Self-Regulatory Organizations; Municipal Securities Rulemaking Board; Order Granting Approval of a Proposed Rule Change Consisting of Amendments to MSRB Rule G-34 to Better Align the CUSIP Requirements for Underwriters and Municipal Advisors With Current Market Practices, 53526-53529 [2022-18765]
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Federal Register / Vol. 87, No. 168 / Wednesday, August 31, 2022 / Notices
the current repo interest volatility
charge formula.
For these reasons, the Commission
believes that the proposed changes
should help ensure that FICC produces
margin levels commensurate with the
risks and particular attributes of its
member portfolios containing repo
interest positions by (i) enabling FICC to
adjust the repo interest volatility charge
formula in response to rapidly changing
market conditions, and (ii) accounting
for the bid/ask spread, which is not
addressed in the current repo interest
volatility charge formula. Accordingly,
the Commission believes that the
proposed changes would enhance
FICC’s risk-based margin system to
better enable FICC to cover its credit
exposures to its members’ repo interest
positions because the proposed changes
consider the risks and particular
attributes of the relevant products,
portfolios, and markets, consistent with
the requirements of Rule 17Ad–
22(e)(6)(i).47 Similarly, the Commission
believes that the proposed changes are
reasonably designed to cover FICC’s
credit exposures to its members’ repo
interest positions because the proposed
changes would enhance FICC’s riskbased margin system using appropriate
methods for measuring credit exposures
that account for relevant product risk
factors and portfolio effects, consistent
with the requirements of Rule 17Ad–
22(e)(6)(v).48
IV. Conclusion
On the basis of the foregoing, the
Commission finds that the proposed
rule change is consistent with the
requirements of the Act and, in
particular, with the requirements of
Section 17A of the Act 49 and the rules
and regulations promulgated
thereunder.
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act 50 that
proposed rule change SR–FICC–2022–
005, be, and hereby is, APPROVED.51
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.52
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022–18768 Filed 8–30–22; 8:45 am]
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BILLING CODE 8011–01–P
47 17
CFR 240.17Ad–22(e)(6)(i).
CFR 240.17Ad–22(e)(6)(v).
49 15 U.S.C. 78q–1.
50 15 U.S.C. 78s(b)(2).
51 In approving the proposed rule change, the
Commission considered the proposals’ impact on
efficiency, competition, and capital formation. 15
U.S.C. 78c(f).
52 17 CFR 200.30–3(a)(12).
48 17
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 95602; File No. SR–MSRB–
2022–05]
Self-Regulatory Organizations;
Municipal Securities Rulemaking
Board; Order Granting Approval of a
Proposed Rule Change Consisting of
Amendments to MSRB Rule G–34 to
Better Align the CUSIP Requirements
for Underwriters and Municipal
Advisors With Current Market
Practices
August 25, 2022.
I. Introduction
On July 1, 2022, the Municipal
Securities Rulemaking Board (the
‘‘MSRB’’ or ‘‘Board’’) filed with the
Securities and Exchange Commission
(the ‘‘SEC’’ or ‘‘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 consisting of amendments to
MSRB Rule G–34, on CUSIP numbers,
New Issue, and Market Information
Requirements (the ‘‘proposed rule
change’’). The proposed rule change
would make amendments to better align
Rule G–34’s requirements for obtaining
CUSIP numbers with the process
followed by market participants and
facilitate compliance with MSRB Rule
G–34 by streamlining the rule text.
The proposed rule change was
published for comment in the Federal
Register on July 13, 2022.3 The public
comment period closed on August 3,
2022, and three comment letters were
received on the proposed rule change.4
On August 22, 2022, the MSRB
responded to those comments.5 This
order approves the proposed rule
change.
II. Description of Proposed Rule Change
As described further herein and in the
Notice of Filing, the proposed rule
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 Exchange Act Release No. 95208 (July 7, 2022)
(the ‘‘Notice of Filing’’), 87 FR 41846 (July 13,
2022).
4 See Letter to Secretary, Commission, from
Michael Decker, Senior Vice President for Public
Policy, Bond Dealers of America (‘‘BDA’’), dated
August 3, 2022 (the ‘‘BDA Letter’’); Letter to
Secretary, Commission, from Kim M. Whelan, CoPresident, and Noreen P. White, Co-President,
Acacia Financial Group Inc., dated August 3, 2022
(the ‘‘Acacia Letter’’); and Letter to Secretary,
Commission, from Susan Gaffney, Executive
Director, National Association of Municipal
Advisors (‘‘NAMA’’), dated July 6, 2022 (the
‘‘NAMA Letter’’).
5 See Letter to Secretary, Commission, from Gail
Marshall, Chief Regulatory Officer, MSRB, dated
August 22, 2022 (the ‘‘MSRB Response Letter’’).
2 17
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change specifies that CUSIP
applications must be made to the
Board’s designee (and not the Board
itself); removes the obligation for
municipal advisors providing advice
with respect to a competitive offering to
apply for the CUSIP number by no later
than one business day after
dissemination of a notice of sale in favor
of a more flexible standard that still
obligates the application to be made
within sufficient time to ensure timely
CUSIP number assignment; removes
language dictating the precise content of
a CUSIP number application that the
MSRB believes would more
appropriately be left to the Board’s
designee for receiving and reviewing
such applications; and provides that
certain obligations set forth in the rule
do not apply when CUSIP numbers have
been preassigned.6
A. Designee of the Board
MSRB Rule G–34(a)(i)(A) currently
requires an underwriter or municipal
advisor to obtain CUSIP numbers
through an application in writing to the
Board or its designee. The proposed rule
change amends this language by
providing that underwriters and
municipal advisors must apply to the
Board’s designee and removing the
language in the rule text that makes
reference to the Board as an option with
which to submit CUSIP application.7
The MSRB states that this revised
language is designed to avoid the
potential for confusion associated with
the current rule text and to more clearly
convey the MSRB’s expectations with
respect to the process of obtaining a
CUSIP number.8 The MSRB notes that it
does not currently assign CUSIP
numbers to municipal securities;
underwriters and municipal advisors
may only obtain a CUSIP by application
to the only entity that provides these
identifiers, CUSIP Global Services,
which is currently the only entity
serving as the Board’s designee.9 This
designation would remain unchanged
by the proposed rule change and would
be reflected in new Supplementary
Material .01.10 The MSRB states that if
CUSIP numbers become available from
another source or another identifier for
municipal securities becomes market
practice at some point in the future, the
MSRB would notify the market of a
decision to modify the designee via
6 See
Notice of Filing 87 FR 41846 at 41847.
7 Id.
8 Id.
9 Id.
10 Id.
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Federal Register / Vol. 87, No. 168 / Wednesday, August 31, 2022 / Notices
publication of an MSRB regulatory
notice.11
In addition, as it is the Board’s
designee, and not the Board, that
controls the CUSIP number application
process, the MSRB proposes to remove
the in-writing requirement for the
application made for obtaining CUSIP
numbers.12 Because it does not receive
or review CUSIP applications, the
MSRB believes that the manner in
which an applicant applies for CUSIP
numbers is best left to the entity that
reviews applications and assigns the
CUSIP number.13
B. One Business Day Obligation
MSRB Rule G–34(a)(i)(A)(3) states that
a municipal advisor advising the issuer
with respect to a competitive sale of a
new issue of municipal securities shall
make an application by no later than
one business day after dissemination of
a notice of sale or other such request for
bids. The proposed rule change removes
the obligation to make such application
by no later than one business day
because, the MSRB believes that it is not
always practical for municipal advisors
to comply given the realities of the
marketplace,14 and therefore may place
an undue burden on municipal
advisors.15 The MSRB notes that the
rule already obligates the application to
be made at a time sufficient to ensure
final CUSIP number assignment occurs
prior to the award of the issue.16 The
MSRB believes that this language is
sufficient to ensure that any such
application is timely without dictating a
more burdensome approach of requiring
a specific numeric time obligation.17
Additionally, the MSRB has stated that
it understands that, from an operational
perspective, it may be impracticable for
municipal advisors to apply for a CUSIP
number within one business day after
dissemination of a notice of sale, as
currently required by Rule G–
34(a)(i)(A)(3).18 Accordingly, the MSRB
believes that removal of this language
would better align the rule text with the
operational process followed by
11 Id.
12 Id.
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13 Id.
14 See Letter from Susan Gaffney, Executive
Director, NAMA, dated May 28, 2019 available at:
https://www.msrb.org/rfc/2019-08/gaffney.pdf
(stating that there is an inherent timing
inconsistency with respect to Rule G–34(a)(i)(A)(3)
as it requires application for CUSIP numbers no
later than one business day after the Notice of Sale,
which will almost always be before the identity of
the investors are known, and therefore the
[municipal advisor] could not reasonably obtain the
investors’ written representations).
15 Id.
16 Id.
17 Id.
18 Id.
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16:59 Aug 30, 2022
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53527
municipal advisors in connection with
their CUSIP applications.19
on which CUSIP numbers have been
preassigned.28
C. Information To Be Provided When
Applying for CUSIP Numbers
III. Summary of Comments Received
and MSRB’s Responses to Comments
MSRB Rule G–34(a)(i)(A)(4) lists
specific data points that must be
provided when applying for CUSIP
numbers.20 The proposed rule change
removes these data points from the rule
and instead provides that underwriters
and municipal advisors shall provide
the information required by the Board’s
designee in connection with their
CUSIP application.21 The proposed rule
change also makes a similar amendment
to Rule G–34(a)(i)(D), removing from the
rule text the three specified pieces of
information that must be included in an
application to obtain a CUSIP number in
connection with certain new issuances
that refund part of an outstanding
issuance.22 The MSRB states that it
believes that Rule G–34 should not
contain specific data points to be
provided to its designee, as the MSRB
does not control the specifics of the
application process, nor does it make a
determination on the sufficiency of an
application to receive CUSIP numbers.23
The MSRB believes that the entity
awarding CUSIP numbers, the Board’s
designee, is the appropriate entity to
dictate what individual data points
must be provided with an application
for CUSIP numbers in order to
sufficiently evaluate an application.24
The MSRB believes that this flexibility
will help create a rule that is less likely
to become stale and require further
amendments over time.25
As noted previously, the Commission
received three comment letters on the
proposed rule change, as well as the
MSRB Response Letter. All three
comment letters were supportive of the
proposed rule change.29 However, two
commenters raised questions about the
process by which the MSRB considered
and ultimately submitted the proposed
rule change for Commission approval.30
One commenter raised three questions
regarding the MSRB’s rulemaking
process: (1) What time-frame
requirements, if any, are in place for the
MSRB to send to the SEC for approval
any rules that its Board has approved;
(2) Outside of the formal rulemaking
and amendment process which typically
includes public notice and comment
(except in necessary special and
emergency circumstances), what
processes and standards are in place for
the Board to create, reconsider or make
changes to a rule; and (3) What
responsibilities does the MSRB have to
provide public notice that the Board
will discuss, consider/reconsider, and
vote on its rulemaking? 31
The MSRB issued a response to the
comments on August 22, 2022.32 The
MSRB responded to comments that the
MSRB’s rulemaking process lacked
transparency and predictability by
reviewing the history of the Rule G–34
amendment process that began in March
of 2017 to show that, in the MSRB’s
view, stakeholder feedback had been
received and considered over a period
of several years before the current
proposal was submitted to the SEC for
public comment.33 Further, the MSRB
provided data related to an economic
analysis that was conducted in
conjunction with the proposal to
support the obligation for dealer and
non-dealer municipal advisors to obtain
CUSIP numbers in competitive
offerings.34 The MSRB Response Letter
did not address the commenter’s
questions regarding the MSRB’s
rulemaking process.
In the MSRB Response Letter, the
MSRB described a proposed rule change
to MSRB Rule G–34 that the
Commission approved the on December
D. CUSIP Pre-Assignment
The proposed rule change specifies
that the Rule G–34(a)(i)(A)(3) obligation
to apply for a CUSIP number only
applies where no CUSIP numbers have
been pre-assigned.26 The MSRB states
that it believes that this change aligns
with the common understanding among
market participants that there is no
obligation to seek a CUSIP number
where one has already been preassigned.27 A similar amendment to
Rule G–34(a)(i)(C) provides that the
provisions of Rule G–34(a)(i) regarding
the assignment and affixture of CUSIP
numbers do not apply with respect to
any new issue of municipal securities
19 Id.
20 Id.
21 Id
at 41848.
28 Id.
22 Id.
29 See
23 Id.
30 See
BDA Letter, Acacia Letter, NAMA Letter.
Acacia Letter, NAMA Letter.
31 See NAMA Letter.
32 See MSRB Response Letter.
33 Id.
34 Id.
24 Id.
25 Id.
26 Id.
27 Id.
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Federal Register / Vol. 87, No. 168 / Wednesday, August 31, 2022 / Notices
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14, 2017.35 The MSRB stated that
subsequently, municipal advisors
expressed concern over the burden of
developing and following compliance
and supervisory policies related to the
amendments,36 which led the MSRB to
issue an RFC on February 27, 2019 to
obtain feedback on various aspects of
the rule.37 The MSRB states in the
MSRB Response Letter that the Board
then reconsidered the new amendments
to Rule G–34 and authorized MSRB staff
to file with the SEC a proposed rule
change to eliminate the requirement for
both dealer and non-dealer municipal
advisors to apply for CUSIP numbers in
a competitive transaction in which they
advise.38 On October 2, 2019, the
Commission requested comment on a
proposed exemptive order permitting
registered municipal advisors to engage
in certain solicitation activities, while
acting in their roles as municipal
advisors, in connection with the direct
placement of municipal securities
without registering as a broker.39
Although the Commission’s proposed
exemptive order did not pertain to the
type of competitive transactions at issue
in Rule G–34, the MSRB states that it
then decided to pause moving forward
with Rule G–34 rule changes in
response to the Commission’s request
for comment on the proposed exemptive
order.40 The MSRB further states that
the COVID–19 pandemic then occurred
which caused the MSRB change its
focus as it worked to reduce regulatory
burdens for municipal advisors during
this period of uncertainty.41 The MSRB
states that the Board of Directors then
determined at its April 2021 meeting
that since the rule had been in place for
several years and had proven to enhance
market efficiency that the rule would
remain in its current form.42 The MSRB
states that it continued to engage with
stakeholders after the Board’s decision
and, as a result of these stakeholder
35 See Securities Exchange Act Release No. 82321
(December 14, 2017), 82 FR 60433 (December 20,
2017). https://www.sec.gov/rules/sro/msrb/2017/34/
82321.pdf.
36 See MSRB Response Letter.
37 See MSRB Notice 2019–08, Request for
Comment on MSRB Rule G–34 Obligation of
Municipal Advisors to Apply for CUSIP Numbers
When Advising on Competitive Sales (February 27,
2019). https://msrb.org/-/media/Files/RegulatoryNotices/RFCs/2019/08.ashx??n=1.
38 See MSRB Press Release (July 29, 2019).
https://www.msrb.org/About-MSRB/Governance/
MSRB-Board-ofDirectors/∼/link.aspx?_
id=9E75A24433E942E8B910E102360317E3&_z=z.
39 See Securities Exchange Act Release No. 87204
(October 2, 2019), 84 FR 54062 (October 9, 2019).
https://www.sec.gov/rules/exorders/2019/34/
87204.pdf.
40 See MSRB Response Letter.
41 Id.
42 Id.
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discussions, the Board authorized the
proposed rule change.43 The MSRB
notes that it delayed submitting the
proposed changes to the Rule G–34
proposal in large part due to operational
issues presented by the pandemic.44
The MSRB provided data on CUSIP
generation in a competitive offering
based on information received from
CUSIP Global Services.45 The MSRB
states that it interpreted this data to
mean the competitive sale market is
more orderly and efficient as a result of
the 2017 amendments to MSRB Rule G–
34.46 The MSRB noted that the 91.2%
regular request rate in 2021 is consistent
with the percentage of competitive
offerings utilizing a municipal advisor,
which the MSRB interprets as showing
that approximately all competitive
offerings with a municipal advisor
apply for a CUSIP number through a
regular request.47
The MSRB acknowledged that all
three commenters expressed support for
the proposed rule change, and stated
that if the Commission approves the
proposed rule change, the Board will
continue to engage with stakeholders to
support implementation of the
amendments.48
IV. Discussion and Commission
Findings
The Commission has carefully
considered the proposed rule change,
the comment letters received, and the
MSRB Response Letter. The
Commission finds that the proposed
rule change is consistent with the
requirements of the Act and the rules
and regulations thereunder applicable to
the MSRB.
In particular, the Commission
believes that the proposed rule change
is consistent with the provisions of
Exchange Act Section 15B(b)(2)(C),
which provides, in part, 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, and 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
43 Id.
44 Id.
45 Id.
46 Id.
protect investors, municipal entities,
obligated persons, and the public
interest.49
The Commission finds that the
proposed rule change is consistent with
Section 15B(b)(2)(C) of the Act, as
further described below, because the
amendments would: (i) promote just
and equitable principles of trade; (ii)
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; (iii) remove impediments to
and perfect the mechanism of a free and
open market in municipal securities and
municipal financial products; and (iv)
protect investors, municipal entities,
obligated persons, and the public
interest.
A. Promote Just and Equitable
Principles of Trade
The Commission finds the proposed
rule change would promote just and
equitable principles of trade by
amending the rule text to better
represent the realities of the
marketplace and not place undue
hardships on underwriters and
municipal advisors in obtaining a
CUSIP number in a new municipal
securities offering. The Commission
believes the proposed rule change
provides certainty to underwriters and
municipal advisors regarding the entity
with which CUSIP applications must be
sent which reduces confusion with the
application process. Additionally, the
Commission believes that eliminating
the one business day requirement for
municipal advisors to apply for a CUSIP
number and explicitly providing that a
CUSIP application is not necessary
where a CUSIP number is preassigned
removes unnecessary obstacles and
better aligns with current market
practice. As the MSRB noted, in many
instances, the requirement for
municipal advisors to submit a CUSIP
application within one business was
impossible, and replacing the one
business day requirement with a flexible
time frame better aligns with business
practice and allows municipal advisors
to remain in compliance with the rule.
The Commission further believes that
explicitly providing within the rule that
a CUSIP application is not necessary
when a CUSIP has been preassigned
ensures market participants are not
taking redundant action that may
impose unnecessary financial and time
burdens. Finally, removing the content
requirement of CUSIP applications
47 Id.
48 Id.
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49 15
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U.S.C. 78o–4(b)(2)(C).
31AUN1
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provides certainty as to the entity
underwriters and municipal advisors
should follow regarding the
requirements of the CUSIP application
and prevents confusion in the event the
Board’s designee develops different
content requirements than those
outlined within the rule.
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B. 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
The Commission finds that the
proposed rule change would foster
cooperation and coordination between
the SEC, the MSRB, and the Board’s
designee by directing underwriters and
municipal advisors to submit CUSIP
applications to the correct entity and
stating their obligations in a manner that
better aligns the requirements of the rule
to the realities of the marketplace. The
Commission believes these changes will
provide regulatory clarity and facilitate
compliance with the rule.
C. Remove Impediments to and Perfect
the Mechanism of a Free and Open
Market in Municipal Securities and
Municipal Financial Products
The Commission finds that the
proposed rule change would remove
impediments to, and perfect the
mechanism of, a free and open market
in municipal securities by reduce
confusion arising from the MSRB Rule
G–34 and removing burdensome
obligations that conflict with current
business practices. The Commission
believes that he proposed rule change
provides certainty to underwriters and
municipal advisors which helps to
ensure a timely application process.
Further, the Commission believes that
replacing the one business day
requirement for municipal advisors to
submit a CUSIP application with a
flexible timing requirement better aligns
with the practicalities of a competitive
municipal offering which better allows
for municipal advisors to comply with
the rule. Finally, the Commission finds
that explicitly stating that municipal
advisors do not have to submit a CUSIP
application when a CUSIP number has
been preassigned ensures that
municipal advisors are not engaging in
redundant actions that needlessly
consume time and resources.
D. Protect Investors, Municipal Entities,
Obligated Persons, and the Public
Interest
The Commission finds that the
proposed rule change will protect
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16:59 Aug 30, 2022
Jkt 256001
investors, municipal entities, obligated
persons, and the public interest by
preventing ambiguity in the process and
ultimately ensuring that CUSIP numbers
for new municipal offerings are
obtained in a timely and efficient
manner while facilitating compliance
with the rule.
In approving the proposed rule
change, the Commission has considered
the proposed rule change’s impact on
efficiency, competition, and capital
formation.50 Exchange Act Section
15B(b)(2)(C) 51 requires that MSRB rules
not be designed to impose any burden
on competition not necessary or
appropriate in furtherance of the
purposes of the Exchange Act.
The Commission does not believe that
the proposed rule change would impose
any burden on competition not
necessary or appropriate in furtherance
of the purposes of the Exchange Act
because the proposed rule change
would encourage fair competition by
reducing confusion and fostering
compliance with existing CUSIP
number requirements. Furthermore, the
proposed rule change would apply
equally to all MSRB regulated entities.
The Commission has also reviewed
the record for the proposed rule change
and notes that the record does not
contain any information to indicate that
the proposed rule change would have a
negative effect on capital formation.
V. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,52 that the
proposed rule change (SR–MSRB–2022–
05) be, and hereby is, approved.
For the Commission, pursuant to delegated
authority.53
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022–18765 Filed 8–30–22; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–95603; File No. SR–ICC–
2022–010]
Self-Regulatory Organizations; ICE
Clear Credit LLC; Order Approving
Proposed Rule Change Relating to the
Clearing Rules and the End-of-Day
Price Discovery Policies and
Procedures
August 25, 2022.
I. Introduction
On July 7, 2022, ICE Clear Credit LLC
(‘‘ICC’’) filed with the Securities and
Exchange Commission (‘‘Commission’’),
pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2 a
proposed rule change to amend its
Clearing Rules (the ‘‘Rules’’) and End-ofDay Price Discovery Policies and
Procedures (the ‘‘EOD Policy’’) to
establish an additional class of Clearing
Participant. The proposed rule change
was published for comment in the
Federal Register on July 20, 2022.3 The
Commission did not receive comments
regarding the proposed rule change. For
the reasons discussed below, the
Commission is approving the proposed
rule change.
II. Description of the Proposed Rule
Change
A. Background
The proposed rule change would
amend the Rules and EOD Policy to
establish an additional class of Clearing
Participant at ICC, the Associate
Clearing Participant (referred to herein
as the ‘‘ACP’’).4 In general, an ACP
would have the same rights, obligations,
and responsibilities as other Clearing
Participants (referred to herein as ‘‘Full
Participants’’), except with respect to
certain price submissions. Specifically,
ICC would permit an ACP to submit
prices with respect to certain North
American (‘‘NA’’) Credit Default Swap
(‘‘CDS’’) products at the end of the
London trading day, rather than at the
end of the New York trading day. ICC
represents this change is intended to
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 Self-Regulatory Organizations; ICE Clear Credit
LLC; Notice of Filing of Proposed Rule Change
Relating to the Clearing Rules and the End-of-Day
Price Discovery Policies and Procedures; Exchange
Act Release No. 95279 (July 14, 2022), 87 FR 43351
(July 20, 2022) (File No. SR–ICC–2022–010)
(‘‘Notice’’).
4 This description is substantially excerpted from
the Notice, 87 FR at 43351. Capitalized terms not
otherwise defined herein have the meanings
assigned to them in the Rules or EOD Policy, as
applicable.
2 17
50 15
U.S.C. 78c(f).
U.S.C. 78o–4(b)(2)(C).
52 15 U.S.C. 78s(b)(2).
53 17 CFR 200.30–3(a)(12).
51 15
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]]>Agencies
[Federal Register Volume 87, Number 168 (Wednesday, August 31, 2022)]
[Notices]
[Pages 53526-53529]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-18765]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 95602; File No. SR-MSRB-2022-05]
Self-Regulatory Organizations; Municipal Securities Rulemaking
Board; Order Granting Approval of a Proposed Rule Change Consisting of
Amendments to MSRB Rule G-34 to Better Align the CUSIP Requirements for
Underwriters and Municipal Advisors With Current Market Practices
August 25, 2022.
I. Introduction
On July 1, 2022, the Municipal Securities Rulemaking Board (the
``MSRB'' or ``Board'') filed with the Securities and Exchange
Commission (the ``SEC'' or ``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 consisting of amendments
to MSRB Rule G-34, on CUSIP numbers, New Issue, and Market Information
Requirements (the ``proposed rule change''). The proposed rule change
would make amendments to better align Rule G-34's requirements for
obtaining CUSIP numbers with the process followed by market
participants and facilitate compliance with MSRB Rule G-34 by
streamlining the rule text.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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The proposed rule change was published for comment in the Federal
Register on July 13, 2022.\3\ The public comment period closed on
August 3, 2022, and three comment letters were received on the proposed
rule change.\4\ On August 22, 2022, the MSRB responded to those
comments.\5\ This order approves the proposed rule change.
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\3\ Exchange Act Release No. 95208 (July 7, 2022) (the ``Notice
of Filing''), 87 FR 41846 (July 13, 2022).
\4\ See Letter to Secretary, Commission, from Michael Decker,
Senior Vice President for Public Policy, Bond Dealers of America
(``BDA''), dated August 3, 2022 (the ``BDA Letter''); Letter to
Secretary, Commission, from Kim M. Whelan, Co-President, and Noreen
P. White, Co-President, Acacia Financial Group Inc., dated August 3,
2022 (the ``Acacia Letter''); and Letter to Secretary, Commission,
from Susan Gaffney, Executive Director, National Association of
Municipal Advisors (``NAMA''), dated July 6, 2022 (the ``NAMA
Letter'').
\5\ See Letter to Secretary, Commission, from Gail Marshall,
Chief Regulatory Officer, MSRB, dated August 22, 2022 (the ``MSRB
Response Letter'').
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II. Description of Proposed Rule Change
As described further herein and in the Notice of Filing, the
proposed rule change specifies that CUSIP applications must be made to
the Board's designee (and not the Board itself); removes the obligation
for municipal advisors providing advice with respect to a competitive
offering to apply for the CUSIP number by no later than one business
day after dissemination of a notice of sale in favor of a more flexible
standard that still obligates the application to be made within
sufficient time to ensure timely CUSIP number assignment; removes
language dictating the precise content of a CUSIP number application
that the MSRB believes would more appropriately be left to the Board's
designee for receiving and reviewing such applications; and provides
that certain obligations set forth in the rule do not apply when CUSIP
numbers have been preassigned.\6\
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\6\ See Notice of Filing 87 FR 41846 at 41847.
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A. Designee of the Board
MSRB Rule G-34(a)(i)(A) currently requires an underwriter or
municipal advisor to obtain CUSIP numbers through an application in
writing to the Board or its designee. The proposed rule change amends
this language by providing that underwriters and municipal advisors
must apply to the Board's designee and removing the language in the
rule text that makes reference to the Board as an option with which to
submit CUSIP application.\7\ The MSRB states that this revised language
is designed to avoid the potential for confusion associated with the
current rule text and to more clearly convey the MSRB's expectations
with respect to the process of obtaining a CUSIP number.\8\ The MSRB
notes that it does not currently assign CUSIP numbers to municipal
securities; underwriters and municipal advisors may only obtain a CUSIP
by application to the only entity that provides these identifiers,
CUSIP Global Services, which is currently the only entity serving as
the Board's designee.\9\ This designation would remain unchanged by the
proposed rule change and would be reflected in new Supplementary
Material .01.\10\ The MSRB states that if CUSIP numbers become
available from another source or another identifier for municipal
securities becomes market practice at some point in the future, the
MSRB would notify the market of a decision to modify the designee via
[[Page 53527]]
publication of an MSRB regulatory notice.\11\
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\7\ Id.
\8\ Id.
\9\ Id.
\10\ Id.
\11\ Id.
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In addition, as it is the Board's designee, and not the Board, that
controls the CUSIP number application process, the MSRB proposes to
remove the in-writing requirement for the application made for
obtaining CUSIP numbers.\12\ Because it does not receive or review
CUSIP applications, the MSRB believes that the manner in which an
applicant applies for CUSIP numbers is best left to the entity that
reviews applications and assigns the CUSIP number.\13\
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\12\ Id.
\13\ Id.
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B. One Business Day Obligation
MSRB Rule G-34(a)(i)(A)(3) states that a municipal advisor advising
the issuer with respect to a competitive sale of a new issue of
municipal securities shall make an application by no later than one
business day after dissemination of a notice of sale or other such
request for bids. The proposed rule change removes the obligation to
make such application by no later than one business day because, the
MSRB believes that it is not always practical for municipal advisors to
comply given the realities of the marketplace,\14\ and therefore may
place an undue burden on municipal advisors.\15\ The MSRB notes that
the rule already obligates the application to be made at a time
sufficient to ensure final CUSIP number assignment occurs prior to the
award of the issue.\16\ The MSRB believes that this language is
sufficient to ensure that any such application is timely without
dictating a more burdensome approach of requiring a specific numeric
time obligation.\17\ Additionally, the MSRB has stated that it
understands that, from an operational perspective, it may be
impracticable for municipal advisors to apply for a CUSIP number within
one business day after dissemination of a notice of sale, as currently
required by Rule G-34(a)(i)(A)(3).\18\ Accordingly, the MSRB believes
that removal of this language would better align the rule text with the
operational process followed by municipal advisors in connection with
their CUSIP applications.\19\
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\14\ See Letter from Susan Gaffney, Executive Director, NAMA,
dated May 28, 2019 available at: https://www.msrb.org/rfc/2019-08/gaffney.pdf (stating that there is an inherent timing inconsistency
with respect to Rule G-34(a)(i)(A)(3) as it requires application for
CUSIP numbers no later than one business day after the Notice of
Sale, which will almost always be before the identity of the
investors are known, and therefore the [municipal advisor] could not
reasonably obtain the investors' written representations).
\15\ Id.
\16\ Id.
\17\ Id.
\18\ Id.
\19\ Id.
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C. Information To Be Provided When Applying for CUSIP Numbers
MSRB Rule G-34(a)(i)(A)(4) lists specific data points that must be
provided when applying for CUSIP numbers.\20\ The proposed rule change
removes these data points from the rule and instead provides that
underwriters and municipal advisors shall provide the information
required by the Board's designee in connection with their CUSIP
application.\21\ The proposed rule change also makes a similar
amendment to Rule G-34(a)(i)(D), removing from the rule text the three
specified pieces of information that must be included in an application
to obtain a CUSIP number in connection with certain new issuances that
refund part of an outstanding issuance.\22\ The MSRB states that it
believes that Rule G-34 should not contain specific data points to be
provided to its designee, as the MSRB does not control the specifics of
the application process, nor does it make a determination on the
sufficiency of an application to receive CUSIP numbers.\23\ The MSRB
believes that the entity awarding CUSIP numbers, the Board's designee,
is the appropriate entity to dictate what individual data points must
be provided with an application for CUSIP numbers in order to
sufficiently evaluate an application.\24\ The MSRB believes that this
flexibility will help create a rule that is less likely to become stale
and require further amendments over time.\25\
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\20\ Id.
\21\ Id at 41848.
\22\ Id.
\23\ Id.
\24\ Id.
\25\ Id.
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D. CUSIP Pre-Assignment
The proposed rule change specifies that the Rule G-34(a)(i)(A)(3)
obligation to apply for a CUSIP number only applies where no CUSIP
numbers have been pre-assigned.\26\ The MSRB states that it believes
that this change aligns with the common understanding among market
participants that there is no obligation to seek a CUSIP number where
one has already been pre-assigned.\27\ A similar amendment to Rule G-
34(a)(i)(C) provides that the provisions of Rule G-34(a)(i) regarding
the assignment and affixture of CUSIP numbers do not apply with respect
to any new issue of municipal securities on which CUSIP numbers have
been preassigned.\28\
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\26\ Id.
\27\ Id.
\28\ Id.
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III. Summary of Comments Received and MSRB's Responses to Comments
As noted previously, the Commission received three comment letters
on the proposed rule change, as well as the MSRB Response Letter. All
three comment letters were supportive of the proposed rule change.\29\
However, two commenters raised questions about the process by which the
MSRB considered and ultimately submitted the proposed rule change for
Commission approval.\30\ One commenter raised three questions regarding
the MSRB's rulemaking process: (1) What time-frame requirements, if
any, are in place for the MSRB to send to the SEC for approval any
rules that its Board has approved; (2) Outside of the formal rulemaking
and amendment process which typically includes public notice and
comment (except in necessary special and emergency circumstances), what
processes and standards are in place for the Board to create,
reconsider or make changes to a rule; and (3) What responsibilities
does the MSRB have to provide public notice that the Board will
discuss, consider/reconsider, and vote on its rulemaking? \31\
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\29\ See BDA Letter, Acacia Letter, NAMA Letter.
\30\ See Acacia Letter, NAMA Letter.
\31\ See NAMA Letter.
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The MSRB issued a response to the comments on August 22, 2022.\32\
The MSRB responded to comments that the MSRB's rulemaking process
lacked transparency and predictability by reviewing the history of the
Rule G-34 amendment process that began in March of 2017 to show that,
in the MSRB's view, stakeholder feedback had been received and
considered over a period of several years before the current proposal
was submitted to the SEC for public comment.\33\ Further, the MSRB
provided data related to an economic analysis that was conducted in
conjunction with the proposal to support the obligation for dealer and
non-dealer municipal advisors to obtain CUSIP numbers in competitive
offerings.\34\ The MSRB Response Letter did not address the commenter's
questions regarding the MSRB's rulemaking process.
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\32\ See MSRB Response Letter.
\33\ Id.
\34\ Id.
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In the MSRB Response Letter, the MSRB described a proposed rule
change to MSRB Rule G-34 that the Commission approved the on December
[[Page 53528]]
14, 2017.\35\ The MSRB stated that subsequently, municipal advisors
expressed concern over the burden of developing and following
compliance and supervisory policies related to the amendments,\36\
which led the MSRB to issue an RFC on February 27, 2019 to obtain
feedback on various aspects of the rule.\37\ The MSRB states in the
MSRB Response Letter that the Board then reconsidered the new
amendments to Rule G-34 and authorized MSRB staff to file with the SEC
a proposed rule change to eliminate the requirement for both dealer and
non-dealer municipal advisors to apply for CUSIP numbers in a
competitive transaction in which they advise.\38\ On October 2, 2019,
the Commission requested comment on a proposed exemptive order
permitting registered municipal advisors to engage in certain
solicitation activities, while acting in their roles as municipal
advisors, in connection with the direct placement of municipal
securities without registering as a broker.\39\ Although the
Commission's proposed exemptive order did not pertain to the type of
competitive transactions at issue in Rule G-34, the MSRB states that it
then decided to pause moving forward with Rule G-34 rule changes in
response to the Commission's request for comment on the proposed
exemptive order.\40\ The MSRB further states that the COVID-19 pandemic
then occurred which caused the MSRB change its focus as it worked to
reduce regulatory burdens for municipal advisors during this period of
uncertainty.\41\ The MSRB states that the Board of Directors then
determined at its April 2021 meeting that since the rule had been in
place for several years and had proven to enhance market efficiency
that the rule would remain in its current form.\42\ The MSRB states
that it continued to engage with stakeholders after the Board's
decision and, as a result of these stakeholder discussions, the Board
authorized the proposed rule change.\43\ The MSRB notes that it delayed
submitting the proposed changes to the Rule G-34 proposal in large part
due to operational issues presented by the pandemic.\44\
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\35\ See Securities Exchange Act Release No. 82321 (December 14,
2017), 82 FR 60433 (December 20, 2017). https://www.sec.gov/rules/sro/msrb/2017/34/82321.pdf.
\36\ See MSRB Response Letter.
\37\ See MSRB Notice 2019-08, Request for Comment on MSRB Rule
G-34 Obligation of Municipal Advisors to Apply for CUSIP Numbers
When Advising on Competitive Sales (February 27, 2019). https://msrb.org/-/media/Files/Regulatory-Notices/RFCs/2019/08.ashx??n=1.
\38\ See MSRB Press Release (July 29, 2019). https://
www.msrb.org/About-MSRB/Governance/MSRB-Board-ofDirectors/~/
link.aspx?_id=9E75A24433E942E8B910E102360317E3&_z=z.
\39\ See Securities Exchange Act Release No. 87204 (October 2,
2019), 84 FR 54062 (October 9, 2019). https://www.sec.gov/rules/exorders/2019/34/87204.pdf.
\40\ See MSRB Response Letter.
\41\ Id.
\42\ Id.
\43\ Id.
\44\ Id.
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The MSRB provided data on CUSIP generation in a competitive
offering based on information received from CUSIP Global Services.\45\
The MSRB states that it interpreted this data to mean the competitive
sale market is more orderly and efficient as a result of the 2017
amendments to MSRB Rule G-34.\46\ The MSRB noted that the 91.2% regular
request rate in 2021 is consistent with the percentage of competitive
offerings utilizing a municipal advisor, which the MSRB interprets as
showing that approximately all competitive offerings with a municipal
advisor apply for a CUSIP number through a regular request.\47\
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\45\ Id.
\46\ Id.
\47\ Id.
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The MSRB acknowledged that all three commenters expressed support
for the proposed rule change, and stated that if the Commission
approves the proposed rule change, the Board will continue to engage
with stakeholders to support implementation of the amendments.\48\
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\48\ Id.
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IV. Discussion and Commission Findings
The Commission has carefully considered the proposed rule change,
the comment letters received, and the MSRB Response Letter. The
Commission finds that the proposed rule change is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to the MSRB.
In particular, the Commission believes that the proposed rule
change is consistent with the provisions of Exchange Act Section
15B(b)(2)(C), which provides, in part, 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,
and 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.\49\
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\49\ 15 U.S.C. 78o-4(b)(2)(C).
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The Commission finds that the proposed rule change is consistent
with Section 15B(b)(2)(C) of the Act, as further described below,
because the amendments would: (i) promote just and equitable principles
of trade; (ii) 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; (iii) remove impediments to and perfect the
mechanism of a free and open market in municipal securities and
municipal financial products; and (iv) protect investors, municipal
entities, obligated persons, and the public interest.
A. Promote Just and Equitable Principles of Trade
The Commission finds the proposed rule change would promote just
and equitable principles of trade by amending the rule text to better
represent the realities of the marketplace and not place undue
hardships on underwriters and municipal advisors in obtaining a CUSIP
number in a new municipal securities offering. The Commission believes
the proposed rule change provides certainty to underwriters and
municipal advisors regarding the entity with which CUSIP applications
must be sent which reduces confusion with the application process.
Additionally, the Commission believes that eliminating the one business
day requirement for municipal advisors to apply for a CUSIP number and
explicitly providing that a CUSIP application is not necessary where a
CUSIP number is preassigned removes unnecessary obstacles and better
aligns with current market practice. As the MSRB noted, in many
instances, the requirement for municipal advisors to submit a CUSIP
application within one business was impossible, and replacing the one
business day requirement with a flexible time frame better aligns with
business practice and allows municipal advisors to remain in compliance
with the rule. The Commission further believes that explicitly
providing within the rule that a CUSIP application is not necessary
when a CUSIP has been preassigned ensures market participants are not
taking redundant action that may impose unnecessary financial and time
burdens. Finally, removing the content requirement of CUSIP
applications
[[Page 53529]]
provides certainty as to the entity underwriters and municipal advisors
should follow regarding the requirements of the CUSIP application and
prevents confusion in the event the Board's designee develops different
content requirements than those outlined within the rule.
B. 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
The Commission finds that the proposed rule change would foster
cooperation and coordination between the SEC, the MSRB, and the Board's
designee by directing underwriters and municipal advisors to submit
CUSIP applications to the correct entity and stating their obligations
in a manner that better aligns the requirements of the rule to the
realities of the marketplace. The Commission believes these changes
will provide regulatory clarity and facilitate compliance with the
rule.
C. Remove Impediments to and Perfect the Mechanism of a Free and Open
Market in Municipal Securities and Municipal Financial Products
The Commission finds that the proposed rule change would remove
impediments to, and perfect the mechanism of, a free and open market in
municipal securities by reduce confusion arising from the MSRB Rule G-
34 and removing burdensome obligations that conflict with current
business practices. The Commission believes that he proposed rule
change provides certainty to underwriters and municipal advisors which
helps to ensure a timely application process. Further, the Commission
believes that replacing the one business day requirement for municipal
advisors to submit a CUSIP application with a flexible timing
requirement better aligns with the practicalities of a competitive
municipal offering which better allows for municipal advisors to comply
with the rule. Finally, the Commission finds that explicitly stating
that municipal advisors do not have to submit a CUSIP application when
a CUSIP number has been preassigned ensures that municipal advisors are
not engaging in redundant actions that needlessly consume time and
resources.
D. Protect Investors, Municipal Entities, Obligated Persons, and the
Public Interest
The Commission finds that the proposed rule change will protect
investors, municipal entities, obligated persons, and the public
interest by preventing ambiguity in the process and ultimately ensuring
that CUSIP numbers for new municipal offerings are obtained in a timely
and efficient manner while facilitating compliance with the rule.
In approving the proposed rule change, the Commission has
considered the proposed rule change's impact on efficiency,
competition, and capital formation.\50\ Exchange Act Section
15B(b)(2)(C) \51\ requires that MSRB rules not be designed to impose
any burden on competition not necessary or appropriate in furtherance
of the purposes of the Exchange Act.
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\50\ 15 U.S.C. 78c(f).
\51\ 15 U.S.C. 78o-4(b)(2)(C).
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The Commission does not believe that the proposed rule change would
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Exchange Act because the proposed
rule change would encourage fair competition by reducing confusion and
fostering compliance with existing CUSIP number requirements.
Furthermore, the proposed rule change would apply equally to all MSRB
regulated entities.
The Commission has also reviewed the record for the proposed rule
change and notes that the record does not contain any information to
indicate that the proposed rule change would have a negative effect on
capital formation.
V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\52\ that the proposed rule change (SR-MSRB-2022-05) be, and hereby
is, approved.
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\52\ 15 U.S.C. 78s(b)(2).
For the Commission, pursuant to delegated authority.\53\
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\53\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-18765 Filed 8-30-22; 8:45 am]
BILLING CODE 8011-01-P
