securities: (i) Zero coupon securities. For zero coupon securities, no figure for accrued interest shall be shown; (ii) Securities traded on discounted basis. For securities traded on a discounted basis (other than discounted securities traded on a yield-equivalent basis), no figure for accrued interest shall be shown; (c) if the securities are traded without interest, a notation of "flat;" (d) extended principal amount, with special requirements for the following securities: (i) Securities traded on discounted basis. For securities traded on a discounted basis (other than discounted securities sold on a yield-equivalent basis) total dollar amount of discount may be shown in lieu of the resulting dollar price and extended principal amount; (e) the nature and amount of miscellaneous fees, such as special delivery arrangements or a "per transaction" fee, or if agreed to, any fees for converting registered certificates to or from bearer form; (f) if the broker, dealer or municipal securities dealer is effecting the transaction as agent for the customer or as agent for both the customer and another person, the amount of any remuneration received or to be received (shown in aggregate dollar amount) by the broker, dealer or municipal securities dealer from the customer in connection with the transaction unless remuneration paid by the customer is determined, pursuant to a written agreement with the customer, other than on a transaction basis. (g) the first interest payment date if other than semi-annual, but only if necessary for the calculation of final money; (h) for callable zero coupon securities, any premium paid over the accreted value of the securities. (7) Delivery of securities. The following information regarding the delivery of securities shall be shown: (a) Securities other than bonds. For securities other than bonds, denominations to be delivered; (b) Bond certificates delivered in non-standard denominations. For bonds, denominations of certificates to be delivered shall be stated if: (i) for bearer bonds, denominations are other than $1,000 or $5,000 in par value, and (ii) for registered bonds, denominations are other than multiples of $1,000 par value, or exceed $100,000 par value; (c) Delivery instructions. Instructions if available, regarding receipt or delivery of securities, and form of payment if other than as usual and customary between the parties. (8) Additional information about the transaction. In addition to the transaction information required above, such other information as may be necessary to ensure that the parties agree to details of the transaction also shall be shown. (B) Securities identification information. The confirmation shall include a securities identification which includes, at a minimum: (1) the name of the issuer, with special requirements for the following securities: (a) Stripped coupon securities. For stripped coupon securities, the trade name and series designation assigned to the stripped coupon municipal security by the dealer sponsoring the program; (2) CUSIP number, if any, assigned to the securities; (3) maturity date, with special requirements for the following securities: (a) Stripped coupon securities. For stripped coupon securities, the maturity date of the instrument must be shown in lieu of the maturity date of the underlying securities; (4) interest rate, with special requirements for the following securities: (a) Zero coupon securities. For zero coupon securities, the interest rate must be shown as 0%; (b) Variable rate securities. For securities with a variable or floating interest rate, the interest rate must be shown as "variable;" provided however if the yield is computed to put date or to mandatory tender date, the interest rate used in that calculation shall be shown. (c) Securities with adjustable tender fees. If the net interest rate paid on a tender option security is affected by an adjustable "tender fee," the stated interest rate must be shown as that of the underlying security with the phrase "less fee for put;" (d) Stepped coupon securities. For stepped coupon securities, the interest rate currently being paid must be shown; (e) Stripped coupon securities. For stripped coupon securities, the interest rate actually paid on the instrument must be shown in lieu of interest rate on underlying security; (5) the dated date if it affects the price or interest calculation, with special requirements for the following securities: (a) Stripped coupon securities. For stripped coupon securities, the date that interest begins accruing to the custodian for payment to the beneficial owner shall be shown in lieu of the dated date of the underlying securities; This date, along with the first date that interest will be paid to the owner, must be stated on the confirmation whenever it is necessary for calculation of price or accrued interest. (C) Securities descriptive information. The confirmation shall include descriptive information about the securities which includes, at a minimum: (1) Credit backing. The following information, if applicable, regarding the credit backing of the security: (a) Revenue securities. For revenue securities, a notation of that fact, regardless of whether such designation appears in the formal title of the security, and a notation of the primary source of revenue (e.g., project name). (b) Securities with additional credit backing. The name of any company or other person in addition to the issuer obligated, directly or indirectly, with respect to debt service or, if there is more than one such obligor, the statement "multiple obligors" may be shown and, if a letter of credit is used, the identity of the bank issuing the letter of credit must be noted. (2) Features of the securities. The following information, if applicable, regarding features of the securities: (a) Callable securities. If the securities are subject to call prior to maturity through any means, a notation of "callable" shall be included. This shall not be required if the only call feature applicable to the securities is a "catastrophe" or "calamity" call feature, such as one relating to an event such as an act of God or eminent domain, and which event is beyond the control of the issuer of the securities. The date and price of the next pricing call shall be included and so designated. Other specific call features are not required to be listed unless required by subparagraph (A)(5)(c)(ii) of this paragraph on computation and display of price and yield. If any specific call feature is listed even though not required by this rule, it shall be identified. If there are any call features in addition to the first pricing call, disclosure must be made on the confirmation that "additional call features exist that may affect yield; complete information will be provided upon request;" (b) Puttable securities. If the securities are puttable by the customer, a designation to that effect; (c) Stepped coupon securities. If stepped coupon securities, a designation to that effect; (d) Book-entry only securities. If the securities are available only in book-entry form, a designation to that effect; (e) Periodic interest payment. With respect to securities that pay interest on other than a semi-annual basis, a statement of the basis on which interest is paid; (3) Information on status of securities. The following information, as applicable, regarding the status of the security shall be included: (a) Prerefunded and called securities. If the securities are called or "pre-refunded," a designation to such effect, the date of maturity which has been fixed by the call notice, and the amount of the call price. (b) Escrowed to maturity securities. If the securities are advance refunded to maturity date and no call feature (with the exception of a sinking fund call) is explicitly reserved by the issuer, the securities must be described as "escrowed to maturity" and, if a sinking fund call is operable with respect to the securities, additionally described as "callable." (c) Advanced refunded/callable securities. If advanced refunded securities have an explicitly reserved call feature other than a sinking fund call, the securities shall be described as "escrowed to (redemption date) -- callable." (d) Advanced refunded/stripped coupon securities. If the municipal securities underlying stripped coupon securities are advance-refunded, the stripped coupon securities shall be described as "escrowed-to-maturity," or "pre-refunded" as applicable. (e) Securities in default. If the securities are in default as to the payment of interest or principal, they shall be described as "in default;" (f) Unrated securities. If the security is unrated by a nationally recognized statistical rating organization, a disclosure to such effect. (4) Tax information. The following information that may be related to the tax treatment of the security: (a) Taxable securities. If the securities are identified by the issuer or sold by the underwriter as subject to federal taxation, a designation to that effect. (b) Alternative minimum tax securities. If interest on the securities is identified by the issuer or underwriter as subject to the alternative minimum tax, a designation to that effect. (c) Original issue discount securities. If the securities pay periodic interest and are sold by the underwriter as original issue discount securities, a designation that they are "original issue discount" securities and a statement of the initial public offering price of the securities. (D) Disclosure statements: (1) The confirmation for zero coupon securities shall include a statement to the effect that "No periodic payments--callable below maturity value without notice by mail to holder unless registered." (2) The confirmation for municipal collateralized mortgage obligations shall include a statement indicating that the actual yield of such security may vary according to the rate at which the underlying receivables or other financial assets are prepaid and a statement that information concerning the factors that affect yield (including at a minimum estimated yield, weighted average life, and the prepayment assumptions underlying yield) will be furnished upon written request. (E) Confirmation format. All requirements must be clearly and specifically indicated on the front of the confirmation, except that the following statements may be on the reverse side of the confirmation: (1) The disclosure statements required in subparagraph (D)(1) and (2) of this paragraph, provided that their specific applicability is noted on the front of the confirmation. (2) The statement concerning the person from whom the securities were purchased or to whom the securities were sold that can be provided in satisfaction of subparagraph (A)(1)(e)(i) of this paragraph. (3) The statement concerning time of execution that can be provided in satisfaction of subparagraph (A)(2) of this paragraph. (ii) Separate confirmation for each transaction. Each broker, dealer or municipal securities dealer for each transaction in municipal securities shall give or send to the customer a separate written confirmation in accordance with the requirements of (i) above. (iii) "When, as and if issued" transactions. A confirmation meeting the requirements of this rule shall be sent in all "when, as and if issued" transactions. In addition, a broker, dealer or municipal securities dealer may send a confirmation for a "when, as and if issued" transaction executed prior to determination of settlement date and may be required to do so for delivery vs. payment and receipt vs. payment ("DVP/RVP") accounts under paragraph (d)(i)(C) of this rule. If such a confirmation is sent, it shall include all information required by this section with the exception of settlement date, dollar price for transactions executed on a yield basis, yield for transactions executed on a dollar price, total monies, accrued interest, extended principal and delivery instructions. (iv) Confirmations to customers who tender put option bonds. A broker, dealer, or municipal securities dealer that has an interest in put option bonds (including acting as remarketing agent) and accepts for tender put bonds from a customer is engaging in a transaction in such municipal securities and shall send a confirmation under paragraph (i) of this section. (v) Timing for providing information. Information requested by a customer pursuant to statements required on the confirmation shall be given or sent to the customer within five business days following the date of receipt of a request for such information; provided however, that in the case of information relating to a transaction executed more than 30 calendar days prior to the date of receipt of a request, the information shall be given or sent to the customer within 15 business days following the date of receipt of the request. (vi) Definitions. For purposes of this rule, the following terms shall have the following meanings: (A) Execution of a transaction. The term "the time of execution of a transaction" shall be the time of execution reflected in the records of the broker, dealer or municipal securities dealer pursuant to rule G-8 or Rule 17a-3 under the Act. (B) Completion of transaction. The term "completion of transaction" shall have the same meaning as provided in Rule 15c1-1 under the Act. (C) Stepped coupon securities. The term "stepped coupon securities" shall mean securities with the interest rate periodically changing on a pre-established schedule. (D) Zero coupon securities. The term "zero coupon securities" shall mean securities maturing in more than two years and paying investment return solely at redemption. (E) Stripped coupon securities. The term "stripped coupon securities" shall have the same meaning as defined in SEC staff letter (stripped coupon municipal securities) dated January 19, 1989 reprinted in the MSRB Manual at para. 3571. (F) The term "pricing call" shall mean a call feature that represents "an in whole call" of the type that may be used by the issuer without restriction in a refunding.
[1] Sec. Exch. Act Rel. No. 35953 (July 11,1995).
[2] Sec. Exch. Act Rel. No. 34962 (Nov. 10, 1994).
[3] Catagories include zero coupon securities, variable rate securities, securities with adjustable tender fees, stepped coupon securities, and stripped coupon securities.
[4] The amendment in rule G-15(a)(vi)(F) defines "pricing call" as a call feature that represents "an in whole call" of the type that may be used by the issuer without restriction in a refunding.
[5] MSRB Interpretation of July 27,1981, MSRB Manual (CCH) para. 3571.35 and 3571.41. The proposed amendment is a complete revision to the current rule language. The current rule language of rule G-15(a) and related interpretations are contained in the MSRB Manual.
Top of page
Back
MSRB Home Page
Copyright 2000 Municipal Securities Rulemaking Board. All Rights Reserved. Terms and Conditions of Use