Self-Regulatory Organizations; Municipal Securities Rulemaking Board; Notice of Filing of a Proposed Rule Change Consisting of Proposed Revisions to MSRB Rule G-30, on Prices and Commissions and the Deletion of Rule G-18, on Execution of Transactions, 9558-9563 [2014-03566]
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Federal Register / Vol. 79, No. 33 / Wednesday, February 19, 2014 / Notices
associated with providing the incentives
at a level that will ensure the
sustainability of the programs. NASDAQ
is eliminating a charge under the
program that will allow DLPs to be
eligible to receive reduced rates for
removing liquidity. NASDAQ is also
removing a fee [sic] cap, which may
attract more participation in the
program. The DLP program is entirely
voluntary, and as a consequence
members may elect to participate in
other incentive programs under which
they may receive benefits for improving
the market. In sum, if the changes
proposed herein are unattractive to
market participants, it is likely that
NASDAQ will lose market share as a
result. Accordingly, NASDAQ does not
believe that the proposed changes will
impair the ability of members or
competing order execution venues to
maintain their competitive standing in
the financial markets.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Written comments were neither
solicited nor received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing change has become
effective pursuant to Section 19(b)(3)(A)
of the Act,16 and paragraph (f) 17 of Rule
19b–4, thereunder. At any time within
60 days of the filing of the proposed rule
change, the Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act.
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:
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–NASDAQ–2014–015. 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–
NASDAQ–2014–015, and should be
submitted on or before March 12, 2014.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.18
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2014–03561 Filed 2–18–14; 8:45 am]
BILLING CODE 8011–01–P
EMCDONALD on DSK67QTVN1PROD with NOTICES
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–
NASDAQ–2014–015 on the subject line.
16 15
17 17
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f).
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–71536; File No. SR–MSRB–
2014–01]
Self-Regulatory Organizations;
Municipal Securities Rulemaking
Board; Notice of Filing of a Proposed
Rule Change Consisting of Proposed
Revisions to MSRB Rule G–30, on
Prices and Commissions and the
Deletion of Rule G–18, on Execution of
Transactions
February 12, 2014.
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 January
29, 2014, 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.
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 proposed revisions to
MSRB Rule G–30, on prices and
commissions and the deletion of Rule
G–18, on execution of transactions (the
‘‘proposed rule change’’).
The text of the proposed rule change
is available on the MSRB’s Web site at
www.msrb.org/Rules-andInterpretations/SEC-Filings/2014Filings.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.
1 15
18 17
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U.S.C. 78s(b)(1).
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A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
EMCDONALD on DSK67QTVN1PROD with NOTICES
Summary of Proposed Rule Change
The purpose of the proposed rule
change is to codify the substance of
existing fair-pricing obligations of
brokers, dealers, and municipal
securities dealers (collectively,
‘‘dealers’’) and further streamline the
MSRB’s Rule Book. Fair-pricing
provisions are currently organized in
two separate rules, Rules G–18 and
G–30, with interpretive guidance under
Rule G–30 as well as under a third rule,
Rule G–17, on fair dealing. We note that
market participants support the
objective of consolidating and codifying
the existing substance of these rules and
interpretive guidance.
To achieve this objective, the MSRB is
proposing to consolidate Rules G–18
and G–30 into a single fair-pricing rule,
and to consolidate the existing
interpretive guidance under Rules G–17
and G–30 and codify that guidance in
the same rule. Existing Rule G–18
provides a pricing standard for agency
transactions, while existing Rule
G–30(a) provides a pricing standard for
principal transactions, with both rules
using different formulations to reflect
differences between the two types of
trades. As a practical matter, the
investor-protection function of the two
provisions does not differ, and it is
appropriate to organize these standards
in a single rule, as proposed. In
addition, the MSRB has issued
extensive interpretive guidance under
MSRB Rules G–17 and G–30 discussing
fair pricing in general, as well as in
specific scenarios. The proposed rule
change would consolidate the substance
of this guidance 3 and codify it into rule
3 The formal fair-pricing guidance under current
Rule G–30 that is to be codified was not filed with
the Commission, and is as follows: Review of Dealer
Pricing Responsibilities (Jan. 26, 2004) (‘‘2004
Notice’’); Interpretive Notice on Commissions and
Other Charges, Advertisements and Official
Statements Relating to Municipal Fund Securities
(Dec. 19, 2001); Republication of September 1980,
Report on Pricing (Oct. 3, 1984); Interpretive Notice
on Pricing of Callable Securities (Aug. 10, 1979);
Interpretive Letter—Rules G–21, G–30 and G–32
(Dec. 11, 2001); and Factors in pricing (Nov. 29,
1993). The formal fair-pricing guidance under Rule
G–17 that is to be codified that was not filed with
the Commission is as follows: Guidance on
Disclosure and Other Sales Practice Obligations to
Individual and Other Retail Investors in Municipal
Securities (Jul. 14, 2009); MSRB Reminds Firms of
their Sales Practice and Due Diligence Obligations
When Selling Municipal Securities in the Secondary
Market (Sept. 20, 2010); and Bond Insurance
Ratings—Application of MSRB Rules (Jan. 22,
2008). The formal guidance under Rule G–17 that
is to be codified that was filed with the Commission
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language.4 The MSRB will archive this
interpretive guidance, current as of
January 1, 2013, on its Web site. To the
extent that past interpretive guidance
does not conflict with any MSRB rules
or interpretations thereof, it remains
potentially applicable, depending on the
facts and circumstances of a particular
case.
The MSRB believes the new fairpricing rule will significantly enhance
regulated entities’ ability to understand
and comply with their fair-pricing
obligations by organizing them together
in a single location. Further, the
relevant information from the existing
interpretive guidance will be succinctly
stated in the new rule. The MSRB
believes this could be particularly
beneficial for new municipal market
entrants, which would be in a position
to focus, with respect to fair-pricing
obligations, on the new, consolidated
rule. In sum, the MSRB believes that the
proposed rule change will ease burdens
on dealers and reduce costs by
clarifying dealer obligations.
The structure of proposed Rule G–30
(rule language followed by
supplementary material) is the same
structure used by FINRA and other selfregulatory organizations (‘‘SROs’’). The
MSRB intends generally to transition to
this structure for all of its rules going
forward in order to streamline the rules,
harmonize the format with that of other
SROs, and make the rules easier for
dealers and municipal advisors to
understand and follow.
Following is a summary of the
provisions and the supplementary
material comprising proposed Rule
G–30:
Rule Language
Proposed revised Rule G–30(a)
applies to principal transactions and
states that a dealer can only purchase
municipal securities for its own account
from a customer, or sell municipal
securities for its own account to a
customer, at an aggregate price
is contained in Restated Interpretive Notice
Regarding the Application of MSRB Rules to
Transactions with Sophisticated Municipal Market
Professionals (Jul. 9, 2012).
4 The MSRB is separately proposing to
consolidate its interpretive guidance under Rule
G–17 related to time of trade disclosures, suitability
of recommendations, and dealings with
sophisticated municipal market professionals
(‘‘SMMPs’’) and to codify that guidance into several
rules: A new time of trade disclosure rule (proposed
Rule G–47), a revised suitability rule (Rule G–19),
and two new SMMP rules (proposed Rules D–15
and G–48). See Securities Exchange Act Release No.
70593 (Oct. 1, 2013), 78 FR 62867 (Oct. 22, 2013),
File No. SR–MSRB–2013–07.
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(including any mark-up or mark-down)
that is fair and reasonable.5
Proposed revised Rule G–30(b)
applies to agency transactions.
Subsection (i) states that when a dealer
executes a transaction in municipal
securities for or on behalf of a customer,
the dealer must make a reasonable effort
to obtain a price for the customer that
is fair and reasonable in relation to
prevailing market conditions.
Subsection (ii) states a dealer cannot
purchase or sell municipal securities for
a customer for a commission or service
charge in excess of a fair and reasonable
amount.6
Supplementary Material
Supplementary Material .01 specifies
five general principles concerning the
fair-pricing requirements: (a) That a
dealer, whether effecting a trade on an
agency or principal basis, must exercise
diligence in establishing the market
value of the security and the
reasonableness of the compensation
received on the transaction; (b) that a
dealer effecting an agency transaction
must exercise the same level of care as
it would if acting for its own account;
(c) that a ‘‘fair and reasonable’’ price
bears a reasonable relationship to the
prevailing market price of the security;
(d) that dealer compensation on a
principal transaction is considered to be
a mark-up or mark-down that is
computed from the inter-dealer market
price prevailing at the time of the
customer transaction; 7 and (e) that
reasonable compensation differs from
fair pricing.8
Supplementary Material .02 provides
a non-exhaustive list of relevant factors
in determining the fairness and
reasonableness of prices.9
Supplementary Material .03 provides
a non-exhaustive list of relevant factors
in determining the fairness and
reasonableness of commissions or
5 Proposed revised Rule G–30(a) is substantially
similar to the first clause of existing Rule G–30(a).
6 Subsection (i) of proposed Rule G–30(b) is
derived from current Rule G–18. Subsection (ii) is
derived from the first clause of existing Rule
G–30(b).
7 This language was added to address comments
the MSRB received in response to its August 6,
2013 request for comment on a draft of the
proposed rule change.
8 Supplementary Material .01 is derived from the
2004 Notice.
9 Supplementary Material .02(a) is derived from
the 2004 Notice. Supplementary Material .02(b) is
derived from Rule G–30(a), the 2004 Notice, the
MSRB Interpretive Letter—Rules G–21, G–30 and
G–32 (Dec. 11, 2001), the MSRB Interpretive
Letter—Factors in Pricing (Nov. 29, 1993), the
Republication of September 1980, Report on Pricing
(Oct. 3, 1984); and the Interpretive Notice on Pricing
of Callable Securities (Aug. 10, 1979).
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service charges.10 The proposed rule
change makes it easier for market
participants to find these relevant
factors.
Supplementary Material .04 discusses
the application of fair-pricing
requirements to some of the situations
that may create large intra-day price
differentials.11
Finally, Supplementary Material .05
discusses the general duty under
proposed revised Rule G–30(b)(i) of
dealers operating alternative trading
systems to act to investigate any alleged
pricing irregularities on their systems
brought to their attention, which duty
applies equally to transactions effected
for SMMPs.12
2. Statutory Basis
The MSRB believes that the proposed
rule change is consistent with Section
15B(b)(2)(C) of the Act,13 which
provides that the MSRB’s rules shall
be designed to prevent fraudulent and
manipulative acts and practices, to promote
just and equitable principles of trade, to
foster cooperation and coordination with
persons engaged in regulating, clearing,
settling, processing information with respect
to, and facilitating transactions in municipal
securities 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.
EMCDONALD on DSK67QTVN1PROD with NOTICES
The proposed rule change preserves
the substance of the current requirement
that dealers must exercise diligence in
establishing the market value of a
security and the reasonableness of the
10 Supplementary Material .03 is derived from
existing Rule G–30(b), the 2004 Notice and
Republication of September 1980, Report on Pricing
(Oct. 3, 1984). Supplementary Material .03(a)(viii)
refers to Rule 2830 of the National Association of
Securities Dealers, Inc. (‘‘NASD’’), which provides
a sales charge schedule for registered investment
company securities, and remains in effect in the
Financial Industry Regulatory Authority, Inc.
rulebook. The MSRB recognizes that, due to the
limitations of Section 15B(b)(2)(C) of the Act, it
could not, by rule or interpretation, ‘‘impose any
schedule or fix rates of commissions, allowances,
discounts, or other fees to be charged’’ by dealers
for the sale of municipal fund securities. The MSRB
believes, however, that the charges permitted by
FINRA under NASD Rule 2830 may, depending
upon the totality of the facts and circumstances, be
a significant factor in determining whether a dealer
selling municipal fund securities is charging a
commission or other fee that is fair and reasonable.
11 Supplementary Material .04 is derived from the
2004 Notice.
12 Supplementary Material .05 is derived from
interpretive guidance that was previously filed with
the Commission and which is separately proposed
to be generally codified in Rule G–48 based on its
relevance to SMMPs. See Restated Interpretive
Notice Regarding the Application of MSRB Rules to
Transactions with Sophisticated Municipal Market
Professionals (Jul. 9, 2012).
13 15 U.S.C. 78o–4(b)(2)(c).
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compensation received on a transaction.
This requirement protects investors and
is central to the role of a dealer in
facilitating municipal securities
transactions. At the same time, the
MSRB believes the proposed rule
change will remove impediments to and
perfect the mechanism of a free and
open market. The MSRB believes it will
ease burdens on dealers and reduce
costs by clarifying dealer obligations.
Most commenters agree and believe that
the proposed rule change would
promote regulatory efficiency. For
example, one commenter supports the
adoption of the proposed rule and
believes it will ease the burden on firms
and market participants seeking to
comply with the rule.14 Two
commenters commend the MSRB’s
effort to promote regulatory efficiency
through its proposed consolidation of
Rules G–18 and G–30 and codification
of related interpretive guidance.15
Another commenter supports the
MSRB’s efforts to promote regulatory
efficiency and is generally supportive of
this rule consolidation which preserves
the substance of existing fair-pricing
requirements.16
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The MSRB does not believe that the
proposed rule change would result in
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act.17 The
proposed rule change consolidates
existing Rules G–18 and G–30 and
codifies current interpretive guidance
reasonably and fairly implied by those
rules or Rule G–17. The proposed rule
change makes no substantive change
and, therefore, does not add any burden
on competition. The MSRB believes, as
14 See letter from David T. Bellaire, Esq.,
Executive Vice President and General Counsel,
Financial Services Institute (‘‘FSI’’), dated
September 20, 2013.
15 See letter from Robert J. McCarthy, Director of
Regulatory Policy, Wells Fargo Advisors, LLC
(‘‘WFA’’), dated September 20, 2013 and letter from
Gerald K. Mayfield, Senior Counsel, Wells Fargo &
Company Law Department, Wells Fargo Securities,
dated September 20, 2013.
16 See letter from David L. Cohen, Managing
Director and Associate General Counsel, Securities
Industry and Financial Markets Association
(‘‘SIFMA’’), dated September 20, 2013.
17 On September 26, 2013 the MSRB publicly
announced its adoption of a formal policy to further
integrate the use of economic analysis in MSRB
rulemaking. By its terms, the policy does not apply
to rulemaking initiatives, like the proposed rule
change, that were initially presented to the MSRB
Board of Directors before September 26, 2013. The
MSRB has, however, historically taken account of
the costs and burdens of its rulemaking initiatives,
including those associated with the proposed rule
change. Significantly, the proposed rule change
would make no substantive change to existing
requirements.
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discussed above, that the proposed rule
change will, by contrast, ease burdens
on dealers and reduce costs by
clarifying dealer obligations. As noted,
most commenters agree and believe that
the proposed rule change would
promote regulatory efficiency.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
On August 6, 2013, the MSRB
published a request for public comment
on a draft of the proposed rule change.18
The MSRB received five comment
letters.19
Following are summaries of the
comment letters:
• Support for the Proposal
Comments: Four of the five
commenters generally support the
MSRB’s initiative to consolidate and
codify the fair-pricing requirements. FSI
supports the adoption of the proposed
rule and believes it will ease the burden
on firms and market participants
seeking to comply with the rule. WFA
and Wells Fargo Securities commend
the MSRB’s effort to promote regulatory
efficiency through its proposed
consolidation of Rules G–18 and G–30
and codification of related interpretive
guidance. SIFMA supports the MSRB’s
efforts to promote regulatory efficiency
and is generally supportive of this rule
consolidation which preserves the
substance of existing fair-pricing
requirements.
MSRB Response: The MSRB believes
these comments support the MSRB’s
statement on the burden on
competition.
• Application to Municipal Fund
Securities
Comment: ICI requests that, for the
sake of clarity, the MSRB expressly limit
the scope of the rule to municipal
securities other than municipal fund
securities that are 529 college savings
plans. ICI believes that there are
significant differences in the pricing and
execution of transactions in municipal
fund securities as compared with those
involving other types of municipal
securities. If, instead, the MSRB intends
for the rule to apply to transactions
involving municipal fund securities, ICI
recommends that the MSRB clarify the
18 See
MSRB Notice 2013–15 (Aug. 6, 2013).
letters were received from: (1) FSI,
(2) the Investment Company Institute (‘‘ICI’’), (3)
SIFMA, (4) WFA, and (5) Wells Fargo Securities.
Wells Fargo Securities’ sole comment is that it
strongly supports the comments specified in WFA’s
letter and that it urges the MSRB to strongly
consider WFA’s comments.
19 Comment
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rule’s meaning in the context of
municipal fund securities.
MSRB Response: The MSRB intends
for the proposed rule to apply to
transactions involving municipal fund
securities. Unless an MSRB rule
specifically exempts municipal fund
securities, the proposed rule applies to
municipal fund securities. The MSRB
believes no further clarification
regarding the proposed rule’s
application to municipal fund securities
is necessary. An investor that invests in
a broker-sold 529 college savings plan
may pay a fee provided to the dealer
that represents the dealer’s commission
and any other charge. The proposed rule
includes a non-exhaustive list of
potentially relevant factors in
determining the fairness and
reasonableness of commissions and
service charges, and the last listed factor
in subsection (viii) pertains expressly to
529 plans.
EMCDONALD on DSK67QTVN1PROD with NOTICES
• The Proposed Rule Should Be Revised
To Include Additional Existing
Guidance
Comments: SIFMA and WFA request
that the proposed rule include a
description of the relationship between
mark-up, current inter-dealer market
prices, and compensation in order to
avoid confusion.
MSRB Response: The MSRB agrees
that the requested addition would
further clarify the proposed rule and has
added language drawn from its existing
guidance to address the commenters’
concern. The added language is in
Supplementary Material .01(d).
Comments: SIFMA requests that all
factors discussed in existing MSRB
guidance be detailed in Supplementary
Material .02, including improved market
conditions and trading history. WFA
requests that the rule include all factors
discussed in existing MSRB guidance.
MSRB Response: The MSRB does not
believe that all factors discussed in
existing MSRB guidance need be or
should be specified in the streamlined,
proposed rule. First, the MSRB believes
that the factor specified in
Supplementary Material .02(a) of the
proposed rule sufficiently encapsulates
the concept of ‘‘improved market
conditions.’’ Second, like the factors
specified in the existing guidance, the
factors specified in the proposed rule
are not exhaustive. The MSRB chose to
include the factors that are listed in the
non-exhaustive list based on its
experience administering and
interpreting Rules G–18 and G–30.
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• The Proposed Rule Should Be Revised
To Include New Guidance
Comment: SIFMA requests that the
MSRB expressly recognize in
commentary to the final rule that
underlying ratings may not yet be
updated by the relevant rating agency to
reflect material events affecting an
issuer or insurer and that dealers are
neither under an obligation to determine
pricing based on ratings believed to be
inaccurate nor are they required to
forecast ratings changes that have not
yet occurred.
MSRB Response: The MSRB disagrees
with this request at this time. The
objective of this rulemaking initiative is
to codify, not substantively change, the
existing fair-pricing requirements.20
This request goes beyond the scope of
this rulemaking initiative, and the
MSRB can consider this request as part
of any consideration of substantive
changes at a later date.
Comment: SIFMA believes the
meaning of the term ‘‘service charge’’
should be clarified in the proposed rule.
MSRB Response: The MSRB disagrees
with this request at this time. The
objective of this rulemaking initiative is
to codify, not substantively change, the
existing fair-pricing requirements. This
request goes beyond the scope of this
rulemaking initiative, and the MSRB
can consider this request as part of any
consideration of substantive changes at
a later date.
Comment: SIFMA requests that
Supplementary Material .03, which lists
factors that may affect the fairness and
reasonableness of a commission or
service charge, include the following
factor: ‘‘the presence of uniform
commission arrangements disclosed to
customers in advance of transacting that
are considered by the dealer to be fair
and reasonable.’’ SIFMA states that this
factor should be included because the
proposed rule should ‘‘acknowledge a
common industry practice of having a
standard pricing policy, for example, a
uniform price per bond, rather than
having charges vary based on the
aforementioned factors.’’
MSRB Response: The MSRB disagrees
with this request at this time. The
objective of this rulemaking initiative is
to codify, not substantively change, the
existing fair-pricing requirements. This
request, seeking incorporation in the
rule of what the commenter states is a
common industry practice, goes beyond
20 See MSRB Notice 2013–15 (Aug. 6, 2013)
(proposing to consolidate existing Rules G–18 and
G–30 and ‘‘codify existing guidance regarding fair
pricing’’); id. (stating the proposed rule ‘‘preserves
the substance of the existing fair-pricing
requirements’’).
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the scope of this rulemaking initiative,
and the MSRB can consider this request
as part of any consideration of
substantive changes at a later date.
Comment: SIFMA states that MSRB
staff has long provided informal
guidance that, if a dealer cannot
determine the fair market value of a
municipal security after reasonable
diligence and its customer needs to sell
the securities, the dealer may effect the
trade as an agency trade. SIFMA
requests that the MSRB incorporate that
informal staff guidance in this rule
proposal.
MSRB Response: The MSRB disagrees
with this request. The purpose of the
proposed rule change is to codify
existing formal MSRB guidance, not
informal staff guidance. Thus, this
request goes beyond the scope of this
rulemaking initiative, and the MSRB
can consider this request as part of any
consideration of substantive changes at
a later date. We note, in addition and
without comment on the merits of any
particular informal guidance, that
because the proposed rule change makes
no substantive change, the potential for
any informal staff guidance to be
provided that was previously provided
would likewise be unchanged.
Comment: WFA suggests that certain
content in the proposed rule’s
Supplementary Material .04, on FairPricing Responsibilities and Large Price
Differentials, should be organized in its
own supplementary section. WFA
believes the guidance concerning dealer
duties when transacting in illiquid
municipal securities does not belong in
section .04 because the fact that a
municipal bond is illiquid does not, by
itself, suggest there will be a large intraday price differential.
MSRB Response: Supplementary
Material .04 (Fair-Pricing
Responsibilities and Large Price
Differentials) is derived from Review of
Dealer Pricing Responsibilities (January
26, 2004), which is interpretive
guidance under Rule G–30. The
guidance referenced by WFA appears
under an identical heading in the
existing interpretive notice (Fair-Pricing
Responsibilities and Large Price
Differentials). This organization does
not suggest a view on the part of the
MSRB that illiquidity alone suggests
there will be a large price differential.
Indeed, Supplementary Material .04
states that the price differential for
illiquid issues ‘‘might generally’’ be
larger.
• Cross-Reference to Rule G–48
Comment: SIFMA believes a dealer’s
fair-pricing requirements, in certain
agency transactions, are significantly
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Federal Register / Vol. 79, No. 33 / Wednesday, February 19, 2014 / Notices
affected by the status of a customer as
a sophisticated municipal market
professional (‘‘SMMP’’) and
acknowledges that the substance of this
reduced obligation may soon be codified
in proposed Rule G–48.21 SIFMA
requests that the proposed rule, at a
minimum, cross reference proposed
Rule G–48. SIFMA believes a crossreference will further assist dealers and
other market participants who seek to
understand, comply with, and enforce
fair-pricing requirements.
MSRB Response: The MSRB disagrees
with this request. Rule G–48, if
approved, will expressly modify
dealers’ pricing obligations when
dealing with SMMPS, and the MSRB
does not believe a cross-reference to
Rule G–48 is necessary.
• Reorganization of the Proposed Rule
Comment: SIFMA requests that the
factors under proposed Supplementary
Material .02(b)(vii) relating to ratings
and call features be separately listed
rather than combined given that they are
independent considerations.
MSRB Response: The MSRB disagrees
with this request. All of the factors
included under Supplementary Material
.02(b)(vii) relate directly to the subject
category described—‘‘the rating and call
features of the security (including the
possibility that a call feature may not be
exercised).’’ The MSRB believes the
organization of the subsections is
appropriate.
EMCDONALD on DSK67QTVN1PROD with NOTICES
• Clarification Concerning Guidance
That Is Not in the Proposed Rule
Comment: SIFMA requests
clarification from the MSRB as to why
certain MSRB interpretive guidance
concerning pricing in the primary
market is missing from the proposed
rule. SIFMA highlights as examples:
Guidance on Disclosure and Other Sales
Practice Obligations to Individual and
Other Retail Investors in Municipal
Securities (Jul. 14, 2009); MSRB
Interpretation of December 11, 2001
(differential re-offering prices); MSRB
Interpretation of March 16, 1984 (fixedprice offerings); and Interpretive Notice
Concerning the Application of MSRB
Rule G–17 to Underwriters of Municipal
Securities (Aug. 2, 2012).
MSRB Response: The MSRB believes
that the substance of all of the
interpretive guidance relating to fairpricing under Rule G–17, which
includes Guidance on Disclosure and
Other Sales Practice Obligations to
Individual and Other Retail Investors in
21 See Securities Exchange Act Release No. 70593
(Oct. 1, 2013), 78 FR 62867 (Oct. 22, 2013), File No.
SR–MSRB–2013–07.
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Jkt 232001
Municipal Securities (Jul. 14, 2009) and
Interpretive Notice Concerning the
Application of MSRB Rule G–17 to
Underwriters of Municipal Securities
(Aug. 2, 2012), is incorporated in the
proposed rule, except for guidance that
pertains to retail order periods. The
rationale for this limited exception is
that the MSRB is considering codifying
guidance concerning retail order periods
under a separate rule or rules that
pertain specifically to primary offerings
and retail order periods. The substance
of the relevant guidance from the cited
MSRB interpretive letter dated
December 11, 2001 (differential reoffering prices), essentially that the
resulting yield to the customer is the
most important factor in determining
the fairness and reasonableness of a
price in any given transaction, is
included in the proposed rule. The cited
MSRB interpretive letter dated March
16, 1984, regarding fixed-price offerings
does not contain any substantive
guidance regarding fair pricing that
would warrant codification. That letter
addresses Rule G–11, which is a
disclosure rule. Although the letter
contains a one-sentence description of
Rule G–30, that sentence does not
contain any substantive interpretive
guidance regarding fair pricing.
• Changes to Existing Fair-Pricing
Requirements
Comment: WFA believes that any
move by the MSRB to revise its existing
fair-pricing requirements should be
accompanied by a demonstration that
market conditions have changed in a
manner that makes it necessary and
appropriate to impose a different
standard.
MSRB Response: The proposed rule
merely codifies the substance of existing
requirements and does not impose any
different standard. Although no
substantive change is made here, we
note that substantive changes can
become necessary or appropriate for
reasons other than changes in market
conditions.
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
PO 00000
Frm 00107
Fmt 4703
Sfmt 4703
(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–2014–01 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.
All submissions should refer to File
Number SR–MSRB–2014–01. 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–
2014–01 and should be submitted on or
before March 12, 2014.
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Federal Register / Vol. 79, No. 33 / Wednesday, February 19, 2014 / Notices
For the Commission, pursuant to delegated
authority.22
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2014–03566 Filed 2–18–14; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–71532; File No. SR–
NYSEMKT–2014–12]
Self-Regulatory Organizations; NYSE
MKT LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change Amending the NYSE
Amex Options Fee Schedule By
Adopting a Market Access and
Connectivity Subsidy
February 12, 2014.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on February
3, 2014, NYSE MKT LLC (the
‘‘Exchange’’ or ‘‘NYSE MKT’’) filed with
the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the selfregulatory organization. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
EMCDONALD on DSK67QTVN1PROD with NOTICES
I. Self-Regulatory Organization’s
Statement of the Terms of the Substance
of the Proposed Rule Change
The Exchange proposes to amend the
NYSE Amex Options Fee Schedule
(‘‘Fee Schedule’’) by adopting a Market
Access and Connectivity Subsidy. The
proposed change will be operative on
February 3, 2014. The text of the
proposed rule change is available on the
Exchange’s Web site at www.nyse.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
self-regulatory organization included
statements concerning the purpose of,
22 17
CFR 200.30–3(a)(12).
U.S.C.78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
1 15
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16:15 Feb 18, 2014
Jkt 232001
and basis for, the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend the
Fee Schedule to adopt a Market Access
and Connectivity Subsidy (‘‘MAC
Subsidy’’) to be paid to ATP Holders
that provide access and connectivity to
the Exchange to other ATP Holders and/
or utilize such access themselves. The
proposed change will be operative on
February 3, 2014.
The Exchange proposes to enter into
a subsidy arrangement with those ATP
Holders that provide access and
connectivity to the Exchange for the
purposes of electronic order routing
either to other ATP Holders and/or
utilize such access themselves.4 The
MAC Subsidy would be paid to
qualifying ATP Holders for certain
executed electronic volumes—as
described in more detail below—that are
delivered to the Exchange by the
qualifying ATP Holders’ connection(s)
to the Exchange. In order to qualify for
the MAC Subsidy, ATP Holders would
need to be able to interface with the
Exchange System.5 Further, in order to
4 The Exchange notes that under this arrangement
it will be possible for one ATP Holder to be eligible
for the MAC Subsidy while another ATP Holder
might potentially be liable for transaction charges
associated with the execution of the order. Consider
the following example, both A and B are ATP
Holders but A does not utilize its own connections
to route orders to the Exchange, and instead utilizes
B’s connections. Under this program, B will be
eligible for the MAC Subsidy while A is liable for
any transaction charges resulting from the
execution of orders that originate from A, arrive at
the Exchange via B’s connectivity, and
subsequently execute and clear at OCC, where A is
the valid executing clearing member or give up on
the transaction. Similarly, where B utilizes its own
connections to execute transactions, B will be
eligible for the MAC Subsidy, but would also be
liable for any transaction resulting from the
execution of orders that originate from B, arrive at
the Exchange via B’s connectivity, and
subsequently execute and clear at OCC, where B is
the valid executing clearing member or give up on
the transaction.
5 See Rule 900.2NY (38) (defining ‘‘Exchange
System’’ as ‘‘the Exchange’s electronic order
delivery, execution and reporting system for
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Fmt 4703
Sfmt 4703
9563
qualify, ATP Holders would be required
to provide the Exchange with a list of
each of the unique connections over
which the ATP Holder would be
sending orders to enable the Exchange
to identify the qualifying order flow.
The ATP Holder would be required to
furnish this list of unique connections
to the Exchange via email no later than
the last business day of the month in
which the ATP Holder would like to
receive the MAC Subsidy.6
The MAC Subsidy would be paid on
volume from electronically executed
orders for Non-NYSE Amex Options
Market Makers, Firms Proprietary,
Professional Customers and Broker
Dealers. The amount of the per contract
MAC Subsidy paid to qualifying ATP
Holders would vary based on the
average daily volume (‘‘ADV’’) of
electronically executed Non-NYSE
Amex Options Market Maker, Firm
Proprietary, Professional Customer and
Broker Dealer contract volumes relative
to the Total Industry Customer equity
and Exchange-Traded Funds (‘‘ETF’’)
ADV 7 according to the proposed
schedule below:
designated option issues through which orders and
quotes of Users are consolidated for execution and/
or display’’).
6 The ATP Holder would email the Exchange at
optionsbilling@nyx.com. Thus, for example, an ATP
Holder that wishes to qualify for the MAC Subsidy
for executed volume routed over its connections in
February must email the Exchange no later than the
last business day in February and the email must
identify the ATP Holder seeking the MAC Subsidy
and must list of the unique connections utilized by
the ATP Holder to provide Exchange System access
to other ATP Holders and/or itself. Any subsidy
payments would be made with a one month lag (i.e.,
a subsidy earned for activity in February would be
paid to the qualifying ATP Holder in conjunction
with the reconciliation of March invoices).
7 Total Industry Customer equity and ETF option
ADV will be that which is reported for the month
by The Options Clearing Corporation (‘‘OCC’’) in
the month in which the MAC Subsidy might apply.
For example, February 2014 Total Industry
Customer equity and ETF option ADV will be used
in determining what, if any, MAC Subsidy a
qualifying ATP Holder may be eligible for on its
electronic Non-NYSE Amex Options Market Maker,
Firm Proprietary, Professional Customer and Broker
Dealer transactions based on the amount of
electronic Non-NYSE Amex Options Market Maker,
Firm Proprietary, Professional Customer and Broker
Dealer volume it executes in February 2014 relative
to Total Industry Customer equity and ETF option
ADV. Total Industry Customer equity and ETF
option ADV comprises those equity and ETF
contracts that clear in the customer account type at
OCC and does not include contracts that clear in
either the firm or market maker account type at
OCC or contracts overlying a security other than an
equity or ETF security. For reference, the 3-month
average as of December 31, 2013 of Total Industry
Customer equity and ETF ADV was 11,867,765
contracts.
E:\FR\FM\19FEN1.SGM
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]]>Agencies
[Federal Register Volume 79, Number 33 (Wednesday, February 19, 2014)]
[Notices]
[Pages 9558-9563]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-03566]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-71536; File No. SR-MSRB-2014-01]
Self-Regulatory Organizations; Municipal Securities Rulemaking
Board; Notice of Filing of a Proposed Rule Change Consisting of
Proposed Revisions to MSRB Rule G-30, on Prices and Commissions and the
Deletion of Rule G-18, on Execution of Transactions
February 12, 2014.
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 January 29, 2014, 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.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
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 proposed revisions to MSRB Rule G-30, on prices and
commissions and the deletion of Rule G-18, on execution of transactions
(the ``proposed rule change'').
The text of the proposed rule change is available on the MSRB's Web
site at www.msrb.org/Rules-and-Interpretations/SEC-Filings/2014-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.
[[Page 9559]]
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
Summary of Proposed Rule Change
The purpose of the proposed rule change is to codify the substance
of existing fair-pricing obligations of brokers, dealers, and municipal
securities dealers (collectively, ``dealers'') and further streamline
the MSRB's Rule Book. Fair-pricing provisions are currently organized
in two separate rules, Rules G-18 and G-30, with interpretive guidance
under Rule G-30 as well as under a third rule, Rule G-17, on fair
dealing. We note that market participants support the objective of
consolidating and codifying the existing substance of these rules and
interpretive guidance.
To achieve this objective, the MSRB is proposing to consolidate
Rules G-18 and G-30 into a single fair-pricing rule, and to consolidate
the existing interpretive guidance under Rules G-17 and G-30 and codify
that guidance in the same rule. Existing Rule G-18 provides a pricing
standard for agency transactions, while existing Rule G-30(a) provides
a pricing standard for principal transactions, with both rules using
different formulations to reflect differences between the two types of
trades. As a practical matter, the investor-protection function of the
two provisions does not differ, and it is appropriate to organize these
standards in a single rule, as proposed. In addition, the MSRB has
issued extensive interpretive guidance under MSRB Rules G-17 and G-30
discussing fair pricing in general, as well as in specific scenarios.
The proposed rule change would consolidate the substance of this
guidance \3\ and codify it into rule language.\4\ The MSRB will archive
this interpretive guidance, current as of January 1, 2013, on its Web
site. To the extent that past interpretive guidance does not conflict
with any MSRB rules or interpretations thereof, it remains potentially
applicable, depending on the facts and circumstances of a particular
case.
---------------------------------------------------------------------------
\3\ The formal fair-pricing guidance under current Rule G-30
that is to be codified was not filed with the Commission, and is as
follows: Review of Dealer Pricing Responsibilities (Jan. 26, 2004)
(``2004 Notice''); Interpretive Notice on Commissions and Other
Charges, Advertisements and Official Statements Relating to
Municipal Fund Securities (Dec. 19, 2001); Republication of
September 1980, Report on Pricing (Oct. 3, 1984); Interpretive
Notice on Pricing of Callable Securities (Aug. 10, 1979);
Interpretive Letter--Rules G-21, G-30 and G-32 (Dec. 11, 2001); and
Factors in pricing (Nov. 29, 1993). The formal fair-pricing guidance
under Rule G-17 that is to be codified that was not filed with the
Commission is as follows: Guidance on Disclosure and Other Sales
Practice Obligations to Individual and Other Retail Investors in
Municipal Securities (Jul. 14, 2009); MSRB Reminds Firms of their
Sales Practice and Due Diligence Obligations When Selling Municipal
Securities in the Secondary Market (Sept. 20, 2010); and Bond
Insurance Ratings--Application of MSRB Rules (Jan. 22, 2008). The
formal guidance under Rule G-17 that is to be codified that was
filed with the Commission is contained in Restated Interpretive
Notice Regarding the Application of MSRB Rules to Transactions with
Sophisticated Municipal Market Professionals (Jul. 9, 2012).
\4\ The MSRB is separately proposing to consolidate its
interpretive guidance under Rule G-17 related to time of trade
disclosures, suitability of recommendations, and dealings with
sophisticated municipal market professionals (``SMMPs'') and to
codify that guidance into several rules: A new time of trade
disclosure rule (proposed Rule G-47), a revised suitability rule
(Rule G-19), and two new SMMP rules (proposed Rules D-15 and G-48).
See Securities Exchange Act Release No. 70593 (Oct. 1, 2013), 78 FR
62867 (Oct. 22, 2013), File No. SR-MSRB-2013-07.
---------------------------------------------------------------------------
The MSRB believes the new fair-pricing rule will significantly
enhance regulated entities' ability to understand and comply with their
fair-pricing obligations by organizing them together in a single
location. Further, the relevant information from the existing
interpretive guidance will be succinctly stated in the new rule. The
MSRB believes this could be particularly beneficial for new municipal
market entrants, which would be in a position to focus, with respect to
fair-pricing obligations, on the new, consolidated rule. In sum, the
MSRB believes that the proposed rule change will ease burdens on
dealers and reduce costs by clarifying dealer obligations.
The structure of proposed Rule G-30 (rule language followed by
supplementary material) is the same structure used by FINRA and other
self-regulatory organizations (``SROs''). The MSRB intends generally to
transition to this structure for all of its rules going forward in
order to streamline the rules, harmonize the format with that of other
SROs, and make the rules easier for dealers and municipal advisors to
understand and follow.
Following is a summary of the provisions and the supplementary
material comprising proposed Rule G-30:
Rule Language
Proposed revised Rule G-30(a) applies to principal transactions and
states that a dealer can only purchase municipal securities for its own
account from a customer, or sell municipal securities for its own
account to a customer, at an aggregate price (including any mark-up or
mark-down) that is fair and reasonable.\5\
---------------------------------------------------------------------------
\5\ Proposed revised Rule G-30(a) is substantially similar to
the first clause of existing Rule G-30(a).
---------------------------------------------------------------------------
Proposed revised Rule G-30(b) applies to agency transactions.
Subsection (i) states that when a dealer executes a transaction in
municipal securities for or on behalf of a customer, the dealer must
make a reasonable effort to obtain a price for the customer that is
fair and reasonable in relation to prevailing market conditions.
Subsection (ii) states a dealer cannot purchase or sell municipal
securities for a customer for a commission or service charge in excess
of a fair and reasonable amount.\6\
---------------------------------------------------------------------------
\6\ Subsection (i) of proposed Rule G-30(b) is derived from
current Rule G-18. Subsection (ii) is derived from the first clause
of existing Rule G-30(b).
---------------------------------------------------------------------------
Supplementary Material
Supplementary Material .01 specifies five general principles
concerning the fair-pricing requirements: (a) That a dealer, whether
effecting a trade on an agency or principal basis, must exercise
diligence in establishing the market value of the security and the
reasonableness of the compensation received on the transaction; (b)
that a dealer effecting an agency transaction must exercise the same
level of care as it would if acting for its own account; (c) that a
``fair and reasonable'' price bears a reasonable relationship to the
prevailing market price of the security; (d) that dealer compensation
on a principal transaction is considered to be a mark-up or mark-down
that is computed from the inter-dealer market price prevailing at the
time of the customer transaction; \7\ and (e) that reasonable
compensation differs from fair pricing.\8\
---------------------------------------------------------------------------
\7\ This language was added to address comments the MSRB
received in response to its August 6, 2013 request for comment on a
draft of the proposed rule change.
\8\ Supplementary Material .01 is derived from the 2004 Notice.
---------------------------------------------------------------------------
Supplementary Material .02 provides a non-exhaustive list of
relevant factors in determining the fairness and reasonableness of
prices.\9\
---------------------------------------------------------------------------
\9\ Supplementary Material .02(a) is derived from the 2004
Notice. Supplementary Material .02(b) is derived from Rule G-30(a),
the 2004 Notice, the MSRB Interpretive Letter--Rules G-21, G-30 and
G-32 (Dec. 11, 2001), the MSRB Interpretive Letter--Factors in
Pricing (Nov. 29, 1993), the Republication of September 1980, Report
on Pricing (Oct. 3, 1984); and the Interpretive Notice on Pricing of
Callable Securities (Aug. 10, 1979).
---------------------------------------------------------------------------
Supplementary Material .03 provides a non-exhaustive list of
relevant factors in determining the fairness and reasonableness of
commissions or
[[Page 9560]]
service charges.\10\ The proposed rule change makes it easier for
market participants to find these relevant factors.
---------------------------------------------------------------------------
\10\ Supplementary Material .03 is derived from existing Rule G-
30(b), the 2004 Notice and Republication of September 1980, Report
on Pricing (Oct. 3, 1984). Supplementary Material .03(a)(viii)
refers to Rule 2830 of the National Association of Securities
Dealers, Inc. (``NASD''), which provides a sales charge schedule for
registered investment company securities, and remains in effect in
the Financial Industry Regulatory Authority, Inc. rulebook. The MSRB
recognizes that, due to the limitations of Section 15B(b)(2)(C) of
the Act, it could not, by rule or interpretation, ``impose any
schedule or fix rates of commissions, allowances, discounts, or
other fees to be charged'' by dealers for the sale of municipal fund
securities. The MSRB believes, however, that the charges permitted
by FINRA under NASD Rule 2830 may, depending upon the totality of
the facts and circumstances, be a significant factor in determining
whether a dealer selling municipal fund securities is charging a
commission or other fee that is fair and reasonable.
---------------------------------------------------------------------------
Supplementary Material .04 discusses the application of fair-
pricing requirements to some of the situations that may create large
intra-day price differentials.\11\
---------------------------------------------------------------------------
\11\ Supplementary Material .04 is derived from the 2004 Notice.
---------------------------------------------------------------------------
Finally, Supplementary Material .05 discusses the general duty
under proposed revised Rule G-30(b)(i) of dealers operating alternative
trading systems to act to investigate any alleged pricing
irregularities on their systems brought to their attention, which duty
applies equally to transactions effected for SMMPs.\12\
---------------------------------------------------------------------------
\12\ Supplementary Material .05 is derived from interpretive
guidance that was previously filed with the Commission and which is
separately proposed to be generally codified in Rule G-48 based on
its relevance to SMMPs. See Restated Interpretive Notice Regarding
the Application of MSRB Rules to Transactions with Sophisticated
Municipal Market Professionals (Jul. 9, 2012).
---------------------------------------------------------------------------
2. Statutory Basis
The MSRB believes that the proposed rule change is consistent with
Section 15B(b)(2)(C) of the Act,\13\ which provides that the MSRB's
rules shall
---------------------------------------------------------------------------
\13\ 15 U.S.C. 78o-4(b)(2)(c).
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 proposed rule change preserves the substance of the current
requirement that dealers must exercise diligence in establishing the
market value of a security and the reasonableness of the compensation
received on a transaction. This requirement protects investors and is
central to the role of a dealer in facilitating municipal securities
transactions. At the same time, the MSRB believes the proposed rule
change will remove impediments to and perfect the mechanism of a free
and open market. The MSRB believes it will ease burdens on dealers and
reduce costs by clarifying dealer obligations. Most commenters agree
and believe that the proposed rule change would promote regulatory
efficiency. For example, one commenter supports the adoption of the
proposed rule and believes it will ease the burden on firms and market
participants seeking to comply with the rule.\14\ Two commenters
commend the MSRB's effort to promote regulatory efficiency through its
proposed consolidation of Rules G-18 and G-30 and codification of
related interpretive guidance.\15\ Another commenter supports the
MSRB's efforts to promote regulatory efficiency and is generally
supportive of this rule consolidation which preserves the substance of
existing fair-pricing requirements.\16\
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\14\ See letter from David T. Bellaire, Esq., Executive Vice
President and General Counsel, Financial Services Institute
(``FSI''), dated September 20, 2013.
\15\ See letter from Robert J. McCarthy, Director of Regulatory
Policy, Wells Fargo Advisors, LLC (``WFA''), dated September 20,
2013 and letter from Gerald K. Mayfield, Senior Counsel, Wells Fargo
& Company Law Department, Wells Fargo Securities, dated September
20, 2013.
\16\ See letter from David L. Cohen, Managing Director and
Associate General Counsel, Securities Industry and Financial Markets
Association (``SIFMA''), dated September 20, 2013.
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B. Self-Regulatory Organization's Statement on Burden on Competition
The MSRB does not believe that the proposed rule change would
result in any burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Act.\17\ The proposed
rule change consolidates existing Rules G-18 and G-30 and codifies
current interpretive guidance reasonably and fairly implied by those
rules or Rule G-17. The proposed rule change makes no substantive
change and, therefore, does not add any burden on competition. The MSRB
believes, as discussed above, that the proposed rule change will, by
contrast, ease burdens on dealers and reduce costs by clarifying dealer
obligations. As noted, most commenters agree and believe that the
proposed rule change would promote regulatory efficiency.
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\17\ On September 26, 2013 the MSRB publicly announced its
adoption of a formal policy to further integrate the use of economic
analysis in MSRB rulemaking. By its terms, the policy does not apply
to rulemaking initiatives, like the proposed rule change, that were
initially presented to the MSRB Board of Directors before September
26, 2013. The MSRB has, however, historically taken account of the
costs and burdens of its rulemaking initiatives, including those
associated with the proposed rule change. Significantly, the
proposed rule change would make no substantive change to existing
requirements.
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C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
On August 6, 2013, the MSRB published a request for public comment
on a draft of the proposed rule change.\18\ The MSRB received five
comment letters.\19\
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\18\ See MSRB Notice 2013-15 (Aug. 6, 2013).
\19\ Comment letters were received from: (1) FSI, (2) the
Investment Company Institute (``ICI''), (3) SIFMA, (4) WFA, and (5)
Wells Fargo Securities. Wells Fargo Securities' sole comment is that
it strongly supports the comments specified in WFA's letter and that
it urges the MSRB to strongly consider WFA's comments.
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Following are summaries of the comment letters:
Support for the Proposal
Comments: Four of the five commenters generally support the MSRB's
initiative to consolidate and codify the fair-pricing requirements. FSI
supports the adoption of the proposed rule and believes it will ease
the burden on firms and market participants seeking to comply with the
rule. WFA and Wells Fargo Securities commend the MSRB's effort to
promote regulatory efficiency through its proposed consolidation of
Rules G-18 and G-30 and codification of related interpretive guidance.
SIFMA supports the MSRB's efforts to promote regulatory efficiency and
is generally supportive of this rule consolidation which preserves the
substance of existing fair-pricing requirements.
MSRB Response: The MSRB believes these comments support the MSRB's
statement on the burden on competition.
Application to Municipal Fund Securities
Comment: ICI requests that, for the sake of clarity, the MSRB
expressly limit the scope of the rule to municipal securities other
than municipal fund securities that are 529 college savings plans. ICI
believes that there are significant differences in the pricing and
execution of transactions in municipal fund securities as compared with
those involving other types of municipal securities. If, instead, the
MSRB intends for the rule to apply to transactions involving municipal
fund securities, ICI recommends that the MSRB clarify the
[[Page 9561]]
rule's meaning in the context of municipal fund securities.
MSRB Response: The MSRB intends for the proposed rule to apply to
transactions involving municipal fund securities. Unless an MSRB rule
specifically exempts municipal fund securities, the proposed rule
applies to municipal fund securities. The MSRB believes no further
clarification regarding the proposed rule's application to municipal
fund securities is necessary. An investor that invests in a broker-sold
529 college savings plan may pay a fee provided to the dealer that
represents the dealer's commission and any other charge. The proposed
rule includes a non-exhaustive list of potentially relevant factors in
determining the fairness and reasonableness of commissions and service
charges, and the last listed factor in subsection (viii) pertains
expressly to 529 plans.
The Proposed Rule Should Be Revised To Include Additional
Existing Guidance
Comments: SIFMA and WFA request that the proposed rule include a
description of the relationship between mark-up, current inter-dealer
market prices, and compensation in order to avoid confusion.
MSRB Response: The MSRB agrees that the requested addition would
further clarify the proposed rule and has added language drawn from its
existing guidance to address the commenters' concern. The added
language is in Supplementary Material .01(d).
Comments: SIFMA requests that all factors discussed in existing
MSRB guidance be detailed in Supplementary Material .02, including
improved market conditions and trading history. WFA requests that the
rule include all factors discussed in existing MSRB guidance.
MSRB Response: The MSRB does not believe that all factors discussed
in existing MSRB guidance need be or should be specified in the
streamlined, proposed rule. First, the MSRB believes that the factor
specified in Supplementary Material .02(a) of the proposed rule
sufficiently encapsulates the concept of ``improved market
conditions.'' Second, like the factors specified in the existing
guidance, the factors specified in the proposed rule are not
exhaustive. The MSRB chose to include the factors that are listed in
the non-exhaustive list based on its experience administering and
interpreting Rules G-18 and G-30.
The Proposed Rule Should Be Revised To Include New Guidance
Comment: SIFMA requests that the MSRB expressly recognize in
commentary to the final rule that underlying ratings may not yet be
updated by the relevant rating agency to reflect material events
affecting an issuer or insurer and that dealers are neither under an
obligation to determine pricing based on ratings believed to be
inaccurate nor are they required to forecast ratings changes that have
not yet occurred.
MSRB Response: The MSRB disagrees with this request at this time.
The objective of this rulemaking initiative is to codify, not
substantively change, the existing fair-pricing requirements.\20\ This
request goes beyond the scope of this rulemaking initiative, and the
MSRB can consider this request as part of any consideration of
substantive changes at a later date.
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\20\ See MSRB Notice 2013-15 (Aug. 6, 2013) (proposing to
consolidate existing Rules G-18 and G-30 and ``codify existing
guidance regarding fair pricing''); id. (stating the proposed rule
``preserves the substance of the existing fair-pricing
requirements'').
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Comment: SIFMA believes the meaning of the term ``service charge''
should be clarified in the proposed rule.
MSRB Response: The MSRB disagrees with this request at this time.
The objective of this rulemaking initiative is to codify, not
substantively change, the existing fair-pricing requirements. This
request goes beyond the scope of this rulemaking initiative, and the
MSRB can consider this request as part of any consideration of
substantive changes at a later date.
Comment: SIFMA requests that Supplementary Material .03, which
lists factors that may affect the fairness and reasonableness of a
commission or service charge, include the following factor: ``the
presence of uniform commission arrangements disclosed to customers in
advance of transacting that are considered by the dealer to be fair and
reasonable.'' SIFMA states that this factor should be included because
the proposed rule should ``acknowledge a common industry practice of
having a standard pricing policy, for example, a uniform price per
bond, rather than having charges vary based on the aforementioned
factors.''
MSRB Response: The MSRB disagrees with this request at this time.
The objective of this rulemaking initiative is to codify, not
substantively change, the existing fair-pricing requirements. This
request, seeking incorporation in the rule of what the commenter states
is a common industry practice, goes beyond the scope of this rulemaking
initiative, and the MSRB can consider this request as part of any
consideration of substantive changes at a later date.
Comment: SIFMA states that MSRB staff has long provided informal
guidance that, if a dealer cannot determine the fair market value of a
municipal security after reasonable diligence and its customer needs to
sell the securities, the dealer may effect the trade as an agency
trade. SIFMA requests that the MSRB incorporate that informal staff
guidance in this rule proposal.
MSRB Response: The MSRB disagrees with this request. The purpose of
the proposed rule change is to codify existing formal MSRB guidance,
not informal staff guidance. Thus, this request goes beyond the scope
of this rulemaking initiative, and the MSRB can consider this request
as part of any consideration of substantive changes at a later date. We
note, in addition and without comment on the merits of any particular
informal guidance, that because the proposed rule change makes no
substantive change, the potential for any informal staff guidance to be
provided that was previously provided would likewise be unchanged.
Comment: WFA suggests that certain content in the proposed rule's
Supplementary Material .04, on Fair-Pricing Responsibilities and Large
Price Differentials, should be organized in its own supplementary
section. WFA believes the guidance concerning dealer duties when
transacting in illiquid municipal securities does not belong in section
.04 because the fact that a municipal bond is illiquid does not, by
itself, suggest there will be a large intra- day price differential.
MSRB Response: Supplementary Material .04 (Fair-Pricing
Responsibilities and Large Price Differentials) is derived from Review
of Dealer Pricing Responsibilities (January 26, 2004), which is
interpretive guidance under Rule G-30. The guidance referenced by WFA
appears under an identical heading in the existing interpretive notice
(Fair-Pricing Responsibilities and Large Price Differentials). This
organization does not suggest a view on the part of the MSRB that
illiquidity alone suggests there will be a large price differential.
Indeed, Supplementary Material .04 states that the price differential
for illiquid issues ``might generally'' be larger.
Cross-Reference to Rule G-48
Comment: SIFMA believes a dealer's fair-pricing requirements, in
certain agency transactions, are significantly
[[Page 9562]]
affected by the status of a customer as a sophisticated municipal
market professional (``SMMP'') and acknowledges that the substance of
this reduced obligation may soon be codified in proposed Rule G-48.\21\
SIFMA requests that the proposed rule, at a minimum, cross reference
proposed Rule G-48. SIFMA believes a cross-reference will further
assist dealers and other market participants who seek to understand,
comply with, and enforce fair-pricing requirements.
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\21\ See Securities Exchange Act Release No. 70593 (Oct. 1,
2013), 78 FR 62867 (Oct. 22, 2013), File No. SR-MSRB-2013-07.
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MSRB Response: The MSRB disagrees with this request. Rule G-48, if
approved, will expressly modify dealers' pricing obligations when
dealing with SMMPS, and the MSRB does not believe a cross-reference to
Rule G-48 is necessary.
Reorganization of the Proposed Rule
Comment: SIFMA requests that the factors under proposed
Supplementary Material .02(b)(vii) relating to ratings and call
features be separately listed rather than combined given that they are
independent considerations.
MSRB Response: The MSRB disagrees with this request. All of the
factors included under Supplementary Material .02(b)(vii) relate
directly to the subject category described--``the rating and call
features of the security (including the possibility that a call feature
may not be exercised).'' The MSRB believes the organization of the
subsections is appropriate.
Clarification Concerning Guidance That Is Not in the Proposed
Rule
Comment: SIFMA requests clarification from the MSRB as to why
certain MSRB interpretive guidance concerning pricing in the primary
market is missing from the proposed rule. SIFMA highlights as examples:
Guidance on Disclosure and Other Sales Practice Obligations to
Individual and Other Retail Investors in Municipal Securities (Jul. 14,
2009); MSRB Interpretation of December 11, 2001 (differential re-
offering prices); MSRB Interpretation of March 16, 1984 (fixed- price
offerings); and Interpretive Notice Concerning the Application of MSRB
Rule G-17 to Underwriters of Municipal Securities (Aug. 2, 2012).
MSRB Response: The MSRB believes that the substance of all of the
interpretive guidance relating to fair-pricing under Rule G-17, which
includes Guidance on Disclosure and Other Sales Practice Obligations to
Individual and Other Retail Investors in Municipal Securities (Jul. 14,
2009) and Interpretive Notice Concerning the Application of MSRB Rule
G-17 to Underwriters of Municipal Securities (Aug. 2, 2012), is
incorporated in the proposed rule, except for guidance that pertains to
retail order periods. The rationale for this limited exception is that
the MSRB is considering codifying guidance concerning retail order
periods under a separate rule or rules that pertain specifically to
primary offerings and retail order periods. The substance of the
relevant guidance from the cited MSRB interpretive letter dated
December 11, 2001 (differential re-offering prices), essentially that
the resulting yield to the customer is the most important factor in
determining the fairness and reasonableness of a price in any given
transaction, is included in the proposed rule. The cited MSRB
interpretive letter dated March 16, 1984, regarding fixed-price
offerings does not contain any substantive guidance regarding fair
pricing that would warrant codification. That letter addresses Rule G-
11, which is a disclosure rule. Although the letter contains a one-
sentence description of Rule G-30, that sentence does not contain any
substantive interpretive guidance regarding fair pricing.
Changes to Existing Fair-Pricing Requirements
Comment: WFA believes that any move by the MSRB to revise its
existing fair-pricing requirements should be accompanied by a
demonstration that market conditions have changed in a manner that
makes it necessary and appropriate to impose a different standard.
MSRB Response: The proposed rule merely codifies the substance of
existing requirements and does not impose any different standard.
Although no substantive change is made here, we note that substantive
changes can become necessary or appropriate for reasons other than
changes in market conditions.
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-2014-01 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.
All submissions should refer to File Number SR-MSRB-2014-01. 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-2014-01 and should be
submitted on or before March 12, 2014.
[[Page 9563]]
For the Commission, pursuant to delegated authority.\22\
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\22\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-03566 Filed 2-18-14; 8:45 am]
BILLING CODE 8011-01-P
