Self-Regulatory Organizations; Municipal Securities Rulemaking Board; Notice of Filing of Amendment No. 1 and Order Granting Accelerated Approval of Proposed Rule Change, as Modified by Amendment No. 1 Thereto, Relating to a New MSRB Rule G-45, on Reporting of Information on Municipal Fund Securities, 11161-11169 [2014-04242]

Download as PDF Federal Register / Vol. 79, No. 39 / Thursday, February 27, 2014 / Notices SECURITIES AND EXCHANGE COMMISSION Sunshine Act Meeting FEDERAL REGISTER CITATION OF PREVIOUS ANNOUNCEMENT: [79 FR 10578, February 25, 2014]. Closed Meeting. PLACE: 100 F Street NE., Washington, DC. STATUS: DATE AND TIME OF PREVIOUSLY ANNOUNCED MEETING: Thursday, February 27, 2014 at 2:00 p.m. Time Change. The Closed Meeting scheduled for Thursday, February 27, 2014 at 2:00 p.m. has been changed to Thursday, February 27, 2014 at 11:00 a.m. At times, changes in Commission priorities require alterations in the scheduling of meeting items. For further information and to ascertain what, if any, matters have been added, deleted or postponed, please contact the Office of the Secretary at (202) 551–5400. CHANGE IN THE MEETING: Dated: February 25, 2014. Elizabeth M. Murphy, Secretary. [FR Doc. 2014–04396 Filed 2–25–14; 11:15 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–71598; File No. SR–MSRB– 2013–04] Self-Regulatory Organizations; Municipal Securities Rulemaking Board; Notice of Filing of Amendment No. 1 and Order Granting Accelerated Approval of Proposed Rule Change, as Modified by Amendment No. 1 Thereto, Relating to a New MSRB Rule G–45, on Reporting of Information on Municipal Fund Securities February 21, 2014. mstockstill on DSK4VPTVN1PROD with NOTICES I. Introduction On June 10, 2013, the Municipal Securities Rulemaking Board (‘‘MSRB’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change consisting of (1) MSRB Rule G– 45 (reporting of information on municipal fund securities), (2) MSRB Form G–45, (3) amendments to MSRB Rule G–8 (books and records), and (4) MSRB Rule G–9 (preservation of records). The proposed rule change was 1 15 2 17 U.S.C. 78s(b)(1). CFR 240.19b–4. VerDate Mar<15>2010 17:58 Feb 26, 2014 Jkt 232001 published for comment in the Federal Register on June 28, 2013.3 The Commission initially received five comment letters on the proposal.4 On August 9, 2013, the MSRB granted an extension of time, until September 26, 2013, for the Commission to act on the filing. On September 26, 2013, the Commission instituted proceedings to determine whether to disapprove the proposed rule change.5 In response to the Order Instituting Proceedings, the Commission received four additional comment letters on the proposal.6 On December 19, 2013, the Commission extended the time period for Commission action to February 23, 2014.7 On January 14, 2014, the MSRB submitted a response to the comment letters8 and filed Amendment No. 1 to the proposed rule change.9 The 3 Securities Exchange Act Release No. 69835 (June 24, 2013), 78 FR 39048 (‘‘Notice’’). 4 See letters to Elizabeth M. Murphy, Secretary, Commission, from Tamara K. Salmon, Senior Associate Counsel, Investment Company Institute, dated July 16, 2013 (‘‘ICI Letter’’); David L. Cohen, Managing Director, Associate General Counsel, Securities Industry and Financial Markets Association, dated July 18, 2013 (‘‘SIFMA Letter’’); Roger Michaud, Chairman, College Savings Foundation, dated July 19, 2013 (‘‘CSF Letter’’); Michael L. Fitzgerald, Chairman, College Savings Plans Network, dated July 19, 2013 (‘‘CSPN Letter’’); and Michael B. Koffler, Partner, Sutherland Asbill & Brennan, dated July 19, 2013 (‘‘Sutherland Letter’’). 5 Securities Exchange Act Release No. 70531 (Sept. 26, 2013), 78 FR 60985 (Oct. 2, 2013) (‘‘Order Instituting Proceedings’’). 6 See letters to Elizabeth M. Murphy, Secretary, Commission, from Tamara K. Salmon, Senior Associate Counsel, Investment Company Institute, dated November 8, 2013 (‘‘ICI Letter II’’); Roger Michaud, Chairman, College Savings Foundation, dated November 18, 2013 (‘‘CSF Letter II’’); Michael L. Fitzgerald, Chairman, College Savings Plans Network, dated November 18, 2013 (‘‘CSPN Letter II’’); and Michael B. Koffler, Partner, Sutherland Asbill & Brennan, dated November 18, 2013 (‘‘Sutherland Letter II’’). 7 Securities Exchange Act Release No. 71144 (December 19, 2013), 78 FR 78451 (December 26, 2013). 8 See letter to Elizabeth M. Murphy, Secretary, Commission, from Lawrence P. Sandor, Deputy General Counsel, MSRB, dated January 14, 2014 (‘‘MSRB Response Letter’’). 9 Amendment No. 1 has been placed in the public comment file for SR–MSRB–2013–04 at https:// www.sec.gov/comments/sr-msrb-2013-04/ msrb201304-11.pdf (see letter from Lawrence P. Sandor, Deputy General Counsel, MSRB, to Elizabeth M. Murphy, Secretary, Commission, dated January 14, 2014). In Amendment No. 1, the MSRB amended and restated the original proposed rule change to: (i) Clarify that the information submitted by underwriters includes asset allocation information for the assets of each investment option; (ii) omit statements concerning the interpretation of the meaning of ‘‘underwriter’’ under the federal securities laws and rules thereunder; (iii) clarify that each entity must determine, based on the facts and circumstances, whether it is an underwriter under the federal securities laws; (iv) revise the rule text to clarify that an underwriter that submits Form G–45 would be obligated to submit information only for itself PO 00000 Frm 00088 Fmt 4703 Sfmt 4703 11161 Commission is publishing this notice to solicit comments on Amendment No. 1 to the proposed rule change from interested persons and is approving the proposed rule change, as modified by Amendment No. 1, on an accelerated basis. II. Description of the Proposed Rule Change The MSRB’s Electronic Municipal Market Access (‘‘EMMA’’) system currently serves as a centralized venue for the submission by underwriters of 529 plan primary offering disclosure documents (‘‘plan disclosure documents’’) and continuing disclosures, such as annual financial reports submitted by issuers or their agents. The MSRB, however, does not currently receive detailed underwriting or transaction information as it does for other types of municipal securities. According to the MSRB, the proposed rule change will, for the first time, provide the MSRB with more comprehensive information regarding 529 plans underwritten by brokers, dealers, or municipal securities dealers by gathering data directly from such persons. The MSRB proposes to adopt Rule G– 45. Rule G–45 will require each underwriter of a primary offering of municipal fund securities 10 (excluding interests in local government and those entities that identify themselves as underwriters of the 529 plan and aggregate their information with the submitter’s information; (v) clarify that underwriters must identify the percentage of each underlying investment in an investment option but not submit information regarding the assets in each underlying investment; (vi) clarify that, for each investment option offered by a 529 plan, the underwriter will provide the MSRB with the name and allocation percentage of each underlying investment in each investment option as of the end of the most recent semi-annual period; (vii) clarify that the MSRB does not contemplate that a state sponsor of a 529 plan, as an instrumentality of the state, would be an underwriter under federal securities laws; (viii) explain that an underwriter would not be required to submit information on Form G–45 that it neither possesses nor has the legal right to obtain; (ix) explain that, to the extent the information submitted was prepared by the underwriter or, through delegation, one of its contractors or subcontractors, and the information was inaccurate or incomplete, the underwriter would be responsible for the information and therefore be liable for such information under proposed Rule G–45; and (x) clarify in Rule G–45 that performance data shall be reported annually. The MSRB also clarified various aspects of how the information should be reported on Form G–45. 10 The term ‘‘municipal fund security’’ is defined in MSRB Rule D–12 to mean a municipal security issued by an issuer that, but for the application of Section 2(b) of the Investment Company Act of 1940, would constitute an investment company within the meaning of Section 3 of the Investment Company Act of 1940. Interests in 529 plans are the only type of municipal fund security that will be covered by the proposed rule change. E:\FR\FM\27FEN1.SGM 27FEN1 11162 Federal Register / Vol. 79, No. 39 / Thursday, February 27, 2014 / Notices mstockstill on DSK4VPTVN1PROD with NOTICES investment pools) to report on Form G– 45 information relating to such offering by no later than 60 days following the end of each semi-annual reporting period ending on June 30 and December 31.11 In addition, the MSRB proposes to require that performance data be submitted annually by no later than 60 days following the end of the reporting period ending on December 31.12 The proposal also requires disclosure regarding plan descriptive information, asset allocation information, contributions, withdrawals, fee and cost structure, performance data, and other information.13 Under proposed Rule G–45, brokers, dealers, or municipal securities dealers that are underwriters under Rule 15c2– 12(f)(8) of the Act will have the obligation to submit the requested information.14 The MSRB notes that there may be more than one underwriter in a particular primary offering but will deem the reporting obligation fulfilled if any one of the underwriters submits the required information. Accordingly, on Form G–45, each submitter could provide the names of each underwriter that has identified itself as such and on whose behalf the information is submitted.15 The MSRB states that it will permit the performance, fee, and expense information to be submitted in a format consistent with the College Savings Plans Network’s (‘‘CSPN’’) published Disclosure Principles Statement No. 5 (‘‘Disclosure Principles’’), which commenters informed the MSRB is the industry norm for reporting such information. Lastly, the MSRB proposes to amend its books and records rules under Rules G–8 and G–9. The amended rules will require underwriters to maintain the information required to be reported on new Form G–45 for six years. 11 The proposed rule change will require an underwriter to report such information in the manner prescribed in the Form G–45 procedures and as set forth in the Form G–45 Manual. The MSRB states that the Form G–45 Manual will be a new manual created to assist persons in the submission of the information required under proposed Rule G–45 and will contain only the technical requirements for submitting such information. As such, this manual is not part of the proposed rule change. See Amendment No. 1. 12 See Amendment No. 1. 13 For more details on the specific requirements of the proposal, see Notice supra note 3. 14 17 CFR 240.15c2–12(f)(8). 15 The MSRB has stated that the underwriter will be obligated to submit information only for itself and those entities that identify themselves as underwriters of the plan and agree to aggregate their information with the information of the submitter. See Amendment No. 1. VerDate Mar<15>2010 17:58 Feb 26, 2014 Jkt 232001 III. Summary of Comments Received and the MSRB’s Response As noted above, the Commission has received a total of nine comment letters on the proposed rule change.16 Four of the commenters expressed general support for the MSRB’s desire to collect more comprehensive information relating to 529 plans.17 However, all of the commenters raised concerns or sought clarification about certain specific aspects of the proposal, including: (i) The scope of the definition of ‘‘underwriter’’; 18 (ii) the disclosure obligations of underwriters, including their ability to obtain, and verify the accuracy of, the requested information; 19 (iii) the need for publication of the Form G–45 Manual; 20 (iv) the MSRB’s plans to publicly disseminate information filed on Form G–45; 21 (v) the regulatory basis for the proposed rule change and value of the requested information on Form G–45; 22 and (vi) the statutory basis for the proposed rule change.23 Further, some commenters argued that the MSRB should analyze the costs and benefits associated with the proposed rule change.24 Finally, some commenters requested certain modifications to the content of Form G–45.25 A. Definition of ‘‘Underwriter’’ Several commenters objected to the MSRB’s interpretation of the term ‘‘underwriter’’ as used in Rule G–45 and stated that the MSRB should clarify the scope of the definition.26 These commenters cited the MSRB’s statements in the Notice suggesting that 529 plans may have multiple underwriters; that Rule 15c2–12(f)(8) under the Act, which the MSRB incorporates into Rule G–45, defines ‘‘underwriter’’ broadly; and that other 16 See supra notes 4 and 6. ICI Letter, ICI Letter II, SIFMA Letter, CSPN Letter, CSPN Letter II, CSF Letter, CSF Letter II. 18 See ICI Letter, ICI Letter II, SIFMA Letter, CSPN Letter, CSPN Letter II, CSF Letter, CSF Letter II. One commenter also questioned the MSRB’s interpretation of ‘‘direct-sold’’ versus ‘‘advisorsold’’ plans in relation to the scope of the rule and its application to underwriters. See Sutherland Letter, Sutherland Letter II. 19 See ICI Letter, ICI Letter II, CSPN Letter, CSPN Letter II, CSF Letter, CSF Letter II. 20 See ICI Letter, ICI Letter II, SIFMA Letter. 21 See ICI Letter, ICI Letter II, SIFMA Letter, CSPN Letter, CSPN Letter II, CSF Letter, CSF Letter II. 22 See Sutherland Letter, Sutherland Letter II. 23 See ICI Letter II, Sutherland Letter II, CSPN Letter II, CSF Letter II. 24 See CSPN Letter, CSPN Letter II, CSF Letter, CSF Letter II, Sutherland Letter, Sutherland Letter II, ICI Letter II. 25 See ICI Letter, ICI Letter II, SIFMA Letter, Sutherland Letter, Sutherland Letter II. 26 See ICI Letter, ICI Letter II, SIFMA Letter, CSPN Letter, CSPN Letter II, CSF Letter, CSF Letter II. 17 See PO 00000 Frm 00089 Fmt 4703 Sfmt 4703 entities (in addition to primary distributors) involved in operating or maintaining a plan, such as the plan’s program manager, their affiliates and/or contractors, could be deemed underwriters for purposes of the rule. One commenter 27 asserted that 529 plans typically have only one underwriter 28 and argued, along with other concurring commenters,29 that many other entities involved in operating and maintaining a plan, such as the plan’s program manager, recordkeeper, investment manager, custodian, and state sponsor, in most cases, would not and should not be underwriters for purposes of Rule G–45. Several commenters emphasized that, to fall within the definition of ‘‘underwriter’’ under Rule G–45, a person or entity must be a broker, dealer, or municipal securities dealer.30 One commenter argued that a plan’s program manager, recordkeeper, investment manager, custodian, and state sponsor generally are not brokers or dealers and therefore would not qualify as underwriters.31 Accordingly, this commenter requested that the MSRB clarify that the term ‘‘underwriter’’ would not include such entities if they provide services to the plan on behalf of the plan or its state sponsor. Two commenters also specifically argued that for purposes of Rule G–45 a state sponsor should not be treated as an underwriter, as they are not brokers, dealers, or municipal securities dealers.32 These commenters stated that language in the Notice implied that state sponsors could be deemed underwriters and thus requested confirmation that proposed Rule G–45 would not apply to municipal securities issuers exempted under Section 3(d) of the Act. Although not directly discussing the definition of ‘‘underwriter,’’ one commenter argued that the proposed rule and form should not apply to ‘‘direct-sold’’ plans because, by definition, such plans are sold without the involvement of a broker-dealer.33 This commenter stated that the distinction between ‘‘direct-sold’’ and ‘‘advisor-sold’’ plans is not simply a ‘‘marketing distinction,’’ as the MSRB had categorized it in the Notice, but is ‘‘critical in assessing the MSRB’s jurisdiction as it delineates between 27 See ICI Letter, ICI Letter II. ICI Letter. 29 See SIFMA Letter, CSPN Letter, and CSF Letter, which stated that they concur and/or endorse ICI’s comment. 30 See CSPN Letter, CSF Letter, ICI Letter. 31 See ICI Letter. 32 See CSPN Letter, CSF Letter. 33 See Sutherland Letter, Sutherland Letter II. 28 See E:\FR\FM\27FEN1.SGM 27FEN1 mstockstill on DSK4VPTVN1PROD with NOTICES Federal Register / Vol. 79, No. 39 / Thursday, February 27, 2014 / Notices those 529 [p]lans that are sold through broker-dealers and those that are not.’’ 34 Accordingly, this commenter concluded that ‘‘direct-sold’’ plans are not subject to the MSRB’s jurisdiction. Finally, one commenter expressed opposition to the imposition of the reporting requirements of the proposed Rule G–45 on ‘‘broker dealers that are not underwriters but that instead have entered into contracts with the plan’s underwriter (primary distributor) to sell plan shares to retail investors.’’ 35 In response to some commenters’ assertions that many entities involved in operating and maintaining a 529 plan are not acting as brokers, dealers or municipal securities dealers and thus cannot be underwriters for purposes of the rule, the MSRB stated that, depending on its activities, program managers and other plan providers might be ‘‘brokers’’ under Section 3(a)(4)(A) of the Act.36 In this regard, the MSRB discussed its understanding of the 529 plan administration and noted that it believed the activities of program managers may extend beyond investment management to other administrative activities. The MSRB also disagreed that 529 plan underwriters are limited to primary distributors. The MSRB stated that Rule G–45 incorporates and should be interpreted in the same manner as the definition of ‘‘underwriter’’ in Rule 15c2–12(f)(8) under the Act. The MSRB stated that the determination of whether a firm is an underwriter depends on the ‘‘facts and circumstances, including the activities the firm performs to assist in the distribution of municipal securities, rather than the firm’s status or common industry labels.’’ 37 Thus, the MSRB stated that, if an entity is a dealer and an underwriter as defined by the Act, it will be required to submit information on Form G–45. The MSRB also noted that the ‘‘potential pool of brokers or dealers is not necessarily limited to existing registrants but would encompass all firms that should be registered as such.’’ 38 The MSRB also clarified that it does not seek to impose reporting requirements on state sponsors or selling dealers. With regard to selling dealers, the MSRB stated that the proposal is ‘‘clear that no such obligation would be imposed on socalled advisor-sold plan selling dealers 34 See Sutherland Letter. SIFMA Letter. 36 See MSRB Response Letter. Section 3(a)(4)(A) of the Act defines a ‘‘broker’’ as any person engaged in the business of effecting transactions in securities for the account of others. 37 See MSRB Response Letter. 38 See MSRB Response Letter. 35 See VerDate Mar<15>2010 17:58 Feb 26, 2014 Jkt 232001 that are not underwriters.’’ 39 The MSRB also represented that it does not contemplate that a state sponsor of a 529 plan, as an instrumentality of the state, would be an underwriter pursuant to the ‘‘plain language’’ of Rule 15c2–12 under the Act. With regard to one commenter’s argument that the proposed rule should not apply to ‘‘direct sold’’ plans as distinguished from ‘‘advisor sold’’ plans, the MSRB stated that its ‘‘rules apply to dealers in their municipal fund securities activities, including their underwriting activities, regardless of the business model or marketing strategy involved.’’ 40 Each entity must determine, based on the facts and circumstances surrounding its own activities, if it meets the Act’s definitions of broker or dealer and underwriter. The MSRB stated that its rulemaking authority is not dependent on whether a firm provides investment advice to customers in conjunction with municipal securities underwriting services.41 B. Underwriter Reporting Obligation All five commenters believed the MSRB should clarify the disclosure obligations of underwriters.42 Four of these commenters stated that the MSRB is seeking information that many primary distributors will not be able to provide.43 All of the commenters suggested that the MSRB clarify or confirm that underwriters would not be responsible for certain information that is outside of their possession, custody, or control. For example, one commenter requested that the MSRB clarify that, when an underwriter, in its normal course of business, does not create, own, control, or possess information necessary for Form G–45, the underwriter will not be required to obtain such information.44 Another commenter requested that the MSRB clarify that an underwriter is required to provide the requisite information only to the extent such information relates to the distribution by the underwriter of municipal fund securities and is in the 39 See MSRB Response Letter. MSRB Response Letter. 41 The MSRB added that, based on its experience in this area, it believes that it is common for a program manager to contract with the trustee of a plan to provide administrative, marketing, and other services on behalf of the plan and that the entities hired by the trustee are essential to the undertaking, which includes soliciting municipal fund securities transactions and handling customer funds and municipal fund securities. 42 See ICI Letter, ICI Letter II, SIFMA Letter, CSPN Letter, CSPN Letter II, CSF Letter, CSF Letter II, Sutherland Letter, Sutherland Letter II. 43 See ICI Letter, CSPN Letter, CSF Letter, Sutherland Letter. 44 See ICI Letter. 40 See PO 00000 Frm 00090 Fmt 4703 Sfmt 4703 11163 underwriter’s possession or maintained by another entity on the underwriter’s behalf for purposes of complying with MSRB rules.45 Several commenters raised concerns that contractual provisions or privacy laws might not permit an underwriter to obtain the information required by the proposed rule and form.46 In this regard, one commenter sought confirmation that, where the sharing of information between an underwriter and a recordkeeper would violate contractual provisions, the information would be deemed to be outside of the possession or control of the underwriter and not subject to the reporting obligations of Rule G–45.47 Another commenter noted that, in the context of omnibus agreements, whether the required information is available to an underwriter is dependent on comprehensive servicing agreements between the plan, the underwriter, and the selling dealers.48 Thus, this commenter noted that the agreements may not provide the underwriter with legal access to certain information and, as such, an underwriter should not be required to report such information on Form G–45. Two commenters raised concerns about the MSRB’s suggestion that an underwriter’s disclosure obligation extends to ‘‘information in the possession of an underwriter’s subcontractor.’’ 49 These commenters believed this suggestion ‘‘will produce confusion and disparate reporting results’’ depending on factors unrelated to Rule G–45 regulatory compliance.50 In particular, the commenters noted that, while some information may be in the possession of an underwriter’s ‘‘subcontractor,’’ other information may be in the possession of an unaffiliated or affiliated entity that is not a subcontractor, and privacy laws and contractual requirements may apply differently. One commenter questioned the meaning of the MSRB’s statement in the Notice that underwriters would be required to produce only information that they possess or ‘‘have a legal right to obtain.’’ 51 The commenter stated that ‘‘unless the primary distributor has a specific, enforceable legal right, such as one existing under law (such as a right created by a statutory provision) or arising from a specific contractual 45 See CSPN Letter. CSF Letter, CSPN Letter, SIFMA Letter, Sutherland Letter. 47 See Sutherland Letter. 48 See SIFMA Letter. 49 See CSPN Letter, CSF Letter. 50 See CSPN Letter, CSF Letter. 51 See Sutherland Letter. 46 See E:\FR\FM\27FEN1.SGM 27FEN1 mstockstill on DSK4VPTVN1PROD with NOTICES 11164 Federal Register / Vol. 79, No. 39 / Thursday, February 27, 2014 / Notices provision, to obtain specified information maintained by a third party, the primary distributor does not have a legal right to obtain the information for purposes of the proposal.’’ 52 As such, the commenter asserted that an underwriter may not be able to provide information in the possession of an underwriter’s subcontractor. Two commenters also provided comments relating specifically to omnibus accounts, stating that Rule G– 45 and Form G–45 should recognize that, to the extent an underwriter does not, in the normal course of business, have access to information on the accounts underlying an omnibus accounting arrangement, the underwriter should not be required to report such information.53 These commenters also stated that, ‘‘in practice, the mere fact that there is an omnibus relationship between a selling dealer and a plan’s underwriter does not necessarily mean the underwriter has full transparency into all account information, including account owners, beneficiaries, contributions, and withdrawals, underlying the omnibus account.’’ 54 Lastly, two commenters contended that, if the underwriter is able to obtain the required information from a third party, the MSRB should clarify that the underwriter is not responsible for ensuring the accuracy or completeness of the information before including it on Form G–45.55 In response, the MSRB reaffirmed that the proposal would require an underwriter of a 529 plan to submit only information it possesses or has a legal right to obtain. In this regard, the MSRB stated its belief that an underwriter has a legal right to obtain all information that is related to its activities in connection with the underwriting, even where it has designated an affiliate or contractor to perform such activities. The MSRB disagreed with commenters who suggested that, if a contractual provision prohibited the sharing of information, an underwriter should not be responsible for providing such information under Rule G–45 and Form G–45. Specifically, the MSRB stated that the legal right to obtain information for purposes of Rule G–45 is not affected by a ‘‘voluntary relinquishment, by contract or otherwise, of such a right.’’ 56 Furthermore, the MSRB stated that, to the extent that information reported in 52 See Sutherland Letter. 53 See ICI Letter, SIFMA Letter. 54 See ICI Letter, SIFMA Letter. 55 See ICI Letter, Sutherland Letter, Sutherland Letter II. 56 See MSRB Response Letter. VerDate Mar<15>2010 17:58 Feb 26, 2014 Jkt 232001 Form G–45 is prepared by the underwriter or one of its contractors or subcontractors, and the information is inaccurate or incomplete, the underwriter would be responsible for the information and therefore be liable for such information under Rule G–45. However, the MSRB explained that if the underwriter did not prepare, or authorize others to prepare on its behalf, information submitted under Rule G–45, it would not be obligated to verify or confirm the accuracy and completeness of the information. C. Publication of the Form G–45 Manual Two commenters believed that the MSRB should be required to publish for comment the contents of the Form G–45 Manual (‘‘Manual’’) predicting that the Manual would contain important substantive information concerning the reporting obligations under Form G– 45.57 One commenter believed that the ‘‘Manual’s contents will not be limited to technical specifications or design or system considerations relating to the mechanics of the electronic filing process.’’ 58 This commenter asserted that, apart from the addition of boxes for notes regarding performance data and fee and expense data, neither Form G– 45 nor Rule G–45 reflects the MSRB’s statements in the Notice that information may be submitted in a manner consistent with the Disclosure Principles. As such, the commenter concluded that the details regarding how to report data consistent with these Disclosure Principles would necessarily have to be set forth in the Manual. Another commenter similarly stated that it believed that the Manual would incorporate the detailed substantive instructions of the Disclosure Principles.59 Both commenters also suggested that the one-year implementation period should commence after the Manual has been published for comment and approved by the Commission.60 In response, the MSRB represented that the Manual will only provide ‘‘technical requirements to facilitate the submission of information required by proposed Rule G–45 and Form G–45.’’ 61 For example, the Manual will most likely include both instructions on how to upload bulk data to the MSRB’s 57 See ICI Letter, ICI Letter II, SIFMA Letter. ICI Letter. 59 See SIFMA Letter. This commenter noted that, while the MSRB explained in the Notice that the information required on Form G–45 will be reported consistently with the reporting formats under the Disclosure Principles, proposed Rule G– 45 and Form G–45 are silent on this point. 60 See ICI Letter, SIFMA Letter. 61 See MSRB Response Letter. 58 See PO 00000 Frm 00091 Fmt 4703 Sfmt 4703 system and instructions on data entry through the MSRB’s interface. Because the content of the Manual is dependent on ‘‘system architecture’’ which is dependent on the scope of the proposed rule change, the MSRB stated that submission of the Form G–45 Manual as part of a proposed rule change would ‘‘unreasonably retard systems development.’’ 62 Moreover, the MSRB indicated that the ‘‘data elements required to be submitted by 529 plan underwriters are specified in the proposed rule change and need not be the subject of an additional, separate filing.’’ 63 Finally, the MSRB stated that the proposed implementation period of not earlier than one year from the date of Commission approval of the current proposed rule change is sufficient time for market participants to prepare to comply with Rule G–45. D. Publication of the G–45 Data Three commenters believed that confidential or proprietary information reported on Form G–45 should not be made available to the general public.64 One commenter, for example, stated that the data collected pursuant to Rule G– 45 ‘‘should be used to inform the MSRB’s regulatory initiatives and priorities and not to compete with other more mature, robust, and comprehensive public sources of information on 529 plans.’’ 65 Another commenter stated that the MSRB should be required to file a proposed rule change subject to Commission approval before the MSRB publicly disseminate certain 529 plan data reported on Form G–45.66 In response, the MSRB reiterated that it would publicly disseminate the information collected on Form G–45 only after the approval of a separate proposed rule change by the Commission. The MSRB confirmed that, at this time, it does not intend to disseminate through EMMA the information collected under the proposal and that such information would be used only for regulatory purposes. E. Regulatory Value of Required Information and Regulatory Basis for the Proposal Two commenters suggested that the proposed rule change fails to satisfy the requirements of Section 15B(b)(2)(C) of the Act.67 In particular, one commenter 62 See MSRB Response Letter. MSRB Response Letter. 64 See ICI Letter, ICI Letter II, CSPN Letter, CSPN Letter II, CSF Letter, CSF Letter II. 65 See ICI Letter. 66 See SIFMA Letter. 67 See Sutherland Letter II, ICI Letter II. 63 See E:\FR\FM\27FEN1.SGM 27FEN1 Federal Register / Vol. 79, No. 39 / Thursday, February 27, 2014 / Notices questioned how the information to be collected would help the MSRB, FINRA and the Commission protect investors and the public interest.68 The other commenter added that the information collected on Form G–45 would not assist the MSRB in preventing fraud, promoting just and equitable principles of trade, fostering industry cooperation, or removing market impediments in the 529 plan market. The commenter further asserted that the requested information would be substantially incomplete because the information obtained would not include data on ‘‘direct-sold’’ 529 plans, which the commenter stated represents more than half of the assets in the 529 plan industry. The commenter also noted that certain information is already publicly available and includes both ‘‘broker-sold’’ and ‘‘direct-sold’’ plans. Finally, the commenter argued that the MSRB’s jurisdiction does not extend to regulating the 529 plan market because the MSRB’s regulatory authority is limited to regulating broker-dealers that distribute and sell municipal securities.69 The commenter also suggested that the MSRB does not have the legal authority or jurisdiction to mandate disclosure of underlying investments because they are not municipal securities. Two commenters also stated that disclosure of information pertaining to the underlying investments is beyond what is required by the Disclosure Principles.70 Moreover, one commenter recommended that, if the MSRB determines in the future that there would be regulatory value in having this information, the MSRB should revise Form G–45 at that time.71 In response to the commenter’s questions regarding the regulatory authority for the proposal, the MSRB pointed to Section 15B(b)(2) of the Act, which ‘‘authorizes the MSRB to adopt rules to effect the purpose of the Exchange Act concerning transactions in municipal securities effected by dealers.’’ 72 The MSRB represented that interests in 529 plans are considered to be municipal securities and that the MSRB has categorized such interests as municipal fund securities. The MSRB also stated that its rules ‘‘govern the 68 See Sutherland Letter, Sutherland Letter II. commenter also objected to the MSRB’s request for information on Form G–45 related to plan fees and expenses. The commenter suggested that because the MSRB does not have jurisdiction over the regulation of 529 plans, it should not require primary distributors to submit data concerning securities product fees that are unrelated to the primary distributor. 70 See ICI Letter, SIFMA Letter. 71 See ICI Letter. 72 See MSRB Response Letter. mstockstill on DSK4VPTVN1PROD with NOTICES 69 This VerDate Mar<15>2010 17:58 Feb 26, 2014 Jkt 232001 activities of dealers that effect any transaction in, or induce or attempt to induce the purchase or sale of, any municipal fund security’’ and such dealers engaging in these activities are subject to the MSRB’s rulemaking authority.73 Moreover, the MSRB argued that the proposal is consistent with the Act because the requested information will enhance its understanding of 529 plans and ‘‘assist the Board in evaluating whether its regulatory scheme for 529 plans is sufficient, or whether additional rulemaking is necessary to protect investors.’’ 74 The MSRB stated that the information will allow regulators to compare asset allocation, performance, and fee information across plans and against plan disclosures and marketing material. This information will help regulators protect investors and prevent fraudulent and misleading statements in plan disclosure documents and advertising. The information will inform its rulemaking regarding disclosures and advertising and will help ‘‘identify industry trends and anomalies’’ and assist regulators prioritize their efforts with respect to 529 plans, including the nature and timing of risk-based dealer examinations.75 The MSRB also observed that the information required under the proposal is easily obtainable by underwriters because it is often disclosed in 529 plan offering documents.76 The MSRB also noted that Form G–45 only requires the name of the investment product (typically a mutual fund) and the allocation percentage of each product in the investment option. Finally, the MSRB recognized that while some of the requested information is available publicly, there is no legal requirement to reliably produce the information and it is not currently available in an electronic format that lends itself to analysis. F. Contents of Form G–45 Some commenters provided suggestions for modifications to the specific information requested by Form G–45 or sought clarification on how to report certain information on the form, as discussed below.77 In response, the MSRB stated generally that it believed that proposed Form G–45 was clear and specific. However, in response, the 73 See MSRB Response Letter. MSRB Response Letter. 75 See MSRB Response Letter. 76 The MSRB provided that, for example, the Texas direct-sold 529 plan’s offering document contains information about underlying investments. 77 See ICI Letter, Sutherland Letter, Sutherland Letter II, SIFMA Letter. 74 See PO 00000 Frm 00092 Fmt 4703 Sfmt 4703 11165 MSRB also provided some additional detail and clarification, as described below. i. Investment Option Information One commenter requested that the MSRB clarify how to report in Form G– 45 an investment option that is used for multiple purposes.78 This commenter also recommended that the MSRB clarify how underwriters should report fee, expense, and performance information for a mutual fund that issues multiple classes of shares with fees and expenses that vary from class to class. Another commenter questioned how underwriters are supposed to report asset class and asset class percentages and suggested that the two items related to asset class be eliminated.79 This commenter asserted that investment options do not have or invest in asset classes, thus the use of the phrase ‘‘asset classes in investment option’’ is unclear.80 One commenter also recommended that the investment option information be reported in ranges rather than precise amounts, where appropriate (e.g., asset class allocation percentages), because the use of ranges would relieve underwriters of having to revise previously reported information whenever there is a de minimus change.81 This commenter further suggested that, if the MSRB elects not to use ranges, it should consider revising the rule such that an update is not required to previously reported information unless there has been more than a de minimus change. In response, the MSRB affirmed that Form G–45 requires disclosure at the investment option level only and each investment option would report its underlying investments separately.82 The MSRB asserted that 529 plans routinely track investments at both the underlying investment and investment option level and therefore should have little difficulty in reporting this information. The MSRB explained that, for example, if an investment option invests in five mutual funds, the submitter would disclose those five funds and the allocation percentage of each in the investment option. The MSRB also clarified that an underwriter must identify the assets held by each investment option separately, even if 78 See ICI Letter. Sutherland Letter. 80 See Sutherland Letter. 81 See ICI Letter. 82 The MSRB further confirmed that a fund that is both an underlying investment and a stand-alone investment option would not be aggregated. Rather, data would be reported for each investment option. 79 See E:\FR\FM\27FEN1.SGM 27FEN1 11166 Federal Register / Vol. 79, No. 39 / Thursday, February 27, 2014 / Notices mstockstill on DSK4VPTVN1PROD with NOTICES another investment option invested in the same funds. Likewise, with regard to commenters’ concerns regarding asset class information, the MSRB represented that data on asset class and asset class percentages are readily available and already presented in certain plan documents. The MSRB also stated that, with regard to investment options that are a mutual fund with multiple share classes, Form G–45 includes fields for fees and charges related to each share class. The MSRB also disagreed with the request that information be reported in ranges rather than precise amounts, stating that ‘‘precision is needed regarding asset allocations.’’ 83 The MSRB also noted that this information is readily available to underwriters. Further, the MSRB disagreed with the request that, alternatively, it should require the submission of updates only where there is more than a de minimus change, stating that defining ‘‘de minimus’’ could pose problems because even a small change in the information reported could be material. ii. Performance Information One commenter raised several issues with respect to performance information and provided the following specific recommendations: (i) Resolve a discrepancy between the definition of ‘‘performance’’ in Rule G–45(d)(viii) (which provides for ‘‘total returns of the investment option expressed as a percentage net of all generally applicable fees and costs’’) and the requirement in Form G–45 (which requires that performance be reported both ‘‘including sale charges’’ and ‘‘excluding sales charges’’); (ii) clarify whether a plan that is directly distributed and that has no ‘‘sales charges’’ is expected to report the same information under ‘‘Investment Performance (Including Sales Charges)’’ and ‘‘Investment Performance (Excluding Sales Charges)’’ or just the later; (iii) clarify that fees that are not specific to any particular investment option are not required to be included in the performance calculation; (iv) resolve a discrepancy between a statement in the Notice that Form G–45 requires ‘‘performance for the most recent calendar year’’ and the Form G– 45 requirement for disclosure of each investment option’s 1, 3, 5 and 10 year performance, as well as the option’s performance since inception; and (v) include a comment box under each of the two sections of Form G–45 relating to Investment Performance to avoid confusion as to whether the comments relate to performance excluding or including a sales charge.84 Furthermore, this commenter recommended that the MSRB clarify that a 529 plan is only required to report benchmark information if the 529 plan, in fact, uses a benchmark. In response, the MSRB stated that Form G–45 provides fields for reporting performance including and excluding sales charges. In addition, the MSRB indicated that Rule G–45 defines performance to mean total returns of the investment option expressed as a percentage, net of all generally applicable fees and costs. The MSRB disagreed with the commenter’s assertion that there was a discrepancy between the definition of ‘‘performance’’ in Rule G–45 and the Form G–45’s reporting requirement of performance data, stating that ‘‘Form G– 45 is consistent with the CSPN’s Disclosure Principles Statement No. 5, which suggests that performance data should be disclosed net of all generally applicable fees and costs and that, for advisor sold plans, total returns should be calculated both including and excluding sales charges.’’ 85 Moreover, the MSRB stated that fees that are not specific to any particular investment option would not be applicable. Regarding Form G–45’s requirement to report performance for the most recent calendar year, the MSRB stated that performance data must only be updated annually and submitters must disclose each investment option’s 1, 3, 5 and 10 year performance as well as the option’s performance since inception, as of the annual update. The MSRB also stated that it believed including two investment performance comment boxes is unnecessary because a single comment box for all comments would not likely result in confusion by the submitters. Finally, regarding benchmark performance, the MSRB confirmed that an underwriter of a 529 plan that does not use a benchmark will not be required to report benchmark performance. In such case, the MSRB represented that the Form G–45 Manual will instruct a filer to leave the section of the form blank. iii. Marketing Channel One commenter questioned the value of requesting information on the ‘‘marketing channel,’’ which the MSRB described to be commonly known as either ‘‘advisor-sold’’ or ‘‘direct sold.’’ 86 As discussed above, this commenter 84 See ICI Letter. MSRB Response Letter. 86 See Sutherland Letter. 85 See 83 See MSRB Response Letter. VerDate Mar<15>2010 17:58 Feb 26, 2014 Jkt 232001 PO 00000 Frm 00093 Fmt 4703 Sfmt 4703 argued that the requirements of the rule should not apply to ‘‘direct-sold’’ plans, since they do not involve a brokerdealer offering the securities. As such, the commenter asserted that only broker-dealers could be required to provide the information about ‘‘advisorsold’’ plans, unless non-broker-dealers also made voluntary filings. Such voluntary filings, the commenter urged, would only cause investor confusion. In response, the MSRB stated that it believed one or more entities that provide services to ‘‘direct-sold’’ plans may be underwriters and nothing in the Act limits the MSRB’s rulemaking authority to ‘‘advisor-sold’’ plans, as discussed above. iv. Program Managers One commenter suggested that all information requests related to program managers should be deleted from Form G–45 because the MSRB lacks jurisdiction ‘‘to seek information about an entity hired by 529 [p]lan trustees to provide services to the plan when neither the issuer nor the entity are regulated by the MSRB.’’ 87 The commenter further questioned the relevance of such information to the MSRB’s role as a securities regulator of broker-dealers distributing municipal securities. In addition to what is described above with regard to program managers being subject to the rule, the MSRB stated that program managers ‘‘contract with state sponsors to, in many cases, deliver a variety of services necessary to distribute and sell municipal fund securities.’’ 88 Further, program managers ‘‘often provide, directly or through contractors or subcontractors, administrative services, marketing and advertising services, and investor support.’’ 89 Moreover, the MSRB stated that information about program managers is frequently found in offering documents and available to the public. G. Costs and Benefits of the Proposal Four commenters addressed the costs and benefits of collecting the required information.90 One commenter stated that, while the MSRB concluded in the Notice that the benefits of its proposal will outweigh the costs, the MSRB failed to quantify either the benefits or the costs.91 Two commenters suggested that the MSRB should conduct an analysis of the costs and benefits associated with the proposal to be 87 See Sutherland Letter. MSRB Response Letter. 89 See MSRB Response Letter. 90 See CSPN Letter, CSF Letter, Sutherland Letter, Sutherland Letter II, ICI Letter II. 91 See Sutherland Letter. 88 See E:\FR\FM\27FEN1.SGM 27FEN1 mstockstill on DSK4VPTVN1PROD with NOTICES Federal Register / Vol. 79, No. 39 / Thursday, February 27, 2014 / Notices consistent with the MSRB’s recently announced Policy on the Use of Economic Analysis in MSRB Rulemaking (‘‘Policy’’) and to enhance the MSRB’s ability to tailor its rules to ensure that its costs and burdens are balanced with its expected benefits.92 Finally, two commenters suggested that the Commission consider adding a waiver and/or sunset provision designed to mitigate the cost burden of an underwriter’s disclosure duty.93 The two commenters also stated that the addition of ‘‘a waiver application process will allow the affected underwriter to request relief from providing data that is not reasonably practicable to obtain.’’ 94 Similarly, these commenters believed a sunset provision could also ‘‘ease the administrative burden to underwriters required to submit information on Form G–45.’’ 95 In addition, these commenters suggested that the MSRB reexamine its need to collect each data point after a specified period of time and revise Rule G–45 accordingly in the event the MSRB determines that certain data points are no longer relevant.96 In response, the MSRB stated that a waiver or sunset provision is unnecessary because most of the information requested is readily available to underwriters. In addition, the MSRB stated that neither commenter provided data or other specific support for their view that the costs would be sufficiently high to justify a waiver or sunset provision. The MSRB also stated that it made significant changes to the proposal based on industry and public input in order to ease the burden on submitters. In response to suggestions that the MSRB should conduct an economic analysis of the proposed rule change, the MSRB explained that, although the Policy is not applicable to the proposed rule change because the proposal began prior to the Policy’s adoption, the MSRB considered the burdens and benefits of the proposed rule change throughout the rulemaking process consistent with the Policy. Among other things, the MSRB stated that the proposal will enable the MSRB to fulfill its oversight responsibilities over dealers acting as underwriters of 529 plans by providing the MSRB with a consistent set of reliable information about 529 plans. As for costs, the MSRB stated that the main cost of the proposal would likely be the 92 See Sutherland Letter II, ICI Letter II. CSPN Letter, CSF Letter. 94 See CSPN Letter, CSF Letter. 95 See CSPN Letter, CSF Letter. 96 The CSPN Letter and CSF Letter suggested three years. 93 See VerDate Mar<15>2010 17:58 Feb 26, 2014 Jkt 232001 cost to underwriters of conforming to the proposal’s reporting requirements. However, the MSRB stated that it expects compliance costs to diminish once underwriters become familiar with the new disclosure format. The MSRB also stated that it identified both baseline conditions and reasonable alternatives to the proposed rule change. In particular, the MSRB explained that the information currently produced by underwriters on EMMA represents a relevant baseline for market participants in which the requirements of proposed Rule G–45 can be compared. In this regard, the MSRB stated that the benefits of a ‘‘uniform and complete set of reliable information exceeds the benefits derived under the baseline situation in which documents supplied to EMMA or other information supplied to information vendors that is not uniform, is not complete, and may not be reliable.’’ 97 Additionally, the MSRB identified reasonable alternatives to the proposed rule change, including maintaining the current disclosure regime through EMMA or other Web sites, but determined that the type of information collected is inadequate because it is not uniform or complete. Further, the MSRB considered public comments that addressed the potential economic consequences of the proposed rule and modified the proposal to minimize the reporting burden on underwriters. For example, the MSRB stated that it reduced the potential cost to underwriters by, among other things, extending the reporting deadline from thirty days to sixty days after the end of the reporting period, eliminating the reporting of percentage of plan contributions derived from automatic contributions, and conforming the reporting format for fees and performance to the Disclosure Principles. Finally, the MSRB represented that only a limited number of dealers would be obligated to submit information to the MSRB.98 IV. Discussion and Commission Findings The Commission has carefully considered the proposed rule change, as modified by Amendment No. 1, as well as the comment letters received and the MSRB’s response. The Commission finds that the proposed rule change, as amended, is consistent with the requirements of the Act and the rules MSRB Response Letter. MSRB states that ‘‘[t]here are over 1600 MSRB registered dealers but only approximately one hundred 529 plans and even fewer underwriters, as certain firms act as underwriters for multiple plans.’’ See MSRB Response Letter. 11167 and regulations thereunder applicable to the MSRB.99 In particular, the proposed rule change is consistent with Section 15B(b)(2)(C) of the Act, 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.100 The Commission believes that the proposed rule change is consistent with Section 15B(b)(2)(C) of the Act. The Commission agrees with the MSRB that the proposal is intended to protect investors, municipal entities and the public interest and prevent fraudulent and manipulative acts and practices by allowing the MSRB to collect comprehensive, reliable, and consistent electronic data on the 529 plans. In order to fulfill its statutory responsibilities to investors and municipal entities in the context of 529 plans, the Commission believes that it is appropriate for the MSRB to possess basic, reliable information regarding 529 plans, including the underlying investment options. Further, the Commission believes that information collected under the proposed rule change would help the MSRB assess the impact of each 529 plan on the market, evaluate trends and differences among plans, and gain an understanding of the aggregate risk taken by investors by the allocation of assets in each investment option. Such information may also be used to determine the nature and timing of risk-based dealer examinations and thus better position the MSRB to protect investors and the public interest. In addition, the Commission believes the proposed rule change is reasonably designed to prevent fraudulent and manipulative acts and practices and to protect investors. The proposed rule change could help the MSRB to use the information submitted on Form G–45 to, among other things, determine if the 529 plan disclosure documents or marketing material prepared or reviewed by 97 See 98 The PO 00000 Frm 00094 Fmt 4703 Sfmt 4703 99 In approving the proposed rule change, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). 100 15 U.S.C. 78o–4(b)(2)(C). E:\FR\FM\27FEN1.SGM 27FEN1 11168 Federal Register / Vol. 79, No. 39 / Thursday, February 27, 2014 / Notices mstockstill on DSK4VPTVN1PROD with NOTICES underwriters are consistent with the data submitted to the MSRB. The Commission also notes that the MSRB believes that collecting information about activity in 529 plans is necessary to assist the MSRB in evaluating whether its current regulatory scheme for 529 plans is sufficient or whether additional rulemaking is necessary to protect investors and the public interest. The Commission believes that the MSRB, in its response letter, has adequately addressed issues raised by commenters. Namely, with regard to questions regarding the MSRB’s jurisdiction,101 the Commission agrees that Section 15B(b)(2) of the Act authorizes the MSRB to adopt rules to effect the purpose of the Act concerning transactions in municipal securities effected by dealers.102 As the MSRB noted in its response letter, the Commission has previously stated that interests in 529 plans are considered to be municipal securities.103 With respect to comments regarding the scope of the definition of ‘‘underwriter,’’ 104 the Commission believes that the MSRB, in its response letter and Amendment No. 1, reduced potential confusion as to whom the obligations of the rule apply. The Commission also believes that the MSRB alleviated concerns that the terms used in the proposed rule may be interpreted by the MSRB in a manner potentially inconsistent with statutory and Commission rule definitions of ‘‘underwriters’’ and ‘‘broker-dealers.’’ As noted above, the MSRB represented that Rule G–45 incorporates the Commission’s definition of underwriter and the determination of whether a firm is an underwriter turns on the facts and circumstances, including the activities the firm performs to assist in the distribution of municipal securities, rather than the firm’s status or common industry labels. The Commission agrees with the MSRB that whether a firm is an underwriter will require an individual analysis of the particular facts. The Commission also notes that the MSRB, in its response letter, provided further clarity with regard to the reporting obligations of underwriters. Thus, the Commission believes that the MSRB’s response will allow respondents to be able to ascertain the 101 See supra Section 3.E. U.S.C. 78o–4(b)(2). 103 See Securities Exchange Act Release No. 70462 (September 20, 2013), 78 FR 67468, 67472– 73 (November 12, 2013) (stating: ‘‘Interests offered by college savings plans (‘‘529 Savings Plans’’) that comply with Section 529 of the Internal Revenue Code [footnote omitted] are another type of municipal security’’). 104 See supra Section 3.A. 102 15 VerDate Mar<15>2010 17:58 Feb 26, 2014 Jkt 232001 scope of their obligations under the proposed rule, including the extent to which they are responsible for providing, and verifying the accuracy of, information not in their possession. Specifically, the MSRB confirmed that the proposal will require an underwriter of a 529 plan to submit only information it possesses or has a legal right to obtain, noting that an underwriter has the legal right to obtain all information that is related to its activities in connection with the underwriting. The MSRB also noted that voluntary relinquishment of the legal right to obtain information for purposes of Rule G–45, such as by contractual provision, would not relieve an underwriter of its responsibility for providing such information. With respect to comments that the Manual should be published for comment,105 the MSRB has represented that the Manual will only provide technical requirements to facilitate the submission of information, not substantive information concerning the reporting obligations under Form G–45. Based on the MSRB’s representation that the Manual will contain purely technical specifications, such as instructions for data entry, the Commission does not believe that the Manual must submitted as part of the proposed rule change. The Commission notes, however, that should the Manual contain any substantive requirements, it would need to be submitted as part of a proposed rule change pursuant to Section 19(b)(1) of the Act 106 and Rule 19b–4 thereunder.107 Finally, the Commission believes that the MSRB has adequately clarified the reporting obligations on Form G–45. In this regard, the MSRB has responded to commenters’ specific inquiries regarding how to report certain information on Form G–45 in both the MSRB’s response letter and Amendment No 1.108 Accordingly, the Commission believes that these clarifications should result in more complete and correctly reported data that should allow the MSRB to fulfill its stated regulatory goals of obtaining accurate, reliable, and complete data in order to further assess and carry out its rulemaking responsibilities in this area. For these reasons, the Commission believes that the proposed rule change, as modified by Amendment No. 1, is consistent with the Act. 105 See supra Section 3.C. 106 15 U.S.C. 78s(b)(1). 107 17 CFR 240.19b–4. 108 See supra Section 3.F. PO 00000 Frm 00095 Fmt 4703 Sfmt 4703 V. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether Amendment No. 1 to 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–2013–04 on the subject line. Paper Comments • Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–MSRB–2013–04. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (https://www.sec.gov/ rules/sro.shtml ). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street NE., Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of 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– 2013–04 and should be submitted on or before March 20, 2014. VI. Accelerated Approval of Proposed Rule Change, as Modified by Amendment No. 1 The Commission finds good cause for approving the proposed rule change, as E:\FR\FM\27FEN1.SGM 27FEN1 mstockstill on DSK4VPTVN1PROD with NOTICES Federal Register / Vol. 79, No. 39 / Thursday, February 27, 2014 / Notices amended by Amendment No. 1, prior to the 30th day after the date of publication of notice in the Federal Register. As discussed above, Amendment No. 1 amends and restates the original proposed rule change to: (i) Clarify that the information submitted by underwriters includes asset allocation information for the assets of each investment option; (ii) omit statements concerning the interpretation of the meaning of ‘‘underwriter’’ under the federal securities laws; (iii) clarify that each entity must determine, based on the facts and circumstances, whether it is an underwriter under the federal securities laws; (iv) revise the rule text to clarify that an underwriter that submits Form G–45 would be obligated to submit information only for itself and those entities that identify themselves as underwriters of 529 plans and that aggregate their information with the submitter’s information; (v) clarify that underwriters identify the percentage of each underlying investment in an investment option but not submit information regarding the assets in each underlying investment; (vi) clarify that, for each investment option offered by a 529 plan, the underwriter will provide the MSRB with the name and allocation percentage of each underlying investment in each investment option as of the end of the most recent semiannual period; (vii) clarify that the MSRB does not contemplate that a state sponsor of a 529 plan, as an instrumentality of the state, would be an underwriter under federal securities laws; (viii) explain that an underwriter would not be required to submit information on Form G–45 it neither possesses nor has the legal right to obtain; (ix) explain that, to the extent the information submitted on Form G– 45 was prepared by the underwriter or, through delegation, one of its contractors or sub-contractors, and the information was inaccurate or incomplete, the underwriter would be responsible for the information and therefore be liable for such information under proposed Rule G–45; and (x) revise the rule text to clarify in Rule G– 45 that performance data shall be reported annually. These proposed revisions respond to a number of concerns expressed in the comment letters discussed above. The Commission believes that these revisions provide greater clarity on several aspects of the proposal, such as to whom the obligations of the proposed rule apply and the scope of the information that is required to be submitted by underwriters of 529 plans. Accordingly, the Commission finds VerDate Mar<15>2010 17:58 Feb 26, 2014 Jkt 232001 good cause for approving the proposed rule change, as modified by Amendment No. 1, on an accelerated basis, pursuant to Section 19(b)(2) of the Act. VII. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,109 that the proposed rule change (SR–MSRB–2013– 04), as modified by Amendment No. 1, be, and hereby is, approved on an accelerated basis. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.110 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2014–04242 Filed 2–26–14; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–71597; File No. SR– NASDAQ–2014–004] Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing of Amendment No. 1, and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 1, To Amend Exchange Rule 4754 Governing the NASDAQ Closing Cross February 21, 2014. I. Introduction On January 7, 2014, The NASDAQ Stock Market LLC (‘‘NASDAQ’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to amend Exchange Rule 4754 governing the NASDAQ Closing Cross. The proposed rule change was published for comment in the Federal Register on January 14, 2014.3 The Commission received no comments on the proposal. On February 20, 2014, NASDAQ filed Amendment No. 1 to the proposed rule change.4 This order approves the 109 15 U.S.C. 78s(b)(2). CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 See Securities Exchange Act Release No. 71254 (January 8, 2014), 79 FR 2493 (‘‘Notice’’). 4 In Amendment No. 1, NASDAQ amended the proposal: (i) To clarify that an additional tie-breaker will apply to selecting the execution price of the LULD Closing Cross (defined below); (ii) to describe the treatment of IO orders (defined below) prior to the determination of the execution price; (iii) to make a change the type of information that will be disseminated during a Trading Pause prior to the end of regular trading hours; (iv) to describe its 110 17 PO 00000 Frm 00096 Fmt 4703 Sfmt 4703 11169 proposed rule change, as modified by Amendment No. 1, on an accelerated basis. II. Description of the Proposal In its filing with the Commission, the Exchange proposes to amend Exchange Rule 4754 governing the NASDAQ Closing Cross (‘‘Cross’’),5 to modify the operation of the Cross to accommodate changes in market structure triggered by Phase 2 of the National Market System Plan to Address Extraordinary Market Volatility submitted to the Commission pursuant to Rule 608 of Regulation NMS (‘‘Plan’’).6 The Exchange proposes to create the LULD Closing Cross,7 which modifies the Cross in circumstances where a Plan Trading Pause is triggered between 3:50 and 4:00 p.m. EST (‘‘LULD Closing Cross’’). The Plan is designed to prevent trades in individual NMS Stocks from occurring outside of specified Price Bands.8 The requirements of the Plan are coupled with Trading Pauses, or halts, to accommodate more fundamental price moves (as opposed to erroneous trades or momentary gaps in liquidity). The Commission approved the Plan, as amended, on a one-year pilot basis.9 The Plan first became operational in April of 2013, with a staged rollout with respect to the portion of the trading day to which the Plan applies as well as the securities subject to the Plan. All trading centers in NMS Stocks, including both those operated by Participants and those operated by members of Participants, are required to establish, maintain, and enforce written policies and procedures that are reasonably designed to comply with the requirements specified in the Plan. The Exchange is a Participant in the Plan. As currently implemented, the Plan applies to securities between 9:30 a.m. and 3:45 p.m. E.T. each trading day. In the near future, the operation of the Plan will be extended to include the time between 3:45 p.m. and 4:00 p.m. E.T., rationale for the time-based execution priority method currently employed in the case of a trading halt; and, (v) to clarify that new market orders may be entered during an LULD Trading Pause, but only until 4:00 p.m. 5 ‘‘Nasdaq Closing Cross’’ shall mean the process for determining the price at which orders shall be executed at the close and for executing those orders. See Exchange Rule 4754. 6 See Securities Exchange Act Release No. 67091 (May 31, 2012), 77 FR 33498 (June 6, 2012) (File No. 4–631) (Order Approving, on a Pilot Basis, the National Market System Plan To Address Extraordinary Market Volatility). 7 See proposed rule 4754(b)(6). 8 Unless otherwise specified, capitalized terms used herein are based on the defined terms of the Plan. 9 See supra note 6. E:\FR\FM\27FEN1.SGM 27FEN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 79, Number 39 (Thursday, February 27, 2014)]
[Notices]
[Pages 11161-11169]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-04242]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71598; File No. SR-MSRB-2013-04]


Self-Regulatory Organizations; Municipal Securities Rulemaking 
Board; Notice of Filing of Amendment No. 1 and Order Granting 
Accelerated Approval of Proposed Rule Change, as Modified by Amendment 
No. 1 Thereto, Relating to a New MSRB Rule G-45, on Reporting of 
Information on Municipal Fund Securities

February 21, 2014.

I. Introduction

    On June 10, 2013, the Municipal Securities Rulemaking Board 
(``MSRB'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change consisting of (1) MSRB Rule G-45 (reporting of 
information on municipal fund securities), (2) MSRB Form G-45, (3) 
amendments to MSRB Rule G-8 (books and records), and (4) MSRB Rule G-9 
(preservation of records). The proposed rule change was published for 
comment in the Federal Register on June 28, 2013.\3\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 69835 (June 24, 2013), 
78 FR 39048 (``Notice'').
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    The Commission initially received five comment letters on the 
proposal.\4\ On August 9, 2013, the MSRB granted an extension of time, 
until September 26, 2013, for the Commission to act on the filing. On 
September 26, 2013, the Commission instituted proceedings to determine 
whether to disapprove the proposed rule change.\5\ In response to the 
Order Instituting Proceedings, the Commission received four additional 
comment letters on the proposal.\6\ On December 19, 2013, the 
Commission extended the time period for Commission action to February 
23, 2014.\7\ On January 14, 2014, the MSRB submitted a response to the 
comment letters\8\ and filed Amendment No. 1 to the proposed rule 
change.\9\ The Commission is publishing this notice to solicit comments 
on Amendment No. 1 to the proposed rule change from interested persons 
and is approving the proposed rule change, as modified by Amendment No. 
1, on an accelerated basis.
---------------------------------------------------------------------------

    \4\ See letters to Elizabeth M. Murphy, Secretary, Commission, 
from Tamara K. Salmon, Senior Associate Counsel, Investment Company 
Institute, dated July 16, 2013 (``ICI Letter''); David L. Cohen, 
Managing Director, Associate General Counsel, Securities Industry 
and Financial Markets Association, dated July 18, 2013 (``SIFMA 
Letter''); Roger Michaud, Chairman, College Savings Foundation, 
dated July 19, 2013 (``CSF Letter''); Michael L. Fitzgerald, 
Chairman, College Savings Plans Network, dated July 19, 2013 (``CSPN 
Letter''); and Michael B. Koffler, Partner, Sutherland Asbill & 
Brennan, dated July 19, 2013 (``Sutherland Letter'').
    \5\ Securities Exchange Act Release No. 70531 (Sept. 26, 2013), 
78 FR 60985 (Oct. 2, 2013) (``Order Instituting Proceedings'').
    \6\ See letters to Elizabeth M. Murphy, Secretary, Commission, 
from Tamara K. Salmon, Senior Associate Counsel, Investment Company 
Institute, dated November 8, 2013 (``ICI Letter II''); Roger 
Michaud, Chairman, College Savings Foundation, dated November 18, 
2013 (``CSF Letter II''); Michael L. Fitzgerald, Chairman, College 
Savings Plans Network, dated November 18, 2013 (``CSPN Letter II''); 
and Michael B. Koffler, Partner, Sutherland Asbill & Brennan, dated 
November 18, 2013 (``Sutherland Letter II'').
    \7\ Securities Exchange Act Release No. 71144 (December 19, 
2013), 78 FR 78451 (December 26, 2013).
    \8\ See letter to Elizabeth M. Murphy, Secretary, Commission, 
from Lawrence P. Sandor, Deputy General Counsel, MSRB, dated January 
14, 2014 (``MSRB Response Letter'').
    \9\ Amendment No. 1 has been placed in the public comment file 
for SR-MSRB-2013-04 at https://www.sec.gov/comments/sr-msrb-2013-04/msrb201304-11.pdf (see letter from Lawrence P. Sandor, Deputy 
General Counsel, MSRB, to Elizabeth M. Murphy, Secretary, 
Commission, dated January 14, 2014). In Amendment No. 1, the MSRB 
amended and restated the original proposed rule change to: (i) 
Clarify that the information submitted by underwriters includes 
asset allocation information for the assets of each investment 
option; (ii) omit statements concerning the interpretation of the 
meaning of ``underwriter'' under the federal securities laws and 
rules thereunder; (iii) clarify that each entity must determine, 
based on the facts and circumstances, whether it is an underwriter 
under the federal securities laws; (iv) revise the rule text to 
clarify that an underwriter that submits Form G-45 would be 
obligated to submit information only for itself and those entities 
that identify themselves as underwriters of the 529 plan and 
aggregate their information with the submitter's information; (v) 
clarify that underwriters must identify the percentage of each 
underlying investment in an investment option but not submit 
information regarding the assets in each underlying investment; (vi) 
clarify that, for each investment option offered by a 529 plan, the 
underwriter will provide the MSRB with the name and allocation 
percentage of each underlying investment in each investment option 
as of the end of the most recent semi-annual period; (vii) clarify 
that the MSRB does not contemplate that a state sponsor of a 529 
plan, as an instrumentality of the state, would be an underwriter 
under federal securities laws; (viii) explain that an underwriter 
would not be required to submit information on Form G-45 that it 
neither possesses nor has the legal right to obtain; (ix) explain 
that, to the extent the information submitted was prepared by the 
underwriter or, through delegation, one of its contractors or sub-
contractors, and the information was inaccurate or incomplete, the 
underwriter would be responsible for the information and therefore 
be liable for such information under proposed Rule G-45; and (x) 
clarify in Rule G-45 that performance data shall be reported 
annually. The MSRB also clarified various aspects of how the 
information should be reported on Form G-45.
---------------------------------------------------------------------------

II. Description of the Proposed Rule Change

    The MSRB's Electronic Municipal Market Access (``EMMA'') system 
currently serves as a centralized venue for the submission by 
underwriters of 529 plan primary offering disclosure documents (``plan 
disclosure documents'') and continuing disclosures, such as annual 
financial reports submitted by issuers or their agents. The MSRB, 
however, does not currently receive detailed underwriting or 
transaction information as it does for other types of municipal 
securities. According to the MSRB, the proposed rule change will, for 
the first time, provide the MSRB with more comprehensive information 
regarding 529 plans underwritten by brokers, dealers, or municipal 
securities dealers by gathering data directly from such persons.
    The MSRB proposes to adopt Rule G-45. Rule G-45 will require each 
underwriter of a primary offering of municipal fund securities \10\ 
(excluding interests in local government

[[Page 11162]]

investment pools) to report on Form G-45 information relating to such 
offering by no later than 60 days following the end of each semi-annual 
reporting period ending on June 30 and December 31.\11\ In addition, 
the MSRB proposes to require that performance data be submitted 
annually by no later than 60 days following the end of the reporting 
period ending on December 31.\12\ The proposal also requires disclosure 
regarding plan descriptive information, asset allocation information, 
contributions, withdrawals, fee and cost structure, performance data, 
and other information.\13\
---------------------------------------------------------------------------

    \10\ The term ``municipal fund security'' is defined in MSRB 
Rule D-12 to mean a municipal security issued by an issuer that, but 
for the application of Section 2(b) of the Investment Company Act of 
1940, would constitute an investment company within the meaning of 
Section 3 of the Investment Company Act of 1940. Interests in 529 
plans are the only type of municipal fund security that will be 
covered by the proposed rule change.
    \11\ The proposed rule change will require an underwriter to 
report such information in the manner prescribed in the Form G-45 
procedures and as set forth in the Form G-45 Manual. The MSRB states 
that the Form G-45 Manual will be a new manual created to assist 
persons in the submission of the information required under proposed 
Rule G-45 and will contain only the technical requirements for 
submitting such information. As such, this manual is not part of the 
proposed rule change. See Amendment No. 1.
    \12\ See Amendment No. 1.
    \13\ For more details on the specific requirements of the 
proposal, see Notice supra note 3.
---------------------------------------------------------------------------

    Under proposed Rule G-45, brokers, dealers, or municipal securities 
dealers that are underwriters under Rule 15c2-12(f)(8) of the Act will 
have the obligation to submit the requested information.\14\ The MSRB 
notes that there may be more than one underwriter in a particular 
primary offering but will deem the reporting obligation fulfilled if 
any one of the underwriters submits the required information. 
Accordingly, on Form G-45, each submitter could provide the names of 
each underwriter that has identified itself as such and on whose behalf 
the information is submitted.\15\
---------------------------------------------------------------------------

    \14\ 17 CFR 240.15c2-12(f)(8).
    \15\ The MSRB has stated that the underwriter will be obligated 
to submit information only for itself and those entities that 
identify themselves as underwriters of the plan and agree to 
aggregate their information with the information of the submitter. 
See Amendment No. 1.
---------------------------------------------------------------------------

    The MSRB states that it will permit the performance, fee, and 
expense information to be submitted in a format consistent with the 
College Savings Plans Network's (``CSPN'') published Disclosure 
Principles Statement No. 5 (``Disclosure Principles''), which 
commenters informed the MSRB is the industry norm for reporting such 
information.
    Lastly, the MSRB proposes to amend its books and records rules 
under Rules G-8 and G-9. The amended rules will require underwriters to 
maintain the information required to be reported on new Form G-45 for 
six years.

III. Summary of Comments Received and the MSRB's Response

    As noted above, the Commission has received a total of nine comment 
letters on the proposed rule change.\16\ Four of the commenters 
expressed general support for the MSRB's desire to collect more 
comprehensive information relating to 529 plans.\17\ However, all of 
the commenters raised concerns or sought clarification about certain 
specific aspects of the proposal, including: (i) The scope of the 
definition of ``underwriter''; \18\ (ii) the disclosure obligations of 
underwriters, including their ability to obtain, and verify the 
accuracy of, the requested information; \19\ (iii) the need for 
publication of the Form G-45 Manual; \20\ (iv) the MSRB's plans to 
publicly disseminate information filed on Form G-45; \21\ (v) the 
regulatory basis for the proposed rule change and value of the 
requested information on Form G-45; \22\ and (vi) the statutory basis 
for the proposed rule change.\23\ Further, some commenters argued that 
the MSRB should analyze the costs and benefits associated with the 
proposed rule change.\24\ Finally, some commenters requested certain 
modifications to the content of Form G-45.\25\
---------------------------------------------------------------------------

    \16\ See supra notes 4 and 6.
    \17\ See ICI Letter, ICI Letter II, SIFMA Letter, CSPN Letter, 
CSPN Letter II, CSF Letter, CSF Letter II.
    \18\ See ICI Letter, ICI Letter II, SIFMA Letter, CSPN Letter, 
CSPN Letter II, CSF Letter, CSF Letter II. One commenter also 
questioned the MSRB's interpretation of ``direct-sold'' versus 
``advisor-sold'' plans in relation to the scope of the rule and its 
application to underwriters. See Sutherland Letter, Sutherland 
Letter II.
    \19\ See ICI Letter, ICI Letter II, CSPN Letter, CSPN Letter II, 
CSF Letter, CSF Letter II.
    \20\ See ICI Letter, ICI Letter II, SIFMA Letter.
    \21\ See ICI Letter, ICI Letter II, SIFMA Letter, CSPN Letter, 
CSPN Letter II, CSF Letter, CSF Letter II.
    \22\ See Sutherland Letter, Sutherland Letter II.
    \23\ See ICI Letter II, Sutherland Letter II, CSPN Letter II, 
CSF Letter II.
    \24\ See CSPN Letter, CSPN Letter II, CSF Letter, CSF Letter II, 
Sutherland Letter, Sutherland Letter II, ICI Letter II.
    \25\ See ICI Letter, ICI Letter II, SIFMA Letter, Sutherland 
Letter, Sutherland Letter II.
---------------------------------------------------------------------------

A. Definition of ``Underwriter''

    Several commenters objected to the MSRB's interpretation of the 
term ``underwriter'' as used in Rule G-45 and stated that the MSRB 
should clarify the scope of the definition.\26\ These commenters cited 
the MSRB's statements in the Notice suggesting that 529 plans may have 
multiple underwriters; that Rule 15c2-12(f)(8) under the Act, which the 
MSRB incorporates into Rule G-45, defines ``underwriter'' broadly; and 
that other entities (in addition to primary distributors) involved in 
operating or maintaining a plan, such as the plan's program manager, 
their affiliates and/or contractors, could be deemed underwriters for 
purposes of the rule. One commenter \27\ asserted that 529 plans 
typically have only one underwriter \28\ and argued, along with other 
concurring commenters,\29\ that many other entities involved in 
operating and maintaining a plan, such as the plan's program manager, 
recordkeeper, investment manager, custodian, and state sponsor, in most 
cases, would not and should not be underwriters for purposes of Rule G-
45.
---------------------------------------------------------------------------

    \26\ See ICI Letter, ICI Letter II, SIFMA Letter, CSPN Letter, 
CSPN Letter II, CSF Letter, CSF Letter II.
    \27\ See ICI Letter, ICI Letter II.
    \28\ See ICI Letter.
    \29\ See SIFMA Letter, CSPN Letter, and CSF Letter, which stated 
that they concur and/or endorse ICI's comment.
---------------------------------------------------------------------------

    Several commenters emphasized that, to fall within the definition 
of ``underwriter'' under Rule G-45, a person or entity must be a 
broker, dealer, or municipal securities dealer.\30\ One commenter 
argued that a plan's program manager, recordkeeper, investment manager, 
custodian, and state sponsor generally are not brokers or dealers and 
therefore would not qualify as underwriters.\31\ Accordingly, this 
commenter requested that the MSRB clarify that the term ``underwriter'' 
would not include such entities if they provide services to the plan on 
behalf of the plan or its state sponsor.
---------------------------------------------------------------------------

    \30\ See CSPN Letter, CSF Letter, ICI Letter.
    \31\ See ICI Letter.
---------------------------------------------------------------------------

    Two commenters also specifically argued that for purposes of Rule 
G-45 a state sponsor should not be treated as an underwriter, as they 
are not brokers, dealers, or municipal securities dealers.\32\ These 
commenters stated that language in the Notice implied that state 
sponsors could be deemed underwriters and thus requested confirmation 
that proposed Rule G-45 would not apply to municipal securities issuers 
exempted under Section 3(d) of the Act.
---------------------------------------------------------------------------

    \32\ See CSPN Letter, CSF Letter.
---------------------------------------------------------------------------

    Although not directly discussing the definition of ``underwriter,'' 
one commenter argued that the proposed rule and form should not apply 
to ``direct-sold'' plans because, by definition, such plans are sold 
without the involvement of a broker-dealer.\33\ This commenter stated 
that the distinction between ``direct-sold'' and ``advisor-sold'' plans 
is not simply a ``marketing distinction,'' as the MSRB had categorized 
it in the Notice, but is ``critical in assessing the MSRB's 
jurisdiction as it delineates between

[[Page 11163]]

those 529 [p]lans that are sold through broker-dealers and those that 
are not.'' \34\ Accordingly, this commenter concluded that ``direct-
sold'' plans are not subject to the MSRB's jurisdiction.
---------------------------------------------------------------------------

    \33\ See Sutherland Letter, Sutherland Letter II.
    \34\ See Sutherland Letter.
---------------------------------------------------------------------------

    Finally, one commenter expressed opposition to the imposition of 
the reporting requirements of the proposed Rule G-45 on ``broker 
dealers that are not underwriters but that instead have entered into 
contracts with the plan's underwriter (primary distributor) to sell 
plan shares to retail investors.'' \35\
---------------------------------------------------------------------------

    \35\ See SIFMA Letter.
---------------------------------------------------------------------------

    In response to some commenters' assertions that many entities 
involved in operating and maintaining a 529 plan are not acting as 
brokers, dealers or municipal securities dealers and thus cannot be 
underwriters for purposes of the rule, the MSRB stated that, depending 
on its activities, program managers and other plan providers might be 
``brokers'' under Section 3(a)(4)(A) of the Act.\36\ In this regard, 
the MSRB discussed its understanding of the 529 plan administration and 
noted that it believed the activities of program managers may extend 
beyond investment management to other administrative activities.
---------------------------------------------------------------------------

    \36\ See MSRB Response Letter. Section 3(a)(4)(A) of the Act 
defines a ``broker'' as any person engaged in the business of 
effecting transactions in securities for the account of others.
---------------------------------------------------------------------------

    The MSRB also disagreed that 529 plan underwriters are limited to 
primary distributors. The MSRB stated that Rule G-45 incorporates and 
should be interpreted in the same manner as the definition of 
``underwriter'' in Rule 15c2-12(f)(8) under the Act. The MSRB stated 
that the determination of whether a firm is an underwriter depends on 
the ``facts and circumstances, including the activities the firm 
performs to assist in the distribution of municipal securities, rather 
than the firm's status or common industry labels.'' \37\ Thus, the MSRB 
stated that, if an entity is a dealer and an underwriter as defined by 
the Act, it will be required to submit information on Form G-45. The 
MSRB also noted that the ``potential pool of brokers or dealers is not 
necessarily limited to existing registrants but would encompass all 
firms that should be registered as such.'' \38\
---------------------------------------------------------------------------

    \37\ See MSRB Response Letter.
    \38\ See MSRB Response Letter.
---------------------------------------------------------------------------

    The MSRB also clarified that it does not seek to impose reporting 
requirements on state sponsors or selling dealers. With regard to 
selling dealers, the MSRB stated that the proposal is ``clear that no 
such obligation would be imposed on so-called advisor-sold plan selling 
dealers that are not underwriters.'' \39\ The MSRB also represented 
that it does not contemplate that a state sponsor of a 529 plan, as an 
instrumentality of the state, would be an underwriter pursuant to the 
``plain language'' of Rule 15c2-12 under the Act.
---------------------------------------------------------------------------

    \39\ See MSRB Response Letter.
---------------------------------------------------------------------------

    With regard to one commenter's argument that the proposed rule 
should not apply to ``direct sold'' plans as distinguished from 
``advisor sold'' plans, the MSRB stated that its ``rules apply to 
dealers in their municipal fund securities activities, including their 
underwriting activities, regardless of the business model or marketing 
strategy involved.'' \40\ Each entity must determine, based on the 
facts and circumstances surrounding its own activities, if it meets the 
Act's definitions of broker or dealer and underwriter. The MSRB stated 
that its rulemaking authority is not dependent on whether a firm 
provides investment advice to customers in conjunction with municipal 
securities underwriting services.\41\
---------------------------------------------------------------------------

    \40\ See MSRB Response Letter.
    \41\ The MSRB added that, based on its experience in this area, 
it believes that it is common for a program manager to contract with 
the trustee of a plan to provide administrative, marketing, and 
other services on behalf of the plan and that the entities hired by 
the trustee are essential to the undertaking, which includes 
soliciting municipal fund securities transactions and handling 
customer funds and municipal fund securities.
---------------------------------------------------------------------------

B. Underwriter Reporting Obligation

    All five commenters believed the MSRB should clarify the disclosure 
obligations of underwriters.\42\ Four of these commenters stated that 
the MSRB is seeking information that many primary distributors will not 
be able to provide.\43\ All of the commenters suggested that the MSRB 
clarify or confirm that underwriters would not be responsible for 
certain information that is outside of their possession, custody, or 
control. For example, one commenter requested that the MSRB clarify 
that, when an underwriter, in its normal course of business, does not 
create, own, control, or possess information necessary for Form G-45, 
the underwriter will not be required to obtain such information.\44\ 
Another commenter requested that the MSRB clarify that an underwriter 
is required to provide the requisite information only to the extent 
such information relates to the distribution by the underwriter of 
municipal fund securities and is in the underwriter's possession or 
maintained by another entity on the underwriter's behalf for purposes 
of complying with MSRB rules.\45\
---------------------------------------------------------------------------

    \42\ See ICI Letter, ICI Letter II, SIFMA Letter, CSPN Letter, 
CSPN Letter II, CSF Letter, CSF Letter II, Sutherland Letter, 
Sutherland Letter II.
    \43\ See ICI Letter, CSPN Letter, CSF Letter, Sutherland Letter.
    \44\ See ICI Letter.
    \45\ See CSPN Letter.
---------------------------------------------------------------------------

    Several commenters raised concerns that contractual provisions or 
privacy laws might not permit an underwriter to obtain the information 
required by the proposed rule and form.\46\ In this regard, one 
commenter sought confirmation that, where the sharing of information 
between an underwriter and a recordkeeper would violate contractual 
provisions, the information would be deemed to be outside of the 
possession or control of the underwriter and not subject to the 
reporting obligations of Rule G-45.\47\ Another commenter noted that, 
in the context of omnibus agreements, whether the required information 
is available to an underwriter is dependent on comprehensive servicing 
agreements between the plan, the underwriter, and the selling 
dealers.\48\ Thus, this commenter noted that the agreements may not 
provide the underwriter with legal access to certain information and, 
as such, an underwriter should not be required to report such 
information on Form G-45.
---------------------------------------------------------------------------

    \46\ See CSF Letter, CSPN Letter, SIFMA Letter, Sutherland 
Letter.
    \47\ See Sutherland Letter.
    \48\ See SIFMA Letter.
---------------------------------------------------------------------------

    Two commenters raised concerns about the MSRB's suggestion that an 
underwriter's disclosure obligation extends to ``information in the 
possession of an underwriter's subcontractor.'' \49\ These commenters 
believed this suggestion ``will produce confusion and disparate 
reporting results'' depending on factors unrelated to Rule G-45 
regulatory compliance.\50\ In particular, the commenters noted that, 
while some information may be in the possession of an underwriter's 
``subcontractor,'' other information may be in the possession of an 
unaffiliated or affiliated entity that is not a subcontractor, and 
privacy laws and contractual requirements may apply differently.
---------------------------------------------------------------------------

    \49\ See CSPN Letter, CSF Letter.
    \50\ See CSPN Letter, CSF Letter.
---------------------------------------------------------------------------

    One commenter questioned the meaning of the MSRB's statement in the 
Notice that underwriters would be required to produce only information 
that they possess or ``have a legal right to obtain.'' \51\ The 
commenter stated that ``unless the primary distributor has a specific, 
enforceable legal right, such as one existing under law (such as a 
right created by a statutory provision) or arising from a specific 
contractual

[[Page 11164]]

provision, to obtain specified information maintained by a third party, 
the primary distributor does not have a legal right to obtain the 
information for purposes of the proposal.'' \52\ As such, the commenter 
asserted that an underwriter may not be able to provide information in 
the possession of an underwriter's subcontractor.
---------------------------------------------------------------------------

    \51\ See Sutherland Letter.
    \52\ See Sutherland Letter.
---------------------------------------------------------------------------

    Two commenters also provided comments relating specifically to 
omnibus accounts, stating that Rule G-45 and Form G-45 should recognize 
that, to the extent an underwriter does not, in the normal course of 
business, have access to information on the accounts underlying an 
omnibus accounting arrangement, the underwriter should not be required 
to report such information.\53\ These commenters also stated that, ``in 
practice, the mere fact that there is an omnibus relationship between a 
selling dealer and a plan's underwriter does not necessarily mean the 
underwriter has full transparency into all account information, 
including account owners, beneficiaries, contributions, and 
withdrawals, underlying the omnibus account.'' \54\
---------------------------------------------------------------------------

    \53\ See ICI Letter, SIFMA Letter.
    \54\ See ICI Letter, SIFMA Letter.
---------------------------------------------------------------------------

    Lastly, two commenters contended that, if the underwriter is able 
to obtain the required information from a third party, the MSRB should 
clarify that the underwriter is not responsible for ensuring the 
accuracy or completeness of the information before including it on Form 
G-45.\55\
---------------------------------------------------------------------------

    \55\ See ICI Letter, Sutherland Letter, Sutherland Letter II.
---------------------------------------------------------------------------

    In response, the MSRB reaffirmed that the proposal would require an 
underwriter of a 529 plan to submit only information it possesses or 
has a legal right to obtain. In this regard, the MSRB stated its belief 
that an underwriter has a legal right to obtain all information that is 
related to its activities in connection with the underwriting, even 
where it has designated an affiliate or contractor to perform such 
activities. The MSRB disagreed with commenters who suggested that, if a 
contractual provision prohibited the sharing of information, an 
underwriter should not be responsible for providing such information 
under Rule G-45 and Form G-45. Specifically, the MSRB stated that the 
legal right to obtain information for purposes of Rule G-45 is not 
affected by a ``voluntary relinquishment, by contract or otherwise, of 
such a right.'' \56\ Furthermore, the MSRB stated that, to the extent 
that information reported in Form G-45 is prepared by the underwriter 
or one of its contractors or subcontractors, and the information is 
inaccurate or incomplete, the underwriter would be responsible for the 
information and therefore be liable for such information under Rule G-
45. However, the MSRB explained that if the underwriter did not 
prepare, or authorize others to prepare on its behalf, information 
submitted under Rule G-45, it would not be obligated to verify or 
confirm the accuracy and completeness of the information.
---------------------------------------------------------------------------

    \56\ See MSRB Response Letter.
---------------------------------------------------------------------------

C. Publication of the Form G-45 Manual

    Two commenters believed that the MSRB should be required to publish 
for comment the contents of the Form G-45 Manual (``Manual'') 
predicting that the Manual would contain important substantive 
information concerning the reporting obligations under Form G-45.\57\ 
One commenter believed that the ``Manual's contents will not be limited 
to technical specifications or design or system considerations relating 
to the mechanics of the electronic filing process.'' \58\ This 
commenter asserted that, apart from the addition of boxes for notes 
regarding performance data and fee and expense data, neither Form G-45 
nor Rule G-45 reflects the MSRB's statements in the Notice that 
information may be submitted in a manner consistent with the Disclosure 
Principles. As such, the commenter concluded that the details regarding 
how to report data consistent with these Disclosure Principles would 
necessarily have to be set forth in the Manual. Another commenter 
similarly stated that it believed that the Manual would incorporate the 
detailed substantive instructions of the Disclosure Principles.\59\ 
Both commenters also suggested that the one-year implementation period 
should commence after the Manual has been published for comment and 
approved by the Commission.\60\
---------------------------------------------------------------------------

    \57\ See ICI Letter, ICI Letter II, SIFMA Letter.
    \58\ See ICI Letter.
    \59\ See SIFMA Letter. This commenter noted that, while the MSRB 
explained in the Notice that the information required on Form G-45 
will be reported consistently with the reporting formats under the 
Disclosure Principles, proposed Rule G-45 and Form G-45 are silent 
on this point.
    \60\ See ICI Letter, SIFMA Letter.
---------------------------------------------------------------------------

    In response, the MSRB represented that the Manual will only provide 
``technical requirements to facilitate the submission of information 
required by proposed Rule G-45 and Form G-45.'' \61\ For example, the 
Manual will most likely include both instructions on how to upload bulk 
data to the MSRB's system and instructions on data entry through the 
MSRB's interface. Because the content of the Manual is dependent on 
``system architecture'' which is dependent on the scope of the proposed 
rule change, the MSRB stated that submission of the Form G-45 Manual as 
part of a proposed rule change would ``unreasonably retard systems 
development.'' \62\ Moreover, the MSRB indicated that the ``data 
elements required to be submitted by 529 plan underwriters are 
specified in the proposed rule change and need not be the subject of an 
additional, separate filing.'' \63\ Finally, the MSRB stated that the 
proposed implementation period of not earlier than one year from the 
date of Commission approval of the current proposed rule change is 
sufficient time for market participants to prepare to comply with Rule 
G-45.
---------------------------------------------------------------------------

    \61\ See MSRB Response Letter.
    \62\ See MSRB Response Letter.
    \63\ See MSRB Response Letter.
---------------------------------------------------------------------------

D. Publication of the G-45 Data

    Three commenters believed that confidential or proprietary 
information reported on Form G-45 should not be made available to the 
general public.\64\ One commenter, for example, stated that the data 
collected pursuant to Rule G-45 ``should be used to inform the MSRB's 
regulatory initiatives and priorities and not to compete with other 
more mature, robust, and comprehensive public sources of information on 
529 plans.'' \65\ Another commenter stated that the MSRB should be 
required to file a proposed rule change subject to Commission approval 
before the MSRB publicly disseminate certain 529 plan data reported on 
Form G-45.\66\
---------------------------------------------------------------------------

    \64\ See ICI Letter, ICI Letter II, CSPN Letter, CSPN Letter II, 
CSF Letter, CSF Letter II.
    \65\ See ICI Letter.
    \66\ See SIFMA Letter.
---------------------------------------------------------------------------

    In response, the MSRB reiterated that it would publicly disseminate 
the information collected on Form G-45 only after the approval of a 
separate proposed rule change by the Commission. The MSRB confirmed 
that, at this time, it does not intend to disseminate through EMMA the 
information collected under the proposal and that such information 
would be used only for regulatory purposes.

E. Regulatory Value of Required Information and Regulatory Basis for 
the Proposal

    Two commenters suggested that the proposed rule change fails to 
satisfy the requirements of Section 15B(b)(2)(C) of the Act.\67\ In 
particular, one commenter

[[Page 11165]]

questioned how the information to be collected would help the MSRB, 
FINRA and the Commission protect investors and the public interest.\68\ 
The other commenter added that the information collected on Form G-45 
would not assist the MSRB in preventing fraud, promoting just and 
equitable principles of trade, fostering industry cooperation, or 
removing market impediments in the 529 plan market.
---------------------------------------------------------------------------

    \67\ See Sutherland Letter II, ICI Letter II.
    \68\ See Sutherland Letter, Sutherland Letter II.
---------------------------------------------------------------------------

    The commenter further asserted that the requested information would 
be substantially incomplete because the information obtained would not 
include data on ``direct-sold'' 529 plans, which the commenter stated 
represents more than half of the assets in the 529 plan industry. The 
commenter also noted that certain information is already publicly 
available and includes both ``broker-sold'' and ``direct-sold'' plans.
    Finally, the commenter argued that the MSRB's jurisdiction does not 
extend to regulating the 529 plan market because the MSRB's regulatory 
authority is limited to regulating broker-dealers that distribute and 
sell municipal securities.\69\ The commenter also suggested that the 
MSRB does not have the legal authority or jurisdiction to mandate 
disclosure of underlying investments because they are not municipal 
securities.
---------------------------------------------------------------------------

    \69\ This commenter also objected to the MSRB's request for 
information on Form G-45 related to plan fees and expenses. The 
commenter suggested that because the MSRB does not have jurisdiction 
over the regulation of 529 plans, it should not require primary 
distributors to submit data concerning securities product fees that 
are unrelated to the primary distributor.
---------------------------------------------------------------------------

    Two commenters also stated that disclosure of information 
pertaining to the underlying investments is beyond what is required by 
the Disclosure Principles.\70\ Moreover, one commenter recommended 
that, if the MSRB determines in the future that there would be 
regulatory value in having this information, the MSRB should revise 
Form G-45 at that time.\71\
---------------------------------------------------------------------------

    \70\ See ICI Letter, SIFMA Letter.
    \71\ See ICI Letter.
---------------------------------------------------------------------------

    In response to the commenter's questions regarding the regulatory 
authority for the proposal, the MSRB pointed to Section 15B(b)(2) of 
the Act, which ``authorizes the MSRB to adopt rules to effect the 
purpose of the Exchange Act concerning transactions in municipal 
securities effected by dealers.'' \72\ The MSRB represented that 
interests in 529 plans are considered to be municipal securities and 
that the MSRB has categorized such interests as municipal fund 
securities. The MSRB also stated that its rules ``govern the activities 
of dealers that effect any transaction in, or induce or attempt to 
induce the purchase or sale of, any municipal fund security'' and such 
dealers engaging in these activities are subject to the MSRB's 
rulemaking authority.\73\
---------------------------------------------------------------------------

    \72\ See MSRB Response Letter.
    \73\ See MSRB Response Letter.
---------------------------------------------------------------------------

    Moreover, the MSRB argued that the proposal is consistent with the 
Act because the requested information will enhance its understanding of 
529 plans and ``assist the Board in evaluating whether its regulatory 
scheme for 529 plans is sufficient, or whether additional rulemaking is 
necessary to protect investors.'' \74\ The MSRB stated that the 
information will allow regulators to compare asset allocation, 
performance, and fee information across plans and against plan 
disclosures and marketing material. This information will help 
regulators protect investors and prevent fraudulent and misleading 
statements in plan disclosure documents and advertising. The 
information will inform its rulemaking regarding disclosures and 
advertising and will help ``identify industry trends and anomalies'' 
and assist regulators prioritize their efforts with respect to 529 
plans, including the nature and timing of risk-based dealer 
examinations.\75\
---------------------------------------------------------------------------

    \74\ See MSRB Response Letter.
    \75\ See MSRB Response Letter.
---------------------------------------------------------------------------

    The MSRB also observed that the information required under the 
proposal is easily obtainable by underwriters because it is often 
disclosed in 529 plan offering documents.\76\ The MSRB also noted that 
Form G-45 only requires the name of the investment product (typically a 
mutual fund) and the allocation percentage of each product in the 
investment option.
---------------------------------------------------------------------------

    \76\ The MSRB provided that, for example, the Texas direct-sold 
529 plan's offering document contains information about underlying 
investments.
---------------------------------------------------------------------------

    Finally, the MSRB recognized that while some of the requested 
information is available publicly, there is no legal requirement to 
reliably produce the information and it is not currently available in 
an electronic format that lends itself to analysis.

F. Contents of Form G-45

    Some commenters provided suggestions for modifications to the 
specific information requested by Form G-45 or sought clarification on 
how to report certain information on the form, as discussed below.\77\ 
In response, the MSRB stated generally that it believed that proposed 
Form G-45 was clear and specific. However, in response, the MSRB also 
provided some additional detail and clarification, as described below.
---------------------------------------------------------------------------

    \77\ See ICI Letter, Sutherland Letter, Sutherland Letter II, 
SIFMA Letter.
---------------------------------------------------------------------------

i. Investment Option Information
    One commenter requested that the MSRB clarify how to report in Form 
G-45 an investment option that is used for multiple purposes.\78\ This 
commenter also recommended that the MSRB clarify how underwriters 
should report fee, expense, and performance information for a mutual 
fund that issues multiple classes of shares with fees and expenses that 
vary from class to class. Another commenter questioned how underwriters 
are supposed to report asset class and asset class percentages and 
suggested that the two items related to asset class be eliminated.\79\ 
This commenter asserted that investment options do not have or invest 
in asset classes, thus the use of the phrase ``asset classes in 
investment option'' is unclear.\80\
---------------------------------------------------------------------------

    \78\ See ICI Letter.
    \79\ See Sutherland Letter.
    \80\ See Sutherland Letter.
---------------------------------------------------------------------------

    One commenter also recommended that the investment option 
information be reported in ranges rather than precise amounts, where 
appropriate (e.g., asset class allocation percentages), because the use 
of ranges would relieve underwriters of having to revise previously 
reported information whenever there is a de minimus change.\81\ This 
commenter further suggested that, if the MSRB elects not to use ranges, 
it should consider revising the rule such that an update is not 
required to previously reported information unless there has been more 
than a de minimus change.
---------------------------------------------------------------------------

    \81\ See ICI Letter.
---------------------------------------------------------------------------

    In response, the MSRB affirmed that Form G-45 requires disclosure 
at the investment option level only and each investment option would 
report its underlying investments separately.\82\ The MSRB asserted 
that 529 plans routinely track investments at both the underlying 
investment and investment option level and therefore should have little 
difficulty in reporting this information. The MSRB explained that, for 
example, if an investment option invests in five mutual funds, the 
submitter would disclose those five funds and the allocation percentage 
of each in the investment option. The MSRB also clarified that an 
underwriter must identify the assets held by each investment option 
separately, even if

[[Page 11166]]

another investment option invested in the same funds.
---------------------------------------------------------------------------

    \82\ The MSRB further confirmed that a fund that is both an 
underlying investment and a stand-alone investment option would not 
be aggregated. Rather, data would be reported for each investment 
option.
---------------------------------------------------------------------------

    Likewise, with regard to commenters' concerns regarding asset class 
information, the MSRB represented that data on asset class and asset 
class percentages are readily available and already presented in 
certain plan documents. The MSRB also stated that, with regard to 
investment options that are a mutual fund with multiple share classes, 
Form G-45 includes fields for fees and charges related to each share 
class.
    The MSRB also disagreed with the request that information be 
reported in ranges rather than precise amounts, stating that 
``precision is needed regarding asset allocations.'' \83\ The MSRB also 
noted that this information is readily available to underwriters. 
Further, the MSRB disagreed with the request that, alternatively, it 
should require the submission of updates only where there is more than 
a de minimus change, stating that defining ``de minimus'' could pose 
problems because even a small change in the information reported could 
be material.
---------------------------------------------------------------------------

    \83\ See MSRB Response Letter.
---------------------------------------------------------------------------

ii. Performance Information
    One commenter raised several issues with respect to performance 
information and provided the following specific recommendations: (i) 
Resolve a discrepancy between the definition of ``performance'' in Rule 
G-45(d)(viii) (which provides for ``total returns of the investment 
option expressed as a percentage net of all generally applicable fees 
and costs'') and the requirement in Form G-45 (which requires that 
performance be reported both ``including sale charges'' and ``excluding 
sales charges''); (ii) clarify whether a plan that is directly 
distributed and that has no ``sales charges'' is expected to report the 
same information under ``Investment Performance (Including Sales 
Charges)'' and ``Investment Performance (Excluding Sales Charges)'' or 
just the later; (iii) clarify that fees that are not specific to any 
particular investment option are not required to be included in the 
performance calculation; (iv) resolve a discrepancy between a statement 
in the Notice that Form G-45 requires ``performance for the most recent 
calendar year'' and the Form G-45 requirement for disclosure of each 
investment option's 1, 3, 5 and 10 year performance, as well as the 
option's performance since inception; and (v) include a comment box 
under each of the two sections of Form G-45 relating to Investment 
Performance to avoid confusion as to whether the comments relate to 
performance excluding or including a sales charge.\84\ Furthermore, 
this commenter recommended that the MSRB clarify that a 529 plan is 
only required to report benchmark information if the 529 plan, in fact, 
uses a benchmark.
---------------------------------------------------------------------------

    \84\ See ICI Letter.
---------------------------------------------------------------------------

    In response, the MSRB stated that Form G-45 provides fields for 
reporting performance including and excluding sales charges. In 
addition, the MSRB indicated that Rule G-45 defines performance to mean 
total returns of the investment option expressed as a percentage, net 
of all generally applicable fees and costs. The MSRB disagreed with the 
commenter's assertion that there was a discrepancy between the 
definition of ``performance'' in Rule G-45 and the Form G-45's 
reporting requirement of performance data, stating that ``Form G-45 is 
consistent with the CSPN's Disclosure Principles Statement No. 5, which 
suggests that performance data should be disclosed net of all generally 
applicable fees and costs and that, for advisor sold plans, total 
returns should be calculated both including and excluding sales 
charges.'' \85\ Moreover, the MSRB stated that fees that are not 
specific to any particular investment option would not be applicable. 
Regarding Form G-45's requirement to report performance for the most 
recent calendar year, the MSRB stated that performance data must only 
be updated annually and submitters must disclose each investment 
option's 1, 3, 5 and 10 year performance as well as the option's 
performance since inception, as of the annual update. The MSRB also 
stated that it believed including two investment performance comment 
boxes is unnecessary because a single comment box for all comments 
would not likely result in confusion by the submitters. Finally, 
regarding benchmark performance, the MSRB confirmed that an underwriter 
of a 529 plan that does not use a benchmark will not be required to 
report benchmark performance. In such case, the MSRB represented that 
the Form G-45 Manual will instruct a filer to leave the section of the 
form blank.
---------------------------------------------------------------------------

    \85\ See MSRB Response Letter.
---------------------------------------------------------------------------

iii. Marketing Channel
    One commenter questioned the value of requesting information on the 
``marketing channel,'' which the MSRB described to be commonly known as 
either ``advisor-sold'' or ``direct sold.'' \86\ As discussed above, 
this commenter argued that the requirements of the rule should not 
apply to ``direct-sold'' plans, since they do not involve a broker-
dealer offering the securities. As such, the commenter asserted that 
only broker-dealers could be required to provide the information about 
``advisor-sold'' plans, unless non-broker-dealers also made voluntary 
filings. Such voluntary filings, the commenter urged, would only cause 
investor confusion.
---------------------------------------------------------------------------

    \86\ See Sutherland Letter.
---------------------------------------------------------------------------

    In response, the MSRB stated that it believed one or more entities 
that provide services to ``direct-sold'' plans may be underwriters and 
nothing in the Act limits the MSRB's rulemaking authority to ``advisor-
sold'' plans, as discussed above.
iv. Program Managers
    One commenter suggested that all information requests related to 
program managers should be deleted from Form G-45 because the MSRB 
lacks jurisdiction ``to seek information about an entity hired by 529 
[p]lan trustees to provide services to the plan when neither the issuer 
nor the entity are regulated by the MSRB.'' \87\ The commenter further 
questioned the relevance of such information to the MSRB's role as a 
securities regulator of broker-dealers distributing municipal 
securities.
---------------------------------------------------------------------------

    \87\ See Sutherland Letter.
---------------------------------------------------------------------------

    In addition to what is described above with regard to program 
managers being subject to the rule, the MSRB stated that program 
managers ``contract with state sponsors to, in many cases, deliver a 
variety of services necessary to distribute and sell municipal fund 
securities.'' \88\ Further, program managers ``often provide, directly 
or through contractors or subcontractors, administrative services, 
marketing and advertising services, and investor support.'' \89\ 
Moreover, the MSRB stated that information about program managers is 
frequently found in offering documents and available to the public.
---------------------------------------------------------------------------

    \88\ See MSRB Response Letter.
    \89\ See MSRB Response Letter.
---------------------------------------------------------------------------

G. Costs and Benefits of the Proposal

    Four commenters addressed the costs and benefits of collecting the 
required information.\90\ One commenter stated that, while the MSRB 
concluded in the Notice that the benefits of its proposal will outweigh 
the costs, the MSRB failed to quantify either the benefits or the 
costs.\91\ Two commenters suggested that the MSRB should conduct an 
analysis of the costs and benefits associated with the proposal to be

[[Page 11167]]

consistent with the MSRB's recently announced Policy on the Use of 
Economic Analysis in MSRB Rulemaking (``Policy'') and to enhance the 
MSRB's ability to tailor its rules to ensure that its costs and burdens 
are balanced with its expected benefits.\92\ Finally, two commenters 
suggested that the Commission consider adding a waiver and/or sunset 
provision designed to mitigate the cost burden of an underwriter's 
disclosure duty.\93\ The two commenters also stated that the addition 
of ``a waiver application process will allow the affected underwriter 
to request relief from providing data that is not reasonably 
practicable to obtain.'' \94\ Similarly, these commenters believed a 
sunset provision could also ``ease the administrative burden to 
underwriters required to submit information on Form G-45.'' \95\ In 
addition, these commenters suggested that the MSRB reexamine its need 
to collect each data point after a specified period of time and revise 
Rule G-45 accordingly in the event the MSRB determines that certain 
data points are no longer relevant.\96\
---------------------------------------------------------------------------

    \90\ See CSPN Letter, CSF Letter, Sutherland Letter, Sutherland 
Letter II, ICI Letter II.
    \91\ See Sutherland Letter.
    \92\ See Sutherland Letter II, ICI Letter II.
    \93\ See CSPN Letter, CSF Letter.
    \94\ See CSPN Letter, CSF Letter.
    \95\ See CSPN Letter, CSF Letter.
    \96\ The CSPN Letter and CSF Letter suggested three years.
---------------------------------------------------------------------------

    In response, the MSRB stated that a waiver or sunset provision is 
unnecessary because most of the information requested is readily 
available to underwriters. In addition, the MSRB stated that neither 
commenter provided data or other specific support for their view that 
the costs would be sufficiently high to justify a waiver or sunset 
provision. The MSRB also stated that it made significant changes to the 
proposal based on industry and public input in order to ease the burden 
on submitters.
    In response to suggestions that the MSRB should conduct an economic 
analysis of the proposed rule change, the MSRB explained that, although 
the Policy is not applicable to the proposed rule change because the 
proposal began prior to the Policy's adoption, the MSRB considered the 
burdens and benefits of the proposed rule change throughout the 
rulemaking process consistent with the Policy. Among other things, the 
MSRB stated that the proposal will enable the MSRB to fulfill its 
oversight responsibilities over dealers acting as underwriters of 529 
plans by providing the MSRB with a consistent set of reliable 
information about 529 plans. As for costs, the MSRB stated that the 
main cost of the proposal would likely be the cost to underwriters of 
conforming to the proposal's reporting requirements. However, the MSRB 
stated that it expects compliance costs to diminish once underwriters 
become familiar with the new disclosure format.
    The MSRB also stated that it identified both baseline conditions 
and reasonable alternatives to the proposed rule change. In particular, 
the MSRB explained that the information currently produced by 
underwriters on EMMA represents a relevant baseline for market 
participants in which the requirements of proposed Rule G-45 can be 
compared. In this regard, the MSRB stated that the benefits of a 
``uniform and complete set of reliable information exceeds the benefits 
derived under the baseline situation in which documents supplied to 
EMMA or other information supplied to information vendors that is not 
uniform, is not complete, and may not be reliable.'' \97\
---------------------------------------------------------------------------

    \97\ See MSRB Response Letter.
---------------------------------------------------------------------------

    Additionally, the MSRB identified reasonable alternatives to the 
proposed rule change, including maintaining the current disclosure 
regime through EMMA or other Web sites, but determined that the type of 
information collected is inadequate because it is not uniform or 
complete. Further, the MSRB considered public comments that addressed 
the potential economic consequences of the proposed rule and modified 
the proposal to minimize the reporting burden on underwriters. For 
example, the MSRB stated that it reduced the potential cost to 
underwriters by, among other things, extending the reporting deadline 
from thirty days to sixty days after the end of the reporting period, 
eliminating the reporting of percentage of plan contributions derived 
from automatic contributions, and conforming the reporting format for 
fees and performance to the Disclosure Principles. Finally, the MSRB 
represented that only a limited number of dealers would be obligated to 
submit information to the MSRB.\98\
---------------------------------------------------------------------------

    \98\ The MSRB states that ``[t]here are over 1600 MSRB 
registered dealers but only approximately one hundred 529 plans and 
even fewer underwriters, as certain firms act as underwriters for 
multiple plans.'' See MSRB Response Letter.
---------------------------------------------------------------------------

IV. Discussion and Commission Findings

    The Commission has carefully considered the proposed rule change, 
as modified by Amendment No. 1, as well as the comment letters received 
and the MSRB's response. The Commission finds that the proposed rule 
change, as amended, is consistent with the requirements of the Act and 
the rules and regulations thereunder applicable to the MSRB.\99\ In 
particular, the proposed rule change is consistent with Section 
15B(b)(2)(C) of the Act, 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.\100\
---------------------------------------------------------------------------

    \99\ In approving the proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
    \100\ 15 U.S.C. 78o-4(b)(2)(C).
---------------------------------------------------------------------------

    The Commission believes that the proposed rule change is consistent 
with Section 15B(b)(2)(C) of the Act. The Commission agrees with the 
MSRB that the proposal is intended to protect investors, municipal 
entities and the public interest and prevent fraudulent and 
manipulative acts and practices by allowing the MSRB to collect 
comprehensive, reliable, and consistent electronic data on the 529 
plans. In order to fulfill its statutory responsibilities to investors 
and municipal entities in the context of 529 plans, the Commission 
believes that it is appropriate for the MSRB to possess basic, reliable 
information regarding 529 plans, including the underlying investment 
options. Further, the Commission believes that information collected 
under the proposed rule change would help the MSRB assess the impact of 
each 529 plan on the market, evaluate trends and differences among 
plans, and gain an understanding of the aggregate risk taken by 
investors by the allocation of assets in each investment option. Such 
information may also be used to determine the nature and timing of 
risk-based dealer examinations and thus better position the MSRB to 
protect investors and the public interest.
    In addition, the Commission believes the proposed rule change is 
reasonably designed to prevent fraudulent and manipulative acts and 
practices and to protect investors. The proposed rule change could help 
the MSRB to use the information submitted on Form G-45 to, among other 
things, determine if the 529 plan disclosure documents or marketing 
material prepared or reviewed by

[[Page 11168]]

underwriters are consistent with the data submitted to the MSRB. The 
Commission also notes that the MSRB believes that collecting 
information about activity in 529 plans is necessary to assist the MSRB 
in evaluating whether its current regulatory scheme for 529 plans is 
sufficient or whether additional rulemaking is necessary to protect 
investors and the public interest.
    The Commission believes that the MSRB, in its response letter, has 
adequately addressed issues raised by commenters. Namely, with regard 
to questions regarding the MSRB's jurisdiction,\101\ the Commission 
agrees that Section 15B(b)(2) of the Act authorizes the MSRB to adopt 
rules to effect the purpose of the Act concerning transactions in 
municipal securities effected by dealers.\102\ As the MSRB noted in its 
response letter, the Commission has previously stated that interests in 
529 plans are considered to be municipal securities.\103\
---------------------------------------------------------------------------

    \101\ See supra Section 3.E.
    \102\ 15 U.S.C. 78o-4(b)(2).
    \103\ See Securities Exchange Act Release No. 70462 (September 
20, 2013), 78 FR 67468, 67472-73 (November 12, 2013) (stating: 
``Interests offered by college savings plans (``529 Savings Plans'') 
that comply with Section 529 of the Internal Revenue Code [footnote 
omitted] are another type of municipal security'').
---------------------------------------------------------------------------

    With respect to comments regarding the scope of the definition of 
``underwriter,'' \104\ the Commission believes that the MSRB, in its 
response letter and Amendment No. 1, reduced potential confusion as to 
whom the obligations of the rule apply. The Commission also believes 
that the MSRB alleviated concerns that the terms used in the proposed 
rule may be interpreted by the MSRB in a manner potentially 
inconsistent with statutory and Commission rule definitions of 
``underwriters'' and ``broker-dealers.'' As noted above, the MSRB 
represented that Rule G-45 incorporates the Commission's definition of 
underwriter and the determination of whether a firm is an underwriter 
turns on the facts and circumstances, including the activities the firm 
performs to assist in the distribution of municipal securities, rather 
than the firm's status or common industry labels. The Commission agrees 
with the MSRB that whether a firm is an underwriter will require an 
individual analysis of the particular facts.
---------------------------------------------------------------------------

    \104\ See supra Section 3.A.
---------------------------------------------------------------------------

    The Commission also notes that the MSRB, in its response letter, 
provided further clarity with regard to the reporting obligations of 
underwriters. Thus, the Commission believes that the MSRB's response 
will allow respondents to be able to ascertain the scope of their 
obligations under the proposed rule, including the extent to which they 
are responsible for providing, and verifying the accuracy of, 
information not in their possession. Specifically, the MSRB confirmed 
that the proposal will require an underwriter of a 529 plan to submit 
only information it possesses or has a legal right to obtain, noting 
that an underwriter has the legal right to obtain all information that 
is related to its activities in connection with the underwriting. The 
MSRB also noted that voluntary relinquishment of the legal right to 
obtain information for purposes of Rule G-45, such as by contractual 
provision, would not relieve an underwriter of its responsibility for 
providing such information.
    With respect to comments that the Manual should be published for 
comment,\105\ the MSRB has represented that the Manual will only 
provide technical requirements to facilitate the submission of 
information, not substantive information concerning the reporting 
obligations under Form G-45. Based on the MSRB's representation that 
the Manual will contain purely technical specifications, such as 
instructions for data entry, the Commission does not believe that the 
Manual must submitted as part of the proposed rule change. The 
Commission notes, however, that should the Manual contain any 
substantive requirements, it would need to be submitted as part of a 
proposed rule change pursuant to Section 19(b)(1) of the Act \106\ and 
Rule 19b-4 thereunder.\107\
---------------------------------------------------------------------------

    \105\ See supra Section 3.C.
    \106\ 15 U.S.C. 78s(b)(1).
    \107\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

    Finally, the Commission believes that the MSRB has adequately 
clarified the reporting obligations on Form G-45. In this regard, the 
MSRB has responded to commenters' specific inquiries regarding how to 
report certain information on Form G-45 in both the MSRB's response 
letter and Amendment No 1.\108\ Accordingly, the Commission believes 
that these clarifications should result in more complete and correctly 
reported data that should allow the MSRB to fulfill its stated 
regulatory goals of obtaining accurate, reliable, and complete data in 
order to further assess and carry out its rulemaking responsibilities 
in this area.
---------------------------------------------------------------------------

    \108\ See supra Section 3.F.
---------------------------------------------------------------------------

    For these reasons, the Commission believes that the proposed rule 
change, as modified by Amendment No. 1, is consistent with the Act.

V. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether Amendment No. 1 
to 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-2013-04 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-MSRB-2013-04. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml 
). Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for Web site viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE., Washington, 
DC 20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of 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-2013-04 and should be submitted on 
or before March 20, 2014.

VI. Accelerated Approval of Proposed Rule Change, as Modified by 
Amendment No. 1

    The Commission finds good cause for approving the proposed rule 
change, as

[[Page 11169]]

amended by Amendment No. 1, prior to the 30th day after the date of 
publication of notice in the Federal Register. As discussed above, 
Amendment No. 1 amends and restates the original proposed rule change 
to: (i) Clarify that the information submitted by underwriters includes 
asset allocation information for the assets of each investment option; 
(ii) omit statements concerning the interpretation of the meaning of 
``underwriter'' under the federal securities laws; (iii) clarify that 
each entity must determine, based on the facts and circumstances, 
whether it is an underwriter under the federal securities laws; (iv) 
revise the rule text to clarify that an underwriter that submits Form 
G-45 would be obligated to submit information only for itself and those 
entities that identify themselves as underwriters of 529 plans and that 
aggregate their information with the submitter's information; (v) 
clarify that underwriters identify the percentage of each underlying 
investment in an investment option but not submit information regarding 
the assets in each underlying investment; (vi) clarify that, for each 
investment option offered by a 529 plan, the underwriter will provide 
the MSRB with the name and allocation percentage of each underlying 
investment in each investment option as of the end of the most recent 
semi-annual period; (vii) clarify that the MSRB does not contemplate 
that a state sponsor of a 529 plan, as an instrumentality of the state, 
would be an underwriter under federal securities laws; (viii) explain 
that an underwriter would not be required to submit information on Form 
G-45 it neither possesses nor has the legal right to obtain; (ix) 
explain that, to the extent the information submitted on Form G-45 was 
prepared by the underwriter or, through delegation, one of its 
contractors or sub-contractors, and the information was inaccurate or 
incomplete, the underwriter would be responsible for the information 
and therefore be liable for such information under proposed Rule G-45; 
and (x) revise the rule text to clarify in Rule G-45 that performance 
data shall be reported annually. These proposed revisions respond to a 
number of concerns expressed in the comment letters discussed above. 
The Commission believes that these revisions provide greater clarity on 
several aspects of the proposal, such as to whom the obligations of the 
proposed rule apply and the scope of the information that is required 
to be submitted by underwriters of 529 plans. Accordingly, the 
Commission finds good cause for approving the proposed rule change, as 
modified by Amendment No. 1, on an accelerated basis, pursuant to 
Section 19(b)(2) of the Act.

VII. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\109\ that the proposed rule change (SR-MSRB-2013-04), as modified 
by Amendment No. 1, be, and hereby is, approved on an accelerated 
basis.
---------------------------------------------------------------------------

    \109\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\110\
---------------------------------------------------------------------------

    \110\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-04242 Filed 2-26-14; 8:45 am]
BILLING CODE 8011-01-P

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