Self-Regulatory Organizations; Municipal Securities Rulemaking Board; Order Approving Proposed Rule Change Relating to Amendments to the Continuing Disclosure Service of the MSRB's Electronic Municipal Market Access System (EMMA®), 63884-63887 [2010-26177]
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63884
Federal Register / Vol. 75, No. 200 / Monday, October 18, 2010 / Notices
the T+1 Transaction Price Service.
Consequently, all three services generate
less than $300,000 of revenue per year.
The cost of operating MSRB market
information programs has been
increasing annually. Fee revenue
obtained through these subscription
services covers only a small portion of
RTRS operating costs. Even with the
proposed increases, the MSRB does not
expect subscription fees to cover more
than a relatively small percentage of
program costs.
2. Statutory Basis
The MSRB believes that the proposed
rule change is consistent with Section
15B(b)(2)(J) of the Act,6 which requires,
in pertinent part, that the MSRB’s rules
shall:
Provide that each municipal securities
broker and each municipal securities dealer
shall pay to the Board such reasonable fees
and charges as may be necessary or
appropriate to defray the costs and expenses
of operating and administering the Board.
Such rules shall specify the amount of such
fees and charges.
The proposed rule change provides
for commercially reasonable fees to
partially offset costs associated with
operating RTRS and producing and
disseminating transaction reports to
subscribers.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Board does not believe that the
proposed rule change will impose any
burden on competition not necessary or
appropriate in furtherance of the
purposes of the Act since it would apply
equally to all market participants that
chose to subscribe to the services.
C. Self-Regulatory Organization’s
Statement on Comments Received on
the Proposed Rule Change by Members,
Participants, or Others
Written comments were neither
solicited nor received on the proposed
rule change.
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III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the self-regulatory
organization consents, the Commission
will:
6 15
U.S.C. 78o–4(b)(2)(J).
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(A) By order approve or disapprove
such proposed rule change, or
(B) Institute proceedings to determine
whether the proposed rule change
should be disapproved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.7
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010–26182 Filed 10–15–10; 8:45 am]
IV. Solicitation of Comments
BILLING CODE 8011–01–P
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
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–2010–09 on the
subject line.
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–63086; File No. SR–MSRB–
2010–03]
Self-Regulatory Organizations;
Municipal Securities Rulemaking
Board; Order Approving Proposed
Rule Change Relating to Amendments
to the Continuing Disclosure Service
of the MSRB’s Electronic Municipal
Market Access System (EMMA®)
October 13, 2010.
I. Introduction
On May 20, 2010, the Municipal
• Send paper comments in triplicate
Securities Rulemaking Board (the
to Elizabeth M. Murphy, Secretary,
‘‘MSRB’’) filed with the Securities and
Securities and Exchange Commission,
Exchange Commission (the
100 F Street, NE., Washington, DC
‘‘Commission’’), pursuant to Section
20549–1090.
19(b)(1) of the Securities Exchange Act
All submissions should refer to File
of 1934 (the ‘‘Exchange Act’’) 1 and Rule
Number SR–MSRB–2010–09. This file
19b–4 thereunder,2 a proposed rule
number should be included on the
change to amend the continuing
subject line if e-mail is used. To help the disclosure service of the MSRB’s
Commission process and review your
Electronic Municipal Market Access
comments more efficiently, please use
system (‘‘EMMA’’) to provide for the
only one method. The Commission will posting of credit rating information on
post all comments on the Commission’s the EMMA public Web site. The
Web site (https://www.sec.gov/rules/
proposed rule change was published for
sro.shtml). Copies of the submission, all comment in the Federal Register on
subsequent amendments, all written
June 2, 2010.3 The Commission received
statements with respect to the proposed two comment letters regarding the
rule change that are filed with the
MSRB’s proposed rule change.4 The
Commission, and all written
MSRB responded to these comment
communications relating to the
letters in a letter dated September 16,
proposed rule change between the
2010.5 This order approves the
Commission and any person, other than proposed rule change.
those that may be withheld from the
II. Background and Description of
public in accordance with the
Proposal
provisions of 5 U.S.C. 552, will be
The proposed rule change would
available for Web site viewing and
amend the EMMA continuing disclosure
printing in the Commission’s Public
service to provide for the posting of
Reference Room, 100 F Street, NE.,
Washington, DC 20549, on official
7 17 CFR 200.30–3(a)(12).
business days between the hours of 10
1 15 U.S.C. 78s(b)(1).
a.m. and 3 p.m. Copies of such filing
2 17 CFR 240.19b–4.
also will be available for inspection and
3 See Securities Exchange Act Release No. 62175
copying at the MSRB’s offices. All
(May 26, 2010), 75 FR 30892.
comments received will be posted
4 See letter from Deven Sharma, President,
without change; the Commission does
Standard & Poor’s Ratings Services (‘‘S&P’’), to
Elizabeth M. Murphy, Secretary, Commission, dated
not edit personal identifying
June 22, 2010 (‘‘S&P Letter’’) and letter from Susan
information from submissions. You
Gaffney, Director, Federal Liaison Center,
should submit only information that
Government Finance Officers Association
you wish to make available publicly. All (‘‘GFOA’’), to Elizabeth M. Murphy, Secretary,
Commission, dated July 23, 2010 (‘‘GFOA Letter’’).
submissions should refer to File
5 See letter from Ernesto A. Lanza, General
Number SR–MSRB–2010–09 and should
Counsel, MSRB, to Elizabeth M. Murphy, Secretary,
be submitted on or before November 8,
Commission, dated September 16, 2010 (‘‘MSRB
2010.
Letter’’).
Paper Comments
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Federal Register / Vol. 75, No. 200 / Monday, October 18, 2010 / Notices
credit rating information on the EMMA
public Web site. If and to the extent that
one or more Nationally Recognized
Statistical Rating Organizations
(‘‘NRSRO’’) has agreed to provide credit
rating and related information regarding
municipal securities to the MSRB, at no
charge, through an automated data feed
for dissemination on the EMMA Web
site, the EMMA Web site would display
such credit rating and related
information along with any documents
and identifying information relating to
the applicable municipal security
otherwise displayed on the EMMA Web
site. Currently, such other documents or
information may include official
statements, advance refunding
documents, continuing disclosure
documents, transaction price data,
interest rate reset information, and
identifying information relating to a
specific municipal security.
Under the proposed rule change,
credit rating and related information
normally would be posted within 15
minutes of successful transmission to
the MSRB during the hours of 8:30 a.m.
to 6 p.m. Eastern time, and any such
information successfully transmitted
outside of the MSRB’s normal business
hours would be posted as soon as
practicable. The MSRB stated that under
the proposed rule change it shall have
no obligation to supplement, modify or
confirm credit rating and related
information received by it through an
NRSRO’s automated data feed based on
information available from any other
source, including but not limited to any
such information made publicly
available by an NRSRO by any means
other than its automated data feed.
In the MSRB Letter responding to
comments, the MSRB requested that the
proposal be approved with a revised
effective date to be announced by the
MSRB in a notice published on the
MSRB Web site, which date shall be no
later than one year after Commission
approval of the proposal and shall be
announced no later than five business
days before the effective date. The
MSRB stated that the revised effective
date would provide additional time for
any NRSRO that has not yet determined
to participate in the EMMA ratings
initiative to work with the MSRB to
develop appropriate mechanisms to
minimize potential threats to
intellectual property rights and other
commercial interests.6 The MSRB stated
that the additional three month period
also would provide any such NRSRO
with a further opportunity to provide
the MSRB with access to its automated
data feed for development and testing
purposes with a view to potentially
making such NRSRO’s ratings
information available for display upon
launch of the EMMA ratings initiative
should such NRSRO reconsider its
participation in the EMMA ratings
initiative prior to such launch.7
III. Discussion of Comment Letters and
Commission Findings
A. Discussion of Comment Letters
The Commission received two
comment letters on the proposed rule
change filed by the MSRB; the MSRB
responded to these comments. GFOA
strongly supported the proposed rule
change stating that ‘‘we believe that
there is nothing more relevant than
making credit ratings available in one
location, where the public can access
the information quickly, efficiently, and
at no cost to them.’’ 8 GFOA believed
that all members of the public should
have access to ratings information at the
CUSIP level and that posting ratings
information on EMMA at no charge to
the public would create a ‘‘level playing
field’’ for all investors and eliminate a
two-tier system that unfairly allows
institutional and sophisticated investors
to more easily access information about
a security than other investors.9 While
GFOA recognized that rating agencies
‘‘have every right to copyright their
written analysis, rationale and other
derivative products,’’ GFOA also
believed that the rating agencies ‘‘should
not be able to withhold the basic
conclusion of a rating from open
distribution through the EMMA
system.’’ 10 GFOA stated that the
proposed rule ‘‘simply serves to take
what already is public information and
directs it to one location,’’ which would
be ‘‘something that is a true benefit to
investors and the public.’’ 11 GFOA
further stated that having the rating
agencies provide ratings information
directly to EMMA is a more efficient
way of disseminating information to
investors, noting that issuers may not be
aware of rating changes at the moment
they occur.12 GFOA believed that the
MSRB and the credit rating agencies
currently have adequate technical
expertise, portals and systems to send
feeds to EMMA at little cost to the rating
agencies or the MSRB.13 Lastly, GFOA
believed that the MSRB should have
safeguards in place to ensure that a
rating is assigned to the correct CUSIP
7 Id.
8 See
MSRB Letter, at 7.
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16:45 Oct 15, 2010
15 See
9 Id.
10 Id.
17 See
11 Id.
18 Id.
GFOA Letter, at 2.
PO 00000
Frm 00088
S&P Letter, at 5.
19 Id.
13 Id.
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S&P Letter, at 1.
16 Id.
12 See
6 See
and a procedure in place that would
quickly identify and correct any
inaccuracies and notify investors of an
incorrect rating.14
S&P, an NRSRO, supported the
MSRB’s goal of encouraging
transparency, but believed that the
‘‘[p]roposal’s assumption that NRSROs
may, or should, provide credit rating
and related information regarding
municipal securities to the MSRB, at no
charge, is commercially untenable and
does not appropriately account for the
value of the NRSROs’ intellectual
property.’’ 15 In addition, S&P believed
that including credit rating and related
information on the EMMA public Web
site would offer only limited
incremental value to investors in
municipal securities given the extensive
disclosure requirements to which
NRSROs are already subject.16
S&P believed that the Commission’s
NRSRO requirements provide for an
appropriate level of disclosure and
expressed concern that the proposed
rule change ‘‘does not specify the scope
of the ‘credit and related information’
regarding municipal securities that the
MSRB would expect to be provided by
the NRSROs.’’ 17 S&P expressed concern
that to the extent the credit rating and
related information expected to be
provided by NRSROs pursuant to the
proposed rule change would extend
beyond the disclosure currently
required by the Commission’s NRSRO
rules, S&P was concerned that such
information may not be sufficiently
tailored to meet the needs of retail
investors.18 S&P further stated that
existing disclosure is sufficient to
enable investors to access S&P’s ratings
and effectively evaluate the quality of
their ratings relative to the credit ratings
produced by other NRSROs.19 S&P
believed that the benefits of the
proposed rule change to investors in
municipal securities would not
outweigh the burdens that it would
impose on NRSROs that voluntarily
provided such information.20
The MSRB responded to these
comments by stating that it agreed with
GFOA that the EMMA ratings initiative
would provide substantial benefits to
retail investors and would represent a
significant increase in the level of
investor protection provided by the
MSRB’s information systems and
14 Id.
GFOA Letter, at 1.
20 Id.
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Federal Register / Vol. 75, No. 200 / Monday, October 18, 2010 / Notices
marketplace rules.21 The MSRB stated
that under the proposed rule change,
each NRSRO ultimately determines the
scope of the credit rating and related
information to be provided through
EMMA.22 The EMMA Web site would
display the same automated data feed
provided to other subscribers to the
NRSRO’s information.23 The MSRB
indicated that ‘‘it is difficult to
understand how displaying on the
EMMA Web site information an NRSRO
also makes available to other
information services, which in turn
make them available to their users,
would result in such information being
insufficiently tailored or otherwise
problematic for the needs of retail
investors.’’ 24 The MSRB stated that
S&P’s reference to information required
to be disclosed under the Commission’s
NRSRO rules correctly reflects that the
purpose of such information is, at least
in part, to allow market participants to
evaluate the relative quality of the
various NRSROs’ credit ratings.25
However, the MSRB noted that the
display of ratings information on the
EMMA Web site ‘‘serves an entirely
different purpose—that is, to provide
investors with access to material
information about municipal securities
from NRSROs, not to provide a means
by which investors can determine
which NRSRO does its job the best.26
The MSRB further noted that the
‘‘material information that would be
displayed to EMMA Web site users
would be precisely the same as the
information that each NRSRO has
determined is appropriate to be
included in its automated data feed,
thus suggesting that this is precisely the
information that NRSROs believe is
relevant for investors to have.’’ 27
S&P expressed concern that ‘‘the
[p]roposal does not adequately address
how proprietary information that is
provided to the MSRB would be
protected’’ and noted that making its
ratings information available on EMMA
would lessen its ability to enforce its
rights against end-users of the EMMA
portal as against users of its own Web
site.28 GFOA stated that any ‘‘written
communication about the rating to a
public bond issuer creates a ‘public
record’ of that issue that must be
disclosed and is certainly material.’’ 29
GFOA believed that ‘‘the proposed rule
simply serves to take what already is
public information and direct it to one
location * * * something that is a true
benefit to investors and the public.’’ 30
The MSRB responded to these
comments by stating that a significant
portion of the information that would be
displayed through the EMMA ratings
initiative is already available on the
EMMA Web site in official statements
and material event notices provided
under Rule 15c2–12 under the Exchange
Act 31 in connection with ratings
changes.32 The MSRB stated that it was
‘‘sensitive to the fact that such electronic
display could raise concerns regarding
intellectual property rights if
appropriate measures are not instituted
to limit the ability of EMMA Web site
users to use data in a way that is
inconsistent with such rights.’’ 33 The
MSRB plans to ‘‘display credit ratings at
the individual security level and not in
a fashion that would allow a user to
view, copy or print credit ratings on a
market-wide basis.’’ 34
According to the MSRB, the proposed
rule change also would not provide for
inclusion of credit ratings and related
information obtained from NRSROs in
its subscription products.35 S&P
expressed concerns that the MSRB
could later amend the proposal to
include such information in a
subscription service.36 In response, the
MSRB stated that it has no current plans
to do so and noted that any such
amendment would be subject to the
same rulemaking process as this
proposal.37 The MSRB also noted that
any NRSRO choosing to participate in
the ratings initiative could include
appropriate limitations or conditions on
its agreement to participate in regard to
future redissemination of credit rating
information through a subscription
service.38
The MSRB stated that it has
experience working with information
vendors to protect their intellectual
property rights and expressed a
willingness to work with any NRSRO to
provide it with the necessary comfort
that the risk of misuse of its proprietary
interests can be appropriately
minimized.39 Additionally, the MSRB
expressed confidence that ratings
information could be displayed through
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MSRB Letter, at 3.
31 15
22 Id.
23 See
24 See
U.S.C. 78s(b)(1).
MSRB Letter, at 5.
36 See
27 Id.
37 See
S&P Letter, at 3.
GFOA Letter, at 1.
47 Id.
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16:45 Oct 15, 2010
48 In approving this proposal, the Commission has
considered the proposed rule’s impact on
efficiency, competition and capital formation. See
15 U.S.C. 78c(f).
49 15 U.S.C. 78o–3(b)(6).
S&P Letter, at 4.
MSRB Letter, at 5.
38 Id.
39 See
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MSRB Letter, at 7.
46 Id.
34 Id.
26 Id.
S&P Letter, at 4.
45 Id.
35 Id.
29 See
41 Id.
44 See
33 Id.
25 Id.
28 See
40 Id.
43 Id.
32 See
MSRB Letter, at 3–4.
MSRB Letter, at 4.
B. Commission Findings
The Commission has carefully
reviewed the comment letters and the
MSRB’s response to the comment letters
and finds that the proposed rule change
is consistent with the requirements of
the Act and the rules and regulations
thereunder applicable to the MSRB.48 In
particular, the Commission finds that
the proposed rule change is consistent
with the requirements of Section
15B(b)(2)(C) of the Exchange Act,49
42 See
30 Id.
21 See
the EMMA Web site without creating a
significant adverse effect on the
financial interests of NRSROs.40 The
MSRB believed that the proposal ‘‘might
in fact indirectly result in greater public
interest in other products offered by the
NRSROs.’’ 41
S&P believed that the proposal ‘‘fails
to recognize NRSROs’ legitimate
commercial needs and does not
appreciate the significant negative effect
on revenue that the provision of
proprietary information at no cost
would have on NRSROs.’’ 42 S&P also
characterized the ratings initiative as
‘‘commercially untenable’’ without
compensation from the MSRB.43 The
MSRB responded that each individual
NRSRO must ‘‘make its own assessment
of the advisability of providing its credit
rating information to the MSRB for
display on the EMMA Web site.’’ 44
However, the MSRB noted its belief that
displaying ratings on the EMMA Web
site should not have any more
appreciable negative effect on NRSROs
than displaying such information on
their own respective Web sites.45 The
MSRB stated that it if the proposal is
approved by the Commission, the MSRB
would proceed with such launch even
if one or more of the NRSROs elects not
to participate.46 However, the MSRB
‘‘would be open to continuing a dialogue
with any NRSRO that chooses not to
participate in the initial launch of the
EMMA ratings initiative so that, should
such NRSRO choose later to determine
to participate, the MSRB could more
quickly incorporate such NRSRO’s
information alongside of credit rating
information of any NRSROs that have
participated since such launch.’’ 47
MSRB Letter, at 6.
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Federal Register / Vol. 75, No. 200 / Monday, October 18, 2010 / Notices
which provides that MSRB’s rules shall
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
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.
In the Commission’s view, the
inclusion of credit rating and related
information provided by NRSROs
agreeing to provide such information for
display on the EMMA Web site should
serve to promote the statutory mandate
of the MSRB to protect investors and the
public interest. Although credit rating
information is just one of many factors
to consider in making an investment
decision and in evaluating the credit
worthiness and value of existing
municipal securities holdings, the
proposed rule change would make such
information more easily accessible on
an equal basis to all participants in the
municipal securities market, including
in particular retail investors in
municipal securities who do not
normally have access to information
services customarily used by
professional market participants. The
proposal will become effective on a date
to be announced by the MSRB in a
notice published on the MSRB Web site,
which date shall be no later than
October 13, 2011 and shall be
announced no later than five usiness
days before the effective date.
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,50 that the
proposed rule change (SR–MSRB–2010–
03), be, and hereby is, approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.51
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010–26177 Filed 10–15–10; 8:45 am]
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BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–63088; File No. SR–MSRB–
2010–11]
Self-Regulatory Organizations;
Municipal Securities Rulemaking
Board; Notice of Filing and Immediate
Effectiveness of Amended and
Restated Articles of Incorporation of
Municipal Securities Rulemaking
Board
October 13, 2010.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (‘‘the
Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that on October
1, 2010, the Municipal Securities
Rulemaking Board (‘‘Board’’ or ‘‘MSRB’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I, II and III below, which Items
have been prepared by the MSRB. The
MSRB has filed the proposal pursuant to
Section 19(b)(3)(A)(iii) of the Act,3 and
Rule 19b–4(f)(3) thereunder,4 which
renders the proposal 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
The MSRB filed with the Commission
a proposed rule change consisting of an
Amended and Restated Articles of
Incorporation.
The text of the proposed rule change
is available on the MSRB’s Web site at
https://www.msrb.org/msrb1/sec.asp, at
the MSRB’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, the
MSRB included statements concerning
the purpose of and basis for the
proposed rule change and discussed any
comments it received on the proposed
rule change. The text of these statements
may be examined at the places specified
in Item IV below. The Board has
prepared summaries, set forth in
Sections A, B, and C below, of the most
significant aspects of such statements.
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(iii).
4 17 CFR 240.19b–4(f)(3).
63887
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The purpose of the proposed rule
change is to make changes to the
MSRB’s Articles of Incorporation as are
necessary and appropriate in order to
comply with Section 15B of the Act, as
amended by the Dodd-Frank Wall Street
Reform and Consumer Protection Act 5
(the ‘‘Dodd-Frank Act’’), and to reflect its
expanded mission and rulemaking
authority. On July 21, 2010, the DoddFrank Act, was signed into law by
President Obama. This comprehensive
financial reform legislation contains
various provisions that affect the
governance and mandate of the MSRB.
The effective date of these provisions is
October 1, 2010, which coincides with
the first day of the MSRB’s 2011 fiscal
year. Regarding the jurisdiction of the
MSRB, the Dodd-Frank Act, for the first
time, provides the MSRB with
rulemaking authority over municipal
advisors. The proposed amendments to
the Articles of Incorporation reflect the
expanded jurisdiction of the MSRB and,
therefore, delete specific references to
brokers, dealers, and municipal
securities dealers. Rather, the Articles of
Incorporation refer generally to Section
15B of the Act, which is modified by the
Dodd-Frank Act, effective October 1,
2010, and the obligations of the Board
under the Act. Additionally, the Articles
of Incorporation now provide that Board
members elected for fiscal year 2011
will have two year terms and all other
Board members will have three year
terms to reflect the new, expanded
composition of the Board and the terms
of office for Board members. Finally, the
changes to the Purpose section reflect
the evolving role of the MSRB as a selfregulatory organization in providing
education, outreach and market
leadership regarding issues that impact
the municipal securities market. The
MSRB is a Virginia nonprofit, nonstock
corporation, and the Amended and
Restated Articles of Incorporation have
been filed concurrently with the State
Corporation Commission of the
Commonwealth of Virginia.
2. Statutory Basis
The MSRB believes that the proposed
rule change to its Articles of
Incorporation are [sic] necessary and
appropriate in order to comply with
Section 15B of the Act, as amended by
2 17
50 15
51 17
U.S.C. 78s(b)(2).
CFR 200.30–3(a)(12).
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5 See Public L. 111–203, section 975, 124 Stat.
1376 (2010).
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Agencies
[Federal Register Volume 75, Number 200 (Monday, October 18, 2010)]
[Notices]
[Pages 63884-63887]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-26177]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-63086; File No. SR-MSRB-2010-03]
Self-Regulatory Organizations; Municipal Securities Rulemaking
Board; Order Approving Proposed Rule Change Relating to Amendments to
the Continuing Disclosure Service of the MSRB's Electronic Municipal
Market Access System (EMMA[supreg])
October 13, 2010.
I. Introduction
On May 20, 2010, the Municipal Securities Rulemaking Board (the
``MSRB'') filed with the Securities and Exchange Commission (the
``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (the ``Exchange Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to amend the continuing
disclosure service of the MSRB's Electronic Municipal Market Access
system (``EMMA'') to provide for the posting of credit rating
information on the EMMA public Web site. The proposed rule change was
published for comment in the Federal Register on June 2, 2010.\3\ The
Commission received two comment letters regarding the MSRB's proposed
rule change.\4\ The MSRB responded to these comment letters in a letter
dated September 16, 2010.\5\ This order approves the proposed rule
change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 62175 (May 26,
2010), 75 FR 30892.
\4\ See letter from Deven Sharma, President, Standard & Poor's
Ratings Services (``S&P''), to Elizabeth M. Murphy, Secretary,
Commission, dated June 22, 2010 (``S&P Letter'') and letter from
Susan Gaffney, Director, Federal Liaison Center, Government Finance
Officers Association (``GFOA''), to Elizabeth M. Murphy, Secretary,
Commission, dated July 23, 2010 (``GFOA Letter'').
\5\ See letter from Ernesto A. Lanza, General Counsel, MSRB, to
Elizabeth M. Murphy, Secretary, Commission, dated September 16, 2010
(``MSRB Letter'').
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II. Background and Description of Proposal
The proposed rule change would amend the EMMA continuing disclosure
service to provide for the posting of
[[Page 63885]]
credit rating information on the EMMA public Web site. If and to the
extent that one or more Nationally Recognized Statistical Rating
Organizations (``NRSRO'') has agreed to provide credit rating and
related information regarding municipal securities to the MSRB, at no
charge, through an automated data feed for dissemination on the EMMA
Web site, the EMMA Web site would display such credit rating and
related information along with any documents and identifying
information relating to the applicable municipal security otherwise
displayed on the EMMA Web site. Currently, such other documents or
information may include official statements, advance refunding
documents, continuing disclosure documents, transaction price data,
interest rate reset information, and identifying information relating
to a specific municipal security.
Under the proposed rule change, credit rating and related
information normally would be posted within 15 minutes of successful
transmission to the MSRB during the hours of 8:30 a.m. to 6 p.m.
Eastern time, and any such information successfully transmitted outside
of the MSRB's normal business hours would be posted as soon as
practicable. The MSRB stated that under the proposed rule change it
shall have no obligation to supplement, modify or confirm credit rating
and related information received by it through an NRSRO's automated
data feed based on information available from any other source,
including but not limited to any such information made publicly
available by an NRSRO by any means other than its automated data feed.
In the MSRB Letter responding to comments, the MSRB requested that
the proposal be approved with a revised effective date to be announced
by the MSRB in a notice published on the MSRB Web site, which date
shall be no later than one year after Commission approval of the
proposal and shall be announced no later than five business days before
the effective date. The MSRB stated that the revised effective date
would provide additional time for any NRSRO that has not yet determined
to participate in the EMMA ratings initiative to work with the MSRB to
develop appropriate mechanisms to minimize potential threats to
intellectual property rights and other commercial interests.\6\ The
MSRB stated that the additional three month period also would provide
any such NRSRO with a further opportunity to provide the MSRB with
access to its automated data feed for development and testing purposes
with a view to potentially making such NRSRO's ratings information
available for display upon launch of the EMMA ratings initiative should
such NRSRO reconsider its participation in the EMMA ratings initiative
prior to such launch.\7\
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\6\ See MSRB Letter, at 7.
\7\ Id.
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III. Discussion of Comment Letters and Commission Findings
A. Discussion of Comment Letters
The Commission received two comment letters on the proposed rule
change filed by the MSRB; the MSRB responded to these comments. GFOA
strongly supported the proposed rule change stating that ``we believe
that there is nothing more relevant than making credit ratings
available in one location, where the public can access the information
quickly, efficiently, and at no cost to them.'' \8\ GFOA believed that
all members of the public should have access to ratings information at
the CUSIP level and that posting ratings information on EMMA at no
charge to the public would create a ``level playing field'' for all
investors and eliminate a two-tier system that unfairly allows
institutional and sophisticated investors to more easily access
information about a security than other investors.\9\ While GFOA
recognized that rating agencies ``have every right to copyright their
written analysis, rationale and other derivative products,'' GFOA also
believed that the rating agencies ``should not be able to withhold the
basic conclusion of a rating from open distribution through the EMMA
system.'' \10\ GFOA stated that the proposed rule ``simply serves to
take what already is public information and directs it to one
location,'' which would be ``something that is a true benefit to
investors and the public.'' \11\ GFOA further stated that having the
rating agencies provide ratings information directly to EMMA is a more
efficient way of disseminating information to investors, noting that
issuers may not be aware of rating changes at the moment they
occur.\12\ GFOA believed that the MSRB and the credit rating agencies
currently have adequate technical expertise, portals and systems to
send feeds to EMMA at little cost to the rating agencies or the
MSRB.\13\ Lastly, GFOA believed that the MSRB should have safeguards in
place to ensure that a rating is assigned to the correct CUSIP and a
procedure in place that would quickly identify and correct any
inaccuracies and notify investors of an incorrect rating.\14\
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\8\ See GFOA Letter, at 1.
\9\ Id.
\10\ Id.
\11\ Id.
\12\ See GFOA Letter, at 2.
\13\ Id.
\14\ Id.
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S&P, an NRSRO, supported the MSRB's goal of encouraging
transparency, but believed that the ``[p]roposal's assumption that
NRSROs may, or should, provide credit rating and related information
regarding municipal securities to the MSRB, at no charge, is
commercially untenable and does not appropriately account for the value
of the NRSROs' intellectual property.'' \15\ In addition, S&P believed
that including credit rating and related information on the EMMA public
Web site would offer only limited incremental value to investors in
municipal securities given the extensive disclosure requirements to
which NRSROs are already subject.\16\
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\15\ See S&P Letter, at 1.
\16\ Id.
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S&P believed that the Commission's NRSRO requirements provide for
an appropriate level of disclosure and expressed concern that the
proposed rule change ``does not specify the scope of the `credit and
related information' regarding municipal securities that the MSRB would
expect to be provided by the NRSROs.'' \17\ S&P expressed concern that
to the extent the credit rating and related information expected to be
provided by NRSROs pursuant to the proposed rule change would extend
beyond the disclosure currently required by the Commission's NRSRO
rules, S&P was concerned that such information may not be sufficiently
tailored to meet the needs of retail investors.\18\ S&P further stated
that existing disclosure is sufficient to enable investors to access
S&P's ratings and effectively evaluate the quality of their ratings
relative to the credit ratings produced by other NRSROs.\19\ S&P
believed that the benefits of the proposed rule change to investors in
municipal securities would not outweigh the burdens that it would
impose on NRSROs that voluntarily provided such information.\20\
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\17\ See S&P Letter, at 5.
\18\ Id.
\19\ Id.
\20\ Id.
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The MSRB responded to these comments by stating that it agreed with
GFOA that the EMMA ratings initiative would provide substantial
benefits to retail investors and would represent a significant increase
in the level of investor protection provided by the MSRB's information
systems and
[[Page 63886]]
marketplace rules.\21\ The MSRB stated that under the proposed rule
change, each NRSRO ultimately determines the scope of the credit rating
and related information to be provided through EMMA.\22\ The EMMA Web
site would display the same automated data feed provided to other
subscribers to the NRSRO's information.\23\ The MSRB indicated that
``it is difficult to understand how displaying on the EMMA Web site
information an NRSRO also makes available to other information
services, which in turn make them available to their users, would
result in such information being insufficiently tailored or otherwise
problematic for the needs of retail investors.'' \24\ The MSRB stated
that S&P's reference to information required to be disclosed under the
Commission's NRSRO rules correctly reflects that the purpose of such
information is, at least in part, to allow market participants to
evaluate the relative quality of the various NRSROs' credit
ratings.\25\ However, the MSRB noted that the display of ratings
information on the EMMA Web site ``serves an entirely different
purpose--that is, to provide investors with access to material
information about municipal securities from NRSROs, not to provide a
means by which investors can determine which NRSRO does its job the
best.\26\ The MSRB further noted that the ``material information that
would be displayed to EMMA Web site users would be precisely the same
as the information that each NRSRO has determined is appropriate to be
included in its automated data feed, thus suggesting that this is
precisely the information that NRSROs believe is relevant for investors
to have.'' \27\
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\21\ See MSRB Letter, at 3.
\22\ Id.
\23\ See MSRB Letter, at 3-4.
\24\ See MSRB Letter, at 4.
\25\ Id.
\26\ Id.
\27\ Id.
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S&P expressed concern that ``the [p]roposal does not adequately
address how proprietary information that is provided to the MSRB would
be protected'' and noted that making its ratings information available
on EMMA would lessen its ability to enforce its rights against end-
users of the EMMA portal as against users of its own Web site.\28\ GFOA
stated that any ``written communication about the rating to a public
bond issuer creates a `public record' of that issue that must be
disclosed and is certainly material.'' \29\ GFOA believed that ``the
proposed rule simply serves to take what already is public information
and direct it to one location * * * something that is a true benefit to
investors and the public.'' \30\
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\28\ See S&P Letter, at 3.
\29\ See GFOA Letter, at 1.
\30\ Id.
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The MSRB responded to these comments by stating that a significant
portion of the information that would be displayed through the EMMA
ratings initiative is already available on the EMMA Web site in
official statements and material event notices provided under Rule
15c2-12 under the Exchange Act \31\ in connection with ratings
changes.\32\ The MSRB stated that it was ``sensitive to the fact that
such electronic display could raise concerns regarding intellectual
property rights if appropriate measures are not instituted to limit the
ability of EMMA Web site users to use data in a way that is
inconsistent with such rights.'' \33\ The MSRB plans to ``display
credit ratings at the individual security level and not in a fashion
that would allow a user to view, copy or print credit ratings on a
market-wide basis.'' \34\
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\31\ 15 U.S.C. 78s(b)(1).
\32\ See MSRB Letter, at 5.
\33\ Id.
\34\ Id.
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According to the MSRB, the proposed rule change also would not
provide for inclusion of credit ratings and related information
obtained from NRSROs in its subscription products.\35\ S&P expressed
concerns that the MSRB could later amend the proposal to include such
information in a subscription service.\36\ In response, the MSRB stated
that it has no current plans to do so and noted that any such amendment
would be subject to the same rulemaking process as this proposal.\37\
The MSRB also noted that any NRSRO choosing to participate in the
ratings initiative could include appropriate limitations or conditions
on its agreement to participate in regard to future redissemination of
credit rating information through a subscription service.\38\
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\35\ Id.
\36\ See S&P Letter, at 4.
\37\ See MSRB Letter, at 5.
\38\ Id.
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The MSRB stated that it has experience working with information
vendors to protect their intellectual property rights and expressed a
willingness to work with any NRSRO to provide it with the necessary
comfort that the risk of misuse of its proprietary interests can be
appropriately minimized.\39\ Additionally, the MSRB expressed
confidence that ratings information could be displayed through the EMMA
Web site without creating a significant adverse effect on the financial
interests of NRSROs.\40\ The MSRB believed that the proposal ``might in
fact indirectly result in greater public interest in other products
offered by the NRSROs.'' \41\
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\39\ See MSRB Letter, at 6.
\40\ Id.
\41\ Id.
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S&P believed that the proposal ``fails to recognize NRSROs'
legitimate commercial needs and does not appreciate the significant
negative effect on revenue that the provision of proprietary
information at no cost would have on NRSROs.'' \42\ S&P also
characterized the ratings initiative as ``commercially untenable''
without compensation from the MSRB.\43\ The MSRB responded that each
individual NRSRO must ``make its own assessment of the advisability of
providing its credit rating information to the MSRB for display on the
EMMA Web site.'' \44\ However, the MSRB noted its belief that
displaying ratings on the EMMA Web site should not have any more
appreciable negative effect on NRSROs than displaying such information
on their own respective Web sites.\45\ The MSRB stated that it if the
proposal is approved by the Commission, the MSRB would proceed with
such launch even if one or more of the NRSROs elects not to
participate.\46\ However, the MSRB ``would be open to continuing a
dialogue with any NRSRO that chooses not to participate in the initial
launch of the EMMA ratings initiative so that, should such NRSRO choose
later to determine to participate, the MSRB could more quickly
incorporate such NRSRO's information alongside of credit rating
information of any NRSROs that have participated since such launch.''
\47\
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\42\ See S&P Letter, at 4.
\43\ Id.
\44\ See MSRB Letter, at 7.
\45\ Id.
\46\ Id.
\47\ Id.
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B. Commission Findings
The Commission has carefully reviewed the comment letters and the
MSRB's response to the comment letters and finds that the proposed rule
change is consistent with the requirements of the Act and the rules and
regulations thereunder applicable to the MSRB.\48\ In particular, the
Commission finds that the proposed rule change is consistent with the
requirements of Section 15B(b)(2)(C) of the Exchange Act,\49\
[[Page 63887]]
which provides that MSRB's rules shall 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
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.
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\48\ In approving this proposal, the Commission has considered
the proposed rule's impact on efficiency, competition and capital
formation. See 15 U.S.C. 78c(f).
\49\ 15 U.S.C. 78o-3(b)(6).
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In the Commission's view, the inclusion of credit rating and
related information provided by NRSROs agreeing to provide such
information for display on the EMMA Web site should serve to promote
the statutory mandate of the MSRB to protect investors and the public
interest. Although credit rating information is just one of many
factors to consider in making an investment decision and in evaluating
the credit worthiness and value of existing municipal securities
holdings, the proposed rule change would make such information more
easily accessible on an equal basis to all participants in the
municipal securities market, including in particular retail investors
in municipal securities who do not normally have access to information
services customarily used by professional market participants. The
proposal will become effective on a date to be announced by the MSRB in
a notice published on the MSRB Web site, which date shall be no later
than October 13, 2011 and shall be announced no later than five usiness
days before the effective date.
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\50\ that the proposed rule change (SR-MSRB-2010-03), be, and
hereby is, approved.
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\50\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\51\
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\51\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-26177 Filed 10-15-10; 8:45 am]
BILLING CODE 8011-01-P