Self-Regulatory Organizations; Municipal Securities Rulemaking Board; Notice of Filing of a Proposed Rule Change Consisting of Amendments to MSRB Rule G-11, on Primary Offering Practices, Relating to Changes in a Bond Authorizing Document, 62736-62745 [2013-24558]

Agencies

• SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 78, Number 204 (Tuesday, October 22, 2013)]
[Notices]
[Pages 62736-62745]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-24558]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70607; File No. SR-MSRB-2013-08]


Self-Regulatory Organizations; Municipal Securities Rulemaking 
Board; Notice of Filing of a Proposed Rule Change Consisting of 
Amendments to MSRB Rule G-11, on Primary Offering Practices, Relating 
to Changes in a Bond Authorizing Document

October 3, 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 19, 2013, the Municipal Securities Rulemaking Board 
(the ``MSRB'' or ``Board'') filed with the Securities and Exchange 
Commission (the ``SEC'' or ``Commission'') the proposed rule change as 
described in Items I, II, and III below, which Items have been prepared 
by the MSRB. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The MSRB is filing with the Commission a proposed rule change 
consisting of amendments to MSRB Rule G-11, on primary offering 
practices (the ``proposed rule change''). The MSRB requests an 
effective date for the proposed rule change of 60 days following the 
date of SEC approval.
    The text of the proposed rule change is available on the MSRB's Web 
site at www.msrb.org/Rules-and-Interpretations/SEC-Filings/2013-Filings.aspx, at the MSRB's principal office, and at the Commission's 
Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the MSRB included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The MSRB has prepared summaries, set forth in Sections 
A, B, and C below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The proposed rule change would amend MSRB Rule G-11 to prohibit, 
with carefully defined exceptions, brokers, dealers and municipal 
securities dealers (``dealers'') from providing consents to changes in 
a bond authorizing document, such as trust indentures and bond 
resolutions (``authorizing document'' or ``bond authorizing 
document''). The proposed rule change would enhance protections for 
existing owners of bonds (``owners'' or ``bond owners'') from changes 
to authorizing documents consented to by a dealer in lieu of bond 
owners by prescriptively prohibiting such consents in certain 
circumstances.
Background
    Amendments to authorizing documents are often requested by 
municipal entity issuers (``issuers'') or bond owners to modernize 
outdated provisions or to address operational or other concerns that 
have arisen after the initial issuance of bonds. Such amendments are 
typically achieved by the vote of owners of a specified percentage of 
the aggregate principal amount of bonds, as determined by the 
authorizing document. The principal amount necessary usually will vary, 
depending upon the type of amendments sought.
    The process of obtaining consents from bond owners and related 
costs can be significant. Since many municipal securities are issued in 
book-entry form and registered as a single ``global'' certificate in 
the name of a depository, the identity of beneficial owners of the 
bonds is frequently unknown to issuers and trustees. Identifying such 
owners and obtaining consents requires an extensive process of inquiry 
through layers of nominee ownership and often

[[Page 62737]]

results in cost and delay in achieving the requisite number of 
consents.
    To address some of these burdens, issuers frequently have requested 
underwriters, as temporary owners of bonds during the initial 
distribution period and representing the aggregate principal amount of 
bonds underwritten, to provide consents to changes to authorizing 
documents. This alternative allows issuers to avoid the potential cost 
and delay of obtaining consents from beneficial owners by direct 
solicitation.
    Although this lessens the burdens on issuers, the MSRB is concerned 
about the practice of having a dealer, acting as an underwriter or in 
some cases a remarketing agent, consent to changes in authorizing 
documents that adversely affect the interests of existing bond owners. 
The MSRB believes that while existing bond owners may be considered as 
having agreed to provisions relating to amendments to the authorizing 
documents at the time of purchase, such owners are not likely to have 
contemplated that a dealer, acting as an underwriter or remarketing 
agent with no prior or future long-term economic interest in the bonds 
could provide such consent unless such ability had been specifically 
authorized in the authorizing documents and disclosed to bond owners.
    The MSRB believes that the proposed rule change will protect 
investors and balance the concerns of issuers about the cost and 
efficiency of obtaining consents to their authorizing documents. The 
proposed rule change does not grant an affirmative right to dealers to 
provide consents, and does not alter the dealer's obligations 
applicable under other MSRB rules, including its fair dealing 
obligations under Rule G-17. Rather, the proposed rule change will 
limit the circumstances under which a dealer may provide consents at 
the request of an issuer to amendments to bond authorizing documents 
within the context of the dealer's fair dealing obligations.
    Requests for comment. The MSRB published a series of requests for 
comment concerning the practice of dealers providing consents to 
changes to authorizing documents. The first request for comment \3\ 
concerned the application of MSRB Rule G-17 to the provision of bond 
owner consents by underwriters of municipal securities (``Draft G-17 
Notice''). The Draft G-17 Notice would have provided that, where a 
proposed amendment reduced the security for existing bond owners, the 
provision of consents by underwriters would be a violation of their 
Rule G-17 duty of fair dealing unless: (i) The authorizing document 
expressly provided that bond owner consents could be provided by an 
underwriter and (ii) the offering documents for the existing securities 
expressly disclosed that bond owner consents could be provided by 
underwriters of other securities issued under the authorizing document. 
The MSRB believed that while existing bond owners typically were aware 
of the consent provisions in authorizing documents, they would not have 
contemplated (without such express disclosure) that an owner with no 
prior or future long-term economic interest in the bonds, such as an 
underwriter or a remarketing agent, could provide a bond owner's 
consent and thereby affect the security for existing bond owners.
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    \3\ MSRB Notice 2012-04 (February 7, 2012).
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    The MSRB received 10 comment letters on the Draft G-17 Notice, 
discussed in more detail in Part 5 below. Commenters said, among other 
things, that restricting the use of underwriters to provide consents 
could result in potential cost and inefficiency to issuers when seeking 
to modernize outdated provisions in their authorizing documents. 
Commenters also said that identifying a ``reduction in security'' could 
be difficult and could result in varying interpretations, depending on 
the underwriter or the issuer, and also could lead to unintended 
consequences by prohibiting amendments that, while technically could be 
considered a reduction in security, were nevertheless seen by bond 
owners as being in their long-term best interest.\4\
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    \4\ See undated letter from the Michael J. Smith, Assistant 
Treasurer, Los Angeles County Metropolitan Transportation Authority, 
to Ronald W. Smith, Corporate Secretary, Municipal Securities 
Rulemaking Board. Another commenter argued that there could be a 
technical reduction in security even though the overall financial 
strength of the issuer could be improved by such action (see 
Comments of Haynsworth Sinkler Boyd, P.A. Regarding Draft 
Interpretation of MSRB Rule G-17 Restricting Underwriter Consents to 
Amendments to Outstanding Security Documents dated March 5, 2012 
from Kathleen Crum McKinney and Theodore B. DuBose). Examples of 
technical reductions in security noted in this comment letter 
included the release of real estate securing the bonds to implement 
projects expected to result in increased tax benefits or revenue to 
the issuer, or amendments relating to the funding of debt service 
reserve funds with cash or credit facilities. Depending upon facts 
and circumstances, an underwriter or an issuer could view a short-
term reduction in security as a long-term benefit for the bond 
owners.
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    The MSRB acknowledged the issues raised by commenters in response 
to the Draft G-17 Notice but remained concerned about protecting the 
rights of existing bond owners that could be materially affected by 
amendments consented to by a party that had no prior or future long-
term economic interest in the bonds. The MSRB also recognized the need 
for greater clarity in identifying the particular types of consents and 
circumstances under which dealers may not provide such consents. 
Moreover, because the formulation of Draft Rule G-17, as well as some 
comments suggested that the provisions of Draft G-17 Notice could be 
read to waive a dealer's fair dealing obligations under certain 
circumstances, the MSRB ultimately determined that such issues would be 
more effectively addressed as an amendment to MSRB Rule G-11. By 
including the proposed rule change as an amendment to Rule G-11, the 
MSRB intends to clarify that the proposed rule does not eliminate the 
obligation of a dealer under Rule G-17, when considering requests from 
an issuer to consent to changes to an authorizing document, and a 
dealer, in such circumstances, would also be required to consider 
whether such action is consistent with its duties of fair dealing.
    The MSRB subsequently published two additional requests for comment 
proposing amendments to MSRB Rule G-11 (``G-11 Amendments''). The G-11 
Amendments would limit the ability of dealers to provide consents to 
changes in authorizing documents except in specified circumstances. The 
first request for comment \5\ proposed amending Rule G-11 by adding new 
section (k) (now proposed section (l)) to the rule. The second request 
\6\ proposed adding two further exceptions. The G-11 Amendments and the 
comments to both requests for comment are discussed collectively below 
in Part 5.
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    \5\ MSRB Notice 2012-36 (July 5, 2012).
    \6\ MSRB Notice 2012-58 (November 21, 2012).
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Summary of Proposed Rule Change
    The G-11 Amendments would prohibit a dealer from providing consent 
to any amendment to authorizing documents for municipal securities, 
either as an underwriter, a remarketing agent, an agent for owners, or 
in lieu of owners, except that this particular prohibition would not 
apply in the limited circumstances set forth in proposed section (l) of 
Rule G-11.
    Proposed subparagraph (l)(i)(A) would except from the prohibition a 
dealer, acting as an underwriter, that provides bond owner consents to 
changes in authorizing documents if such documents expressly allowed an 
underwriter to provide such consents and the offering documents for the 
issuer's existing securities expressly disclosed that consents could be 
provided by underwriters of other

[[Page 62738]]

securities issued under the same authorizing documents. This provision 
acknowledges the types of provisions currently included in some 
issuers' authorizing documents that specifically allow underwriters to 
provide bond owner consents. Without including this exception, the 
proposed rule change could be read to limit the ability of issuers to 
recognize the benefits and flexibility of the provisions in their own 
authorizing documents where otherwise permissible.
    Proposed subparagraph (l)(i)(B) would except from the prohibition a 
dealer that owns the relevant securities other than in the capacity of 
an underwriter or a remarketing agent. This provision acknowledges the 
rights of dealers as owners of securities and avoids any unintended 
derogation of a dealer's rights as owner. Whether a dealer owns the 
securities for the purposes of the proposed rule change will depend on 
whether it purchased such securities without a view to distribution.
    Proposed subparagraph (l)(i)(C) would except a dealer acting as a 
remarketing agent to whom the relevant securities had been tendered as 
a result of a mandatory tender, provided that all securities affected 
by the amendment (other than securities retained by an owner in lieu of 
a tender and for which such bond owner had delivered consent) had been 
tendered. If a bond owner elected to exercise its right to ``hold'' 
bonds subject to a mandatory tender in lieu of tendering, the 
remarketing agent would be prohibited from providing consents to any 
amendment to an authorizing document unless it also received the 
specific written consent of such bond owner to such change.
    Proposed subparagraph (l)(i)(D) would except an underwriter that 
provides an ``omnibus'' consent to changes to authorizing documents 
solely as agent for and on behalf of bond owners that delivered 
separate written consents to such amendments. An underwriter providing 
an ``omnibus'' consent under this subparagraph would not be viewed as 
substituting its judgment for that of bond owners, but rather as an 
agent facilitating the collection and delivery of consents. This 
exception would benefit the issuer and the existing bond owners in that 
the underwriter, in tabulating consents to support its ``omnibus'' 
consent, would be required to authenticate ownership and requisite 
corporate authority of the purchaser of bonds to provide a consent, 
thereby reducing the burden on the issuer and its trustee of such duty.
    Proposed subparagraph (l)(i)(E) would except an underwriter that 
provides consent on behalf of prospective purchasers to amendments to 
authorizing documents if the amendments would not become effective 
until all existing bond owners (other than the prospective purchasers 
for whom the underwriter had provided consent) had also consented.\7\
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    \7\ This exception recognizes a limited circumstance in which an 
underwriter's consent to amendments to authorizing documents, 
provided in lieu and on behalf of new purchasers of bonds, would be 
permitted. In this case, the underwriter's consent would not become 
effective until existing owners of all bonds (other than the 
prospective purchasers for whom the underwriter had provided 
consent) affected by such amendment and outstanding at the time such 
consent became effective had also provided consent. As a practical 
matter, this alternative might be considered when an issuer was in 
the process of accumulating consents from all owners of outstanding 
bonds and had not completed acquiring the consents prior to issuing 
a new series of bonds. In that case, an underwriter's consent on 
behalf of new purchasers would not become effective until all other 
bond owners affected by the amendment had also provided their 
consent, and such other consents were currently effective. This 
exception would not affect an underwriter's ability to provide 
consents as permitted in subparagraph (l)(i)(D) of the proposed rule 
change.
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    Proposed paragraph (l)(ii) would define certain terms for purposes 
of proposed section (l), specifically the terms ``authorizing 
document,'' ``bond owner,'' and ``bond owner consent.''
    Consents not affected by the G-11 Amendments. Consents from dealers 
solely in their capacity as an underwriter or a remarking agent and 
required or permitted in connection with their administrative duties 
under authorizing documents would not be subject to the proposed rule 
change. For example, if an authorizing document provided that a dealer, 
in its role as remarketing agent, was required to consent to a change 
relating to the manner or timing for tendering bonds prior to such 
provision becoming effective, the dealer serving as remarketing agent 
would not be prohibited by the G-11 Amendments from providing such 
consent. However, if the authorizing document also required consent 
from bond owners to such change, the remarketing agent would be 
prohibited under the Rule G-11 Amendments from providing consent on 
behalf of bond owners unless it came within an exception.\8\
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    \8\ A dealer would be required, however, to consider whether 
such action is consistent with its duties of fair dealing.
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    The G-11 Amendments would not affect other methods used by issuers 
to obtain consents from owners of newly issued bonds, such as consents 
received from bond owners upon initial purchase of the bonds. However, 
the G-11 Amendments would prohibit the dealer from providing any 
consent for or in lieu of bond owners except as provided by the 
proposed rule change.
    Application of MSRB Rule G-17. The proposed rule change is designed 
to ensure that consents obtained from dealers when acting as an 
underwriter or remarketing agent are obtained in a fair manner. As 
noted above, the proposed rule change would not grant an affirmative 
right to dealers to provide consents to changes to authorizing 
documents, but rather would prohibit such consents subject to limited 
exceptions. As such, it would not alter or supplant the dealer's 
obligations applicable under other MSRB rules, including its fair 
dealing obligations under Rule G-17.\9\ As with other rules of the 
MSRB, both prescriptive and principles based, dealers are required to 
observe the duty of fair dealing to all persons, even in the absence of 
fraud and compliance with the specific provisions of any rule does not 
limit this duty.
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    \9\ The proposed rule change and the concurrent application of 
Rule G-17 will address the possible conflicts of interest on the 
part of a dealer when consenting to changes at the request of an 
issuer. A conflict of interest may arise when a dealer, with a 
financial interest in completing the transaction, is asked by an 
issuer to consent to changes in its authorizing documents that may 
adversely affect existing bond owners. In this case, the interest of 
the dealer may be in conflict with the dealer's duty of fair dealing 
to all persons in connection with the conduct of its municipal 
securities business. This duty extends to all persons, not just to 
those with whom a dealer is transacting business (see Notice of 
Filing of Fair Practice Rules, Municipal Securities Rulemaking Board 
Manual (CCH 1977-1987 Transfer Binder, ]10,030, September 20, 1977), 
and Notice of Approval of Fair Practice Rules, Municipal Securities 
Rulemaking Board Manual (CCH 1977-1987 Transfer Binder, ]10,090, 
October 24, 1978). By limiting the circumstances under which a 
dealer could provide consent to narrowly defined exceptions that 
also require a continuing consideration of and compliance with its 
G-17 obligations, the proposed rule change will aid the dealer in 
managing any potential conflict that may arise in this context.
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    Given the limited circumstances in the proposed rule change in 
which a dealer may provide consent to changes to authorizing documents, 
the MSRB does not consider it necessary at this time to provide 
guidance describing the application of Rule G-17 to particular 
instances. It may, upon evidence of potential violations of Rule G-17 
in the context of the proposed rule change, consider more explicit 
guidance concerning the application of Rule G-17 to the proposed rule 
change.
 2. Statutory Basis
    The MSRB believes The MSRB believes [sic] that the proposed rule 
change is consistent with Section 15B(b)(2)(C) of the Act,\10\ which 
provides that the MSRB's rules shall:
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    \10\ 15 U.S.C. 78o-4(b)(2)(C).


[[Page 62739]]


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be designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, to 
foster cooperation and coordination with persons engaged in 
regulating, clearing, settling, processing information with respect 
to, and facilitating transactions in municipal securities 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.

    The MSRB believes that the proposed rule change is consistent with 
the Act. Protecting investors is a key component of the Act and its 
protections apply equally to existing bond owners and new purchasers of 
municipal securities. The proposed rule change will protect investors 
by prohibiting consents from a dealer that does not share a bond 
owner's prior or long-term economic interest in the bonds, except under 
carefully prescribed circumstances. As described above, the proposed 
rule change will protect the expectation of investors that amendments 
would be affected in compliance with the terms of the authorizing 
documents or, in certain instances, with the specific consent by owners 
having comparable long-term economic interests in the bonds.
    The MSRB believes that the protections afforded investors by the 
proposed rule change will also aid in perfecting the mechanism of an 
open market by improving investor confidence in the process of amending 
authorizing documents and making such process more transparent.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The MSRB does not believe that the proposed rule change will impose 
any burden on competition not necessary or appropriate in furtherance 
of the purposes of the Act.
    In the first request for comment on the G-11 Amendments, the MSRB 
solicited comments on, among other topics, the potential benefits and 
burdens of and alternatives to the proposed rule change. On these 
points, the MSRB asked:
     Would the Draft Rule G-11 Amendment help to protect 
investors, and are there other benefits that would be realized from 
adopting the Draft Rule G-11 Amendment?
     Would the Draft Rule G-11 Amendment have any negative 
effects on issuers, investors or other market participants?
     Are issuers able to obtain consents from beneficial 
holders of bonds effectively and efficiently through existing 
mechanisms?
     What would be the burdens on issuers or other market 
participants of adopting a rule that limits obtaining bond owner 
consents in the manner contemplated by the Draft Rule G-11 Amendment?
     Are there alternative methods the MSRB should consider to 
providing the protections sought under the Draft Rule G-11 Amendment 
that would be more effective and/or less burdensome, resulting in an 
appropriate balance between the need for a cost effective and efficient 
manner of obtaining consents and the duty of dealers under Rule G-17 to 
deal fairly with all persons?
    Potential burdens of the proposed rule change. The specific 
comments and responses received on the request for comment are 
discussed in Part 5. The commenters addressing the question of burdens 
arising from the G-11 Amendments cited the potential cost and delay in 
effecting amendments by limiting the ability of underwriters to provide 
consents, and noted that as a result both investors and issuers would 
be precluded from realizing the benefits of the G-11 Amendments. 
Another cited a possible burden on issuers because of the lack of 
clarity concerning the question of which party would bear the cost of 
obtaining consents. Others noted the lack of cost effective 
alternatives.
    In proposing the G-11 Amendments and the resulting proposed rule 
change, the MSRB recognized a potential burden on issuers if they were 
limited in their ability to request consents from underwriters and 
remarketing agents to changes they believed were necessary to modernize 
their authorizing documents. The MSRB recognized that issuers may incur 
additional costs when preparing authorization and disclosure provisions 
for the authorizing and offering documents, or if required to increase 
efforts to remarket bonds with amended features following a mandatory 
tender of bonds. Other costs may be associated with the provisions of 
the proposed rule change affecting an issuer's options when 
accumulating consents over time, requiring it or its trustee to 
maintain records of outstanding bond owners and related consents. 
However, since maintaining these records is currently required under an 
authorizing document, costs associated with this alternative, if chosen 
by an issuer, should not impose an additional burden.
    The proposed rule change also may impose burdens on dealers by: (i) 
Requiring a remarketing agent to obtain written consents from bond 
owners that elect to ``hold'' in lieu of tendering their bonds in a 
mandatory tender and (ii) requiring an underwriter to obtain consents 
from new purchasers at the time of purchase. In both cases, the 
proposed rule change may require the remarketing agent or underwriter, 
as the case may be, to obtain consents from appropriately authorized 
representatives of the new purchasers which may require identifying 
persons other than those placing the purchase order with the 
underwriter or remarketing agent.
    The MSRB does not believe that the proposed rule change will impose 
any burden on competition not necessary or appropriate in furtherance 
of the purposes of the Act. The MSRB believes that the proposed rule 
change protects existing bond owners while addressing the concerns 
raised by commenters by providing a range of potential options to allow 
issuers to obtain bond owner consents from dealers. The proposed rule 
change and any resulting burden, are appropriate in furtherance of the 
purposes of the Act.
    Expected benefits of the proposed rule change. The proposed rule 
change is expected to protect investors by prohibiting consents to 
changes to authorizing documents by parties with no long-term economic 
interest in the bonds, except in specified circumstances. The proposed 
rule change is also expected to provide a benefit to issuers and 
dealers because it will provide clarity about the practice of obtaining 
bond owner consents from dealers to changes in the authorizing 
documents, and will provide issuers with a range of potential 
alternatives to obtain bond owner consents without the anticipated 
delay and cost of a direct solicitation of existing bond owners.
    Potential alternatives to proposed rule change. The MSRB considered 
various alternatives to address the issue of dealers providing consents 
in lieu of bond owners to changes in authorizing documents. The MSRB 
first considered relying solely on the fair dealing component of Rule 
G-17, but believed that without interpretive guidance, this alternative 
would not be likely to result in any change in the behavior of dealers. 
The MSRB next considered the alternative presented in the G-17 Notice, 
which provided that an underwriter would be in violation of Rule G-17 
if it consented to changes that would result in a ``reduction in 
security'' unless the authorizing documents allowed an underwriter to 
provide consent and the practice was disclosed in the related offering 
document. Some commenters to the G-17 Notice were concerned about the 
lack of a definition of a ``reduction in security'' and, given the 
range of possible interpretations, their ability to comply with the 
provision. Further, the

[[Page 62740]]

MSRB recognized that the G-17 Notice limited the violation to a 
``reduction in security'' and did not address consents by dealers to 
other types of amendments. The MSRB believes that the proposed rule 
change simplifies matters by prohibiting the practice entirely except 
in narrowly defined circumstances. While a dealer continues to be 
obligated to consider and comply with its Rule G-17 obligations in the 
context of the exceptions, the circumstances are limited and the Rule 
G-17 considerations are not limited to a ``reduction in security.''
    As another alternative, the MSRB could retain the prohibition in 
the proposed rule change and reduce or eliminate entirely the 
exceptions. The MSRB does not consider this approach to be in the best 
interest of investors or issuers, since issuers will be precluded from 
adopting amendments necessary to modernize their authorizing documents 
except by direct solicitation of bond owners. Also, issuers whose 
authorizing documents already included provisions allowing underwriters 
to consent to amendments will not be able to rely on those provisions. 
Investors might also be precluded from realizing the benefits of 
modernized documents. The MSRB believes that the exceptions noted in 
the proposed rule change will provide dealers a range of potential 
options to provide the necessary consents while recognizing the 
concerns of both issuers and existing bond owners.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    As noted above, the proposed rule change was informed by comments 
received from market participants to the Draft G-17 Notice and the G-11 
Amendments. The MSRB received 10 comment letters to the Draft G-17 
Notice,\11\ and 11 comment letters to the G-11 Amendments. While the G-
11 Amendments adopted a different approach to addressing the issue of 
dealers providing bond owner consents to amendments to authorizing 
documents, many of the comments received in response to the Draft G-17 
Notice influenced the drafting of the proposed rule change and are 
discussed below.
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    \11\ Comment letters were received from: BondView.com 
(``BondView''); Government Finance Officers Association (``GFOA''); 
Haynsworth Sinkler Boyd, P.A. (``Haynsworth''); Ice Miller LLP 
(``Ice Miller''); Indiana Housing & Community Development Authority 
(``IHCDA''); Indianapolis Airport Authority (``IAA''); Los Angeles 
County Metropolitan Transportation Authority (``MTA''); National 
Association of Bond Lawyers (``NABL''); National Federation of 
Municipal Analysts (``NFMA''); and Squire Sanders LLP (``Squire 
Sanders'').
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Discussion of Comments
Support for the Draft G-17 Notice
    Comment. BondView and NFMA supported the Draft G-17 Notice. 
BondView commended the leadership of the MSRB on improving market 
transparency because retail investors do not have the same tools as 
institutional investors. NFMA said that it supported the Draft G-17 
Notice because it attempts to prevent consents by underwriters that 
diminish security for bond owners. It noted that prospective purchasers 
have the choice whether to purchase the bonds with the amended security 
features and existing bond owners do not have this choice.
    MSRB Response. The MSRB believes that the G-11 Amendments similarly 
will improve market transparency and enhance protections for existing 
bond owners.
Draft G-17 Notice Too Broad; May Have Unintended Consequences
    Comment. Some commenters said that the Draft G-17 Notice was too 
broad, and may have unintended consequences that would harm 
investors.\12\ GFOA said that the Draft G-17 Notice would prohibit 
amendments that would be beneficial to both bond owners and issuers, 
and Haynsworth and MTA said that it would preclude amendments where 
there was a technical reduction in security but the financial strength 
of the enterprise was likely to be enhanced. Haynsworth said that the 
Draft G-17 Notice would create an ambiguity because it failed to take 
into account consideration of the entire credit analysis and looked at 
the ``reduction in security'' in isolation. NFMA said that while some 
changes to authorizing documents might not seem immediately important, 
if the credit were to deteriorate, the impact of the change may 
increase. MTA said that the facts and circumstances in day-to-day 
transactions were too complex and varied to resolve through an 
interpretive statement to Rule G-17.
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    \12\ GFOA, Haynsworth, Ice Miller, IHCDA, IAA and MTA.
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    Comment. Ice Miller, IHCDA and IAA suggested that the Draft G-17 
Notice be narrowly drafted to address specific problems, and GFOA 
suggested that the Draft G-17 Notice include examples of acceptable and 
unacceptable practices. Ice Miller, IHCDA and IAA suggested that the 
Draft G-17 Notice address only amendments where the fundamental 
security for the bonds was deleted, released or substantially reduced, 
and that it include a definition of a reduction in fundamental 
security, or define a security that could not be changed or reduced.
    MSRB Response. The MSRB believes that the proposed rule change will 
address a number of these issues. The proposed rule change does not 
specify a reduction in security as a factor to be included when 
considering a proposed amendment to an authorizing document. Rather, 
the revised approach prohibits dealers from providing consent to any 
proposed amendment to an authorizing document, irrespective of the type 
of amendment, except in specified instances and in the context of a 
dealer's fair dealing obligations. Thus, while a ``reduction in 
security'' and its short- and long-term implications may be part of a 
dealer's fair dealing analysis, it may not be the sole factor in its 
analysis.
Terms of Governing Instruments Should Control; Prior Bond Owners 
Consented to Amendment Provisions
    Comment. Various commenters said that to the extent the terms of 
the authorizing documents included provisions for amendments, existing 
bond owners had agreed to such provisions and those provisions should 
control. NABL said that the provisions of authorizing documents 
allowing an issuer to rely on consents from any bond owner to amend its 
authorizing documents are not limited by the length of time the bond 
owner has owned the bonds. This commenter and others said that the 
Draft G-17 Notice implied that the consents were being obtained 
unfairly, even though the consents were obtained in accordance with the 
authorizing documents and state law.\13\ NABL said that, where 
purchasers had not bargained for certain protections, the MSRB should 
not be adding such protections to the business terms of transactions.
---------------------------------------------------------------------------

    \13\ NABL, Ice Miller, IHCDA and IAA.
---------------------------------------------------------------------------

    Comment. NABL said that the Draft G-17 Notice could adversely 
affect issuers and obligated persons and impair their rights under 
existing bond documents. This commenter also said that the scope of the 
Draft G-17 Notice could be read to cause an underwriter to breach a 
Rule G-17 duty if it participated in a new transaction that may be 
adverse to bond owners but permitted under the bond documents.
    MSRB Response. The MSRB believes that the proposed rule change will 
address many of these issues. The proposed rule change does not alter 
an issuer's contractual right to request an underwriter to consent to 
changes to an

[[Page 62741]]

authorizing document. The proposed rule change addresses the ability of 
an underwriter to provide consents under limited circumstances. The 
proposed rule change does not waive a dealer's fair dealing obligation 
when considering such request. The MSRB believes that the proposed rule 
change, articulated, as with other MSRB rules, as a prohibition with 
specified exceptions, will clarify the permitted behavior without 
interfering with the application of Rule G-17, which applies to all of 
a dealer's municipal securities activities.
Draft G-17 Notice Would Interfere With an Issuer's Ability To Modernize 
Indentures and Obtain Consents in an Efficient Manner
    Comment. Ice Miller, IHCDA and IAA said that issuers should be able 
to modernize their indentures and amend other authorizing documents in 
an efficient manner, and that having an underwriter provide consents to 
amendments was an efficient way to accomplish this goal. These 
commenters also said that an underwriter is only facilitating the 
issuer's and new bond owners' ability to exercise a right to which they 
were entitled, and the Draft G-17 Notice would interfere with that 
process. NABL said that issuers should be able to obtain consents in 
accordance with their bargained-for rights under their authorizing 
documents and state law, and should not be forced to pursue a lengthier 
and costly process.
    Comment. NFMA said that it recognized that issuers have a 
legitimate need to update and modernize their authorizing documents and 
that it understood the difficulty in obtaining consent of a majority of 
bond owners. It suggested that more detail and guidance be provided to 
help define acceptable thresholds for changes to authorizing documents. 
GFOA also suggested providing more examples of acceptable and 
unacceptable practices in obtaining bond owner consents through 
underwriters.
    Comment. GFOA, Ice Miller, IHCDA and IAA noted the expense and 
difficulty of locating and obtaining consents from bond owners because 
most bonds are held in a book entry system.
    MSRB Response. The MSRB recognizes the need of issuers to modernize 
their authorizing documents and the difficulty of obtaining consents 
when bonds are held in a book-entry system. As noted above, the G-11 
Amendments would not alter the issuer's contractual right to request 
consent from an underwriter to changes to an authorizing document. The 
G-11 Amendments would prohibit a dealer's ability to provide consents 
to changes in authorizing documents except under specified 
circumstances. The MSRB believes that the proposed rule change will 
achieve an appropriate balance between the interests of issuers to 
amend their authorizing documents in a timely and efficient manner and 
the obligations of an underwriter or dealer, including its fair dealing 
obligations, when asked to provide such consent.
Obtaining Consents From Underwriters Is an Accepted Practice
    Comment. NABL and Squire Sanders said that the practice of 
underwriters consenting to amendments as initial bond owners was a long 
standing practice, and Ice Miller, IHCDA and IAA said that there had 
been no significant resistance to the practice on the part of existing 
bond owners. NABL noted that in such cases the new bonds were issued 
with full disclosure of the amendment process, and that any requisite 
filings had been made under SEC Rule 15c2-12. Ice Miller, IHCDA and IAA 
said that they were unaware of any ratings decline or other 
controversies that had resulted from this practice and that the Draft 
G-17 Notice may have the effect of questioning the validity of prior 
votes or the long standing practice of obtaining underwriter consents.
    MSRB Response. Protecting investors is a key component of the Act 
and applies equally to existing bond owners and new purchasers of 
municipal securities. The MSRB believes that amendments to authorizing 
documents by those that do not share existing bond owners' long-term 
economic interests, except in specified circumstances, generally are 
not consistent with the Act, irrespective of prior practice. The MSRB 
also recognizes that, while limiting the practice may result in added 
costs and other consequences to issuers, the proposed rule change, as 
noted above, allows issuers a range of potential cost-effective options 
and will achieve an appropriate balance, for purposes of Rule G-11, 
between the rights of existing bond owners and the interests of issuers 
to amend their authorizing documents in a timely and efficient manner.
DTC Process
    Comment. Various commenters noted that the process of verifying 
bond ownership through DTC, as well as effectively explaining proposed 
amendments to existing bond owners, was difficult and that there was no 
simple way to confirm the beneficial ownership or to communicate with 
beneficial owners except at the time of purchase.\14\ NABL suggested 
that some changes be made to the DTC process to improve consent 
solicitations, such as a solicitation process similar to the one used 
for corporate securities.
---------------------------------------------------------------------------

    \14\ Squire Sanders, Ice Miller, IHCDA and IAA.
---------------------------------------------------------------------------

    MSRB Response. The MSRB recognizes that the process used by DTC 
might benefit from streamlining, but notes that it is not in a position 
to amend the DTC process.\15\ The MSRB believes that the proposed rule 
change will provide issuers a range of potential options to obtain 
consents other than by a direct solicitation of bond owners and the 
proposed rule change will not foreclose future collaboration with 
issuers and DTC on ways to create a more effective process.
---------------------------------------------------------------------------

    \15\ The MSRB notes that explaining amendments to authorizing 
documents to existing bond owners should not be more difficult than 
explaining the same provisions to new bond owners.
---------------------------------------------------------------------------

Underwriters Do Not Owe a Duty Under Rule G-17 to Existing Bond Owners
    Comment. Ice Miller, IHCDA and IAA said that an underwriter did not 
owe a duty under Rule G-17 to prior bond owners because it was not 
dealing with those bond owners within the meaning of Rule G-17. These 
commenters said that an underwriter owed a duty of fair dealing only to 
new bond owners. NABL said that an issuer did not owe a duty to owners 
of its bonds under state law except to comply with the terms of the 
authorizing documents. Further, this commenter said that the Draft G-17 
Notice was inconsistent with the parties' ability to freely negotiate 
benefits and protections.
    MSRB Response. MSRB Rule G-17 on fair dealing applies to dealers in 
the conduct of their municipal securities business when dealing with 
all persons and is not limited in the manner suggested by some of the 
commenters. Further, as noted above, the MSRB does not believe the 
Draft G-17 Notice was inconsistent with the parties' rights to 
negotiate protections since it only limited the exercise of certain 
rights by other parties, such as underwriters, not bond owners. The 
proposed rule change similarly will address the duties only of dealers 
and not other market participants under Rule G-11 and will provide a 
range of potential options allowing issuers to amend authorizing 
documents. The proposed rule change would not alter a dealer's fair 
dealing obligations in connection with these activities.
Suggested Alternatives
    Comment. NABL suggested that, because of the material adverse 
impact on issuers of the Draft G-17 Notice,

[[Page 62742]]

comments should be conducted under a rulemaking process so that market 
participants and other affected parties would have a better opportunity 
to review the issues and bring their concerns to the MSRB and the SEC. 
Squire Sanders suggested alternative language to the Draft G-17 
Notice.\16\
---------------------------------------------------------------------------

    \16\ Squire Sanders suggested the following language:
    It would not be a violation of Rule G-17 for an underwriter to 
consent to amendments to an authorizing document that would reduce 
the security for existing bondholders if the underwriter is giving 
consent as to newly issued bonds it is purchasing and the offering 
document for the new bonds (1) clearly describes the proposed 
amendments in the manner required by the authorizing document, and 
(2) conspicuously indicates that, by their purchase of the new 
bonds, the buyers are deemed to have given their consent to the 
amendments and to have directed and authorized the underwriter to 
execute, on their behalf, any written consent to the amendments that 
is required by the authorizing documents.
---------------------------------------------------------------------------

    MSRB Response. The proposed rule change is part of a rulemaking 
process that provides extensive opportunity for review and public 
comment. Indeed, the MSRB solicited comments three times in developing 
the proposed rule change. With respect to the alternative language 
proposed by a commenter, the MSRB notes that this language would serve 
only as notice to new purchasers and would not protect existing bond 
owners.
Disclosure of Ability of Underwriter To Consent to Amendments
    Comment. BondView suggested that the ability of an underwriter to 
consent to a material dilution of a security should be prominently 
displayed and explicitly stated in the official statement or 
preliminary official statement in the risk section and, if possible, in 
a separate section. This commenter also said that the existence of the 
process should be made known by any bond salesperson to any prospective 
purchaser prior to purchase. Ice Miller, IHCDA and IAA noted that the 
placement of disclosure of the ability of underwriters to consent to 
changes needs to be consistent across industry practice.
    MSRB Response. The MSRB does not disagree with the suggestions from 
these commenters, but does not believe that the suggestions are, by 
themselves, sufficient to address concerns of existing holders about 
consents provided by dealers with no prior or future long-term economic 
interest in the bonds. For that reason, subparagraph (l)(i)(A) of the 
proposed rule change would require not only explicit disclosure in an 
offering document of the ability of an underwriter to provide consent 
to changes in an authorizing document, but would also require specific 
authorization in the bond authorizing document for such underwriter's 
consent. In addition, and as noted above, a dealer would also have to 
consider whether a proposed change under these circumstances would be 
consistent with its fair dealing obligations.
G-11 Amendments
    As noted above, the MSRB published two additional requests for 
comment on proposed amendments to MSRB Rule G-11 concerning a dealer's 
ability to provide consents to amendments to authorizing documents. The 
MSRB received 11 comment letters \17\ to the first and second requests 
for comment on the G-11 Amendments. The commenters' responses are 
addressed below.
---------------------------------------------------------------------------

    \17\ Comment letters to the first request for comment concerning 
the G-11 amendments were received from: Investment Company Institute 
(``ICI''); Municipal Electric Authority of Georgia (``MEAG''); 
National Association of Independent Public Finance Advisors 
(``NAIPFA''); National Federation of Municipal Analysts (``NFMA''); 
New York City Municipal Water Finance Authority (``NY Water''); 
Nuveen Asset Management (``Nuveen''); Rhode Island Health and 
Educational Building Corporation (``RI''); Securities Industry and 
Financial Markets Association (``SIFMA''); and Standish Mellon Asset 
Management (``Standish Mellon''). NAIPFA and MEAG also submitted 
comments to the second request for comment concerning the G-11 
Amendments.
---------------------------------------------------------------------------

Support for the Proposed Rule Change
    Comment. Various commenters supported the proposed rule change \18\ 
and others generally opposed it or expressed reservations.\19\ ICI said 
that limiting the practice of underwriters providing consent to changes 
in authorizing documents would result in greater protection for the 
interests of existing bonds owners. Standish Mellon said that 
underwriters do not necessarily share the interests of investors about 
the legal provisions of municipal bond issues. Nuveen said allowing 
underwriters to consent to changes violated a sense of fairness since 
they have no continued financial interest in the securities being 
affected.
---------------------------------------------------------------------------

    \18\ ICI, NAIPFA, NFMA, Nuveen, RI, and Standish Mellon.
    \19\ MEAG, NY Water and SIFMA.
---------------------------------------------------------------------------

    Comment. RI said that the practice of underwriters providing 
consent may be unfair and deceptive and that there was no need for the 
underwriter to perform any role in giving consent. NFMA said that the 
practice of underwriters obtaining consents is unfair because it is 
exercising a right not explicitly contemplated by existing bond owners.
    MSRB Response. The MSRB believes that the proposed rule change 
achieves a balance between the needs of issuers to effect changes to 
their authorizing documents in an efficient and cost effective manner, 
and the interests of existing bond owners to be able to have a voice in 
the amendment process. The proposed rule change will limit the ability 
of dealers to provide consents except in specified circumstances and 
will provide a range of potential options to issuers to obtain 
consents.
Underwriters Providing Consents Is a Long Standing Practice; 
Alternatives Costly
    Comment. MEAG said that obtaining underwriter consents is a long 
standing and common practice in the municipal securities market and 
there are no other reasonable and cost-effective alternatives. This 
commenter also said that, without the ability of an underwriter (as an 
initial owner of new bonds) to consent to changes, some amendments to 
authorizing documents would be delayed or would force an issuer to 
undertake a costly and time consuming general consent solicitation.
    MSRB Response. As noted above, the proposed rule change does not 
alter an issuer's contractual right to request an underwriter to 
consent to changes to an authorizing document. The proposed rule change 
permits such consents under specified conditions, assuming that such 
consent is consistent with an underwriter's fair dealing obligation. 
The MSRB believes that this range of potential options will address 
issuers' concerns about cost and delay in obtaining consents.
G-11 Amendments Would Impose Additional Contractual Obligations
    Comment. MEAG said that the procedure for amending an authorizing 
document is a matter of state law and the terms of the document. This 
commenter also noted that proposed paragraph (k)(iii) (now proposed 
subparagraph (l)(i)(E)) was too onerous, and that to require all bond 
owners that would be affected by an amendment to consent would have the 
effect of changing the contractual arrangements of the authorizing 
documents and would be costly and labor intensive.
    Comment. SIFMA said that, even if the authorizing documents and the 
disclosure documents expressly permitted bond owner consents to be 
provided by underwriters, the proposed rule now bars this type of 
consent and suggested that such change would be overreaching beyond the 
bounds of investor protection. SIFMA suggested that certain provisions 
in the Draft G-17 Notice be re-introduced, namely the provision that 
allowed an underwriter

[[Page 62743]]

to provide consent if the authorizing documents explicitly allowed such 
consent.
    MSRB Response. The MSRB notes that subparagraph (l)(i)(E) of the 
proposed rule change reflects the original intent of both the Draft G-
17 Notice and the G-11 Amendments, specifically, that existing bond 
owners be allowed a voice in the amendment process and not be 
overridden by the vote of a temporary owner such as an underwriter. 
MEAG's proposal is not consistent with the proposed rule change because 
it would allow an underwriter to vote the principal amount of bonds 
underwritten in lieu of the purchasing bond owners and have such vote 
``count'' towards achieving the overall requisite number of consents 
required for the amendment. The MSRB notes that, if an issuer wishes to 
have the consents of the new purchasers counted immediately, it can 
request the underwriter implement subparagraph (l)(i)(D) of the 
proposed rule change and obtain individual consents from each new 
purchaser. The MSRB agrees to a certain extent with SIFMA's comment and 
notes that subparagraph (l)(i)(A) of the proposed rule change now 
excepts consents provided by underwriters if the practice is authorized 
in the authorizing documents and disclosed in the related offering 
documents. As noted above, the underwriter would be required to 
consider the request in light of its fair dealing obligations under 
Rule G-17.
Include Dealers Acting in Other Capacities
    Comment. NFMA and RI supported the proposed exception included in 
the G-11 Amendments for remarketing agents, and stated that the 
exceptions were appropriate and sufficient. MEAG said that auction 
agents should be included because their function was ministerial, 
similar to that of a remarketing agent. Standish Mellon disagreed with 
the proposed exceptions for a dealer as an owner and as a remarketing 
agent, stating that it would allow the dealer too much discretion for 
self definition.
    MSRB Response. The MSRB believes that the exceptions to the 
particular prohibition in the G-11 Amendments for dealers serving as 
underwriters and remarketing agents is sufficient and that creating 
exceptions for dealers in other functional capacities will create 
unnecessary complications and will not contribute to effectively 
protecting existing bond owners.
Positive and Negative Benefits of the Proposed Rule Change
    Comment. ICI, NAIPFA, NFMA, Nuveen, Standish Mellon and RI 
generally supported the proposal, saying that the G-11 amendments would 
protect investors.
    Comment. MEAG said that the G-11 Amendments would not benefit 
investors because they could preclude investors from realizing the 
benefits that could be derived from certain types of amendments. MEAG 
also said the G-11 Amendments might have a negative effect on issuers 
and investors because they would require issuers to undertake a costly 
process because there was no reasonable or cost-effective alternative, 
or might cause an issuer to delay the effectiveness of amendments until 
it had acquired sufficient consents and thereby delay or preclude 
investors from realizing the benefits of the amendments.
    Comment. RI said that the G-11 Amendments would protect investors 
and would also require that consent provisions be more detailed and 
clear, and that issuers and investors would benefit from more certainty 
in the market. RI said it may be more complex for issuers to modify 
older documents, but it believed it could be done and suggested that 
trustees could provide consent with a legal opinion, and that older 
issues could be refunded.
    Comment. NY Water and SIFMA suggested that the proposed rule change 
provide for an exception where the authorizing documents and official 
statement expressly provide for and disclose that an underwriter would 
be able to provide bond owner consent. NY Water noted that provisions 
specifically allowing underwriters to consent were designed to address 
the inability under an authorizing document to permit a deemed consent. 
Further, NY Water noted that where authorizing documents now include 
these provisions, failure to include this exception would have the 
effect of amending the issuer's existing authorizing documents without 
the issuer's consent. SIFMA noted that altering such express authority 
substantively changes the contractual rights and expectations of the 
parties.
    Comment. NFMA said that the G-11 Amendments did not present a 
burden and called for additional disclosure.
    MSRB Response. The MSRB recognizes the benefits to be gained by 
issuers and existing bond owners by timely amendments to authorizing 
documents and believes that the proposed rule change offers issuers a 
sufficient range of potential options to effect desired amendments in 
an efficient manner.
    The MSRB also recognizes that certain issuers' authorizing and 
offering documents expressly authorized and disclosed the ability of 
underwriters to provide bond owner consents, and that following the 
publication of the Draft G-17 Notice, some issuers amended their 
documents to provide such authorization and disclosure. As a result, 
the MSRB, in its second request for comment on the G-11 Amendments, 
added a subparagraph (now subparagraph (l)(i)(A)) to except consents 
provided by an underwriter where the authorizing documents and the 
offering documents include such authorization and disclosure. MEAG 
agreed with this approach in its comments.
    Comment. NAIPFA requested that the G-11 Amendments be revised to 
require that the obligation of obtaining consents be placed on the 
party to the transaction requesting the amendments to the authorizing 
documents, unless the parties agreed otherwise. The commenter said that 
the underwriter is typically the party that recommends the amendments 
and that the underwriter is often in the best position to obtain the 
bond owner consents. This commenter believed that such provision would 
improve market efficiency and lessen the financial and administrative 
impact that may otherwise be felt by issuers.
    MSRB Response. The MSRB believes that the parties to the 
transaction are in the best position, at the time the necessity for 
consent is ascertained, to determine the appropriate party to bear the 
financial and administrative burden of obtaining the consents. In some 
cases, an issuer may choose to have its trustee or financial advisor 
manage the process; in other cases, the issuer may determine that the 
underwriter or other party is the appropriate party to assume all or 
part of the burden of obtaining consents. Including a provision placing 
the obligation on the underwriter ``unless otherwise agreed to by the 
parties'' may imply that the MSRB believes that such responsibilities 
belong with the underwriter and may adversely affect an issuer's 
negotiating position. Accordingly, the MSRB believes that this matter 
is best left to negotiation by the parties and has not included such a 
provision in the G-11 Amendments.
    Comment. NFMA said that the G-11 Amendments should differentiate 
between amendments that merely modernize authorizing documents (with no 
adverse impact) and those that dilute security, which were not 
desirable.
    MSRB Response. As the MSRB noted in response to similar comments by

[[Page 62744]]

NFMA relating to the Draft G-17 Notice, the MSRB believes that the 
proposed rule change will address a number of these issues. Unlike the 
Draft G-17 Notice, the proposed rule change does not list specific 
factors that a dealer must consider prior to providing a consent to 
changes to authorizing documents. The proposed rule change prohibits 
dealers from providing consent to any proposed amendment to an 
authorizing document, except in limited instances and in the context of 
a dealer's fair dealing obligations. The MSRB believes that the 
exceptions in the proposed rule change, and the overarching application 
of a dealer's fair dealing obligations, will address the difficulty of 
determining a ``reduction in security'' and achieve protection for 
existing bond owners.
Ability of Issuers To Obtain Consents Through Existing Mechanisms and 
Alternative Methods
    Comment. MEAG and RI said the process of using DTC to obtain bond 
owner consents was costly and difficult. MEAG said the G-11 Amendments 
would preclude issuers from using a long standing practice of obtaining 
consents to amendments and would require issuers to undertake a more 
costly process. NFMA said that locating bond owners was not the issue, 
and that even if bond owners were located, they would consent only in 
limited circumstances. RI suggested that market participants, using 
technology and the web-based Electronic Municipal Market Access 
(``EMMA[supreg]'') system,\20\ could develop a system of notification 
and request for consents to amendments.
---------------------------------------------------------------------------

    \20\ EMMA is a registered trademark of the MSRB.
---------------------------------------------------------------------------

    MSRB Response. As discussed above, the MSRB believes that the 
proposed rule change will provide a sufficient range of potential 
options to allow issuers to obtain bond owner consents in a cost-
sensitive and efficient manner.
Alternative Methods To Providing the Protections Sought Under the Rule 
G-11 Amendments That Would Be More Effective and/or Less Burdensome
    Comment. MEAG said it was unaware of more effective/less burdensome 
alternatives. MEAG also said that the rule should be prospective and 
that underwriters should be able to provide consents only if bond 
documents provided for bond owner consent and the offering documents 
disclosed such practice. MEAG did not believe that relying on ``deemed 
consents'' would be more effective, because in its case, the bond 
indentures did not recognize the concept of a ``deemed consent.'' NFMA 
said that standards addressing a material dilution could be developed. 
RI said industry participants could develop a system (via technology) 
of notification and requests for consents from beneficial owners, which 
process would be especially helpful when amending older documents when 
no new financing was involved.
    MSRB Response. As noted above, the proposed rule change will 
address MEAG's comment by allowing underwriters to provide such 
consents if the authorizing and offering documents provide for and 
disclose such practice, assuming the underwriter has determined that 
providing such consent would be consistent with its fair dealing 
obligations. With respect to the other comments, the MSRB encourages 
other market participants to develop alternatives to allow issuers to 
conduct direct solicitations of bond owners, if desired.
Other Comments
    Other comments received, while not in direct response to the 
questions posed, are included here.
    Comment. NFMA said that there should be better disclosure to 
existing bond owners if there was the ability to change the security 
for bonds with the consent of less than 100% of such owners, or when a 
material change was made to the authorizing documents, and that the 
MSRB should require conspicuous notice in a material event notice 
posted on EMMA.
    MSRB Response. The MSRB notes that it does not have the statutory 
authority to amend SEC Rule 15c2-12 to include other event notices, but 
it has introduced facilities on EMMA to allow voluntary disclosure by 
various market participants, particularly in connection with the 
introduction of additional voluntary disclosure options for issuers and 
obligated persons \21\ and invitations to issuers to submit information 
about bank loan and other financings.\22\
---------------------------------------------------------------------------

    \21\ MSRB Notice 2011-27 (May 23, 2011). Issuers and their 
designated agents have the ability to make available, on a voluntary 
basis, through EMMA preliminary official statements and other 
related pre-sale documents as well as official statements, advance 
refunding documents and related information.
    \22\ MSRB Notice 2012-18 (April 3, 2012).
---------------------------------------------------------------------------

    Comment. NFMA and Nuveen noted that amendments to authorizing 
documents, as well as the practice of underwriters banking consents, 
should be disclosed. These commenters also stated that where a material 
change in a security has resulted from a deemed consent, such event 
should be included in a material event notice on EMMA.
    Comment. MEAG and SIFMA said that the exception for cases where 
100% of existing owners had also consented should be revised to permit 
underwriters to consent in cases where consents were obtained from the 
requisite percentage of bond owners, as permitted by the authorizing 
documents. MEAG said that this exception, allowing an underwriter to 
consent if 100% of bond owners affected by the amendment (other than 
those on behalf of whom the dealer was consenting) had also consented, 
was too restrictive and would change the terms of a document that 
required less than 100% consent to effect amendments. This commenter 
also suggested that this provision be revised to make the effectiveness 
of the provision be conditioned upon the receipt of consents, rather 
than the ability of the underwriter to execute the consent.
    MSRB Response. The MSRB notes that this requirement of 100% consent 
is applicable only under circumstances where an issuer requests an 
underwriter to consent in lieu of bond owners of newly issued bonds 
instead of obtaining the consent from the underlying purchasers, which 
scenario is addressed in subparagraph (l)(i)(D).\23\ The MSRB agrees 
with the comment relating to the effectiveness of the underwriter's 
consent and has amended subparagraph (l)(i)(E) of the proposed rule 
change to reflect this comment.
---------------------------------------------------------------------------

    \23\ This provision does not change the ability of an issuer, 
without seeking the consent of an underwriter, to effect changes to 
its authorizing documents with consents that meet the requisite 
threshold in compliance with the terms of the authorizing documents. 
This provision only applies when the issuer is seeking the consent 
of an underwriter in lieu of new purchasers of bonds.
---------------------------------------------------------------------------

    Comment. MEAG also requested a clarification concerning paragraph 
(k)(iii) (now proposed subparagraph (l)(i)(C)) of the proposed rule 
change that allows a remarketing agent to consent to changes to an 
authorizing document provided that all bonds affected by the consent 
are held by the remarketing agent as a result of a mandatory tender. It 
suggested that this subparagraph be revised to clarify that the 
remarketing agent was not required to ``hold'' bonds tendered to it as 
a result of a mandatory tender if it obtained the specific consent to 
the proposed amendment from the bond owner electing to ``hold in lieu'' 
of tendering.
    MSRB Response. The MSRB agrees with the suggestion and has 
incorporated this change in subparagraph (l)(i)(C) of the proposed rule 
change.

[[Page 62745]]

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period of up to 90 days (i) as 
the Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-MSRB-2013-08 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-2013-08. 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 the filing also will be available 
for inspection and copying at the principal office of the MSRB. 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-2013-08 and should be 
submitted on or before November 12, 2013.
---------------------------------------------------------------------------

    \24\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-24558 Filed 10-21-13; 8:45 am]
BILLING CODE 8011-01-P