Daily Rules, Proposed Rules, and Notices of the Federal Government
The MSRB is filing with the Commission a proposed rule change consisting of amendments to Rule G-34 on CUSIP numbers, new issue, and market information requirements (the "proposed rule change"). The proposed rule change would govern the use by brokers, dealers or municipal securities dealers of the term "not reoffered" or the designation "NRO" in any of its written communications about new issues of municipal securities.
The text of the proposed rule change is available on the MSRB's Web site at
In its filing with the Commission, the MSRB included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The MSRB has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements.
The proposed rule change would improve the availability of current information about initial offering prices or yields of new issues of municipal securities to market participants. Dealers, whether acting as underwriters or in the secondary market, sometimes designate certain maturities of a new issue of municipal securities as not reoffered, or NRO, in communications about such securities, and omit the corresponding initial offering price or yield information. While an underwriter is required to report complete information about initial offering prices or yields (including for maturities designated as NRO) pursuant to MSRB Rules G-32 and G-34 as described below, such information may not be readily available until as late as the end of the "date of first execution" of the new issue.
More timely information about initial offering prices or yields would improve new issue price discovery for issuers pricing their own same-day transactions as well as for investors and other market participants seeking more contemporaneous price information. Further, the availability of more contemporaneous price information to a larger universe of market participants would significantly reduce pricing inefficiencies in the marketplace. Currently, not all market participants have access to the same universe of price or yield information about new issues of municipal securities as they come to market and, as a result, differences in prices for similar
The proposed rule change also would delete existing subsection (e)(iii) of MSRB Rule G-34, which includes provisions for compliance by dealers with certain registration and testing requirements previously applicable with respect to the start-up phase in 2008 of the New Issue Information Dissemination System ("NIIDS") operated by the Depository Trust and Clearing Corporation ("DTCC"). This amendment will streamline Rule G-34 by eliminating language from the rule that no longer has any effect.
The MSRB believes that the proposed rule change is consistent with Section 15B(b)(2)(C) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which provides that the MSRB's rules shall:
The MSRB believes that the proposed rule change is consistent with the Exchange Act. The proposed rule change would remove impediments to and perfect the mechanism of a free and open market in municipal securities by prohibiting certain communications that hinder price and market transparency, and by facilitating new issue price discovery. The proposed rule change would require that communications occurring from and after the time of initial award of a new issue that use the designation not reoffered or NRO also include the applicable initial offering price or yield. The proposed rule change would contribute to more effective price discovery for issuers pricing their own same-day transactions resulting from the availability of more complete and contemporaneous pricing of other new issues, as well as for investors and other market participants seeking more contemporaneous price information. These changes would also contribute to the MSRB's continuing efforts to improve market transparency and to protect investors, municipal entities, obligated persons and the public interest.
The MSRB does not believe that the proposed rule change would impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Exchange Act since it would apply to all dealers that send written or electronic communications about new issues of municipal securities. Since dealers are already required to provide the initial offering prices or yields under other MSRB rules, dealers would bear no additional burden in obtaining such information to fulfill the requirements of the proposed rule change. In addition, the burden of
On March 13, 2012, the MSRB requested comment on a draft of the proposed rule change (the "draft proposal").
While the MSRB recognizes the value of having both price and yield information available to investors, the MSRB notes that in some circumstances, such as an unknown settlement date, yield cannot be calculated and only price will be available. As a result, the proposed rule change retains the requirement that either price or yield be provided. Further, the various other existing MSRB rules relating to initial offering prices or yields, as described above, generally do not require that both be provided, and changing the requirement in the draft proposal to provide either price or yield to a requirement to provide both price and yield without addressing the existing ability of dealers to use either price or yield under such other MSRB rule provisions, and without making the necessary changes to MSRB information systems, would result in a significant inconsistency across MSRB rules and information systems. The MSRB notes that it has recently published its Long-Range Plan for Market Transparency Products, dated January 27, 2012, in which it lays out a vision for the next stages of its market transparency products that includes, among other things, significant enhancements to the scope and timing of information available through the EMMA system and other related transparency products. The MSRB will keep this comment under advisement and will consider potential changes consistent with the comment as it reviews its market transparency systems and related rules in connection with the changes described in the Long-Range Plan.
The draft proposal did not limit the time period during which dealers would be prohibited from using the NRO designation without accompanying initial offering price or yield information, and therefore the draft proposal could apply during the time that sealed bids are being provided to issuers prior to the award of a new issue. In response to Oppenheimer's comment concerning sealed bid situations, the MSRB has determined to modify the proposal to limit the applicability of the proposed rule change to communications occurring from and after the time of initial award. Sealed bid submissions occur prior to the time of initial award and are submitted in the context of a competitive sale where the expectation is that bids remain confidential until the issuer reviews all bids at the time of initial award. With respect to Oppenheimer's comments on the use of information from IRS Form 8038 and the reporting of prices or yields for bonds in inventory, the MSRB has no opinion regarding the proper calculation of information for inclusion on an issuer's tax forms but notes that, to the extent a dealer views a new issue municipal security as not being reoffered, the initial offering price or yield that should be reported for purposes of MSRB rules is the price or yield at which such securities were purchased, whether by a dealer for its own inventory or by a customer of the dealer based on a pre-arranged purchase price.
UMB's concern is addressed in part by the limitation of the applicability of the proposed rule change to communications occurring from and after the time of initial award. In addition, the proposed rule change would not prohibit a dealer, concerned about a change in pricing between the initial and final awards, from indicating in any communication that prices or yields disseminated prior to the final award may be subject to change. Furthermore, the proposed rule change would not compel an underwriter to disseminate a new issue scale before the formal award; rather, it simply would prohibit the underwriter from stating that some or all of the securities were not reoffered in such communication without also including the initial offering prices or yields. The MSRB also believes that adjusting the time frame during which the rule is applicable would address the concern about competitiveness because underwriters would have been awarded their bid by the time the requirements of the proposed rule change become applicable. By prohibiting the use of the term not reoffered or NRO without accompanying initial price or yield information from and after the time of initial award, the MSRB believes the proposed rule change would be applicable during the period when the information about pricing would be most useful to market participants.
Within 45 days of the date of publication of this notice in the
(A) By order approve or disapprove such proposed rule change, or
(B) Institute proceedings to determine whether the proposed rule change should be disapproved.
Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
* Use the Commission's Internet comment form (
* Send an email to
* Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.