Self-Regulatory Organizations; Municipal Securities Rulemaking Board; Order Instituting Proceedings to Determine Whether to Disapprove Proposed Rule Change Relating to a New MSRB Rule G-45, on Reporting of Information on Municipal Fund Securities, 60985-60991 [2013-24020]
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Federal Register / Vol. 78, No. 191 / Wednesday, October 2, 2013 / Notices
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FINRA stated that ‘‘while many such
violations may appropriately be handled
with a Cautionary Action Letter or other
informal action, FINRA can envision
circumstances where negligence or
insufficient vetting or oversight of a
software vendor might warrant a
disposition pursuant to the MRVP or, in
more serious cases, through a reportable
disciplinary action.’’ Finally, FINRA
noted that a FINRA member or
associated person is not obligated to
accept an MRV disposition and may
always avail itself of the procedural
rights under FINRA rules to challenge
an allegation in any complaint that may
be filed.
IV. Discussion and Commission
Findings
After careful review of the proposal,
the Commission finds that the proposed
rule change is consistent with the
requirements of the Act and the rules
and regulations thereunder that are
applicable to a Registered Securities
Association.10 In particular, the
Commission finds that the proposed
rule change is consistent with Section
15A(b)(6) of the Act,11 because
expanding the list of FINRA rules that
are subject to the MRVP should afford
FINRA increased flexibility in carrying
out its enforcement and disciplinary
responsibilities and, in doing so, help to
meet the aim of protecting investors and
the public interest.
The Commission also believes that the
proposal is consistent with Section
15A(b)(2) and 15A(b)(7) of the Act,12
which require that the rules of a
Registered Securities Association
enforce compliance with, and provide
appropriate discipline for, violations of
Commission and Association rules. The
Commission believes that the proposed
changes to Rule 9217 should, by
expanding the list of rules subject to the
MRVP, strengthen FINRA’s ability to
carry out its oversight and enforcement
responsibilities as a self-regulatory
organization in cases where full
disciplinary proceedings are unsuitable
in view of the minor nature of the
particular violation. However, the
Commission notes that designating a
rule as subject to the MRVP does not
signify that violation of the rule will
always be deemed a minor violation. In
the proposal, FINRA represents that it
will remain able to require, on a caseby-case basis, formal disciplinary action
for any particular violation. Therefore,
10 In
approving the proposal, the Commission has
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
11 15 U.S.C. 78o–3(b)(6).
12 15 U.S.C. 78o–3(b)(2) and 78o–3(b)(7).
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the Commission believes that the
proposed rule change will not
compromise FINRA’s ability to seek
more stringent sanctions for the more
serious violations of rules listed in
FINRA Rule 9217.
In addition, because members may
contest any fine imposed under Rule
9217 and thus receive a full disciplinary
proceeding, the Commission believes
that FINRA’s rules provide for a fair
procedure for the disciplining of
members and persons associated with
members, consistent with Sections
15A(b)(8) and 15A(h)(1).13
The Commission also finds that the
proposal is consistent with the public
interest, the protection of investors, or is
otherwise in furtherance of the purposes
of the Act, as required by Rule 19d–
1(c)(2) under the Act,14 which governs
minor rule violation plans. The
Commission believes that the proposed
changes to Rule 9217 will strengthen
FINRA’s ability to carry out its oversight
and enforcement responsibilities as a
self-regulatory organization, in cases
where full disciplinary proceedings are
unsuitable in view of the nature of a
particular violation.
The Commission notes FSI’s views
that some minor violations of rules
should not be subject to disciplinary
action at all and that FINRA should only
consider a member’s activity a rule
violation if the violation becomes
systemic as well as intentional or
willful. The Commission believes that it
is appropriate and consistent with the
Act to permit FINRA to exercise its
discretion, based on the facts and
circumstances of each situation, to
assess whether or not to address the
alleged violation of a FINRA rule
through more informal means, such as
a Cautionary Action Letter, or through
progressively more formal actions up to
and including action under the MRVP,
an AWC, or a formal complaint against
a member. The Commission notes that,
as FINRA stated in its Response Letter,
a FINRA member or associated person
can always avail itself of the procedural
rights under FINRA rules to challenge
any allegation of a rule violation.
In approving this proposed rule
change, the Commission emphasizes
that in no way should the amendment
of the rule be seen as minimizing the
importance of compliance with FINRA’s
rules and all the other rules subject to
imposition of fines under Rule 9217.
The Commission believes that the
violation of any self-regulatory
organization’s rules, as well as
Commission rules, is a serious matter.
13 15
14 17
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U.S.C. 78o–3(b)(8) and 78o–3(h)(1).
CFR 240.19d–1(c)(2).
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60985
However, Rule 9216 provides a
reasonable means of addressing rule
violations that do not rise to the level of
requiring formal disciplinary
proceedings, while providing greater
flexibility in handing certain violations.
The Commission expects that FINRA
will continue to conduct surveillance
with due diligence and make a
determination based on its findings, on
a case-by-case basis, of whether a
violation requires formal disciplinary
action under FINRA Rule 9000 et seq.
The Commission also notes that
Exchange Act Rule 19d–1(c)(2) 15 and
FINRA 9216(b) 16 require that FINRA,
on a quarterly basis, report to the
Commission all disciplinary actions
taken under its MRVP.
V. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,17 that the
proposed rule change (SR–FINRA–
2013–033) be, and hereby is, approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.18
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–24012 Filed 10–1–13; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–70531; File No. SR–MSRB–
2013–04]
Self-Regulatory Organizations;
Municipal Securities Rulemaking
Board; Order Instituting Proceedings
to Determine Whether to Disapprove
Proposed Rule Change Relating to a
New MSRB Rule G–45, on Reporting of
Information on Municipal Fund
Securities
September 26, 2013.
I. Introduction
On June 10, 2013, the Municipal
Securities Rulemaking Board (‘‘MSRB’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
19b–4 thereunder,2 a proposed rule
change consisting of new MSRB Rule G–
45 (reporting of information on
municipal fund securities) and MSRB
15 17
CFR 240.19d–1(c)(2).
Securities Exchange Act Release No. 32076
(March 3, 1993), 58 FR 18291 (April 3, 1993).
17 15 U.S.C. 78s(b)(2).
18 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
16 See
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Federal Register / Vol. 78, No. 191 / Wednesday, October 2, 2013 / Notices
Form G–45; amendments to MSRB Rule
G–8 (books and records); and MSRB
Rule G–9 (preservation of records). The
proposed rule change was published for
comment in the Federal Register on
June 28, 2013.3 The Commission
received five comment letters on the
proposal.4 On August 9, 2013, the
MSRB granted an extension of time for
the Commission to act on the filing until
September 26, 2013. This order
institutes proceedings under Section
19(b)(2)(B) of the Act 5 to determine
whether to disapprove the proposed
rule change.
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II. Description of the Proposed Rule
Change
The MSRB’s Electronic Municipal
Market Access (‘‘EMMA’’) system
currently serves as a centralized venue
for the submission by underwriters of
529 plan primary offering disclosure
documents (‘‘plan disclosure
documents’’) and continuing
disclosures, such as annual financial
reports submitted by issuers or their
agents. However, the MSRB does not
currently receive detailed underwriting
or transaction information as it does for
other types of municipal securities.
Accordingly, the proposed rule change
would, for the first time, provide the
MSRB with more comprehensive
information regarding 529 plans
underwritten by brokers, dealers, or
municipal securities dealers by
gathering data directly from such
persons.
The MSRB proposes to adopt new
Rule G–45 to require each underwriter
of a primary offering of municipal fund
securities 6 that are not interests in local
government investment pools to report
to the MSRB on new Form G–45 the
information relating to such offering by
no later than 60 days following the end
of each semi-annual reporting period
3 Securities Exchange Act Release No. 69835
(June 24, 2013), 78 FR 39048 (‘‘Notice’’).
4 See letters to Elizabeth M. Murphy, Secretary,
Commission, from Tamara K. Salmon, Senior
Associate Counsel, Investment Company Institute,
dated July 16, 2013 (‘‘ICI Letter’’); David L. Cohen,
Managing Director, Associate General Counsel,
Securities Industry and Financial Markets
Association, dated July 18, 2013 (‘‘SIFMA Letter’’);
Roger Michaud, Chairman, College Savings
Foundation, dated July 19, 2013 (‘‘CSF Letter’’);
Michael L. Fitzgerald, Chairman, College Savings
Plans Network, dated July 19, 2013 (‘‘CSPN
Letter’’); and Michael B. Koffler, Partner,
Sutherland Asbill & Brennan, dated July 19, 2013
(‘‘Sutherland Letter’’).
5 15 U.S.C. 78s(b)(2)(B).
6 The term ‘‘municipal fund security’’ is defined
in MSRB Rule D–12 to mean a municipal security
issued by an issuer that, but for the application of
Section 2(b) of the Investment Company Act of
1940, would constitute an investment company
within the meaning of Section 3 of the Investment
Company Act of 1940.
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ending on June 30 and December 31.7 In
addition, the MSRB would require that
performance data be submitted
annually. As described in further detail
below, the required information would
include plan descriptive information,
assets, asset allocation information (at
the investment option level),
contributions, withdrawals, fee and cost
structure, performance data, and other
information.8
Under proposed Rule G–45, the
obligation to submit the requested
information to the MSRB would be
placed on brokers, dealers, or municipal
securities dealers that are underwriters
under Rule 15c2–12(f)(8) of the Act.9
The MSRB notes that there may be more
than one underwriter in a particular
primary offering, stating that in the case
of 529 plans, program managers, their
affiliates, including primary
distributors, and/or their contractors,
may fall within the definition of
underwriter. However, the MSRB would
deem the obligation to submit the
required information fulfilled if any one
of the underwriters submits the required
information. Accordingly, on Form G–
45, each submitter could indicate the
identity of each underwriter on whose
behalf the information is submitted.
Form G–45 would require the
submission of the following
information:
Plan Descriptive Information: The
underwriter would provide the MSRB
with the (i) Name of the state, (ii) name
of the plan, (iii) name of the underwriter
and contact information, (iv) name of
other underwriters on whose behalf the
underwriter is submitting information,
(v) name of the program manager and
contact information, (vi) plan Web site
address and (vii) type of marketing
channel (whether sold with or without
the advice of a broker-dealer).
Aggregate Plan Information: The
underwriter would provide the MSRB
with (i) total plan assets, as of the end
of each semi-annual reporting period,
(ii) total contributions for the most
recent semi-annual reporting period,
and (iii) total distributions for the most
recent semi-annual reporting period.
Investment Option Information: For
each investment option offered by the
7 The proposed rule change would require an
underwriter to report such information in the
manner prescribed in the Form G–45 procedures
and as set forth in the Form G–45 Manual. The
MSRB provides that the Form G–45 Manual would
be a new manual created to assist persons in the
submission of the information required under
proposed Rule G–45. This manual was not
submitted as part of the proposed rule change.
8 Interests in 529 plans are the only type of
municipal fund security that would be covered by
the proposed rule change.
9 17 CFR 240.15c2–12(f)(8).
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plan, the underwriter would provide the
MSRB with (i) the name and type of
investment option (e.g., age-based,
conservative), (ii) the inception date of
the investment option, (iii) total assets
in the investment option as of the end
of the most recent semi-annual period,
(iv) the asset classes in the investment
option, (v) the actual asset class
allocation of the investment option as of
the end of the most recent semi-annual
period, (vi) the name of each underlying
investment in each investment option as
of the end of the most recent semiannual period, (vii) the investment
option’s performance for the most recent
calendar year (as well as any benchmark
and its performance for the most recent
calendar year), (viii) total contributions
to and distributions from the investment
option for the most recent semi-annual
reporting period and (ix) the fee and
expense structure in effect as of the end
of the most recent semi-annual reporting
period. The MSRB proposes to permit
the performance and fee and expense
information to be submitted in a format
consistent with the College Savings
Plans Network’s (‘‘CSPN’’) published
Disclosure Principles Statement No. 5
(‘‘Disclosure Principles’’), which
commenters informed the MSRB is the
industry norm for reporting such
information.
Lastly, the MSRB proposes to amend
its books and records rules under MSRB
Rules G–8 and G–9 to require
underwriters obligated to submit
information to the MSRB under
proposed Rule G–45 to maintain the
information required to be reported on
new Form G–45 for six years.
III. Summary of Comments Received
As noted above, the Commission
received five comment letters on the
proposed rule change.10 Four of the
commenters expressed general support
for the MSRB’s desire to collect more
comprehensive information relating to
529 plans.11 However, all of the
commenters 12 raised concerns or sought
clarification about certain specific
aspects of the proposal, including: (i)
The scope of the definition of
‘‘underwriter;’’ 13 (ii) the disclosure
obligations of underwriters, including
their ability to obtain, and verify the
accuracy of, the requested
10 See
11 See
supra notes 4.
ICI Letter, SIFMA Letter, CSPN Letter, CSF
Letter.
12 See supra note 4.
13 See ICI Letter, SIFMA Letter, CSPN Letter, CSF
Letter. One commenter also questioned the MSRB’s
interpretation of ‘‘direct-sold’’ versus ‘‘advisorsold’’ plans in relation to the scope of the rule and
its application to underwriters. See Sutherland
Letter.
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information; 14 (iii) the need for
publication of the Form G–45 Manual; 15
(iv) the MSRB’s plans to publicly
disseminate information filed on Form
G–45; 16 (v) the regulatory basis for the
proposed rule change and value of the
requested information on Form G–45; 17
and (vi) requests for certain
modifications to the content of Form G–
45.18
A. Definition of ‘‘Underwriter’’
Several commenters objected to the
MSRB’s description of the meaning of
the term ‘‘underwriter’’ as used in Rule
G–45 and stated that the MSRB should
clarify the scope of the definition.19
These commenters cited the MSRB’s
statements in the Notice suggesting that
529 plans may have multiple
underwriters; that Rule 15c2–12(f)(8)
under the Act, which the MSRB
incorporates into Rule G–45, defines
‘‘underwriter’’ broadly; and that other
entities (in addition to primary
distributors) involved in operating or
maintaining a plan, such as the plan’s
program manager, their affiliates and/or
contractors, could be deemed
underwriters for purposes of the rule.
One commenter asserted that 529 plans
typically have only one underwriter 20
and argued, along with other concurring
commenters,21 that many other entities
involved in operating and maintaining a
plan, such as the plan’s program
manager, recordkeeper, investment
manager, custodian, and state sponsor,
in most cases, would not and should not
be underwriters for purposes of Rule G–
45.22
Several commenters emphasized that,
to fall within the definition of
‘‘underwriter’’ under Rule G–45, the
person or entity must be a broker,
dealer, or municipal securities dealer.23
One commenter argued that a plan’s
program manager, recordkeeper,
investment manager, custodian, and
state sponsor generally are not brokers
or dealers and therefore would not
qualify as underwriters under the
MSRB’s definition.24 Accordingly, this
commenter requested that the MSRB
clarify that the term ‘‘underwriter’’
14 See
ICI Letter, CSPN Letter, CSF Letter.
ICI Letter, SIFMA Letter.
16 See ICI Letter, SIFMA Letter, CSPN Letter, CSF
Letter.
17 See Sutherland Letter.
18 See ICI Letter, SIFMA Letter, Sutherland Letter.
19 See ICI Letter, SIFMA Letter, CSPN Letter, CSF
Letter.
20 See ICI Letter.
21 See SIFMA Letter, CSPN Letter, and CSF Letter,
which stated that they concur and/or endorse the
ICI’s commenter.
22 See ICI Letter.
23 See CSPN Letter, CSF Letter, ICI Letter.
24 See ICI Letter.
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15 See
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would not include such entities if they
provide services to the plan on behalf of
the plan or its state sponsor and not as
a broker, dealer, or municipal securities
dealer.25
Two commenters also specifically
argued that a state sponsor should not
be treated as an underwriter for
purposes of Rule G–45, as they are not
brokers, dealers, or municipal securities
dealers.26 These commenters stated that
language in the Notice implied that state
sponsors could be deemed underwriters
and thus requested confirmation that
proposed Rule G–45 would not apply to
municipal securities issuers exempted
under Section 3(d) of the Act.27
Although not directly discussing the
definition of ‘‘underwriter,’’ one
commenter argued that the proposed
rule and form should not apply to
‘‘direct-sold’’ plans because, by
definition, such plans are sold without
the involvement of a broker-dealer.28
This commenter stated that the
distinction between ‘‘direct-sold’’ and
‘‘advisor-sold’’ plans is not simply a
‘‘marketing distinction,’’ as MSRB had
categorized it in the Notice, but is
‘‘critical in assessing the MSRB’s
jurisdiction as it delineates between
those 529 [p]lans that are sold through
broker-dealers and those that are not.’’ 29
Accordingly, this commenter concluded
that ‘‘direct-sold’’ plans are not subject
to the MSRB’s jurisdiction.30
Finally, one commenter expressed
opposition to the imposition of the
reporting requirements of new Rule G–
45 on ‘‘broker dealers that are not
underwriters but that instead have
entered into contracts with the plan’s
underwriter (primary distributor) to sell
plan shares to retail investors.’’ 31
B. Underwriter Reporting Obligation
All five commenters believed the
MSRB should clarify the disclosure
obligations of underwriters.32 Four of
these commenters stated that the MSRB
is seeking information that many
primary distributors will not be able to
provide.33 All of the commenters
suggested that the MSRB clarify or
confirm that underwriters would not be
responsible for certain information that
is outside of their possession, custody,
25 See
ICI Letter.
CSPN Letter, CSF Letter.
27 See CSPN Letter, CSF Letter.
28 See Sutherland Letter.
29 See Sutherland Letter.
30 See Sutherland Letter.
31 See SIFMA Letter.
32 See ICI Letter, SIFMA Letter, CSPN Letter, CSF
Letter, Sutherland Letter.
33 See ICI Letter, CSPN Letter, CSF Letter,
Sutherland Letter.
26 See
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60987
or control.34 For example, one
commenter requested that the MSRB
clarify that, when an underwriter, in its
normal course of business, does not
create, own, control, or possess
information necessary for Form G–45,
the underwriter is not required to obtain
such information.35 Another commenter
requested that the MSRB clarify that an
underwriter is required to provide the
requisite information only to the extent
such information relates to the
distribution by the underwriter of
municipal fund securities and is in the
underwriter’s possession or maintained
by another entity on the underwriter’s
behalf for purposes of complying with
MSRB rules.36
Several commenters raised concerns
that contractual provisions or privacy
laws might not permit an underwriter to
obtain the information required by the
proposed rule and form.37 In this regard,
one commenter sought confirmation
that, where the sharing of information
between an underwriter and a
recordkeeper would violate contractual
provisions, the information would be
deemed to be outside of the possession
or control of the underwriter and not
subject to the reporting obligations of
Rule G–45.38 Another commenter noted
that, in the context of omnibus
agreements, whether the required
information is available to an
underwriter is dependent on
comprehensive servicing agreements
between the plan, the underwriter, and
the selling dealers.39 Thus, this
commenter noted that the agreements
may not provide the underwriter with
legal access to certain information and,
as such, an underwriter should not be
required to report such information on
Form G–45.40
Two commenters raised concerns
about the MSRB’s suggestion that an
underwriter’s disclosure obligation
extends to ‘‘information in the
possession of an underwriter’s
subcontractor.’’ 41 These commenters
believed this suggestion ‘‘will produce
confusion and disparate reporting
results’’ depending on factors unrelated
to Rule G–45 regulatory compliance.42
In particular, the commenters noted
that, while some information may be in
the possession of an underwriter’s
34 See ICI Letter, SIFMA Letter, CSPN Letter, CSF
Letter, Sutherland Letter.
35 See ICI Letter.
36 See CSPN Letter.
37 See CSF Letter, CSPN Letter, SIFMA Letter,
Sutherland Letter.
38 See Sutherland Letter.
39 See SIFMA Letter.
40 See SIFMA Letter.
41 See CSPN Letter, CSF Letter.
42 See CSPN Letter, CSF Letter.
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Federal Register / Vol. 78, No. 191 / Wednesday, October 2, 2013 / Notices
‘‘subcontractor,’’ other information may
be in the possession of an unaffiliated
or affiliated entity that is not a
subcontractor, and privacy laws and
contractual requirements may apply
differently.43
One commenter questioned the
meaning of the MSRB’s statement in the
Notice that underwriters would be
required to produce only information
that they possess or ‘‘have a legal right
to obtain.’’ 44 The commenter stated that
‘‘unless the primary distributor has a
specific, enforceable legal right, such as
one existing under law (such as a right
created by a statutory provision) or
arising from a specific contractual
provision, to obtain specified
information maintained by a third party,
the primary distributor does not have a
legal right to obtain the information for
purposes of the proposal.’’ 45 As such,
the commenter asserted that an
underwriter may not be able to provide
information in the possession of an
underwriter’s subcontractor.46
Two commenters also provided
comments relating specifically to
omnibus accounts, stating that Rule G–
45 and Form G–45 should recognize
that, to the extent an underwriter does
not, in the normal course of business,
have access to information on the
accounts underlying an omnibus
accounting arrangement, the
underwriter should not be required to
report such information.47 These
commenters also stated that, ‘‘in
practice, the mere fact that there is an
omnibus relationship between a selling
dealer and a plan’s underwriter does not
necessarily mean the underwriter has
full transparency into all account
information, including account owners,
beneficiaries, contributions, and
withdrawals, underlying the omnibus
account.’’ 48
Lastly, two commenters contended
that, if the underwriter is able to obtain
the required information from a third
party, the MSRB should clarify that the
underwriter is not responsible for
ensuring the accuracy or completeness
of the information before including it on
Form G–45.49
Manual (‘‘Manual’’) because the Manual
will contain important substantive
information concerning the reporting
obligations under Form G–45.50 One
commenter stated that the ‘‘Manual’s
contents will not be limited to technical
specifications or design or system
considerations relating to the mechanics
of the electronic filing process.’’ 51 This
commenter asserted that, apart from the
addition of boxes for notes regarding
performance data and fee and expense
data, neither Form G–45 nor Rule G–45
reflects the MSRB’s statements in the
Notice that information may be
submitted in a manner consistent with
the Disclosure Principles.52 As such, the
commenter concluded that the details
regarding how to report data consistent
with these Disclosure Principles would
necessarily have to be set forth in the
Manual.53 Another commenter similarly
stated that it believed that the Manual
would incorporate the detailed
substantive instructions of the
Disclosure Principles.54 Both
commenters also suggested that the oneyear implementation period should
commence after the Manual has been
published for comment and approved
by the Commission.55
D. Publication of the G–45 Data
Three commenters believed that
confidential or proprietary information
reported on Form G–45 should not be
made available to the general public.56
For example, one commenter stated that
the data collected pursuant to Rule G–
45 ‘‘should be used to inform the
MSRB’s regulatory initiatives and
priorities and not to compete with other
more mature, robust, and
comprehensive public sources of
information on 529 plans.’’ 57 Another
commenter stated that the MSRB should
be required to file a proposed rule
change subject to Commission approval
if the MSRB desires to publicly
disseminate certain 529 plan data
reported on Form G–45.58
50 See
ICI Letter, SIFMA Letter.
ICI Letter.
52 See ICI Letter.
53 See ICI Letter. Similarly, another commenter
noted that, while the MSRB explained in the Notice
that the information required on Form G–45 will be
reported consistently with the reporting formats
under the Disclosure Principles, proposed Rule G–
45 and Form G–45 are silent on this point. See
SIFMA Letter.
54 See SIFMA Letter.
55 See ICI Letter, SIFMA Letter.
56 See ICI Letter, CSPN Letter, CSF Letter.
57 See ICI Letter.
58 See SIFMA Letter.
51 See
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C. Publication of the Form G–45 Manual
Two commenters believed that the
MSRB should be required to publish for
comment the contents of the Form G–45
43 See
CSPN Letter, CSF Letter.
Sutherland Letter.
45 See Sutherland Letter.
46 See Sutherland Letter.
47 See ICI Letter, SIFMA Letter.
48 See ICI Letter, SIFMA Letter.
49 See ICI Letter, Sutherland Letter.
44 See
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E. Regulatory Value of Required
Information and Regulatory Basis for
the Proposal
While four commenters expressed
general support for the MSRB’s effort to
collect more comprehensive information
on 529 plans for regulatory purposes,59
one commenter believed that the MSRB
failed to provide a ‘‘compelling
rationale as to how the requested
information would be useful to the
MSRB, the SEC and FINRA given the
nature of the requested information, the
limited reach of the rule . . . , and the
comprehensive regulatory system the
MSRB has implemented for brokerdealers distributing 529 plans.’’ 60 In
particular, the commenter asserted that
the requested information has limited
value as a regulatory tool because such
information cannot impact the value of
mutual funds or other investments in
which plan investment options invest.61
In this regard, the commenter argued
that, unlike the prices of municipal
bonds, which are set by the market, the
prices of 529 plans are based on the net
asset value of the mutual funds in
which such investment options invest.62
This commenter also questioned the
MSRB’s assertion in the Notice that the
information will ‘‘inform the MSRB of
the risks and impact of each plan and
investment option’’ and ‘‘allow the
MSRB to assess the impact of each plan
on the market.’’ 63 In contrast, the
commenter stated that the requested
information merely provides
information regarding fund flows and
does not indicate the risks or impact of
any plan or investment option on
investors.64
The commenter further asserted that
the requested information would be
substantially incomplete because the
information obtained would not include
data on ‘‘direct-sold’’ 529 plans, which
the commenter stated represents more
than half of the assets in the 529 plan
industry.65 The commenter also noted
that certain data is already available in
the public domain that includes both
‘‘broker-sold’’ and ‘‘direct-sold’’ plans,
and therefore such existing data would
be more comprehensive than the
information collected by the MSRB
under the proposal.’’ 66 Finally, the
commenter argued that the MSRB’s
jurisdiction does not extend to
59 See ICI Letter, SIFMA Letter, CSF Letter and
CSPN Letter.
60 See Sutherland Letter.
61 See Sutherland Letter.
62 See Sutherland Letter.
63 See Sutherland Letter.
64 See Sutherland Letter.
65 See Sutherland Letter.
66 See Sutherland Letter.
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regulating the 529 plan market because
the ‘‘MSRB’s role is limited to regulating
broker-dealers that distribute and sell
municipal securities.’’ 67
F. Contents of Form G–45
Some commenters provided
suggestions for modifications to the
specific information requested by Form
G–45 or sought clarification on how to
report certain information on the
form.68 These comments are
summarized below.
i. Investment Option Information
One commenter requested that the
MSRB clarify in Form G–45 how to
report an investment option that is used
for multiple purposes.69 This
commenter also recommended that the
MSRB clarify how underwriters should
report fee, expense, and performance
information for a mutual fund that
issues multiple classes of shares with
fees and expenses that vary from class
to class.70 Another commenter
questioned how underwriters are
supposed to report asset class and asset
class percentages, and suggested that the
two items related to asset class be
eliminated.71 This commenter asserted
that investment options do not have or
invest in asset classes, thus the use of
the phrase ‘‘asset classes in investment
option’’ is unclear.72
One commenter also recommended
that the investment option information
be reported in ranges rather than precise
amounts, where appropriate (e.g., asset
class allocation percentages), because
the use of ranges would relieve
underwriters of having to revise
previously reported information
whenever there is a de minimus change
to such information.73 This commenter
further suggested that if the MSRB elects
not to use ranges, it should consider
revising the updating requirements such
that an update is not required to
previously reported information unless
there has been more than a de minimus
change to such information.74
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ii. Performance Information
One commenter raised several issues
with respect to performance information
and advanced the following specific
recommendations with regard thereto:
(i) The MSRB should resolve a
discrepancy between the definition of
‘‘performance’’ in Rule G–45(d)(viii)
67 See
Sutherland Letter.
ICI Letter, Sutherland Letter, SIFMA Letter.
69 See ICI Letter.
70 See ICI Letter.
71 See Sutherland Letter.
72 See Sutherland Letter.
73 See ICI Letter.
74 See ICI Letter.
that means ‘‘total returns of the
investment option expressed as a
percentage net of all generally
applicable fees and costs’’ and the
requirement in Form G–45 that requires
performance be reported both
‘‘including sale charges’’ and
‘‘excluding sales charges’’; (ii) the MSRB
should clarify whether a plan that is
directly distributed and that has no
‘‘sales charges,’’ is expected to report
the same information under
‘‘Investment Performance (Including
Sales Charges)’’ and ‘‘Investment
Performance (Excluding Sales Charges)’’
or just the later; (iii) the MSRB should
clarify that fees that are not specific to
any particular investment option are not
required to be included in the
performance calculation; (iv) the MSRB
should resolve a discrepancy between a
statement in the Notice that Form G–45
requires ‘‘performance for the most
recent calendar year’’ and the Form G–
45 requirement for disclosure of each
investment option’s 1, 3, 5 and 10 year
performance, as well as the option’s
performance since inception; and (v) the
MSRB should include a comment box
under each of the two sections of Form
G–45 relating to Investment
Performance to avoid confusion as to
whether the comments relate to
performance excluding or including a
sales charge.75 Furthermore, this
commenter recommended that the
MSRB clarify that a 529 plan is only
required to report benchmark
information if the 529 plan, in fact, uses
a benchmark.76
iii. Underlying Investments
Three commenters objected to the
requirement to provide data regarding
underlying investments on Form G–
45.77 In particular, two commenters
recommended deleting the ‘‘Underlying
Investments’’ section from Form G–45.78
The other commenter suggested that the
Commission should reject the proposed
rule change as it relates to underlying
investments, arguing that the MSRB
does not have the legal authority or
jurisdiction to mandate the filing of
such information because such
underlying investments are not
municipal securities.79 Two
commenters also stated that this
information is beyond what is required
by the Disclosure Principles and is
inconsistent with the MSRB’s previous
response to comments stating that it had
68 See
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75 See
ICI Letter.
ICI Letter.
77 See ICI Letter, SIFMA Letter, and Sutherland
Letter.
78 See ICI Letter, SIFMA Letter.
79 See Sutherland Letter.
76 See
PO 00000
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Fmt 4703
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60989
eliminated from its initial proposal the
collection of information regarding the
underlying portfolio investments.80
Moreover, one commenter
recommended that if the MSRB
determines in the future that there
would be regulatory value in having this
information, the MSRB should revise
Form G–45 at that time.’’ 81
Another commenter believed that the
MSRB’s request for information on ‘‘the
name of each underlying investment in
each investment option . . .’’ is
inaccurate because 529 plan account
owner funds invest solely in the 529
plan and nothing else.82 This
commenter noted that the plan trust is
the sole legal and beneficial owner of
the underlying investments.83 This
commenter therefore believed that it is
inappropriate to request information
about underlying investments because
they are not part of what investors
purchase and are not municipal
securities.’’ 84
iv. Marketing Channel
One commenter questioned the value
of requesting information on the
‘‘marketing channel,’’ which the MSRB
described to be commonly known as
either ‘‘advisor-sold’’ or ‘‘direct sold.’’ 85
As discussed above, this commenter
argued that the requirements of the rule
should not apply to ‘‘direct-sold’’ plans,
since they do not involve a brokerdealer offering the securities.86 As such,
the commenter asserted that only
broker-dealers would be providing the
required information about ‘‘advisorsold’’ plans, unless non-broker-dealers
also made voluntary filings.87 Such
voluntary filings, the commenter urged,
would only cause investor confusion.88
v. Program Managers
One commenter suggested that all
information requests related to program
managers should be deleted from Form
G–45 because the MSRB lacks
jurisdiction ‘‘to seek information about
an entity hired by 529 [p]lan trustees to
provide services to the plan when
neither the issuer nor the entity are
regulated by the MSRB.’’ 89 The
commenter further questioned the
relevance of such information to the
MSRB’s role as a securities regulator of
80 See
ICI Letter, SIFMA Letter.
ICI Letter.
82 See Sutherland Letter.
83 See Sutherland Letter.
84 See Sutherland Letter.
85 See Sutherland Letter.
86 See Sutherland Letter; see also supra notes 28–
30 and accompanying text.
87 See Sutherland Letter.
88 See Sutherland Letter.
89 See Sutherland Letter.
81 See
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broker-dealers distributing municipal
securities.90
vi. Fees and Expenses
One commenter objected to the
MSRB’s request for information on Form
G–45 related to plan fees and expenses,
including State fees, audit fees, assetbased fees, annual account maintenance
fees, and bank administration fees.91
The commenter suggested that because
the MSRB does not have jurisdiction
over the regulation of 529 plans, it
should not require primary distributors
to submit data concerning securities
product fees that are unrelated to the
primary distributor.92
G. Cost/Benefit of Data Collected
Three commenters addressed the
costs of the proposed rule change versus
the benefits of collecting the required
information.93 One commenter stated
that, while the MSRB concluded in the
Notice that the benefits of its proposal
will outweigh the costs, the MSRB
failed to quantify either the benefits or
the costs.94 Two commenters suggested
that the Commission consider adding a
waiver and/or sunset provision
designed to mitigate the cost burden of
an underwriter’s disclosure duty.95
These two commenters stated that the
addition of ‘‘a waiver application
process will allow the affected
underwriter to request relief from
providing data that is not reasonably
practicable to obtain.’’ 96 Similarly,
these commenters believed a sunset
provision could also ‘‘ease the
administrative burden to underwriters
required to submit information on Form
G–45.’’ 97 In addition, these commenters
suggested that the MSRB reexamine its
need to collect each data point after a
specified period of time and revise Rule
G–45 accordingly in the event the MSRB
determines that certain data points are
no longer relevant.98
IV. Proceedings To Determine Whether
To Disapprove SR–MSRB–2013–04 and
Grounds for Disapproval Under
Consideration
The Commission is instituting
proceedings pursuant to Section
19(b)(2)(B) of the Act 99 to determine
whether the proposed rule change
90 See
Sutherland Letter.
Sutherland Letter.
92 See Sutherland Letter.
93 See CSPN Letter, CSF Letter, Sutherland Letter.
94 See Sutherland Letter.
95 See CSPN Letter, CSF Letter.
96 See CSPN Letter, CSF Letter.
97 See CSPN Letter, CSF Letter.
98 See CSPN Letter, CSF Letter. The CSPN Letter
and CSF Letter suggested three years.
99 15 U.S.C. 78s(b)(2)(B).
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91 See
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should be disapproved. Institution of
such proceedings appears appropriate at
this time in view of the legal and policy
issues raised by the proposal, as
discussed below. Institution of
disapproval proceedings does not
indicate that the Commission has
reached any conclusions with respect to
any of the issues involved. Rather, as
described in greater detail below, the
Commission seeks and encourages
interested persons to comment on the
proposed rule change to inform the
Commission’s analysis whether to
approve or disapprove the proposed
rule change.
Pursuant to Section 19(b)(2)(B) of the
Act,100 the Commission is providing
notice of the grounds for disapproval
under consideration. In particular,
Section 15B(b)(2)(C) of the Act requires,
among other things, that the rules of the
MSRB 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
facilitating transactions in municipal
securities and municipal financial
products, to remove impediments to and
perfect the mechanism of a free and
open market in municipal securities and
municipal financial products, and, in
general, to protect investors, municipal
entities, obligated persons, and the
public interest.101
As discussed above, the MSRB’s
proposal would require underwriters of
529 plans to report certain information
to the MSRB regarding the plans. The
MSRB believes that its proposal would
better position the MSRB to protect
investors and the public interest
because the information collected under
the proposed rule would allow the
MSRB to assess the impact of each 529
plan on the market, evaluate trends and
differences among plans, and gain an
understanding of the aggregate risk
taken by investors by the allocation of
assets in each investment option. In the
MSRB’s view, the information about
activity in 529 plans is necessary to
assist the MSRB in evaluating whether
its current regulatory scheme for 529
plans is sufficient or whether additional
rulemaking is necessary to protect
investors and the public interest.
Four of the commenters expressed
general support for the MSRB’s desire to
collect more comprehensive information
relating to 529 plans. However, as
discussed in detail above, all of the
commenters raised concerns about
various aspects of the proposal. Most
notably, several commenters questioned
100 Id.
101 15
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Fmt 4703
Sfmt 4703
the MSRB’s description of the meaning
of the term ‘‘underwriter’’ and suggested
that the MSRB should clarify the scope
of the definition as used in proposed
Rule G–45. In their view, the MSRB’s
description of the definition of
‘‘underwriter’’ is overbroad and
encompasses many other entities
involved in the operation and
maintenance of a 529 plan that would
not, in fact, meet the Commission
definition of underwriter and thus
should not be deemed to be
underwriters for purposes of Rule G–45.
Commenters also questioned the
scope of the underwriter’s reporting
obligations under the proposed rule. In
particular, commenters asserted that
underwriters would be, in many cases,
unable to obtain the required
information and requested clarification
as to whether underwriters would be
relieved from the obligation to provide
information not in the underwriter’s
possession or control or if the
underwriter is unable to obtain the
information due to contractual
provisions. Further, commenters sought
confirmation that, to the extent that
underwriters could obtain the
information from third parties, they
would not be held liable for the
accuracy and completeness of the
requested information.
The Commission believes that these
comments raise questions as to whether
the MSRB’s proposal is consistent with
the requirements Section 15B(b)(2)(C) of
the Act, including whether it would
remove impediments to and perfect the
mechanism of a free and open market in
municipal securities and municipal
financial products, and, in general,
protect investors, municipal entities,
obligated persons, and the public
interest. In particular, the comments
raise concerns that the proposed rule
change is unclear as to whom the
obligations of the rule apply and is
being interpreted in a manner that is
potentially inconsistent with statutory
and Commission rule definitions of
‘‘underwriters’’ and ‘‘broker dealers.’’
This uncertainty could result in
noncompliance or needless compliance
by entities and/or unnecessary
duplicative reporting. Further,
respondents may not be able to ascertain
the scope of their obligations to provide
the requested information under the
proposed rule, including the extent to
which they are responsible for
providing, and verifying the accuracy of,
information not in their possession. In
light of the confusion related to whom
the proposed rule applies, questions are
raised as to whether the disclosure
obligations are sufficiently balanced to
support the MSRB’s statutory obligation
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to protect both investors and municipal
entities without being overly
burdensome.
As summarized above, commenters
also pointed out various aspects of Form
G–45 that they believe needs further
clarification. Accordingly, the
Commission believes that, without
further clarification, the proposal may
result in incomplete or incorrectly
reported data. As such, the MSRB
would not able to fulfill its stated
regulatory goals of obtaining accurate,
reliable, and complete data in order to
further assess and carry out its
rulemaking responsibilities in this area.
For the foregoing reasons, the
Commission believes the issues raised
by the proposed rule change can benefit
from additional consideration and
evaluation in light of the requirements
of Section 15B(c)(2)(C) of the Act.
V. Procedure: Request for Written
Comments
The Commission requests that
interested persons provide written
submissions of their views, data, and
arguments with respect to the concerns
identified above, as well as any others
they may have with the proposal. In
particular, the Commission invites the
written views of interested persons
concerning whether the proposed rule
change is inconsistent with Section
15B(b)(2)(C) or any other provision of
the Act, or the rules and regulation
thereunder. Although there do not
appear to be any issues relevant to
approval or disapproval which would
be facilitated by an oral presentation of
views, data, and arguments, the
Commission will consider, pursuant to
Rule 19b-4, any request for an
opportunity to make an oral
presentation.102
Interested persons are invited to
submit written data, views, and
arguments regarding whether the
proposed rule change should be
disapproved by November 18, 2013.
Any person who wishes to file a rebuttal
to any other person’s submission must
file that rebuttal by December 2, 2013.
Comments may be submitted by any
of the following methods:
tkelley on DSK3SPTVN1PROD with NOTICES
102 Section
19(b)(2) of the Act, as amended by the
Securities Act Amendments of 1975, Public Law
94–29 (June 4, 1975), grants the Commission
flexibility to determine what type of proceeding—
either oral or notice and opportunity for written
comments—is appropriate for consideration of a
particular proposal by a self-regulatory
organization. See Securities Act Amendments of
1975, Senate Comm. on Banking, Housing & Urban
Affairs, S. Rep. No. 75, 94th Cong., 1st Sess. 30
(1975).
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Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
MSRB–2013–04 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street NE., Washington, DC
20549–1090.
All submissions should refer to File
Number SR–MSRB–2013–04. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–MSRB–
2013–04 and should be submitted on or
before November 18, 2013. Rebuttal
comments should be submitted by
December 2, 2013.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.103
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–24020 Filed 10–1–13; 8:45 am]
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–70510; File No. SR–ISE–
2013–49]
Self-Regulatory Organizations;
International Securities Exchange,
LLC; Notice of Filing and Immediate
Effectiveness of Proposed Rule
Change to Amend ISE Rule 2128
Relating to Clearly Erroneous Trades
September 26, 2013.
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
September 23, 2013, the International
Securities Exchange, LLC (the
‘‘Exchange’’ or the ‘‘ISE’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which items have been prepared
by the Exchange. 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 Exchange is proposing to extend
a pilot program related to Rule 2128,
entitled ‘‘Clearly Erroneous
Executions.’’ The Exchange also
proposes to remove certain references to
individual stock trading pauses
contained in Rule 2128(c)(4). The text of
the proposed rule change is available on
the Exchange’s Internet Web site at
https://www.ise.com, at the principal
office of the Exchange, 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
Exchange 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
self-regulatory organization has
prepared summaries, set forth in
Sections A, B and C below, of the most
significant aspects of such statements.
BILLING CODE 8011–01–P
1 15
103 17
PO 00000
CFR 200.30–3(a)(57).
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2 17
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U.S.C. 78s(b)(1).
CFR 240.19b–4.
02OCN1
]]>Agencies
[Federal Register Volume 78, Number 191 (Wednesday, October 2, 2013)]
[Notices]
[Pages 60985-60991]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-24020]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-70531; File No. SR-MSRB-2013-04]
Self-Regulatory Organizations; Municipal Securities Rulemaking
Board; Order Instituting Proceedings to Determine Whether to Disapprove
Proposed Rule Change Relating to a New MSRB Rule G-45, on Reporting of
Information on Municipal Fund Securities
September 26, 2013.
I. Introduction
On June 10, 2013, the Municipal Securities Rulemaking Board
(``MSRB'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change consisting of new MSRB Rule G-45 (reporting of
information on municipal fund securities) and MSRB
[[Page 60986]]
Form G-45; amendments to MSRB Rule G-8 (books and records); and MSRB
Rule G-9 (preservation of records). The proposed rule change was
published for comment in the Federal Register on June 28, 2013.\3\ The
Commission received five comment letters on the proposal.\4\ On August
9, 2013, the MSRB granted an extension of time for the Commission to
act on the filing until September 26, 2013. This order institutes
proceedings under Section 19(b)(2)(B) of the Act \5\ to determine
whether to disapprove the proposed rule change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Securities Exchange Act Release No. 69835 (June 24, 2013),
78 FR 39048 (``Notice'').
\4\ See letters to Elizabeth M. Murphy, Secretary, Commission,
from Tamara K. Salmon, Senior Associate Counsel, Investment Company
Institute, dated July 16, 2013 (``ICI Letter''); David L. Cohen,
Managing Director, Associate General Counsel, Securities Industry
and Financial Markets Association, dated July 18, 2013 (``SIFMA
Letter''); Roger Michaud, Chairman, College Savings Foundation,
dated July 19, 2013 (``CSF Letter''); Michael L. Fitzgerald,
Chairman, College Savings Plans Network, dated July 19, 2013 (``CSPN
Letter''); and Michael B. Koffler, Partner, Sutherland Asbill &
Brennan, dated July 19, 2013 (``Sutherland Letter'').
\5\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------
II. Description of the Proposed Rule Change
The MSRB's Electronic Municipal Market Access (``EMMA'') system
currently serves as a centralized venue for the submission by
underwriters of 529 plan primary offering disclosure documents (``plan
disclosure documents'') and continuing disclosures, such as annual
financial reports submitted by issuers or their agents. However, the
MSRB does not currently receive detailed underwriting or transaction
information as it does for other types of municipal securities.
Accordingly, the proposed rule change would, for the first time,
provide the MSRB with more comprehensive information regarding 529
plans underwritten by brokers, dealers, or municipal securities dealers
by gathering data directly from such persons.
The MSRB proposes to adopt new Rule G-45 to require each
underwriter of a primary offering of municipal fund securities \6\ that
are not interests in local government investment pools to report to the
MSRB on new Form G-45 the information relating to such offering by no
later than 60 days following the end of each semi-annual reporting
period ending on June 30 and December 31.\7\ In addition, the MSRB
would require that performance data be submitted annually. As described
in further detail below, the required information would include plan
descriptive information, assets, asset allocation information (at the
investment option level), contributions, withdrawals, fee and cost
structure, performance data, and other information.\8\
---------------------------------------------------------------------------
\6\ The term ``municipal fund security'' is defined in MSRB Rule
D-12 to mean a municipal security issued by an issuer that, but for
the application of Section 2(b) of the Investment Company Act of
1940, would constitute an investment company within the meaning of
Section 3 of the Investment Company Act of 1940.
\7\ The proposed rule change would require an underwriter to
report such information in the manner prescribed in the Form G-45
procedures and as set forth in the Form G-45 Manual. The MSRB
provides that the Form G-45 Manual would be a new manual created to
assist persons in the submission of the information required under
proposed Rule G-45. This manual was not submitted as part of the
proposed rule change.
\8\ Interests in 529 plans are the only type of municipal fund
security that would be covered by the proposed rule change.
---------------------------------------------------------------------------
Under proposed Rule G-45, the obligation to submit the requested
information to the MSRB would be placed on brokers, dealers, or
municipal securities dealers that are underwriters under Rule 15c2-
12(f)(8) of the Act.\9\ The MSRB notes that there may be more than one
underwriter in a particular primary offering, stating that in the case
of 529 plans, program managers, their affiliates, including primary
distributors, and/or their contractors, may fall within the definition
of underwriter. However, the MSRB would deem the obligation to submit
the required information fulfilled if any one of the underwriters
submits the required information. Accordingly, on Form G-45, each
submitter could indicate the identity of each underwriter on whose
behalf the information is submitted.
---------------------------------------------------------------------------
\9\ 17 CFR 240.15c2-12(f)(8).
---------------------------------------------------------------------------
Form G-45 would require the submission of the following
information:
Plan Descriptive Information: The underwriter would provide the
MSRB with the (i) Name of the state, (ii) name of the plan, (iii) name
of the underwriter and contact information, (iv) name of other
underwriters on whose behalf the underwriter is submitting information,
(v) name of the program manager and contact information, (vi) plan Web
site address and (vii) type of marketing channel (whether sold with or
without the advice of a broker-dealer).
Aggregate Plan Information: The underwriter would provide the MSRB
with (i) total plan assets, as of the end of each semi-annual reporting
period, (ii) total contributions for the most recent semi-annual
reporting period, and (iii) total distributions for the most recent
semi-annual reporting period.
Investment Option Information: For each investment option offered
by the plan, the underwriter would provide the MSRB with (i) the name
and type of investment option (e.g., age-based, conservative), (ii) the
inception date of the investment option, (iii) total assets in the
investment option as of the end of the most recent semi-annual period,
(iv) the asset classes in the investment option, (v) the actual asset
class allocation of the investment option as of the end of the most
recent semi-annual period, (vi) the name of each underlying investment
in each investment option as of the end of the most recent semi-annual
period, (vii) the investment option's performance for the most recent
calendar year (as well as any benchmark and its performance for the
most recent calendar year), (viii) total contributions to and
distributions from the investment option for the most recent semi-
annual reporting period and (ix) the fee and expense structure in
effect as of the end of the most recent semi-annual reporting period.
The MSRB proposes to permit the performance and fee and expense
information to be submitted in a format consistent with the College
Savings Plans Network's (``CSPN'') published Disclosure Principles
Statement No. 5 (``Disclosure Principles''), which commenters informed
the MSRB is the industry norm for reporting such information.
Lastly, the MSRB proposes to amend its books and records rules
under MSRB Rules G-8 and G-9 to require underwriters obligated to
submit information to the MSRB under proposed Rule G-45 to maintain the
information required to be reported on new Form G-45 for six years.
III. Summary of Comments Received
As noted above, the Commission received five comment letters on the
proposed rule change.\10\ Four of the commenters expressed general
support for the MSRB's desire to collect more comprehensive information
relating to 529 plans.\11\ However, all of the commenters \12\ raised
concerns or sought clarification about certain specific aspects of the
proposal, including: (i) The scope of the definition of
``underwriter;'' \13\ (ii) the disclosure obligations of underwriters,
including their ability to obtain, and verify the accuracy of, the
requested
[[Page 60987]]
information; \14\ (iii) the need for publication of the Form G-45
Manual; \15\ (iv) the MSRB's plans to publicly disseminate information
filed on Form G-45; \16\ (v) the regulatory basis for the proposed rule
change and value of the requested information on Form G-45; \17\ and
(vi) requests for certain modifications to the content of Form G-
45.\18\
---------------------------------------------------------------------------
\10\ See supra notes 4.
\11\ See ICI Letter, SIFMA Letter, CSPN Letter, CSF Letter.
\12\ See supra note 4.
\13\ See ICI Letter, SIFMA Letter, CSPN Letter, CSF Letter. One
commenter also questioned the MSRB's interpretation of ``direct-
sold'' versus ``advisor-sold'' plans in relation to the scope of the
rule and its application to underwriters. See Sutherland Letter.
\14\ See ICI Letter, CSPN Letter, CSF Letter.
\15\ See ICI Letter, SIFMA Letter.
\16\ See ICI Letter, SIFMA Letter, CSPN Letter, CSF Letter.
\17\ See Sutherland Letter.
\18\ See ICI Letter, SIFMA Letter, Sutherland Letter.
---------------------------------------------------------------------------
A. Definition of ``Underwriter''
Several commenters objected to the MSRB's description of the
meaning of the term ``underwriter'' as used in Rule G-45 and stated
that the MSRB should clarify the scope of the definition.\19\ These
commenters cited the MSRB's statements in the Notice suggesting that
529 plans may have multiple underwriters; that Rule 15c2-12(f)(8) under
the Act, which the MSRB incorporates into Rule G-45, defines
``underwriter'' broadly; and that other entities (in addition to
primary distributors) involved in operating or maintaining a plan, such
as the plan's program manager, their affiliates and/or contractors,
could be deemed underwriters for purposes of the rule. One commenter
asserted that 529 plans typically have only one underwriter \20\ and
argued, along with other concurring commenters,\21\ that many other
entities involved in operating and maintaining a plan, such as the
plan's program manager, recordkeeper, investment manager, custodian,
and state sponsor, in most cases, would not and should not be
underwriters for purposes of Rule G-45.\22\
---------------------------------------------------------------------------
\19\ See ICI Letter, SIFMA Letter, CSPN Letter, CSF Letter.
\20\ See ICI Letter.
\21\ See SIFMA Letter, CSPN Letter, and CSF Letter, which stated
that they concur and/or endorse the ICI's commenter.
\22\ See ICI Letter.
---------------------------------------------------------------------------
Several commenters emphasized that, to fall within the definition
of ``underwriter'' under Rule G-45, the person or entity must be a
broker, dealer, or municipal securities dealer.\23\ One commenter
argued that a plan's program manager, recordkeeper, investment manager,
custodian, and state sponsor generally are not brokers or dealers and
therefore would not qualify as underwriters under the MSRB's
definition.\24\ Accordingly, this commenter requested that the MSRB
clarify that the term ``underwriter'' would not include such entities
if they provide services to the plan on behalf of the plan or its state
sponsor and not as a broker, dealer, or municipal securities
dealer.\25\
---------------------------------------------------------------------------
\23\ See CSPN Letter, CSF Letter, ICI Letter.
\24\ See ICI Letter.
\25\ See ICI Letter.
---------------------------------------------------------------------------
Two commenters also specifically argued that a state sponsor should
not be treated as an underwriter for purposes of Rule G-45, as they are
not brokers, dealers, or municipal securities dealers.\26\ These
commenters stated that language in the Notice implied that state
sponsors could be deemed underwriters and thus requested confirmation
that proposed Rule G-45 would not apply to municipal securities issuers
exempted under Section 3(d) of the Act.\27\
---------------------------------------------------------------------------
\26\ See CSPN Letter, CSF Letter.
\27\ See CSPN Letter, CSF Letter.
---------------------------------------------------------------------------
Although not directly discussing the definition of ``underwriter,''
one commenter argued that the proposed rule and form should not apply
to ``direct-sold'' plans because, by definition, such plans are sold
without the involvement of a broker-dealer.\28\ This commenter stated
that the distinction between ``direct-sold'' and ``advisor-sold'' plans
is not simply a ``marketing distinction,'' as MSRB had categorized it
in the Notice, but is ``critical in assessing the MSRB's jurisdiction
as it delineates between those 529 [p]lans that are sold through
broker-dealers and those that are not.'' \29\ Accordingly, this
commenter concluded that ``direct-sold'' plans are not subject to the
MSRB's jurisdiction.\30\
---------------------------------------------------------------------------
\28\ See Sutherland Letter.
\29\ See Sutherland Letter.
\30\ See Sutherland Letter.
---------------------------------------------------------------------------
Finally, one commenter expressed opposition to the imposition of
the reporting requirements of new Rule G-45 on ``broker dealers that
are not underwriters but that instead have entered into contracts with
the plan's underwriter (primary distributor) to sell plan shares to
retail investors.'' \31\
---------------------------------------------------------------------------
\31\ See SIFMA Letter.
---------------------------------------------------------------------------
B. Underwriter Reporting Obligation
All five commenters believed the MSRB should clarify the disclosure
obligations of underwriters.\32\ Four of these commenters stated that
the MSRB is seeking information that many primary distributors will not
be able to provide.\33\ All of the commenters suggested that the MSRB
clarify or confirm that underwriters would not be responsible for
certain information that is outside of their possession, custody, or
control.\34\ For example, one commenter requested that the MSRB clarify
that, when an underwriter, in its normal course of business, does not
create, own, control, or possess information necessary for Form G-45,
the underwriter is not required to obtain such information.\35\ Another
commenter requested that the MSRB clarify that an underwriter is
required to provide the requisite information only to the extent such
information relates to the distribution by the underwriter of municipal
fund securities and is in the underwriter's possession or maintained by
another entity on the underwriter's behalf for purposes of complying
with MSRB rules.\36\
---------------------------------------------------------------------------
\32\ See ICI Letter, SIFMA Letter, CSPN Letter, CSF Letter,
Sutherland Letter.
\33\ See ICI Letter, CSPN Letter, CSF Letter, Sutherland Letter.
\34\ See ICI Letter, SIFMA Letter, CSPN Letter, CSF Letter,
Sutherland Letter.
\35\ See ICI Letter.
\36\ See CSPN Letter.
---------------------------------------------------------------------------
Several commenters raised concerns that contractual provisions or
privacy laws might not permit an underwriter to obtain the information
required by the proposed rule and form.\37\ In this regard, one
commenter sought confirmation that, where the sharing of information
between an underwriter and a recordkeeper would violate contractual
provisions, the information would be deemed to be outside of the
possession or control of the underwriter and not subject to the
reporting obligations of Rule G-45.\38\ Another commenter noted that,
in the context of omnibus agreements, whether the required information
is available to an underwriter is dependent on comprehensive servicing
agreements between the plan, the underwriter, and the selling
dealers.\39\ Thus, this commenter noted that the agreements may not
provide the underwriter with legal access to certain information and,
as such, an underwriter should not be required to report such
information on Form G-45.\40\
---------------------------------------------------------------------------
\37\ See CSF Letter, CSPN Letter, SIFMA Letter, Sutherland
Letter.
\38\ See Sutherland Letter.
\39\ See SIFMA Letter.
\40\ See SIFMA Letter.
---------------------------------------------------------------------------
Two commenters raised concerns about the MSRB's suggestion that an
underwriter's disclosure obligation extends to ``information in the
possession of an underwriter's subcontractor.'' \41\ These commenters
believed this suggestion ``will produce confusion and disparate
reporting results'' depending on factors unrelated to Rule G-45
regulatory compliance.\42\ In particular, the commenters noted that,
while some information may be in the possession of an underwriter's
[[Page 60988]]
``subcontractor,'' other information may be in the possession of an
unaffiliated or affiliated entity that is not a subcontractor, and
privacy laws and contractual requirements may apply differently.\43\
---------------------------------------------------------------------------
\41\ See CSPN Letter, CSF Letter.
\42\ See CSPN Letter, CSF Letter.
\43\ See CSPN Letter, CSF Letter.
---------------------------------------------------------------------------
One commenter questioned the meaning of the MSRB's statement in the
Notice that underwriters would be required to produce only information
that they possess or ``have a legal right to obtain.'' \44\ The
commenter stated that ``unless the primary distributor has a specific,
enforceable legal right, such as one existing under law (such as a
right created by a statutory provision) or arising from a specific
contractual provision, to obtain specified information maintained by a
third party, the primary distributor does not have a legal right to
obtain the information for purposes of the proposal.'' \45\ As such,
the commenter asserted that an underwriter may not be able to provide
information in the possession of an underwriter's subcontractor.\46\
---------------------------------------------------------------------------
\44\ See Sutherland Letter.
\45\ See Sutherland Letter.
\46\ See Sutherland Letter.
---------------------------------------------------------------------------
Two commenters also provided comments relating specifically to
omnibus accounts, stating that Rule G-45 and Form G-45 should recognize
that, to the extent an underwriter does not, in the normal course of
business, have access to information on the accounts underlying an
omnibus accounting arrangement, the underwriter should not be required
to report such information.\47\ These commenters also stated that, ``in
practice, the mere fact that there is an omnibus relationship between a
selling dealer and a plan's underwriter does not necessarily mean the
underwriter has full transparency into all account information,
including account owners, beneficiaries, contributions, and
withdrawals, underlying the omnibus account.'' \48\
---------------------------------------------------------------------------
\47\ See ICI Letter, SIFMA Letter.
\48\ See ICI Letter, SIFMA Letter.
---------------------------------------------------------------------------
Lastly, two commenters contended that, if the underwriter is able
to obtain the required information from a third party, the MSRB should
clarify that the underwriter is not responsible for ensuring the
accuracy or completeness of the information before including it on Form
G-45.\49\
---------------------------------------------------------------------------
\49\ See ICI Letter, Sutherland Letter.
---------------------------------------------------------------------------
C. Publication of the Form G-45 Manual
Two commenters believed that the MSRB should be required to publish
for comment the contents of the Form G-45 Manual (``Manual'') because
the Manual will contain important substantive information concerning
the reporting obligations under Form G-45.\50\ One commenter stated
that the ``Manual's contents will not be limited to technical
specifications or design or system considerations relating to the
mechanics of the electronic filing process.'' \51\ This commenter
asserted that, apart from the addition of boxes for notes regarding
performance data and fee and expense data, neither Form G-45 nor Rule
G-45 reflects the MSRB's statements in the Notice that information may
be submitted in a manner consistent with the Disclosure Principles.\52\
As such, the commenter concluded that the details regarding how to
report data consistent with these Disclosure Principles would
necessarily have to be set forth in the Manual.\53\ Another commenter
similarly stated that it believed that the Manual would incorporate the
detailed substantive instructions of the Disclosure Principles.\54\
Both commenters also suggested that the one-year implementation period
should commence after the Manual has been published for comment and
approved by the Commission.\55\
---------------------------------------------------------------------------
\50\ See ICI Letter, SIFMA Letter.
\51\ See ICI Letter.
\52\ See ICI Letter.
\53\ See ICI Letter. Similarly, another commenter noted that,
while the MSRB explained in the Notice that the information required
on Form G-45 will be reported consistently with the reporting
formats under the Disclosure Principles, proposed Rule G-45 and Form
G-45 are silent on this point. See SIFMA Letter.
\54\ See SIFMA Letter.
\55\ See ICI Letter, SIFMA Letter.
---------------------------------------------------------------------------
D. Publication of the G-45 Data
Three commenters believed that confidential or proprietary
information reported on Form G-45 should not be made available to the
general public.\56\ For example, one commenter stated that the data
collected pursuant to Rule G-45 ``should be used to inform the MSRB's
regulatory initiatives and priorities and not to compete with other
more mature, robust, and comprehensive public sources of information on
529 plans.'' \57\ Another commenter stated that the MSRB should be
required to file a proposed rule change subject to Commission approval
if the MSRB desires to publicly disseminate certain 529 plan data
reported on Form G-45.\58\
---------------------------------------------------------------------------
\56\ See ICI Letter, CSPN Letter, CSF Letter.
\57\ See ICI Letter.
\58\ See SIFMA Letter.
---------------------------------------------------------------------------
E. Regulatory Value of Required Information and Regulatory Basis for
the Proposal
While four commenters expressed general support for the MSRB's
effort to collect more comprehensive information on 529 plans for
regulatory purposes,\59\ one commenter believed that the MSRB failed to
provide a ``compelling rationale as to how the requested information
would be useful to the MSRB, the SEC and FINRA given the nature of the
requested information, the limited reach of the rule . . . , and the
comprehensive regulatory system the MSRB has implemented for broker-
dealers distributing 529 plans.'' \60\ In particular, the commenter
asserted that the requested information has limited value as a
regulatory tool because such information cannot impact the value of
mutual funds or other investments in which plan investment options
invest.\61\ In this regard, the commenter argued that, unlike the
prices of municipal bonds, which are set by the market, the prices of
529 plans are based on the net asset value of the mutual funds in which
such investment options invest.\62\ This commenter also questioned the
MSRB's assertion in the Notice that the information will ``inform the
MSRB of the risks and impact of each plan and investment option'' and
``allow the MSRB to assess the impact of each plan on the market.''
\63\ In contrast, the commenter stated that the requested information
merely provides information regarding fund flows and does not indicate
the risks or impact of any plan or investment option on investors.\64\
---------------------------------------------------------------------------
\59\ See ICI Letter, SIFMA Letter, CSF Letter and CSPN Letter.
\60\ See Sutherland Letter.
\61\ See Sutherland Letter.
\62\ See Sutherland Letter.
\63\ See Sutherland Letter.
\64\ See Sutherland Letter.
---------------------------------------------------------------------------
The commenter further asserted that the requested information would
be substantially incomplete because the information obtained would not
include data on ``direct-sold'' 529 plans, which the commenter stated
represents more than half of the assets in the 529 plan industry.\65\
The commenter also noted that certain data is already available in the
public domain that includes both ``broker-sold'' and ``direct-sold''
plans, and therefore such existing data would be more comprehensive
than the information collected by the MSRB under the proposal.'' \66\
Finally, the commenter argued that the MSRB's jurisdiction does not
extend to
[[Page 60989]]
regulating the 529 plan market because the ``MSRB's role is limited to
regulating broker-dealers that distribute and sell municipal
securities.'' \67\
---------------------------------------------------------------------------
\65\ See Sutherland Letter.
\66\ See Sutherland Letter.
\67\ See Sutherland Letter.
---------------------------------------------------------------------------
F. Contents of Form G-45
Some commenters provided suggestions for modifications to the
specific information requested by Form G-45 or sought clarification on
how to report certain information on the form.\68\ These comments are
summarized below.
---------------------------------------------------------------------------
\68\ See ICI Letter, Sutherland Letter, SIFMA Letter.
---------------------------------------------------------------------------
i. Investment Option Information
One commenter requested that the MSRB clarify in Form G-45 how to
report an investment option that is used for multiple purposes.\69\
This commenter also recommended that the MSRB clarify how underwriters
should report fee, expense, and performance information for a mutual
fund that issues multiple classes of shares with fees and expenses that
vary from class to class.\70\ Another commenter questioned how
underwriters are supposed to report asset class and asset class
percentages, and suggested that the two items related to asset class be
eliminated.\71\ This commenter asserted that investment options do not
have or invest in asset classes, thus the use of the phrase ``asset
classes in investment option'' is unclear.\72\
---------------------------------------------------------------------------
\69\ See ICI Letter.
\70\ See ICI Letter.
\71\ See Sutherland Letter.
\72\ See Sutherland Letter.
---------------------------------------------------------------------------
One commenter also recommended that the investment option
information be reported in ranges rather than precise amounts, where
appropriate (e.g., asset class allocation percentages), because the use
of ranges would relieve underwriters of having to revise previously
reported information whenever there is a de minimus change to such
information.\73\ This commenter further suggested that if the MSRB
elects not to use ranges, it should consider revising the updating
requirements such that an update is not required to previously reported
information unless there has been more than a de minimus change to such
information.\74\
---------------------------------------------------------------------------
\73\ See ICI Letter.
\74\ See ICI Letter.
---------------------------------------------------------------------------
ii. Performance Information
One commenter raised several issues with respect to performance
information and advanced the following specific recommendations with
regard thereto: (i) The MSRB should resolve a discrepancy between the
definition of ``performance'' in Rule G-45(d)(viii) that means ``total
returns of the investment option expressed as a percentage net of all
generally applicable fees and costs'' and the requirement in Form G-45
that requires performance be reported both ``including sale charges''
and ``excluding sales charges''; (ii) the MSRB should clarify whether a
plan that is directly distributed and that has no ``sales charges,'' is
expected to report the same information under ``Investment Performance
(Including Sales Charges)'' and ``Investment Performance (Excluding
Sales Charges)'' or just the later; (iii) the MSRB should clarify that
fees that are not specific to any particular investment option are not
required to be included in the performance calculation; (iv) the MSRB
should resolve a discrepancy between a statement in the Notice that
Form G-45 requires ``performance for the most recent calendar year''
and the Form G-45 requirement for disclosure of each investment
option's 1, 3, 5 and 10 year performance, as well as the option's
performance since inception; and (v) the MSRB should include a comment
box under each of the two sections of Form G-45 relating to Investment
Performance to avoid confusion as to whether the comments relate to
performance excluding or including a sales charge.\75\ Furthermore,
this commenter recommended that the MSRB clarify that a 529 plan is
only required to report benchmark information if the 529 plan, in fact,
uses a benchmark.\76\
---------------------------------------------------------------------------
\75\ See ICI Letter.
\76\ See ICI Letter.
---------------------------------------------------------------------------
iii. Underlying Investments
Three commenters objected to the requirement to provide data
regarding underlying investments on Form G-45.\77\ In particular, two
commenters recommended deleting the ``Underlying Investments'' section
from Form G-45.\78\ The other commenter suggested that the Commission
should reject the proposed rule change as it relates to underlying
investments, arguing that the MSRB does not have the legal authority or
jurisdiction to mandate the filing of such information because such
underlying investments are not municipal securities.\79\ Two commenters
also stated that this information is beyond what is required by the
Disclosure Principles and is inconsistent with the MSRB's previous
response to comments stating that it had eliminated from its initial
proposal the collection of information regarding the underlying
portfolio investments.\80\ Moreover, one commenter recommended that if
the MSRB determines in the future that there would be regulatory value
in having this information, the MSRB should revise Form G-45 at that
time.'' \81\
---------------------------------------------------------------------------
\77\ See ICI Letter, SIFMA Letter, and Sutherland Letter.
\78\ See ICI Letter, SIFMA Letter.
\79\ See Sutherland Letter.
\80\ See ICI Letter, SIFMA Letter.
\81\ See ICI Letter.
---------------------------------------------------------------------------
Another commenter believed that the MSRB's request for information
on ``the name of each underlying investment in each investment option .
. .'' is inaccurate because 529 plan account owner funds invest solely
in the 529 plan and nothing else.\82\ This commenter noted that the
plan trust is the sole legal and beneficial owner of the underlying
investments.\83\ This commenter therefore believed that it is
inappropriate to request information about underlying investments
because they are not part of what investors purchase and are not
municipal securities.'' \84\
---------------------------------------------------------------------------
\82\ See Sutherland Letter.
\83\ See Sutherland Letter.
\84\ See Sutherland Letter.
---------------------------------------------------------------------------
iv. Marketing Channel
One commenter questioned the value of requesting information on the
``marketing channel,'' which the MSRB described to be commonly known as
either ``advisor-sold'' or ``direct sold.'' \85\ As discussed above,
this commenter argued that the requirements of the rule should not
apply to ``direct-sold'' plans, since they do not involve a broker-
dealer offering the securities.\86\ As such, the commenter asserted
that only broker-dealers would be providing the required information
about ``advisor-sold'' plans, unless non-broker-dealers also made
voluntary filings.\87\ Such voluntary filings, the commenter urged,
would only cause investor confusion.\88\
---------------------------------------------------------------------------
\85\ See Sutherland Letter.
\86\ See Sutherland Letter; see also supra notes 28-30 and
accompanying text.
\87\ See Sutherland Letter.
\88\ See Sutherland Letter.
---------------------------------------------------------------------------
v. Program Managers
One commenter suggested that all information requests related to
program managers should be deleted from Form G-45 because the MSRB
lacks jurisdiction ``to seek information about an entity hired by 529
[p]lan trustees to provide services to the plan when neither the issuer
nor the entity are regulated by the MSRB.'' \89\ The commenter further
questioned the relevance of such information to the MSRB's role as a
securities regulator of
[[Page 60990]]
broker-dealers distributing municipal securities.\90\
---------------------------------------------------------------------------
\89\ See Sutherland Letter.
\90\ See Sutherland Letter.
---------------------------------------------------------------------------
vi. Fees and Expenses
One commenter objected to the MSRB's request for information on
Form G-45 related to plan fees and expenses, including State fees,
audit fees, asset-based fees, annual account maintenance fees, and bank
administration fees.\91\ The commenter suggested that because the MSRB
does not have jurisdiction over the regulation of 529 plans, it should
not require primary distributors to submit data concerning securities
product fees that are unrelated to the primary distributor.\92\
---------------------------------------------------------------------------
\91\ See Sutherland Letter.
\92\ See Sutherland Letter.
---------------------------------------------------------------------------
G. Cost/Benefit of Data Collected
Three commenters addressed the costs of the proposed rule change
versus the benefits of collecting the required information.\93\ One
commenter stated that, while the MSRB concluded in the Notice that the
benefits of its proposal will outweigh the costs, the MSRB failed to
quantify either the benefits or the costs.\94\ Two commenters suggested
that the Commission consider adding a waiver and/or sunset provision
designed to mitigate the cost burden of an underwriter's disclosure
duty.\95\ These two commenters stated that the addition of ``a waiver
application process will allow the affected underwriter to request
relief from providing data that is not reasonably practicable to
obtain.'' \96\ Similarly, these commenters believed a sunset provision
could also ``ease the administrative burden to underwriters required to
submit information on Form G-45.'' \97\ In addition, these commenters
suggested that the MSRB reexamine its need to collect each data point
after a specified period of time and revise Rule G-45 accordingly in
the event the MSRB determines that certain data points are no longer
relevant.\98\
---------------------------------------------------------------------------
\93\ See CSPN Letter, CSF Letter, Sutherland Letter.
\94\ See Sutherland Letter.
\95\ See CSPN Letter, CSF Letter.
\96\ See CSPN Letter, CSF Letter.
\97\ See CSPN Letter, CSF Letter.
\98\ See CSPN Letter, CSF Letter. The CSPN Letter and CSF Letter
suggested three years.
---------------------------------------------------------------------------
IV. Proceedings To Determine Whether To Disapprove SR-MSRB-2013-04 and
Grounds for Disapproval Under Consideration
The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Act \99\ to determine whether the proposed rule
change should be disapproved. Institution of such proceedings appears
appropriate at this time in view of the legal and policy issues raised
by the proposal, as discussed below. Institution of disapproval
proceedings does not indicate that the Commission has reached any
conclusions with respect to any of the issues involved. Rather, as
described in greater detail below, the Commission seeks and encourages
interested persons to comment on the proposed rule change to inform the
Commission's analysis whether to approve or disapprove the proposed
rule change.
---------------------------------------------------------------------------
\99\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------
Pursuant to Section 19(b)(2)(B) of the Act,\100\ the Commission is
providing notice of the grounds for disapproval under consideration. In
particular, Section 15B(b)(2)(C) of the Act requires, among other
things, that the rules of the MSRB 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 facilitating transactions in municipal securities and
municipal financial products, to remove impediments to and perfect the
mechanism of a free and open market in municipal securities and
municipal financial products, and, in general, to protect investors,
municipal entities, obligated persons, and the public interest.\101\
---------------------------------------------------------------------------
\100\ Id.
\101\ 15 U.S.C. 78o-4(b)(2)(C).
---------------------------------------------------------------------------
As discussed above, the MSRB's proposal would require underwriters
of 529 plans to report certain information to the MSRB regarding the
plans. The MSRB believes that its proposal would better position the
MSRB to protect investors and the public interest because the
information collected under the proposed rule would allow the MSRB to
assess the impact of each 529 plan on the market, evaluate trends and
differences among plans, and gain an understanding of the aggregate
risk taken by investors by the allocation of assets in each investment
option. In the MSRB's view, the information about activity in 529 plans
is necessary to assist the MSRB in evaluating whether its current
regulatory scheme for 529 plans is sufficient or whether additional
rulemaking is necessary to protect investors and the public interest.
Four of the commenters expressed general support for the MSRB's
desire to collect more comprehensive information relating to 529 plans.
However, as discussed in detail above, all of the commenters raised
concerns about various aspects of the proposal. Most notably, several
commenters questioned the MSRB's description of the meaning of the term
``underwriter'' and suggested that the MSRB should clarify the scope of
the definition as used in proposed Rule G-45. In their view, the MSRB's
description of the definition of ``underwriter'' is overbroad and
encompasses many other entities involved in the operation and
maintenance of a 529 plan that would not, in fact, meet the Commission
definition of underwriter and thus should not be deemed to be
underwriters for purposes of Rule G-45.
Commenters also questioned the scope of the underwriter's reporting
obligations under the proposed rule. In particular, commenters asserted
that underwriters would be, in many cases, unable to obtain the
required information and requested clarification as to whether
underwriters would be relieved from the obligation to provide
information not in the underwriter's possession or control or if the
underwriter is unable to obtain the information due to contractual
provisions. Further, commenters sought confirmation that, to the extent
that underwriters could obtain the information from third parties, they
would not be held liable for the accuracy and completeness of the
requested information.
The Commission believes that these comments raise questions as to
whether the MSRB's proposal is consistent with the requirements Section
15B(b)(2)(C) of the Act, including whether it would remove impediments
to and perfect the mechanism of a free and open market in municipal
securities and municipal financial products, and, in general, protect
investors, municipal entities, obligated persons, and the public
interest. In particular, the comments raise concerns that the proposed
rule change is unclear as to whom the obligations of the rule apply and
is being interpreted in a manner that is potentially inconsistent with
statutory and Commission rule definitions of ``underwriters'' and
``broker dealers.'' This uncertainty could result in noncompliance or
needless compliance by entities and/or unnecessary duplicative
reporting. Further, respondents may not be able to ascertain the scope
of their obligations to provide the requested information under the
proposed rule, including the extent to which they are responsible for
providing, and verifying the accuracy of, information not in their
possession. In light of the confusion related to whom the proposed rule
applies, questions are raised as to whether the disclosure obligations
are sufficiently balanced to support the MSRB's statutory obligation
[[Page 60991]]
to protect both investors and municipal entities without being overly
burdensome.
As summarized above, commenters also pointed out various aspects of
Form G-45 that they believe needs further clarification. Accordingly,
the Commission believes that, without further clarification, the
proposal may result in incomplete or incorrectly reported data. As
such, the MSRB would not able to fulfill its stated regulatory goals of
obtaining accurate, reliable, and complete data in order to further
assess and carry out its rulemaking responsibilities in this area.
For the foregoing reasons, the Commission believes the issues
raised by the proposed rule change can benefit from additional
consideration and evaluation in light of the requirements of Section
15B(c)(2)(C) of the Act.
V. Procedure: Request for Written Comments
The Commission requests that interested persons provide written
submissions of their views, data, and arguments with respect to the
concerns identified above, as well as any others they may have with the
proposal. In particular, the Commission invites the written views of
interested persons concerning whether the proposed rule change is
inconsistent with Section 15B(b)(2)(C) or any other provision of the
Act, or the rules and regulation thereunder. Although there do not
appear to be any issues relevant to approval or disapproval which would
be facilitated by an oral presentation of views, data, and arguments,
the Commission will consider, pursuant to Rule 19b-4, any request for
an opportunity to make an oral presentation.\102\
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\102\ Section 19(b)(2) of the Act, as amended by the Securities
Act Amendments of 1975, Public Law 94-29 (June 4, 1975), grants the
Commission flexibility to determine what type of proceeding--either
oral or notice and opportunity for written comments--is appropriate
for consideration of a particular proposal by a self-regulatory
organization. See Securities Act Amendments of 1975, Senate Comm. on
Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st
Sess. 30 (1975).
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Interested persons are invited to submit written data, views, and
arguments regarding whether the proposed rule change should be
disapproved by November 18, 2013. Any person who wishes to file a
rebuttal to any other person's submission must file that rebuttal by
December 2, 2013.
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 email to rule-comments@sec.gov. Please include
File Number SR-MSRB-2013-04 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-MSRB-2013-04. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-MSRB-2013-04 and should be
submitted on or before November 18, 2013. Rebuttal comments should be
submitted by December 2, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\103\
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\103\ 17 CFR 200.30-3(a)(57).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-24020 Filed 10-1-13; 8:45 am]
BILLING CODE 8011-01-P
