Self-Regulatory Organizations; Municipal Securities Rulemaking Board; Order Approving Proposed Rule Change and Notice of Filing and Order Granting Accelerated Approval to Amendment No. 1 to the Proposed Rule Change Relating to Solicitation of Municipal Securities Business under MSRB Rule G-38, 49342-49344 [E5-4587]
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49342
Federal Register / Vol. 70, No. 162 / Tuesday, August 23, 2005 / Notices
the membership subject to the
Exchange’s Constitution and Rules. In
addition, the trustee and grantor will be
required to become allied members or
approved persons of the Exchange, as
applicable, and will remain subject to
the Constitution and Rules of the
Exchange. The Commission also notes
that the proposal is similar to a Chicago
Board Options Exchange, Incorporated
(‘‘CBOE’’) rule 8 that was previously
approved by the Commission and
permits trusts to directly own CBOE
seats.
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,9 that the
proposed rule change (SR–Amex–2005–
003), as amended, be, and hereby is,
approved.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.10
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5–4595 Filed 8–22–05; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–52252; File No. SR–CBOE–
2005–17]
Self-Regulatory Organizations;
Chicago Board Options Exchange,
Incorporated; Order Approving
Proposed Rule Change To Adopt a
Revenue Sharing Program for Trades
in Tape B Securities
revenue CBOE receives under the
Consolidated Tape Association Plan for
trades in Tape B securities consistent
with the requirements of the Act and the
rules and regulations thereunder
applicable to a national securities
exchange.5 In particular, the
Commission believes that the proposal
is consistent with Section 6(b)(5) of the
Act,6 which requires that the rules of the
exchange be designed to promote just
and equitable principles of trade, to
foster cooperation and coordination
with persons engaged in regulating
transactions in securities, and to remove
impediments to and perfect the
mechanisms of a free and open market
and a national market system. The
Commission notes that CBOE will begin
its Revenue Sharing Program upon the
launch of its new stock trading
platform.7
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,8 that the
proposed rule change (SR–CBOE–2005–
17) be, and it hereby is, approved.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.9
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5–4583 Filed 8–22–05; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–52278, File No. SR–MSRB–
2005–04]
August 15, 2005.
On February 7, 2005, the Chicago
Board Options Exchange, Incorporated
(‘‘CBOE’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’) 1 and Rule 19b-4
thereunder,2 a proposed rule change to
adopt a Revenue Sharing Program for
trades in Tape B securities.3 The
proposed rule change was published for
comment in the Federal Register on July
15, 2005.4 The Commission received no
comments on the proposal. This order
approves the proposed rule change.
The Commission finds CBOE’s
proposal to amend its Fee Schedule to
adopt a Revenue Sharing Program for
8 See
CBOE Rule 3.25.
U.S.C. 78s(b)(2).
10 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 Tape B securities are securities listed on the
American Stock Exchange or the regional national
securities exchanges.
4 See Securities Exchange Act Release No. 52005
(July 11, 2005), 70 FR 41063.
9 15
VerDate Aug<18>2005
15:03 Aug 22, 2005
Jkt 205001
Self-Regulatory Organizations;
Municipal Securities Rulemaking
Board; Order Approving Proposed
Rule Change and Notice of Filing and
Order Granting Accelerated Approval
to Amendment No. 1 to the Proposed
Rule Change Relating to Solicitation of
Municipal Securities Business under
MSRB Rule G–38
August 17, 2005.
On March 22, 2005, the Municipal
Securities Rulemaking Board (‘‘MSRB’’
or ‘‘Board’’), filed with the Securities
and Exchange Commission (‘‘SEC’’ or
5 In approving this proposed rule change, the
Commission has considered the proposed rule’s
impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
6 15 U.S.C. 78f(b)(5).
7 The CBOE has filed a proposed rule change (SR–
CBOE–2004–21) to adopt a new set of rules to allow
for the trading of non-option securities on
CBOEdirect, the exchange’s screen based trading
system.
8 15 U.S.C. 78s(b)(2).
9 17 CFR 200.30–3(a)(12).
Frm 00088
Fmt 4703
II. Description of the Proposal
The proposal would delete existing
Rule G–38, on consultants, and replace
it with new Rule G–38, on solicitation
of municipal securities business. The
MSRB believes that it would be
appropriate to apply the basic standards
of fair practice and professionalism
embodied in MSRB rules to all persons
who solicit municipal securities
business on behalf of dealers. A full
description of the proposal is contained
in the Commission’s Notice.6
In Amendment No. 1, the MSRB
provides that the proposed rule change
would become effective on the first
business Monday at least five business
days after Commission approval.
Amendment No. 1 also deletes the
requirement in proposed Rule G–38(c)
relating to transitional payments that
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 51561
(April 15, 2005), 70 FR 20782 (April 21, 2005).
4 See letter from Rick Santorum, Senator, United
States Senate, to William H. Donaldson, Chairman,
Commission, dated March 31, 2005 (‘‘Senator
Santorum’s Letter’’); letter from Chris Charles,
President, Wulff, Hansen & Co. (‘‘Wulff, Hansen’’),
to Jonathan G. Katz, Secretary, Commission, dated
May 6, 2005 (‘‘Wulff, Hansen’s Letter’’); letter from
Lynnette Kelly Hotchkiss, Senior Vice President
and Associate General Counsel, The Bond Market
Association (the ‘‘BMA’’), to Jonathan G. Katz,
Secretary, Commission, dated May 5, 2005 (‘‘BMA’s
Letter’’); and letter from Jonathan Stein, Director of
Regulatory Affairs—Fixed Income, Raymond James
& Associates, Inc. (‘‘Raymond James’’), to Jonathan
G. Katz, Secretary, Commission, dated May 24, 2005
(‘‘Raymond James’’ Letter).
5 Amendment No. 1 is described in Section II,
infra.
6 See supra note 3.
2 17
I. Introduction
PO 00000
‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’),1 and Rule 19b–4
thereunder,2 a proposed rule change
deleting existing Rule G–38, on
consultants, and replacing it with new
Rule G–38, on solicitation of municipal
securities business. In addition, the
proposed rule change would make
related amendments to Rule G–37, on
political contributions and prohibitions
on municipal securities business, Rule
G–8, on recordkeeping, Form G–37/G–
38 and Form G–37x, as well as add new
Form G–38t. The proposed rule change
was published for comment in the
Federal Register on April 21, 2005.3
The Commission received four comment
letters regarding the proposal.4 On
August 9, 2005, the MSRB filed
Amendment No. 1 to the proposed rule
change and a response to the four
comment letters.5 This order approves
the proposed rule change, accelerates
approval of Amendment No. 1, and
solicits comments from interested
persons on Amendment No. 1.
Sfmt 4703
E:\FR\FM\23AUN1.SGM
23AUN1
Federal Register / Vol. 70, No. 162 / Tuesday, August 23, 2005 / Notices
the broker, dealer or municipal
securities dealer (‘‘dealer’’) must be
selected by the issuer for municipal
securities business on or prior to the
effective date of the proposed rule
change while adding a requirement that
dealers include on their initial and all
subsequent Form G–38t submissions
each item of municipal securities
business for which a transitional
payment remains pending and the
amount of such pending payment for
each item of business. Amendment No.
1 also modifies Form G–38t to reflect
the required reporting of pending
payments. Finally, Amendment No. 1
modifies the definition of ‘‘affiliated
person’’ and adds a definition of
‘‘registered person’’ so that affiliated
persons would include independent
brokers who are duly qualified
registered persons of a dealer under
MSRB or NASD professional
qualification requirements. The text of
Amendment No. 1 is available on the
MSRB’s Web site (https://www.msrb.org),
at the MSRB’s principal office, and at
the Commission’s Public Reference
Room.
III. Discussion
As previously noted, the Commission
received four comment letters on the
proposed rule change.7 Senator
Santorum’s Letter opposed changing
Rule G–38. Senator Santorum stated that
he had been informed that consultants
serve a legitimate and important role in
the industry by permitting brokerdealers that do not have the resources to
maintain an office in a particular
jurisdiction to bid for municipal
securities business in that jurisdiction.
The MSRB stated in its proposal,8 and
the Commission agrees, that the benefits
to the municipal securities market
resulting from the proposed rule change
outweigh the benefits that would accrue
to permitting consultants to continue
soliciting municipal securities business
on behalf of dealers.
Wulff Hansen’s Letter supported the
proposed rule change, stating that ‘‘we
believe that the social and economic
costs of the present system (in the form
of overt pay-to-play, more subtle forms
of influence peddling, or similar
undesirable practices) have come to
outweigh the benefits.’’ 9
The BMA’s Letter requested
modification of the requirements for
making transition payments to
consultants and clarification of the
definitions of ‘‘solicitation’’ and
‘‘affiliated employees.’’ The proposed
7 See
supra, note 4.
supra, note 3, at 20785.
9 See supra, note 4, at 1.
rule change provided that a dealer could
pay an outside consultant after the
effective date of the amendment (the
date that the Commission approved the
amendment) only if, among other
requirements, such payment was made
with respect solely to solicitation
activities undertaken on or prior to the
effective date pursuant to a Consultant
Agreement under former Rule G–38 and
the dealer had been selected by the
issuer to engage in such municipal
securities business on or prior to the
effective date. The BMA’s Letter stated
that as a practical matter, dealers will
have no meaningful notice as to when
the Commission will approve the
amendment and thus will not have an
opportunity to effectively close out their
relationship with consultants. For
example, the BMA’s Letter stated that a
dealer would be prohibited from paying
consultants compensation, which they
had legitimately earned, and be forced
to renege on its contractual obligations
simply because the dealer had not yet
been selected for the deal. In addition,
the BMA’s Letter stated that other
problems arise in those instances where
a broker-dealer is part of a pool of
selected underwriters and rotated to a
senior manager position periodically or
in instances where consultants are paid
on a retainer basis (as opposed to a
success fee arrangement) where they
earn their compensation regardless of
whether the broker-dealer is selected
and moneys may still be contractually
due for time worked but not paid as of
the effective date.
The MSRB believes, and the
Commission agrees, that Amendment
No. 1, including the new effective date
and modified transitional payment
provisions, as well as the modification
to Form G–38t, addresses the BMA’s
concerns about transition payments and
will facilitate dealer compliance with
revised Rule G–38 in an orderly and
timely manner while reducing the
opportunity for circumvention of the
purposes of the proposed rule change.
The MSRB further believes, and the
Commission agrees, that as modified,
the transitional payment provision
should avoid the potential for exposing
dealers to legal liability under their
contracts with consultants for failure to
pay for services rendered.
The BMA’s Letter also stated that the
definition of ‘‘solicitation’’ should be
clarified. The MSRB has filed with the
Commission a proposed interpretation
providing such further clarification.10
The BMA’s Letter also requested
clarification of the definition of
affiliated employees, stating that the
8 See
VerDate Aug<18>2005
15:03 Aug 22, 2005
10 File
Jkt 205001
PO 00000
No. SR–MSRB–2005–11.
Frm 00089
Fmt 4703
Sfmt 4703
49343
amendment prohibited a broker-dealer
from paying anyone other than an
‘‘employee’’ of the broker-dealer or an
affiliate for soliciting municipal
securities business. The BMA’s Letter
stated that there are registered
representatives who work for a dealer or
an affiliate but do so as independent
contractors, not as employees. The
BMA’s letter noted that as NASD
licensed representatives of the dealer
these independent contractors are also
subject to the full array of MSRB rules.
The BMA’s Letter requested that the
proposal be modified to permit a dealer
to pay any licensed representative of
that dealer or an affiliate to solicit
municipal securities business.
Raymond, James’ Letter stated that
Raymond James participated in BMA’s
Letter and fully supported that letter.
Raymond, James’ Letter also expressed
concern that the proposed rule change
did not recognize the important role that
independent contractor financial
advisors play in the market today, and
stated that the definition of ‘‘affiliated
person’’ should be expanded to include
independent contractor registered
representatives, by including NASD
licensed representatives within the
definition.
The MSRB believes, and the
Commission agrees, that the modified
definition of ‘‘affiliated person’’ in
Amendment No. 1 will address this
concern and will further minimize the
potential burden on competition of the
proposed rule change in that it would
treat dealer business models using
independent brokers equally with dealer
business models using directly
employed brokers without reducing the
effectiveness of the proposed rule
change.
After careful consideration, the
Commission finds that the proposed
rule change, as amended by
Amendment No. 1, is consistent with
the requirements of the Act and the
rules and regulations thereunder
applicable to the MSRB 11 and, in
particular, the requirements of Section
15B(b)(2)(C) of the Act and the rules and
regulations thereunder.12 Section
15B(b)(2)(C) of the Act requires, among
other things, that the MSRB’s rules be
designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, to foster cooperation and
coordination with persons engaged in
regulating, clearing, settling, processing
11 In approving this rule the Commission notes
that it has considered the proposed rule’s impact on
efficiency, competition and capital formation. 15
U.S.C. 78c(f).
12 15 U.S.C. 78o–4(b)(2)(C).
E:\FR\FM\23AUN1.SGM
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49344
Federal Register / Vol. 70, No. 162 / Tuesday, August 23, 2005 / Notices
information with respect to, and
facilitating transactions in municipal
securities, to remove impediments to
and perfect the mechanism of a free and
open market in municipal securities,
and, in general, to protect investors and
the public interest.13 In particular, the
Commission finds that the proposed
rule change will further investor
protection and the public interest by
ensuring that solicitations of municipal
securities business are undertaken in a
manner consistent with standards of fair
practice and professionalism, thereby
helping to maintain public trust and
confidence in the integrity of the
municipal securities market.
IV. Accelerated Approval of
Amendment No. 1
The MSRB requested in Amendment
No. 1 that the Commission find good
cause, pursuant to Section 19(b)(2) of
the Act, for approving Amendment No.
1 (simultaneously with the proposed
rule change) prior to the thirtieth day
after publication of the notice of filing
of Amendment No. 1 in the Federal
Register. The Commission finds good
cause to approve Amendment No. 1 to
the proposal prior to the thirtieth day
after the date of publication of notice of
filing thereof in the Federal Register.
The MSRB believes, and the
Commission agrees, that (i) the new
effective date and modified transitional
payment provisions, as well as the
modification to Form G–38t, will
facilitate dealer compliance with
revised Rule G–38 in an orderly and
timely manner while reducing the
opportunity for circumvention of the
purposes of the proposed rule change,
and (ii) the modified definition of
‘‘affiliated person’’ would further
minimize the potential burden on
competition of the proposed rule change
in that it would treat dealer business
models using independent brokers
equally with dealer business models
using directly employed brokers
without reducing the effectiveness of
the proposed rule change.
For these reasons, the Commission
finds good cause, consistent with
Sections 15B(b)(2)(C) and 19(b)(2) of the
Act, to accelerate approval of
Amendment No. 1 to the proposed rule
change.
V. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning Amendment No.
1, including whether Amendment No. 1
is consistent with the Act. Comments
13 Id.
VerDate Aug<18>2005
may be submitted by any of the
following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–MSRB–2005–04 on the
subject line.
Paper Comments
• Send paper comments in triplicate
to Jonathan G. Katz, Secretary,
Securities and Exchange Commission,
Station Place, 100 F Street, NE.,
Washington, DC 20549–9303.
All submissions should refer to File
Number SR–MSRB–2005–04. This file
number should be included on the
subject line if e-mail is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for inspection and copying in
the Commission’s Public Reference
Room. Copies of such filing also will be
available for inspection and copying at
the MSRB’s offices. All comments
received will be posted without change;
the Commission does not editpersonal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–MSRB–
2005–04 and should be submitted on or
before September 13, 2005.
VI. Conclusion
For the reasons discussed above, the
Commission finds that the proposal is
consistent with the Act and the rules
and regulations thereunder.
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,14 that the
proposed rule change (SR–MSRB–2005–
04) be, and hereby is, approved.
14 15
15:03 Aug 22, 2005
Jkt 205001
PO 00000
U.S.C. 78s(b)(2).
Frm 00090
Fmt 4703
Sfmt 4703
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.15
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5–4587 Filed 8–22–05; 8:45 am]
BILLING CODE 8010–01–P
SECURTITES AND EXCHANGE
COMMISSION
[Release No. 34–52271; File No. SR–NASD–
2005–097]
Self-Regulatory Organizations;
National Association of Securities
Dealers, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Extend a Pilot
Program That Increases Position and
Exercise Limits for Equity Options
August 16, 2005.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that on August
10, 2005, the National Association of
Securities Dealers, Inc. (‘‘NASD’’) filed
with the Securities And Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I and II below, which Items have
been prepared by NASD. NASD has
filed the proposal as a ‘‘noncontroversial’’ rule change pursuant to
Section 19(b)(3)(A) of the Act 3 and Rule
19b–4(f)(6) thereunder,4 which renders
it effective upon filing with the
Commission. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
NASD proposes to amend NASD Rule
2860 to extend a pilot program
increasing certain options position and
exercise limits for a pilot period. The
text of the proposed rule change is
available on NASD’s Web site (https://
www.nasd.com), at NASD’s principal
office, and at the Commission’s Public
Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission,
NASD included statements concerning
15 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A).
4 17 CFR 240.19b–4(f)(6).
1 15
E:\FR\FM\23AUN1.SGM
23AUN1
]]>Agencies
[Federal Register Volume 70, Number 162 (Tuesday, August 23, 2005)]
[Notices]
[Pages 49342-49344]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E5-4587]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-52278, File No. SR-MSRB-2005-04]
Self-Regulatory Organizations; Municipal Securities Rulemaking
Board; Order Approving Proposed Rule Change and Notice of Filing and
Order Granting Accelerated Approval to Amendment No. 1 to the Proposed
Rule Change Relating to Solicitation of Municipal Securities Business
under MSRB Rule G-38
August 17, 2005.
I. Introduction
On March 22, 2005, the Municipal Securities Rulemaking Board
(``MSRB'' or ``Board''), filed with the Securities and Exchange
Commission (``SEC'' or ``Commission''), pursuant to Section 19(b)(1) of
the Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4
thereunder,\2\ a proposed rule change deleting existing Rule G-38, on
consultants, and replacing it with new Rule G-38, on solicitation of
municipal securities business. In addition, the proposed rule change
would make related amendments to Rule G-37, on political contributions
and prohibitions on municipal securities business, Rule G-8, on
recordkeeping, Form G-37/G-38 and Form G-37x, as well as add new Form
G-38t. The proposed rule change was published for comment in the
Federal Register on April 21, 2005.\3\ The Commission received four
comment letters regarding the proposal.\4\ On August 9, 2005, the MSRB
filed Amendment No. 1 to the proposed rule change and a response to the
four comment letters.\5\ This order approves the proposed rule change,
accelerates approval of Amendment No. 1, and solicits comments from
interested persons on Amendment No. 1.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 51561 (April 15,
2005), 70 FR 20782 (April 21, 2005).
\4\ See letter from Rick Santorum, Senator, United States
Senate, to William H. Donaldson, Chairman, Commission, dated March
31, 2005 (``Senator Santorum's Letter''); letter from Chris Charles,
President, Wulff, Hansen & Co. (``Wulff, Hansen''), to Jonathan G.
Katz, Secretary, Commission, dated May 6, 2005 (``Wulff, Hansen's
Letter''); letter from Lynnette Kelly Hotchkiss, Senior Vice
President and Associate General Counsel, The Bond Market Association
(the ``BMA''), to Jonathan G. Katz, Secretary, Commission, dated May
5, 2005 (``BMA's Letter''); and letter from Jonathan Stein, Director
of Regulatory Affairs--Fixed Income, Raymond James & Associates,
Inc. (``Raymond James''), to Jonathan G. Katz, Secretary,
Commission, dated May 24, 2005 (``Raymond James'' Letter).
\5\ Amendment No. 1 is described in Section II, infra.
---------------------------------------------------------------------------
II. Description of the Proposal
The proposal would delete existing Rule G-38, on consultants, and
replace it with new Rule G-38, on solicitation of municipal securities
business. The MSRB believes that it would be appropriate to apply the
basic standards of fair practice and professionalism embodied in MSRB
rules to all persons who solicit municipal securities business on
behalf of dealers. A full description of the proposal is contained in
the Commission's Notice.\6\
---------------------------------------------------------------------------
\6\ See supra note 3.
---------------------------------------------------------------------------
In Amendment No. 1, the MSRB provides that the proposed rule change
would become effective on the first business Monday at least five
business days after Commission approval. Amendment No. 1 also deletes
the requirement in proposed Rule G-38(c) relating to transitional
payments that
[[Page 49343]]
the broker, dealer or municipal securities dealer (``dealer'') must be
selected by the issuer for municipal securities business on or prior to
the effective date of the proposed rule change while adding a
requirement that dealers include on their initial and all subsequent
Form G-38t submissions each item of municipal securities business for
which a transitional payment remains pending and the amount of such
pending payment for each item of business. Amendment No. 1 also
modifies Form G-38t to reflect the required reporting of pending
payments. Finally, Amendment No. 1 modifies the definition of
``affiliated person'' and adds a definition of ``registered person'' so
that affiliated persons would include independent brokers who are duly
qualified registered persons of a dealer under MSRB or NASD
professional qualification requirements. The text of Amendment No. 1 is
available on the MSRB's Web site (https://www.msrb.org), at the MSRB's
principal office, and at the Commission's Public Reference Room.
III. Discussion
As previously noted, the Commission received four comment letters
on the proposed rule change.\7\ Senator Santorum's Letter opposed
changing Rule G-38. Senator Santorum stated that he had been informed
that consultants serve a legitimate and important role in the industry
by permitting broker-dealers that do not have the resources to maintain
an office in a particular jurisdiction to bid for municipal securities
business in that jurisdiction. The MSRB stated in its proposal,\8\ and
the Commission agrees, that the benefits to the municipal securities
market resulting from the proposed rule change outweigh the benefits
that would accrue to permitting consultants to continue soliciting
municipal securities business on behalf of dealers.
---------------------------------------------------------------------------
\7\ See supra, note 4.
\8\ See supra, note 3, at 20785.
---------------------------------------------------------------------------
Wulff Hansen's Letter supported the proposed rule change, stating
that ``we believe that the social and economic costs of the present
system (in the form of overt pay-to-play, more subtle forms of
influence peddling, or similar undesirable practices) have come to
outweigh the benefits.'' \9\
---------------------------------------------------------------------------
\9\ See supra, note 4, at 1.
---------------------------------------------------------------------------
The BMA's Letter requested modification of the requirements for
making transition payments to consultants and clarification of the
definitions of ``solicitation'' and ``affiliated employees.'' The
proposed rule change provided that a dealer could pay an outside
consultant after the effective date of the amendment (the date that the
Commission approved the amendment) only if, among other requirements,
such payment was made with respect solely to solicitation activities
undertaken on or prior to the effective date pursuant to a Consultant
Agreement under former Rule G-38 and the dealer had been selected by
the issuer to engage in such municipal securities business on or prior
to the effective date. The BMA's Letter stated that as a practical
matter, dealers will have no meaningful notice as to when the
Commission will approve the amendment and thus will not have an
opportunity to effectively close out their relationship with
consultants. For example, the BMA's Letter stated that a dealer would
be prohibited from paying consultants compensation, which they had
legitimately earned, and be forced to renege on its contractual
obligations simply because the dealer had not yet been selected for the
deal. In addition, the BMA's Letter stated that other problems arise in
those instances where a broker-dealer is part of a pool of selected
underwriters and rotated to a senior manager position periodically or
in instances where consultants are paid on a retainer basis (as opposed
to a success fee arrangement) where they earn their compensation
regardless of whether the broker-dealer is selected and moneys may
still be contractually due for time worked but not paid as of the
effective date.
The MSRB believes, and the Commission agrees, that Amendment No. 1,
including the new effective date and modified transitional payment
provisions, as well as the modification to Form G-38t, addresses the
BMA's concerns about transition payments and will facilitate dealer
compliance with revised Rule G-38 in an orderly and timely manner while
reducing the opportunity for circumvention of the purposes of the
proposed rule change. The MSRB further believes, and the Commission
agrees, that as modified, the transitional payment provision should
avoid the potential for exposing dealers to legal liability under their
contracts with consultants for failure to pay for services rendered.
The BMA's Letter also stated that the definition of
``solicitation'' should be clarified. The MSRB has filed with the
Commission a proposed interpretation providing such further
clarification.\10\
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\10\ File No. SR-MSRB-2005-11.
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The BMA's Letter also requested clarification of the definition of
affiliated employees, stating that the amendment prohibited a broker-
dealer from paying anyone other than an ``employee'' of the broker-
dealer or an affiliate for soliciting municipal securities business.
The BMA's Letter stated that there are registered representatives who
work for a dealer or an affiliate but do so as independent contractors,
not as employees. The BMA's letter noted that as NASD licensed
representatives of the dealer these independent contractors are also
subject to the full array of MSRB rules. The BMA's Letter requested
that the proposal be modified to permit a dealer to pay any licensed
representative of that dealer or an affiliate to solicit municipal
securities business.
Raymond, James' Letter stated that Raymond James participated in
BMA's Letter and fully supported that letter. Raymond, James' Letter
also expressed concern that the proposed rule change did not recognize
the important role that independent contractor financial advisors play
in the market today, and stated that the definition of ``affiliated
person'' should be expanded to include independent contractor
registered representatives, by including NASD licensed representatives
within the definition.
The MSRB believes, and the Commission agrees, that the modified
definition of ``affiliated person'' in Amendment No. 1 will address
this concern and will further minimize the potential burden on
competition of the proposed rule change in that it would treat dealer
business models using independent brokers equally with dealer business
models using directly employed brokers without reducing the
effectiveness of the proposed rule change.
After careful consideration, the Commission finds that the proposed
rule change, as amended by Amendment No. 1, is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to the MSRB \11\ and, in particular, the requirements of
Section 15B(b)(2)(C) of the Act and the rules and regulations
thereunder.\12\ Section 15B(b)(2)(C) of the Act requires, among other
things, that the MSRB's rules be designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to foster cooperation and coordination with
persons engaged in regulating, clearing, settling, processing
[[Page 49344]]
information with respect to, and facilitating transactions in municipal
securities, to remove impediments to and perfect the mechanism of a
free and open market in municipal securities, and, in general, to
protect investors and the public interest.\13\ In particular, the
Commission finds that the proposed rule change will further investor
protection and the public interest by ensuring that solicitations of
municipal securities business are undertaken in a manner consistent
with standards of fair practice and professionalism, thereby helping to
maintain public trust and confidence in the integrity of the municipal
securities market.
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\11\ In approving this rule the Commission notes that it has
considered the proposed rule's impact on efficiency, competition and
capital formation. 15 U.S.C. 78c(f).
\12\ 15 U.S.C. 78o-4(b)(2)(C).
\13\ Id.
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IV. Accelerated Approval of Amendment No. 1
The MSRB requested in Amendment No. 1 that the Commission find good
cause, pursuant to Section 19(b)(2) of the Act, for approving Amendment
No. 1 (simultaneously with the proposed rule change) prior to the
thirtieth day after publication of the notice of filing of Amendment
No. 1 in the Federal Register. The Commission finds good cause to
approve Amendment No. 1 to the proposal prior to the thirtieth day
after the date of publication of notice of filing thereof in the
Federal Register. The MSRB believes, and the Commission agrees, that
(i) the new effective date and modified transitional payment
provisions, as well as the modification to Form G-38t, will facilitate
dealer compliance with revised Rule G-38 in an orderly and timely
manner while reducing the opportunity for circumvention of the purposes
of the proposed rule change, and (ii) the modified definition of
``affiliated person'' would further minimize the potential burden on
competition of the proposed rule change in that it would treat dealer
business models using independent brokers equally with dealer business
models using directly employed brokers without reducing the
effectiveness of the proposed rule change.
For these reasons, the Commission finds good cause, consistent with
Sections 15B(b)(2)(C) and 19(b)(2) of the Act, to accelerate approval
of Amendment No. 1 to the proposed rule change.
V. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning Amendment No. 1, including whether Amendment No. 1
is consistent with the Act. Comments may be submitted by any of the
following methods:
Electronic Comments
Use the Commission's Internet comment form (https://
www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-MSRB-2005-04 on the subject line.
Paper Comments
Send paper comments in triplicate to Jonathan G. Katz,
Secretary, Securities and Exchange Commission, Station Place, 100 F
Street, NE., Washington, DC 20549-9303.
All submissions should refer to File Number SR-MSRB-2005-04. This
file number should be included on the subject line if e-mail is used.
To help the Commission process and review your comments more
efficiently, please use only one method. The Commission will post all
comments on the Commission's Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the submission, all subsequent amendments,
all written statements with respect to the proposed rule change that
are filed with the Commission, and all written communications relating
to the proposed rule change between the Commission and any person,
other than those that may be withheld from the public in accordance
with the provisions of 5 U.S.C. 552, will be available for inspection
and copying in the Commission's Public Reference Room. Copies of such
filing also will be available for inspection and copying at the MSRB's
offices. All comments received will be posted without change; the
Commission does not editpersonal identifying information from
submissions. You should submit only information that you wish to make
available publicly. All submissions should refer to File Number SR-
MSRB-2005-04 and should be submitted on or before September 13, 2005.
VI. Conclusion
For the reasons discussed above, the Commission finds that the
proposal is consistent with the Act and the rules and regulations
thereunder.
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\14\ that the proposed rule change (SR-MSRB-2005-04) be, and hereby
is, approved.
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\14\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\15\
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\15\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-4587 Filed 8-22-05; 8:45 am]
BILLING CODE 8010-01-P
