Proposed Amendments to Municipal Securities Disclosure, 71109-71113 [E6-20829]

Download as PDF Federal Register / Vol. 71, No. 236 / Friday, December 8, 2006 / Proposed Rules Recommended Practices that correspond to this withdrawal notice. SECURITIES AND EXCHANGE COMMISSION Unfunded Mandates Reform Act of 1995 17 CFR Part 240 The Unfunded Mandates Reform Act of 1955 (the Act) is intended, among other things, to curb the practice of imposing unfunded Federal mandates on State, local, and tribal governments. Title II of the Act requires each Federal agency to prepare a written statement assessing the effects of any Federal mandate in a proposed or final agency rule that may result in an expenditure of $100 million or more (adjusted annually for inflation) in any one year by State, local, and tribal governments, in the aggregate, or by the private sector; such a mandate is deemed to be a ‘‘significant regulatory action.’’ This withdrawal notice is not a final or proposed rule. The requirements of Title II of the Act, therefore, do not apply. [Release No. 34–54863; File No. S7–19–06] should encourage additional foreign investment in the U.S. airline industry, give U.S. carriers freedom in developing beneficial business relationships across borders and eliminate outdated restrictions on business conduct. Our proposal has become controversial, as to both the questions of whether our interpretation of ‘‘actual control’’ should be changed and whether our specific proposal will effectively accomplish our objectives. In addition, as noted, letters sent by members of Congress have urged the Department not to adopt the proposal without further discussion. In this particular instance, we have concluded that the expressions of concern support the concept that more public discussion of the underlying issues is warranted. By withdrawing the proposal, we will be free to engage in broad-ranging dialogue without the constraints of a specific rulemaking proposal. Rulemaking Analyses and Notices Executive Order 13132, Federalism Regulatory Flexibility Act The Regulatory Flexibility Act (RFA) (5 U.S.C. 601–612), as amended by the Small Business Regulatory Enforcement Fairness Act of 1996, requires federal agencies, as part of each rule, to consider regulatory alternatives that minimize the impact on small entities while achieving the objectives of the rulemaking. Because we are withdrawing our proposal, we are not adopting any final rule requiring a regulatory flexibility analysis. This action has been analyzed in accordance with the principles and criteria contained in Executive Order 13132, dated August 4, 1999 (64 FR 43255). This withdrawal notice does not have a substantial direct effect on, or significant federalism implications for the States, nor would it limit the policymaking discretion of the States. It will not directly preempt any State law or regulation, or impose burdens on the States. This action will have not a significant effect on the States’ ability to execute traditional State governmental functions. The agency has therefore determined that this withdrawal notice does not have sufficient federalism implications to warrant either the preparation of a federalism summary impact statement or consultations with State and local governments. pwalker on PRODPC60 with PROPOSALS Trade Impact Assessments The Trade Agreement Act of 1979 prohibits federal agencies from establishing any standards or engaging in related activities that create unnecessary obstacles to the foreign commerce of the United States. Legitimate domestic objectives, such as safety, are not considered unnecessary obstacles. The statute also requires consideration of international standards and, where appropriate, that U.S. standards be compatible. The Department has assessed the potential effect of this withdrawal of the proposed rule and has determined that it will have no effect on any trade-sensitive activity. International Compatibility In keeping with U.S. obligations under the Convention on International Civil Aviation, it is the Department’s policy to comply with International Civil Aviation Organization (ICAO) Standards and Recommended Practices to the maximum extent practicable. The Department has determined that there are no ICAO Standards and VerDate Aug<31>2005 16:40 Dec 07, 2006 Jkt 211001 71109 Paperwork Reduction Act The Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 3501 et seq.) requires federal agencies to obtain approval from the Office of Management and Budget (OMB) for each collection of information they conduct, sponsor, or require through regulation. Because this is a withdrawal notice, it will not impose any additional requirements. Thus, there is no change in the paperwork collection, as it currently exists. Issued in Washington, DC on December 5, 2006. Andrew B. Steinberg, Assistant Secretary for Aviation and International Affairs. [FR Doc. 06–9603 Filed 12–5–06; 12:39 pm] BILLING CODE 4910–62–P PO 00000 Frm 00035 Fmt 4702 Sfmt 4702 RIN 3235–AJ41 Proposed Amendments to Municipal Securities Disclosure Securities and Exchange Commission (‘‘Commission’’). ACTION: Proposed rule. AGENCY: SUMMARY: The Commission is publishing for comment proposed amendments to a rule under the Securities Exchange Act of 1934 (‘‘Exchange Act’’) relating to municipal securities disclosure which would delete references to the Municipal Securities Rulemaking Board (‘‘MSRB’’) as a recipient of material event notices filed by or on behalf of issuers of municipal securities or other obligated persons. Comments should be received on or before January 8, 2007. ADDRESSES: Comments may be submitted by any of the following methods: DATES: Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/proposed.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File No. S7–19–06 on the subject line; or • Use the Federal eRulemaking Portal (https://www.regulations.gov). Follow the instructions for submitting comments. Paper Comments • Send paper comments in triplicate to Nancy M. Morris, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549–1090. All submissions should refer to File No. S7–19–06. This file number should be included on the subject line if e-mail is used. To help us 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/proposed.shtml). Comments are also available for public inspection and copying in the Commission’s Public Reference Room, 100 F Street, NE., Washington, DC 20549. All comments received will be posted without change; we do not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. E:\FR\FM\08DEP1.SGM 08DEP1 71110 Federal Register / Vol. 71, No. 236 / Friday, December 8, 2006 / Proposed Rules FOR FURTHER INFORMATION CONTACT: Martha Mahan Haines, Chief, Office of Municipal Securities, at (202) 551–5681; Mary N. Simpkins, Senior Special Counsel, at (202) 551–5683; or David Liu, Special Counsel, at (202) 551–5645, Division of Market Regulation, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549–6628. SUPPLEMENTARY INFORMATION: The Commission is requesting public comment on proposed amendments to Rule 15c2–12 [17 CFR 240.15c2–12] under the Exchange Act. Table of Contents I. Background A. 1994 Amendments to Rule 15c2–12 B. CDI System and CDINet II. MSRB Petition III. Discussion IV. Request for Comment V. Paperwork Reduction Act VI. Costs and Benefits of Proposed Amendments to Rule 15c2–12 A. Benefits B. Costs VII. Consideration of Burden and Promotion of Efficiency, Competition, and Capital Formation VIII. Consideration of Impact on the Economy IX. Regulatory Flexibility Act Certification X. Statutory Authority pwalker on PRODPC60 with PROPOSALS I. Background A. 1994 Amendments to Rule 15c2–12 On November 10, 1994, the Commission adopted amendments (‘‘1994 Amendments’’) to Rule 15c2–12 (‘‘Rule’’) under the Exchange Act 1 to provide, among other things, enhanced ongoing disclosure to the market for municipal securities.2 Pursuant to subsection (b)(5)(i) of the Rule,3 the Commission requires brokers, dealers, and municipal securities dealers (‘‘Participating Underwriters’’), prior to underwriting a primary offering of municipal securities of $1,000,000 or more, to reasonably determine that the issuer or obligated person for whom financial or operating data is presented in the final official statement (‘‘Issuer’’), has undertaken, in a written agreement or contract for the benefit of bondholders, to provide certain continuing disclosure information. Among other things, the Issuer must undertake to send to each nationally recognized municipal securities information repository (‘‘NRMSIR’’) or the MSRB, and to the appropriate state information depository (‘‘SID’’), if any, 1 17 CFR 240.15c2–12. Exchange Act Release No. 34961 (November 10, 1994), 59 FR 59590 (November 17, 1994) (‘‘1994 Adopting Release’’). 3 17 CFR 240.15c2–12(b)(5)(i). 2 Securities VerDate Aug<31>2005 16:40 Dec 07, 2006 Jkt 211001 certain material event notices designated in subsection (b)(5)(i)(C) of the Rule.4 In addition, subsection (b)(5)(i)(D) of the Rule requires a Participating Underwriter to reasonably determine that the Issuer has agreed to notify those same repositories if it fails to provide annual financial information by the agreed-upon date.5 The Commission included the MSRB in its plan for dissemination of material event notices set forth in the Rule because, at the time of the 1994 Amendments, the MSRB already had a voluntary disclosure system in place for receiving and disseminating certain types of material event notices.6 As the Commission noted in the 1994 Adopting Release, ‘‘permitting issuers and obligated persons to file such notices either with each NRMSIR or with the MSRB (as well as the appropriate SID) will facilitate prompt and wide disclosure.’’ 7 In adopting the 1994 Amendments, the Commission also stated that inclusion of the MSRB as a filing option reflected the preference expressed by some commenters to file the required notices in one central place, rather than having to file with multiple NRMSIRs.8 Under the Rule, the use of the MSRB filing alternative is optional, as the material event notice obligation can be satisfied by sending notice to each of the NRMSIRs rather than to the MSRB. B. CDI System and CDINet The MSRB’s original system for receiving material event notices, the Continuing Disclosure Information (‘‘CDI’’) System, was approved by the Commission in April 1992 and commenced operation in January 1993.9 On March 24, 1997, the MSRB implemented certain improvements to its dissemination process and replaced its earlier CDI System with CDINet. CDINet was approved by the Commission in December 1996 10 and, among other things, is designed to accept and disseminate material event notices submitted as a result of the Rule. Once a document has been accepted and processed by CDINet, it is broadcast to subscribers 11 and made available in the MSRB’s public access facility.12 II. MSRB Petition In a recent letter to the Commission,13 the MSRB petitioned the Commission to remove the MSRB as a recipient of material event notices under the Rule.14 According to the MSRB petition, CDINet was designed to permit Issuers to satisfy their material event undertakings through a single submission to the MSRB, rather than through separate filings to each of the NRMSIRs. However, the MSRB states that relatively few Issuers have opted to use CDINet and, in recent years, usage of CDINet has diminished. According to the MSRB, in 1997, CDINet received over 10,000 material event notices. Since that time, submissions to the MSRB have dropped considerably, ranging from 1,000 to 2,500 annually.15 A review conducted by the MSRB of the material event notices received by CDINet in the first half of 2004 showed that, of the 1,104 notices received in that time period, 504 were bond calls, 213 were defeasances, and 145 were rating changes.16 The MSRB also 9 CDI 4 17 CFR 240.15c2–12(b)(5)(i)(C). Subsection (b)(5)(i)(C) lists the following events which, if material, require notice: (1) Principal and interest payment delinquencies; (2) non-payment related defaults; (3) unscheduled draws on debt service reserves reflecting financial difficulties; (4) unscheduled draws on credit enhancements reflecting financial difficulties; (5) substitution of credit or liquidity providers, or their failure to perform; (6) adverse tax opinions or events affecting the tax-exempt status of the security; (7) modifications to rights of security holders; (8) bond calls; (9) defeasances; (10) release, substitution, or sale of property securing repayment of the securities; and (11) rating changes. In addition, in Rule 15c2–12(d)(2), the small issuer exemption is conditioned on an issuer or obligated person undertaking a limited disclosure obligation, including sending certain material event notices to each NRMSIR or the MSRB, as well as the appropriate SID. 17 CFR 240.15c2–12(d)(2). 5 17 CFR 240.15c2–12(b)(5)(i)(D). 6 See Securities Exchange Act Release No. 30556 (April 6, 1992), 57 FR 12534 (April 10, 1992) (‘‘CDI System Approval Order’’). See also Securities Exchange Act Release No. 33742 (March 9, 1994), 59 FR 12759 (March 17, 1994) (‘‘1994 Proposing Release’’) at 12764, note 25. 7 See 1994 Adopting Release at 59605. 8 See 1994 Adopting Release at 59605. PO 00000 Frm 00036 Fmt 4702 Sfmt 4702 System Approval Order. Exchange Act Release No. 38066 (December 19, 1996), 61 FR 68322 (December 27, 1996) (‘‘CDINet Approval Order’’). 11 The MSRB has represented to the Commission that CDINet has only two subscribers. See infra notes 18 and 19. 12 The MSRB has represented to the Commission that, as of September 2005, no one has requested CDINet information at the MSRB’s public access facility for at least the last five years. 13 Letter from Diane G. Klinke, General Counsel, MSRB, to Jonathan G. Katz, Secretary, Commission, dated September 8, 2005 (‘‘MSRB Petition’’). 14 17 CFR 240.15c2–12. 15 MSRB Petition at 2. 16 The remaining notices included the following categories: Failure to File Annual Report (70 notices); Information not specifically required under SEC Rule 15c2–12 (70); Bond Calls and Defeasances (56); Annual Report and CAFR Related Information (13); Various multiple categories indicated (10); Release, Substitution, or Sale of Property Securing Repayment of Securities (5); Principal and Interest Payment Delinquencies (4); Substitution of Credit or Liquidity Providers, or Their Failure to Perform (4); Non-Payment Related Defaults (3); Adverse Tax Opinions or Events Affecting the Tax-Exempt Status of the Security (3); Unscheduled Draws on Debt Service Reserves Reflecting Financial Difficulties (2); Unscheduled 10 Securities E:\FR\FM\08DEP1.SGM 08DEP1 Federal Register / Vol. 71, No. 236 / Friday, December 8, 2006 / Proposed Rules recently reviewed a sample of 100 material event notices received by CDINet in June 2005.17 The MSRB believes that most of the material event notices received by CDINet also are provided to, or otherwise obtained by, the NRMSIRs.18 In its petition, the MSRB also expressed concern that the notices filed exclusively with the MSRB may not be reaching the broader market as intended by the Rule because not all NRMSIRs subscribe to CDINet and the information may not otherwise be widely distributed.19 In addition, the MSRB believes that the need for CDINet has also been lessened because an alternative document delivery system has become available to Issuers and dissemination agents who prefer to send their filings to a single location for delivery to all of the NRMSIRs and any appropriate SID.20 In its petition to the Commission, the MSRB stated that it believes that the number of documents submitted to CDINet will further decrease and that the continued operation of CDINet would provide minimal continuing benefit to the marketplace.21 Finally, because of the age of the CDINet system, the MSRB states that upgrades at an estimated cost of $500,000 to $1 million would be necessary to keep the system operational.22 pwalker on PRODPC60 with PROPOSALS III. Discussion The Commission proposes to amend Rule 15c2–12 23 to delete references to the MSRB as an alternative recipient of material event notices filed by Issuers. Under the proposal, Issuers and their dissemination agents instead would undertake to send material event notices Draws Credit Enhancements Reflecting Financial Difficulties (1); and Modifications to the Rights of Security Holders (1). See Attachment to MSRB Petition. 17 MSRB Petition at 2–3. 18 Definitive information on 90 of the June 2005 notices was found by the MSRB in a review of information available from NRMSIRs that do not subscribe to CDINet. CDINet only has two NRMSIR subscribers: Kenny S&P and Thomson Financial Services. MSRB Petition at 2, note 7. The MSRB presumed that the remaining ten notices were not provided directly to all the NRMSIRs. These notices included six notices regarding failure to provide an annual financial statement, two bond calls, one rating change and one relating to ‘‘other information.’’ The MSRB believes that there is some evidence, however, that at least one NRMSIR may have received some of the notices of failure to provide an annual financial statement but subsequently superseded such information with the annual financial statements themselves once these were received. MSRB Petition at 3, note 8. 19 MSRB Petition at 3. 20 The Commission understands that there may be other entities that have developed or are developing services related to Rule 15c2–12. 21 MSRB Petition at 3. 22 MSRB Petition at 3. 23 17 CFR 240.15c2–12. VerDate Aug<31>2005 16:40 Dec 07, 2006 Jkt 211001 to each NRMSIR and the appropriate SID, if any. The Commission believes that, given the limited usage of the MSRB’s CDINet system and the MSRB’s petition for rulemaking, the proposed elimination of the option of filing material event notices with the MSRB is warranted. The relatively small number of filings made with CDINet indicates that there is little demand for the MSRB filing option. The Commission believes that requiring Issuers to send their material event notices only to each of the NRMSIRs and any appropriate SIDs would simplify the Rule and compliance by Issuers with their undertakings, because Issuers would be required to file material event notices at the same locations that annual financial information is required to be filed pursuant to undertakings in accordance with subsection (b)(5)(i)(A) of the Rule.24 In addition, the Commission believes that eliminating the MSRB filing option would better assure that material event notices are widely disseminated to the market, since it appears that CDINet data may not be broadly distributed.25 Requiring that each NRMSIR and the appropriate SID, if any, receives all material event notices should help assure the completeness and consistency of information available from those repositories. Finally, the Commission notes the MSRB’s statement that the upgrading of CDINet required to maintain the system would cost approximately $500,000 to $1 million.26 In light of the current alternative options under Rule 15c2–12 for Issuers to file with NRMSIRs and SIDs and the lack of demand for the MSRB filing alternative—both by Issuers and information users—the Commission believes that the MSRB’s proposal to cease CDINet’s operations is reasonable. The Commission notes that the MSRB has committed to forward material event notices to the NRMSIRs and applicable SIDs for a period of one year from the date CDINet ceases operations.27 The MSRB has also agreed to alert senders of such notices of the fact that CDINet is ceasing operations, and ask that such senders comply with their undertakings by sending future material event notices to the NRMSIRs and applicable SIDs. 24 17 CFR 240.15c2–12(b)(5)(i)(A). 25 As the MSRB’s recent review showed, a portion of the notices received by the MSRB may not have been fully disseminated to the wider market, since there are only two subscribers to the MSRB’s CDINet. See supra notes 18 and 19. 26 MSRB Petition at 3. 27 MSRB Petition at 4; Letter from Diane G. Klinke, General Counsel, MSRB, to Martha Mahan Haines, Chief, Office of Municipal Securities, Commission, dated April 20, 2006. PO 00000 Frm 00037 Fmt 4702 Sfmt 4702 71111 IV. Request for Comment The Commission seeks comment on the proposed amendments to the Rule. Specifically, comment is requested on whether, in light of the alternative filing options available to Issuers and dissemination agents, there is still a need for the MSRB to be a recipient of material event notices. The Commission also requests comment on whether there exist any applicable continuing disclosure agreements which require issuers or other obligated persons to file material event notices solely with the MSRB that might require modification were the Commission to amend the Rule as proposed. It is the staff’s understanding that such agreements often contain a requirement to file notices with both the (1) NRMSIRs and applicable SIDs and (2) MSRB. The Commission seeks comment on whether any such agreements require filings solely with the MSRB. In addition, the Commission seeks comment on whether the proposed amendment would in fact simplify compliance with undertakings in accordance with the Rule, and better assure widespread dissemination of material event notices. V. Paperwork Reduction Act The proposed amendment to the Rule, contains no new ‘‘collection of information’’ requirements within the meaning of the Paperwork Reduction Act of 1995 (‘‘PRA’’).28 The title of the current information collection as required and under the Rule is Municipal Securities Disclosure (17 CFR 240.15c2–12) (OMB Control No. 3235– 0372). VI. Costs and Benefits of Proposed Amendments to Rule 15c2–12 The Rule currently requires Participating Underwriters to reasonably determine that Issuers have undertaken to submit material event notices to (1) each NRMSIR or the MSRB and (2) the appropriate SID, if any. The proposed amendments would remove the MSRB as an option for the filing of such notices, thereby requiring submission, pursuant to the undertakings, to each NRMSIR and the appropriate SID, if any. A. Benefits The Commission preliminarily believes that the proposed amendments to the Rule should improve the disclosure of material event information to the municipal securities marketplace. Because the MSRB’s CDINet system currently only has two subscribers, it is 28 44 E:\FR\FM\08DEP1.SGM U.S.C. 3501 et seq. 08DEP1 71112 Federal Register / Vol. 71, No. 236 / Friday, December 8, 2006 / Proposed Rules pwalker on PRODPC60 with PROPOSALS not clear that all material event notices submitted to the MSRB are fully distributed to the marketplace. Requiring that each NRMSIR and the appropriate SID, if any, receives all material event notices should help assure the completeness and consistency of information available from those repositories. The Commission also preliminarily believes that the elimination of the MSRB as a filing option would simplify compliance by Issuers with their undertakings in accordance with the Rule. If the proposed amendments are adopted, Issuers would be required to file, pursuant to their undertakings, material event notices at the same locations— each NRMSIR and the appropriate SID, if any—that annual financial information is required to be filed. Finally, the Commission preliminarily concludes that the proposed amendments could save the MSRB substantial funds, represented by the MSRB to be approximately $500,000 to $1 million,29 by not requiring it to perform certain upgrades to its CDINet system which would otherwise be required in order for the system to be maintained. As the costs of the MSRB are paid primarily from fees paid by brokers, dealers and municipal securities dealers, those parties and their customers would benefit from this savings. B. Costs The Commission preliminarily believes that the proposed amendments to the Rule should only minimally increase compliance costs for a few Issuers and may decrease overall compliance costs. Because some Issuers may currently be sending their material event notices only to the MSRB, the proposed amendments would require them to send such notices to each of the (currently four) NRMSIRs. However, the Commission believes that the cost of sending such notices to three additional locales would be minimal because such notices are generally short in length and would only encompass the additional costs of copying several pages, as well as the minor additional mailing costs. In addition, the MSRB has indicated that there is an alternative free document delivery system available to Issuers and dissemination agents who prefer to send their filings to a single location for delivery to all of the NRMSIRS and appropriate SIDs.30 We request comment on whether this would result Petition at 3. Commission understands that there may be other entities that have developed or are developing services related to Rule 15c2–12. in any increased costs to issuers. Finally, the Commission preliminarily believes that those Issuers that currently send to their material event notices to each NRMSIR as well as the MSRB would reduce their costs because the proposed amendments would require those Issuers to send their material event notices to one fewer location. To assist the Commission in evaluating the costs and benefits that may result from the proposed amendments to the Rule, the Commission requests comments on the potential costs and benefits identified in the release, as well as any other costs or benefits that may result from the proposed amendments to the Rule. In addition, the commenters should provide analysis and data to support their views on the costs and benefits. VII. Consideration of Burden and Promotion of Efficiency, Competition, and Capital Formation Section 3(f) of the Exchange Act 31 requires the Commission, whenever it engages in rulemaking and is required to consider or determine whether an action is necessary or appropriate in the public interest, to consider whether the action would promote efficiency, competition, and capital formation. In addition, Section 23(a)(2) of the Exchange Act 32 requires the Commission, when making rules under the Exchange Act, to consider the impact of such rules on competition. Section 23(a)(2) also prohibits the Commission from adopting any rule that would impose a burden on competition not necessary or appropriate in furtherance of the purposes of the Exchange Act. The Commission preliminarily believes that the proposed amendments to the Rule would not impose any burdens on efficiency, capital formation, and competition not necessary or appropriate in furtherance of the purposes of the Exchange Act. The proposed amendments are expected to simplify the material event notice delivery requirements for Issuers, in accordance with their undertakings, by eliminating the MSRB as an alternative. In doing so, the Commission preliminarily believes that municipal securities disclosure would be enhanced, as all Issuers would be required to send all NRMSIRs (and appropriate SIDs) such notices. Under the current disclosure system, Issuers may choose to send such notices to the MSRB. However, there is some evidence 33 that some of the notices sent to the MSRB are not fully disseminated to the entire marketplace. By requiring delivery of such notices to all NRMSIRs and appropriate SIDs, if any, the Commission preliminarily believes that the completeness and consistency of information from these repositories would be improved, thereby promoting efficiency and having no adverse impacts on competition or capital formation. In fact, competition to establish alternative delivery systems in the private sector may be enhanced by the elimination of the MSRB as a single filing location. The Commission requests comment on all aspects of this analysis and, in particular, on whether the proposed amendments to the Rule would place a burden on competition, as well as the effect of the proposed amendments on efficiency, competition, and capital formation. VIII. Consideration of Impact on the Economy For purposes of the Small Business Regulatory Enforcement Fairness Act of 1996, or ‘‘SBREFA,’’ 34 we must advise the Office of Management and Budget as to whether the proposed regulation constitutes a ‘‘major’’ rule. Under SBREFA, a rule is considered ‘‘major’’ where, if adopted, it results or is likely to result in: (1) An annual effect on the economy of $100 million or more (either in the form of an increase or a decrease); (2) a major increase in costs or prices for consumers or individual industries; or (3) significant adverse effect on competition, investment or innovation. The Commission preliminarily believes that this proposed amendment is not a major rule. If a rule is ‘‘major,’’ its effectiveness will generally be delayed for 60 days pending Congressional review. We request comment on the potential impact of the proposed rule on the economy on an annual basis. Commenters are requested to provide empirical data and other factual support for their view to the extent possible. IX. Regulatory Flexibility Act Certification Pursuant to Section 605(b) of the Regulatory Flexibility Act (‘‘RFA’’), the Commission hereby certifies that the proposed amendments to the Rule, would not, if adopted, have a significant economic impact on a substantial number of small entities. Under the RFA, the term ‘‘small entity’’ shall have the same meaning as the RFA defined 29 MSRB 30 The VerDate Aug<31>2005 16:40 Dec 07, 2006 Jkt 211001 31 15 U.S.C. 78c(f). U.S.C. 78w(a)(2). 33 MSRB Petition at 3. 34 Pub. L. No. 104–121, Title II, 110 Stat. 857 (1996) (codified in various sections of 5 U.S.C., 15 U.S.C. and as a note to 5 U.S.C. 601). 32 15 PO 00000 Frm 00038 Fmt 4702 Sfmt 4702 E:\FR\FM\08DEP1.SGM 08DEP1 pwalker on PRODPC60 with PROPOSALS Federal Register / Vol. 71, No. 236 / Friday, December 8, 2006 / Proposed Rules terms ‘‘small business,’’ ‘‘small organization,’’ and ‘‘small governmental jurisdiction.’’ According to Section 601(3) of the RFA, ‘‘the term ‘‘small business’’ has the same meaning as the term ‘‘small business concern’’ under Section 3 of the Small Business Act (15 U.S.C. 632), unless an agency, after consultation with the Small Business Administration and after opportunity for public comment, establishes one or more definitions of such term which are appropriate to the activities of the agency and publishes such definition(s) in the Federal Register.’’ If the agency has not defined the term for a particular purpose, the Small Business Act states that ‘‘a small business concern * * * shall be deemed to be one which is independently owned and operated and which is not dominant in its field of operation.’’ The Section 601(4) of the RFA defines a ‘‘small organization’’ to include ‘‘any not-for-profit enterprise which is independently owned and operated and is not dominant in its field.’’ A ‘‘small governmental jurisdiction’’ is defined by Section 601(5) of the RFA to include ‘‘governments of cities, counties, towns, townships, villages, school districts, or special districts, with a population of less than fifty thousand.’’ It is likely that a substantial number of the Issuers required to submit material event notices are small governmental jurisdictions included in the RFA’s definition of small entities. However, in this regard, the proposed amendments to the Rule would either not require any additional work for such small entities if they do not currently send material event notices to the MSRB, or would simply require them to send such notices to each of the (currently four) NRMSIRs. However, the Commission believes that the cost of sending such notices to three additional locales would be minimal because such notices are generally short in length and would only encompass the additional costs of copying several pages, as well as the minor additional mailing costs. Finally, the Commission preliminarily believes that those Issuers that currently send their material event notices to each NRMSIR as well as the MSRB would reduce their costs because, under the proposed amendments, the MSRB would no longer be available as a location to send such notices. Thus, while the proposed amendments may impact a small entity, such impact would likely not be significant. For the above reasons, the Commission certifies that the proposed amendments to the Rule would not have a significant economic impact on a substantial number of small entities. VerDate Aug<31>2005 16:40 Dec 07, 2006 Jkt 211001 The Commission requests comments regarding this certification. The Commission requests that commenters describe the nature of any impact on small businesses and provide empirical data to support the extent of the impact. X. Statutory Authority Pursuant to the Exchange Act, and particularly Sections 3(b), 15(c), 15B and 23(a)(1) the Commission is proposing the amendments to § 240.15c2–12 of Title 17 of the Code of Federal Regulations in the manner set forth below. Text of Proposed Rule List of Subjects in 17 CFR Part 240 Brokers, Reporting and recordkeeping requirements, Securities. For the reasons set out in the preamble, Title 17, Chapter II, of the Code of Federal Regulations is proposed to be amended as follows. 71113 on or before the date specified in the written agreement or contract. * * * * * (d) * * * (2) * * * (ii) * * * (B) In a timely manner, to each nationally recognized municipal securities information repository and to the appropriate state information depository, if any, notice of events specified in paragraph (b)(5)(i)(C) of this section with respect to the securities that are the subject of the Offering, if material; and * * * * * By the Commission. Dated: December 4, 2006. Nancy M. Morris, Secretary. [FR Doc. E6–20829 Filed 12–7–06; 8:45 am] BILLING CODE 8011–01–P PART 240—GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 1934 INTERNATIONAL TRADE COMMISSION 1. The general authority citation for part 240 is revised to read as follows: [MISC–022] Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z–2, 77z–3, 77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78d, 78e, 78f, 78g, 78i, 78j, 78j–1, 78k, 78k–1, 78l, 78m, 78n, 78o, 78p, 78q, 78s, 78u–5, 78w, 78x, 78ll, 78mm, 80a– 20, 80a–23, 80a–29, 80a–37, 80b–3, 80b–4, 80b–11, and 7201 et seq.; and 18 U.S.C. 1350, unless otherwise noted. Adjudication and Enforcement * * * * * 2. Section 240.15c2–12 is amended by revising the introductory text of paragraph (b)(5)(i)(C) and paragraphs (b)(5)(i)(D) and (d)(2)(ii)(B) to read as follows: § 240.15c2–12 disclosure. Municipal securities * * * * * (b) * * * (5) * * * (i) * * * (C) In a timely manner, to each nationally recognized municipal securities information repository and to the appropriate state information depository, if any, notice of any of the following events with respect to the securities being offered in the Offering, if material: * * * * * (D) In a timely manner, to each nationally recognized municipal securities information repository and to the appropriate state information depository, if any, notice of a failure of any person specified in paragraph (b)(5)(i)(A) of this section to provide required annual financial information PO 00000 Frm 00039 Fmt 4702 Sfmt 4702 19 CFR Part 210 U.S. International Trade Commission. ACTION: Notice of proposed rulemaking. AGENCY: SUMMARY: The Commission proposes to amend some of its rules for investigations and related proceedings under section 337 of the Tariff Act of 1930 (19 U.S.C. 1337) to do the following: (1) Provide for service of certain Commission documents by overnight delivery; and (2) provide one additional day to respond to Commission documents served by overnight delivery. The current manner of service of Commission documents is not effective according to recent agency studies. These rules will ensure effective service of Commission documents on private parties in section 337 investigations and related proceedings. DATES: Submit comments on or before February 6, 2007. ADDRESSES: You may submit comments, identified by docket number MISC–022 by any of the following methods: • Federal eRulemaking Portal: https:// www.regulations.gov. Follow the instructions for submitting comments. • Agency Web Site: https:// www.usitc.gov. Follow the instructions for submitting comments. See https:// www.usitc.gov/secretary/edis.htm. • Mail: For paper submission. U.S. International Trade Commission, 500 E E:\FR\FM\08DEP1.SGM 08DEP1

Agencies

[Federal Register Volume 71, Number 236 (Friday, December 8, 2006)]
[Proposed Rules]
[Pages 71109-71113]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-20829]


=======================================================================
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SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 240

[Release No. 34-54863; File No. S7-19-06]
RIN 3235-AJ41


Proposed Amendments to Municipal Securities Disclosure

AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Proposed rule.

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SUMMARY: The Commission is publishing for comment proposed amendments 
to a rule under the Securities Exchange Act of 1934 (``Exchange Act'') 
relating to municipal securities disclosure which would delete 
references to the Municipal Securities Rulemaking Board (``MSRB'') as a 
recipient of material event notices filed by or on behalf of issuers of 
municipal securities or other obligated persons.

DATES: Comments should be received on or before January 8, 2007.

ADDRESSES: Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (https://
www.sec.gov/rules/proposed.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File No. S7-19-06 on the subject line; or
     Use the Federal eRulemaking Portal (https://
www.regulations.gov). Follow the instructions for submitting comments.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File No. S7-19-06. This file number 
should be included on the subject line if e-mail is used. To help us 
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/proposed.shtml). Comments 
are also available for public inspection and copying in the 
Commission's Public Reference Room, 100 F Street, NE., Washington, DC 
20549. All comments received will be posted without change; we do not 
edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly.

[[Page 71110]]


FOR FURTHER INFORMATION CONTACT: Martha Mahan Haines, Chief, Office of 
Municipal Securities, at (202) 551-5681; Mary N. Simpkins, Senior 
Special Counsel, at (202) 551-5683; or David Liu, Special Counsel, at 
(202) 551-5645, Division of Market Regulation, Securities and Exchange 
Commission, 100 F Street, NE., Washington, DC 20549-6628.

SUPPLEMENTARY INFORMATION: The Commission is requesting public comment 
on proposed amendments to Rule 15c2-12 [17 CFR 240.15c2-12] under the 
Exchange Act.

Table of Contents

I. Background
    A. 1994 Amendments to Rule 15c2-12
    B. CDI System and CDINet
II. MSRB Petition
III. Discussion
IV. Request for Comment
V. Paperwork Reduction Act
VI. Costs and Benefits of Proposed Amendments to Rule 15c2-12
    A. Benefits
    B. Costs
VII. Consideration of Burden and Promotion of Efficiency, 
Competition, and Capital Formation
VIII. Consideration of Impact on the Economy
IX. Regulatory Flexibility Act Certification
X. Statutory Authority

I. Background

A. 1994 Amendments to Rule 15c2-12

    On November 10, 1994, the Commission adopted amendments (``1994 
Amendments'') to Rule 15c2-12 (``Rule'') under the Exchange Act \1\ to 
provide, among other things, enhanced ongoing disclosure to the market 
for municipal securities.\2\ Pursuant to subsection (b)(5)(i) of the 
Rule,\3\ the Commission requires brokers, dealers, and municipal 
securities dealers (``Participating Underwriters''), prior to 
underwriting a primary offering of municipal securities of $1,000,000 
or more, to reasonably determine that the issuer or obligated person 
for whom financial or operating data is presented in the final official 
statement (``Issuer''), has undertaken, in a written agreement or 
contract for the benefit of bondholders, to provide certain continuing 
disclosure information. Among other things, the Issuer must undertake 
to send to each nationally recognized municipal securities information 
repository (``NRMSIR'') or the MSRB, and to the appropriate state 
information depository (``SID''), if any, certain material event 
notices designated in subsection (b)(5)(i)(C) of the Rule.\4\ In 
addition, subsection (b)(5)(i)(D) of the Rule requires a Participating 
Underwriter to reasonably determine that the Issuer has agreed to 
notify those same repositories if it fails to provide annual financial 
information by the agreed-upon date.\5\
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    \1\ 17 CFR 240.15c2-12.
    \2\ Securities Exchange Act Release No. 34961 (November 10, 
1994), 59 FR 59590 (November 17, 1994) (``1994 Adopting Release'').
    \3\ 17 CFR 240.15c2-12(b)(5)(i).
    \4\ 17 CFR 240.15c2-12(b)(5)(i)(C). Subsection (b)(5)(i)(C) 
lists the following events which, if material, require notice: (1) 
Principal and interest payment delinquencies; (2) non-payment 
related defaults; (3) unscheduled draws on debt service reserves 
reflecting financial difficulties; (4) unscheduled draws on credit 
enhancements reflecting financial difficulties; (5) substitution of 
credit or liquidity providers, or their failure to perform; (6) 
adverse tax opinions or events affecting the tax-exempt status of 
the security; (7) modifications to rights of security holders; (8) 
bond calls; (9) defeasances; (10) release, substitution, or sale of 
property securing repayment of the securities; and (11) rating 
changes.
    In addition, in Rule 15c2-12(d)(2), the small issuer exemption 
is conditioned on an issuer or obligated person undertaking a 
limited disclosure obligation, including sending certain material 
event notices to each NRMSIR or the MSRB, as well as the appropriate 
SID. 17 CFR 240.15c2-12(d)(2).
    \5\ 17 CFR 240.15c2-12(b)(5)(i)(D).
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    The Commission included the MSRB in its plan for dissemination of 
material event notices set forth in the Rule because, at the time of 
the 1994 Amendments, the MSRB already had a voluntary disclosure system 
in place for receiving and disseminating certain types of material 
event notices.\6\ As the Commission noted in the 1994 Adopting Release, 
``permitting issuers and obligated persons to file such notices either 
with each NRMSIR or with the MSRB (as well as the appropriate SID) will 
facilitate prompt and wide disclosure.'' \7\ In adopting the 1994 
Amendments, the Commission also stated that inclusion of the MSRB as a 
filing option reflected the preference expressed by some commenters to 
file the required notices in one central place, rather than having to 
file with multiple NRMSIRs.\8\ Under the Rule, the use of the MSRB 
filing alternative is optional, as the material event notice obligation 
can be satisfied by sending notice to each of the NRMSIRs rather than 
to the MSRB.
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    \6\ See Securities Exchange Act Release No. 30556 (April 6, 
1992), 57 FR 12534 (April 10, 1992) (``CDI System Approval Order''). 
See also Securities Exchange Act Release No. 33742 (March 9, 1994), 
59 FR 12759 (March 17, 1994) (``1994 Proposing Release'') at 12764, 
note 25.
    \7\ See 1994 Adopting Release at 59605.
    \8\ See 1994 Adopting Release at 59605.
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B. CDI System and CDINet

    The MSRB's original system for receiving material event notices, 
the Continuing Disclosure Information (``CDI'') System, was approved by 
the Commission in April 1992 and commenced operation in January 
1993.\9\ On March 24, 1997, the MSRB implemented certain improvements 
to its dissemination process and replaced its earlier CDI System with 
CDINet. CDINet was approved by the Commission in December 1996 \10\ 
and, among other things, is designed to accept and disseminate material 
event notices submitted as a result of the Rule. Once a document has 
been accepted and processed by CDINet, it is broadcast to subscribers 
\11\ and made available in the MSRB's public access facility.\12\
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    \9\ CDI System Approval Order.
    \10\ Securities Exchange Act Release No. 38066 (December 19, 
1996), 61 FR 68322 (December 27, 1996) (``CDINet Approval Order'').
    \11\ The MSRB has represented to the Commission that CDINet has 
only two subscribers. See infra notes 18 and 19.
    \12\ The MSRB has represented to the Commission that, as of 
September 2005, no one has requested CDINet information at the 
MSRB's public access facility for at least the last five years.
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II. MSRB Petition

    In a recent letter to the Commission,\13\ the MSRB petitioned the 
Commission to remove the MSRB as a recipient of material event notices 
under the Rule.\14\ According to the MSRB petition, CDINet was designed 
to permit Issuers to satisfy their material event undertakings through 
a single submission to the MSRB, rather than through separate filings 
to each of the NRMSIRs. However, the MSRB states that relatively few 
Issuers have opted to use CDINet and, in recent years, usage of CDINet 
has diminished. According to the MSRB, in 1997, CDINet received over 
10,000 material event notices. Since that time, submissions to the MSRB 
have dropped considerably, ranging from 1,000 to 2,500 annually.\15\
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    \13\ Letter from Diane G. Klinke, General Counsel, MSRB, to 
Jonathan G. Katz, Secretary, Commission, dated September 8, 2005 
(``MSRB Petition'').
    \14\ 17 CFR 240.15c2-12.
    \15\ MSRB Petition at 2.
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    A review conducted by the MSRB of the material event notices 
received by CDINet in the first half of 2004 showed that, of the 1,104 
notices received in that time period, 504 were bond calls, 213 were 
defeasances, and 145 were rating changes.\16\ The MSRB also

[[Page 71111]]

recently reviewed a sample of 100 material event notices received by 
CDINet in June 2005.\17\ The MSRB believes that most of the material 
event notices received by CDINet also are provided to, or otherwise 
obtained by, the NRMSIRs.\18\ In its petition, the MSRB also expressed 
concern that the notices filed exclusively with the MSRB may not be 
reaching the broader market as intended by the Rule because not all 
NRMSIRs subscribe to CDINet and the information may not otherwise be 
widely distributed.\19\
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    \16\ The remaining notices included the following categories: 
Failure to File Annual Report (70 notices); Information not 
specifically required under SEC Rule 15c2-12 (70); Bond Calls and 
Defeasances (56); Annual Report and CAFR Related Information (13); 
Various multiple categories indicated (10); Release, Substitution, 
or Sale of Property Securing Repayment of Securities (5); Principal 
and Interest Payment Delinquencies (4); Substitution of Credit or 
Liquidity Providers, or Their Failure to Perform (4); Non-Payment 
Related Defaults (3); Adverse Tax Opinions or Events Affecting the 
Tax-Exempt Status of the Security (3); Unscheduled Draws on Debt 
Service Reserves Reflecting Financial Difficulties (2); Unscheduled 
Draws Credit Enhancements Reflecting Financial Difficulties (1); and 
Modifications to the Rights of Security Holders (1). See Attachment 
to MSRB Petition.
    \17\ MSRB Petition at 2-3.
    \18\ Definitive information on 90 of the June 2005 notices was 
found by the MSRB in a review of information available from NRMSIRs 
that do not subscribe to CDINet. CDINet only has two NRMSIR 
subscribers: Kenny S&P and Thomson Financial Services. MSRB Petition 
at 2, note 7. The MSRB presumed that the remaining ten notices were 
not provided directly to all the NRMSIRs. These notices included six 
notices regarding failure to provide an annual financial statement, 
two bond calls, one rating change and one relating to ``other 
information.'' The MSRB believes that there is some evidence, 
however, that at least one NRMSIR may have received some of the 
notices of failure to provide an annual financial statement but 
subsequently superseded such information with the annual financial 
statements themselves once these were received. MSRB Petition at 3, 
note 8.
    \19\ MSRB Petition at 3.
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    In addition, the MSRB believes that the need for CDINet has also 
been lessened because an alternative document delivery system has 
become available to Issuers and dissemination agents who prefer to send 
their filings to a single location for delivery to all of the NRMSIRs 
and any appropriate SID.\20\ In its petition to the Commission, the 
MSRB stated that it believes that the number of documents submitted to 
CDINet will further decrease and that the continued operation of CDINet 
would provide minimal continuing benefit to the marketplace.\21\ 
Finally, because of the age of the CDINet system, the MSRB states that 
upgrades at an estimated cost of $500,000 to $1 million would be 
necessary to keep the system operational.\22\
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    \20\ The Commission understands that there may be other entities 
that have developed or are developing services related to Rule 15c2-
12.
    \21\ MSRB Petition at 3.
    \22\ MSRB Petition at 3.
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III. Discussion

    The Commission proposes to amend Rule 15c2-12 \23\ to delete 
references to the MSRB as an alternative recipient of material event 
notices filed by Issuers. Under the proposal, Issuers and their 
dissemination agents instead would undertake to send material event 
notices to each NRMSIR and the appropriate SID, if any. The Commission 
believes that, given the limited usage of the MSRB's CDINet system and 
the MSRB's petition for rulemaking, the proposed elimination of the 
option of filing material event notices with the MSRB is warranted. The 
relatively small number of filings made with CDINet indicates that 
there is little demand for the MSRB filing option. The Commission 
believes that requiring Issuers to send their material event notices 
only to each of the NRMSIRs and any appropriate SIDs would simplify the 
Rule and compliance by Issuers with their undertakings, because Issuers 
would be required to file material event notices at the same locations 
that annual financial information is required to be filed pursuant to 
undertakings in accordance with subsection (b)(5)(i)(A) of the 
Rule.\24\ In addition, the Commission believes that eliminating the 
MSRB filing option would better assure that material event notices are 
widely disseminated to the market, since it appears that CDINet data 
may not be broadly distributed.\25\ Requiring that each NRMSIR and the 
appropriate SID, if any, receives all material event notices should 
help assure the completeness and consistency of information available 
from those repositories.
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    \23\ 17 CFR 240.15c2-12.
    \24\ 17 CFR 240.15c2-12(b)(5)(i)(A).
    \25\ As the MSRB's recent review showed, a portion of the 
notices received by the MSRB may not have been fully disseminated to 
the wider market, since there are only two subscribers to the MSRB's 
CDINet. See supra notes 18 and 19.
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    Finally, the Commission notes the MSRB's statement that the 
upgrading of CDINet required to maintain the system would cost 
approximately $500,000 to $1 million.\26\ In light of the current 
alternative options under Rule 15c2-12 for Issuers to file with NRMSIRs 
and SIDs and the lack of demand for the MSRB filing alternative--both 
by Issuers and information users--the Commission believes that the 
MSRB's proposal to cease CDINet's operations is reasonable. The 
Commission notes that the MSRB has committed to forward material event 
notices to the NRMSIRs and applicable SIDs for a period of one year 
from the date CDINet ceases operations.\27\ The MSRB has also agreed to 
alert senders of such notices of the fact that CDINet is ceasing 
operations, and ask that such senders comply with their undertakings by 
sending future material event notices to the NRMSIRs and applicable 
SIDs.
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    \26\ MSRB Petition at 3.
    \27\ MSRB Petition at 4; Letter from Diane G. Klinke, General 
Counsel, MSRB, to Martha Mahan Haines, Chief, Office of Municipal 
Securities, Commission, dated April 20, 2006.
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IV. Request for Comment

    The Commission seeks comment on the proposed amendments to the 
Rule. Specifically, comment is requested on whether, in light of the 
alternative filing options available to Issuers and dissemination 
agents, there is still a need for the MSRB to be a recipient of 
material event notices. The Commission also requests comment on whether 
there exist any applicable continuing disclosure agreements which 
require issuers or other obligated persons to file material event 
notices solely with the MSRB that might require modification were the 
Commission to amend the Rule as proposed. It is the staff's 
understanding that such agreements often contain a requirement to file 
notices with both the (1) NRMSIRs and applicable SIDs and (2) MSRB. The 
Commission seeks comment on whether any such agreements require filings 
solely with the MSRB.
    In addition, the Commission seeks comment on whether the proposed 
amendment would in fact simplify compliance with undertakings in 
accordance with the Rule, and better assure widespread dissemination of 
material event notices.

V. Paperwork Reduction Act

    The proposed amendment to the Rule, contains no new ``collection of 
information'' requirements within the meaning of the Paperwork 
Reduction Act of 1995 (``PRA'').\28\ The title of the current 
information collection as required and under the Rule is Municipal 
Securities Disclosure (17 CFR 240.15c2-12) (OMB Control No. 3235-0372).
---------------------------------------------------------------------------

    \28\ 44 U.S.C. 3501 et seq.
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VI. Costs and Benefits of Proposed Amendments to Rule 15c2-12

    The Rule currently requires Participating Underwriters to 
reasonably determine that Issuers have undertaken to submit material 
event notices to (1) each NRMSIR or the MSRB and (2) the appropriate 
SID, if any. The proposed amendments would remove the MSRB as an option 
for the filing of such notices, thereby requiring submission, pursuant 
to the undertakings, to each NRMSIR and the appropriate SID, if any.

A. Benefits

    The Commission preliminarily believes that the proposed amendments 
to the Rule should improve the disclosure of material event information 
to the municipal securities marketplace. Because the MSRB's CDINet 
system currently only has two subscribers, it is

[[Page 71112]]

not clear that all material event notices submitted to the MSRB are 
fully distributed to the marketplace. Requiring that each NRMSIR and 
the appropriate SID, if any, receives all material event notices should 
help assure the completeness and consistency of information available 
from those repositories. The Commission also preliminarily believes 
that the elimination of the MSRB as a filing option would simplify 
compliance by Issuers with their undertakings in accordance with the 
Rule. If the proposed amendments are adopted, Issuers would be required 
to file, pursuant to their undertakings, material event notices at the 
same locations--each NRMSIR and the appropriate SID, if any--that 
annual financial information is required to be filed. Finally, the 
Commission preliminarily concludes that the proposed amendments could 
save the MSRB substantial funds, represented by the MSRB to be 
approximately $500,000 to $1 million,\29\ by not requiring it to 
perform certain upgrades to its CDINet system which would otherwise be 
required in order for the system to be maintained. As the costs of the 
MSRB are paid primarily from fees paid by brokers, dealers and 
municipal securities dealers, those parties and their customers would 
benefit from this savings.
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    \29\ MSRB Petition at 3.
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B. Costs

    The Commission preliminarily believes that the proposed amendments 
to the Rule should only minimally increase compliance costs for a few 
Issuers and may decrease overall compliance costs. Because some Issuers 
may currently be sending their material event notices only to the MSRB, 
the proposed amendments would require them to send such notices to each 
of the (currently four) NRMSIRs. However, the Commission believes that 
the cost of sending such notices to three additional locales would be 
minimal because such notices are generally short in length and would 
only encompass the additional costs of copying several pages, as well 
as the minor additional mailing costs. In addition, the MSRB has 
indicated that there is an alternative free document delivery system 
available to Issuers and dissemination agents who prefer to send their 
filings to a single location for delivery to all of the NRMSIRS and 
appropriate SIDs.\30\ We request comment on whether this would result 
in any increased costs to issuers. Finally, the Commission 
preliminarily believes that those Issuers that currently send to their 
material event notices to each NRMSIR as well as the MSRB would reduce 
their costs because the proposed amendments would require those Issuers 
to send their material event notices to one fewer location.
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    \30\ The Commission understands that there may be other entities 
that have developed or are developing services related to Rule 15c2-
12.
---------------------------------------------------------------------------

    To assist the Commission in evaluating the costs and benefits that 
may result from the proposed amendments to the Rule, the Commission 
requests comments on the potential costs and benefits identified in the 
release, as well as any other costs or benefits that may result from 
the proposed amendments to the Rule. In addition, the commenters should 
provide analysis and data to support their views on the costs and 
benefits.

VII. Consideration of Burden and Promotion of Efficiency, Competition, 
and Capital Formation

    Section 3(f) of the Exchange Act \31\ requires the Commission, 
whenever it engages in rulemaking and is required to consider or 
determine whether an action is necessary or appropriate in the public 
interest, to consider whether the action would promote efficiency, 
competition, and capital formation. In addition, Section 23(a)(2) of 
the Exchange Act \32\ requires the Commission, when making rules under 
the Exchange Act, to consider the impact of such rules on competition. 
Section 23(a)(2) also prohibits the Commission from adopting any rule 
that would impose a burden on competition not necessary or appropriate 
in furtherance of the purposes of the Exchange Act.
---------------------------------------------------------------------------

    \31\ 15 U.S.C. 78c(f).
    \32\ 15 U.S.C. 78w(a)(2).
---------------------------------------------------------------------------

    The Commission preliminarily believes that the proposed amendments 
to the Rule would not impose any burdens on efficiency, capital 
formation, and competition not necessary or appropriate in furtherance 
of the purposes of the Exchange Act. The proposed amendments are 
expected to simplify the material event notice delivery requirements 
for Issuers, in accordance with their undertakings, by eliminating the 
MSRB as an alternative. In doing so, the Commission preliminarily 
believes that municipal securities disclosure would be enhanced, as all 
Issuers would be required to send all NRMSIRs (and appropriate SIDs) 
such notices. Under the current disclosure system, Issuers may choose 
to send such notices to the MSRB. However, there is some evidence \33\ 
that some of the notices sent to the MSRB are not fully disseminated to 
the entire marketplace. By requiring delivery of such notices to all 
NRMSIRs and appropriate SIDs, if any, the Commission preliminarily 
believes that the completeness and consistency of information from 
these repositories would be improved, thereby promoting efficiency and 
having no adverse impacts on competition or capital formation. In fact, 
competition to establish alternative delivery systems in the private 
sector may be enhanced by the elimination of the MSRB as a single 
filing location.
---------------------------------------------------------------------------

    \33\ MSRB Petition at 3.
---------------------------------------------------------------------------

    The Commission requests comment on all aspects of this analysis 
and, in particular, on whether the proposed amendments to the Rule 
would place a burden on competition, as well as the effect of the 
proposed amendments on efficiency, competition, and capital formation.

VIII. Consideration of Impact on the Economy

    For purposes of the Small Business Regulatory Enforcement Fairness 
Act of 1996, or ``SBREFA,'' \34\ we must advise the Office of 
Management and Budget as to whether the proposed regulation constitutes 
a ``major'' rule. Under SBREFA, a rule is considered ``major'' where, 
if adopted, it results or is likely to result in: (1) An annual effect 
on the economy of $100 million or more (either in the form of an 
increase or a decrease); (2) a major increase in costs or prices for 
consumers or individual industries; or (3) significant adverse effect 
on competition, investment or innovation. The Commission preliminarily 
believes that this proposed amendment is not a major rule.
---------------------------------------------------------------------------

    \34\ Pub. L. No. 104-121, Title II, 110 Stat. 857 (1996) 
(codified in various sections of 5 U.S.C., 15 U.S.C. and as a note 
to 5 U.S.C. 601).
---------------------------------------------------------------------------

    If a rule is ``major,'' its effectiveness will generally be delayed 
for 60 days pending Congressional review. We request comment on the 
potential impact of the proposed rule on the economy on an annual 
basis. Commenters are requested to provide empirical data and other 
factual support for their view to the extent possible.

IX. Regulatory Flexibility Act Certification

    Pursuant to Section 605(b) of the Regulatory Flexibility Act 
(``RFA''), the Commission hereby certifies that the proposed amendments 
to the Rule, would not, if adopted, have a significant economic impact 
on a substantial number of small entities. Under the RFA, the term 
``small entity'' shall have the same meaning as the RFA defined

[[Page 71113]]

terms ``small business,'' ``small organization,'' and ``small 
governmental jurisdiction.'' According to Section 601(3) of the RFA, 
``the term ``small business'' has the same meaning as the term ``small 
business concern'' under Section 3 of the Small Business Act (15 U.S.C. 
632), unless an agency, after consultation with the Small Business 
Administration and after opportunity for public comment, establishes 
one or more definitions of such term which are appropriate to the 
activities of the agency and publishes such definition(s) in the 
Federal Register.'' If the agency has not defined the term for a 
particular purpose, the Small Business Act states that ``a small 
business concern * * * shall be deemed to be one which is independently 
owned and operated and which is not dominant in its field of 
operation.'' The Section 601(4) of the RFA defines a ``small 
organization'' to include ``any not-for-profit enterprise which is 
independently owned and operated and is not dominant in its field.'' A 
``small governmental jurisdiction'' is defined by Section 601(5) of the 
RFA to include ``governments of cities, counties, towns, townships, 
villages, school districts, or special districts, with a population of 
less than fifty thousand.''
    It is likely that a substantial number of the Issuers required to 
submit material event notices are small governmental jurisdictions 
included in the RFA's definition of small entities. However, in this 
regard, the proposed amendments to the Rule would either not require 
any additional work for such small entities if they do not currently 
send material event notices to the MSRB, or would simply require them 
to send such notices to each of the (currently four) NRMSIRs. However, 
the Commission believes that the cost of sending such notices to three 
additional locales would be minimal because such notices are generally 
short in length and would only encompass the additional costs of 
copying several pages, as well as the minor additional mailing costs. 
Finally, the Commission preliminarily believes that those Issuers that 
currently send their material event notices to each NRMSIR as well as 
the MSRB would reduce their costs because, under the proposed 
amendments, the MSRB would no longer be available as a location to send 
such notices. Thus, while the proposed amendments may impact a small 
entity, such impact would likely not be significant.
    For the above reasons, the Commission certifies that the proposed 
amendments to the Rule would not have a significant economic impact on 
a substantial number of small entities. The Commission requests 
comments regarding this certification. The Commission requests that 
commenters describe the nature of any impact on small businesses and 
provide empirical data to support the extent of the impact.

X. Statutory Authority

    Pursuant to the Exchange Act, and particularly Sections 3(b), 
15(c), 15B and 23(a)(1) the Commission is proposing the amendments to 
Sec.  240.15c2-12 of Title 17 of the Code of Federal Regulations in the 
manner set forth below.

Text of Proposed Rule

List of Subjects in 17 CFR Part 240

    Brokers, Reporting and recordkeeping requirements, Securities.

    For the reasons set out in the preamble, Title 17, Chapter II, of 
the Code of Federal Regulations is proposed to be amended as follows.

PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 
1934

    1. The general authority citation for part 240 is revised to read 
as follows:

    Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3, 
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78d, 78e, 78f, 78g, 78i, 
78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78o, 78p, 78q, 78s, 78u-5, 
78w, 78x, 78ll, 78mm, 80a-20, 80a-23, 80a-29, 80a-37, 80b-3, 80b-4, 
80b-11, and 7201 et seq.; and 18 U.S.C. 1350, unless otherwise 
noted.
* * * * *
    2. Section 240.15c2-12 is amended by revising the introductory text 
of paragraph (b)(5)(i)(C) and paragraphs (b)(5)(i)(D) and (d)(2)(ii)(B) 
to read as follows:


Sec.  240.15c2-12  Municipal securities disclosure.

* * * * *
    (b) * * *
    (5) * * *
    (i) * * *
    (C) In a timely manner, to each nationally recognized municipal 
securities information repository and to the appropriate state 
information depository, if any, notice of any of the following events 
with respect to the securities being offered in the Offering, if 
material:
* * * * *
    (D) In a timely manner, to each nationally recognized municipal 
securities information repository and to the appropriate state 
information depository, if any, notice of a failure of any person 
specified in paragraph (b)(5)(i)(A) of this section to provide required 
annual financial information on or before the date specified in the 
written agreement or contract.
* * * * *
    (d) * * *
    (2) * * *
    (ii) * * *
    (B) In a timely manner, to each nationally recognized municipal 
securities information repository and to the appropriate state 
information depository, if any, notice of events specified in paragraph 
(b)(5)(i)(C) of this section with respect to the securities that are 
the subject of the Offering, if material; and
* * * * *

    By the Commission.

    Dated: December 4, 2006.
Nancy M. Morris,
Secretary.
[FR Doc. E6-20829 Filed 12-7-06; 8:45 am]
BILLING CODE 8011-01-P
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