Request for Comment on Proposed Changes to MSRB Rule G-34 Concerning the Designation of “Not Reoffered” in Connection with New Issues of Municipal Securities
The Municipal Securities Rulemaking Board (“MSRB”) is requesting comment on a proposed rule change to MSRB Rule G-34 that would prohibit any broker, dealer or municipal securities dealer (“dealers”) from using the designation “Not Reoffered” (“NRO”) in any communication about a new issue of municipal securities except in cases where the dealer also included the applicable initial offering price or yield information about such securities.
Dealers, whether acting as underwriters or in the secondary market, sometimes designate certain bonds in a new issue of municipal securities as NRO in communications about such securities, and omit the corresponding initial offering price or yield information. While an underwriter is required to submit complete information about initial offering prices or yields (including maturities designated as NRO) pursuant to MSRB Rules G-32 and G-34, such information may not be readily available until the end of the first day of trading in the new issue, when such information is required to be submitted pursuant to Rule G-32. The availability of complete price or yield information prior to the end of the first day of trading in a new issue considerably enhances market price transparency by facilitating new issue price discovery and significantly reducing inefficiencies in the marketplace.
Comment is requested from market participants on all aspects of the proposed rule change. Comments should be submitted no later than April 10, 2012 and may be submitted in electronic or paper form. Comments may be submitted electronically by clicking here. Comments submitted in paper form should be sent to Ronald W. Smith, Corporate Secretary, Municipal Securities Rulemaking Board, 1900 Duke Street, Suite 600, Alexandria, VA 22314. All comments will be available for public inspection on the MSRB’s website.
Questions about this notice should be directed to Ritta McLaughlin, Senior Director, Market Leadership, or Karen Du Brul, Associate General Counsel, at 703-797-6600.
In connection with the underwriting and marketing of a new issue of municipal securities, underwriters frequently arrange for the purchase of one or more maturities (or portions thereof) of such issue by a single investor. Underwriters sometimes then designate such maturity or maturities as NRO, or not reoffered, thereby signaling to other members of the syndicate that such maturity or maturities are not available to be offered to other potential investors. While underwriters are required to submit complete information about initial offering prices or yields (including maturities designated as NRO) pursuant to MSRB Rules G-32 and G-34, an underwriter is not currently required to include such information for maturities designated as NRO when disseminating information about a new issue to other parties, including third-party information vendors. As a result, information subsequently disseminated by dealers about a maturity designated as NRO through marketplace channels typically does not include the price or yield at which the maturity will be sold.
Applicable MSRB Rules
Underwriters are required, pursuant Rule G-34(a)(ii)(C), to report to the New Issue Information Dissemination System (“NIIDS”), operated by the Depository Trust and Clearing Corporation (“DTCC”), certain information about most new issues of municipal securities within two hours following Time of Formal Award. The required information includes the initial price or yield at which each maturity of the new issue of municipal securities was sold. Underwriters cannot use the designation of NRO in submissions to NIIDS. DTCC redisseminates this information through a subscription service to information vendors.
Underwriters are also required, pursuant to MSRB Rule G-32(b)(vi)(C)(1)(a), to provide certain information about the new issue, including the initial offering price or yield of each maturity (including those maturities designated as NRO) to the EMMA® website on or prior to the end of the date of first execution, with such initial offering prices or yields thereupon becoming available to the public through the EMMA website and through subscription services to information vendors and other market participants. Submissions to EMMA on Form G-32 do not accept an NRO designation in lieu of price or yield information about any maturity, and no such indicator is displayed on the EMMA website. Further, unlike the deadline applicable to submission of the NIIDS data, information submitted by underwriters pursuant to Rule G-32 is required to be submitted to the MSRB by no later than the end of the date of first execution.
MSRB Rule G-14 requires dealers to report the actual prices at which bonds are sold to the MSRB’s Real-Time Transaction Reporting System (“RTRS”). These prices are required to be reported within 15 minutes of the time of trade except for trades by syndicate or selling group members executed on the first day of trading at the published list offering price, or trades to a syndicate member or selling group member at a discount from the published list offering price (“list offering price/takedown transactions”), which are reported by end of day. These prices are disseminated to the public on a real-time basis by the MSRB on the EMMA website and through subscriptions services to information vendors and other market participants.
Availability of New Issue Price Information
Dissemination of New Issue Pricing Information by Underwriters through Current Marketplace Platforms. In addition to supplying required data to NIIDS, underwriters also supply some or all of the NIIDS-reported information to third-party private sector information vendors and in doing so sometimes substitute the designation of NRO for the initial offering price or yield for applicable maturities. The third-party information vendor then repackages the information, adds other features, and distributes such information to its subscribers which may include dealers, other information vendors and other market participants. This information is available to a vendor’s subscribers shortly after submission to the third party vendor and frequently before the underwriter-announced Time of First Execution, which is the time the underwriter expects to execute the first trades of the new issue. Unless a market participant has access to NIIDS data directly, information about the initial offering price or yield may not be readily available until the end of the date of first execution.
Existing and Planned MSRB Mechanisms for Disseminating Initial Offering Prices. As noted above, the MSRB currently makes initial offering prices or yields for all maturities of all underwritten issues of municipal securities available on the EMMA website and does not include an NRO indicator. Price and yield information for trades in new issues are also reported and disseminated on the EMMA website within 15 minutes of the time of trade, with initial offering price/takedown transactions reported and disseminated by the end of the day.
The MSRB has announced an initiative to incorporate NIIDS data into the EMMA website information flow and upon completion of this initiative, the MSRB expects that the initial offering price or yield information included in the underwriter’s submission to NIIDS would become available for display on the EMMA website by no later than two hours after the Time of Formal Award. Upon approval and implementation, this step would provide in most cases intra-day initial offering price or yield disclosure, rather than the current end of day disclosure.
PROPOSED RULE AMENDMENT
To improve the availability of real-time information about initial offering prices or yields to all market participants, the MSRB is proposing a change to Rule G-34 that would prohibit a dealer from using the term “not reoffered” or other comparable term or designation in any written communication, electronic or otherwise, about a new issue of municipal securities sent by it or on its behalf, without also including the applicable price or yield information about such issue. This rule change would prohibit, for example, the use of the designation of NRO in any written communication about any maturity of a new issue of municipal securities, including any submission to a third-party vendor, unless such communication included the applicable initial offering price or yield.
REQUEST FOR COMMENT
The MSRB hereby requests comment on proposed changes to MSRB Rule G-34 concerning the designation of “not reoffered” on certain maturities of new issues of municipal securities. In addition, the MSRB requests comment on whether the proposed changes should apply solely to the use of the not reoffered designation on or after the formal award of a new issue, or whether the proposed changes also should apply to the use of any such designation during the new issue pricing process or at any other time prior to the formal award.
March 13, 2012
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TEXT OF PROPOSED CHANGE
Rule G-34: CUSIP Numbers, New Issue, and Market Information Requirements
(a) New Issue Securities.
(i) – (iii) No change.
(iv) Limited Use of NRO Designation. A broker, dealer or municipal securities dealer may not use the term “not reoffered” or other comparable term or designation without also including the applicable price or yield information about new issues of municipal securities in any of its written communications, electronic or otherwise, sent by it or on its behalf.
(b) - (d) No change.
(e) NIIDS Registration and Testing Requirements. NIIDS is an automated, electronic system that receives comprehensive new issue information on a market-wide basis for the purposes of establishing depository eligibility and immediately re-disseminating such information to information vendors supplying formatted municipal securities information for use in automated trade processing systems. It is operated by Depository Trust and Clearing Corporation (DTCC), a securities clearing agency registered with the Securities and Exchange Commission providing depository services for municipal securities.
(i) – (ii) No change.
[(iii) NIIDS Start-Up. Each broker, dealer or municipal security dealer that has acted at any time after September 30, 2007 and plans to continue to act as an underwriter for a new issue of municipal securities with nine months or greater effective maturity shall complete the requirements of this section (d) by no later than September 15, 2008.]
 Comments are posted on the MSRB website without change. Personal identifying information such as name, address, telephone number, or email address will not be edited from submissions. Therefore, commenters should submit only information that they wish to make available publicly.
 The NIIDS system is a centralized system for collecting from underwriters and disseminating to market participants standardized electronic information describing new issue securities to ensure that all market participants have access to information necessary for processing transactions once the underwriter executes its first transactions in the new issue.
 The term "Time of Formal Award" is defined in Rule G-34(a)(ii)(C)(1)(a) as
for competitive issues, the later of the time the issuer announces the award or the time the issuer notifies the underwriter of the award, and, for negotiated issues, the later of the time the contract to purchase the securities from the issuer is executed or the time the issuer notifies the underwriter of its execution If the underwriter and issuer have agreed in advance on a Time of Formal Award, that time may be submitted to the new issue information dissemination system in advance of the actual Time of Formal Award.
 EMMA, the MSRB’s Electronic Municipal Market Access website, is an information facility for receiving electronic submissions of both pricing and other information about new issues, as well as municipal securities disclosure and other key documents and related information, and for making such documents and information available to the public, at no charge on an internet website or by paid subscription.
 The term"date of first execution" is defined in Rule G-32(d)(xi) as
the date on which the underwriter executes its first transactions with a customer or another broker, dealer or municipal securities dealer in any security offered in a primary offering; provided that, for offerings subject to Rule G-34(a)(ii)(C), “date of first execution” shall mean the date corresponding to the Time of First Execution as defined in Rule G-34(a)(ii)(C)(1)(b); further provided that, solely for purposes of this rule, the date of first execution shall be deemed to occur by no later than the closing date.
 The end of day exception is available only if the actual list offering price is published, so that any security for which no initial offering price information is made available would be subject to the 15 minute reporting requirement.
 The term "Time of First Execution" is defined in Rule G-34(a)(ii)(C)(1)(b) as
the time the underwriter plans to execute its first transactions in the new issue. The underwriter shall designate a Time of First Execution that is no less than two hours after all information required by paragraph (a)(ii)(C) has been transmitted to the new issue information dissemination system.
 Underlining indicates additions, brackets indicate deletions.