Self-Regulatory Organizations; Municipal Securities Rulemaking Board; Order Granting Approval of a Proposed Rule Change To Amend MSRB Rule G-12 To Promote the Completion of Allocations, Confirmations, and Affirmations by the End of Trade Date, 10110-10114 [2024-02862]
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Federal Register / Vol. 89, No. 30 / Tuesday, February 13, 2024 / Notices
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SECURITIES AND EXCHANGE
COMMISSION
[SEC File No. 270–658, OMB Control No.
3235–0716]
Proposed Collection; Comment
Request; Extension: Form C
Upon Written Request Copies Available
From: Securities and Exchange
Commission, Office of FOIA Services,
100 F Street NE, Washington, DC
20549–2736
Notice is hereby given that, pursuant
to the Paperwork Reduction Act of 1995
(44 U.S.C. 3501 et seq.), the Securities
and Exchange Commission
(‘‘Commission’’) is soliciting comments
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summarized below. The Commission
plans to submit this existing collection
of information to the Office of
Management and Budget for extension
and approval.
Form C (17 CFR 239.900) is used by
issuers offering securities in reliance on
the crowdfunding exemption in Section
Jennie L. Jbara,
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Securities Act of 1933 (‘‘Securities Act’’)
Alternate Certifying Officer.
(15 U.S.C. 77a et seq.) Form C will also
[FR Doc. 2024–02909 Filed 2–12–24; 8:45 am]
be used by issuers that have completed
BILLING CODE 7710–FW–P
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TIME AND DATE: 10 a.m., February 21,
(Pub. L. 112–106, 126 Stat. 306) to
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written request at least 24 hours prior to Form C takes approximately 49.9696
hours per response and is filed by
the meeting to receive dial-in
approximately 3,476 respondents. We
information. All requests must be sent
estimate that 75% of the 49.9696 hours
to SecretarytotheBoard@rrb.gov.
per response (37.4772 hours) is
STATUS: This meeting will be open to the
prepared by the issuer for a total annual
public.
reporting burden of 130,271 hours
(37.4772 hours per response × 3, 476
MATTERS TO BE CONSIDERED:
responses).
Welcome new Director of
Written comments are invited on: (a)
Administration.
whether this proposed collection of
OLA Briefing on Appropriations and
information is necessary for the proper
Pending Legislation.
performance of the functions of the
agency, including whether the
CONTACT PERSON FOR MORE INFORMATION:
information will have practical utility;
Stephanie Hillyard, Secretary to the
(b) the accuracy of the agency’s estimate
Board, (312) 751–4920
of the burden imposed by the collection
(Authority 5 U.S.C. 552b)
of information; (c) ways to enhance the
quality, utility, and clarity of the
Dated: February 9, 2024.
information collected; and (d) ways to
Stephanie Hillyard,
minimize the burden of the collection of
Secretary to the Board.
information on respondents, including
[FR Doc. 2024–03062 Filed 2–9–24; 4:15 pm]
through the use of automated collection
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techniques or other forms of information
technology. Consideration will be given
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to comments and suggestions submitted
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publication by April 15, 2024.
An agency may not conduct or
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Please direct your written comment to
David Bottom, Director/Chief
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Exchange Commission, c/o John
Pezzullo, 100 F Street NE, Washington,
DC 20549 or send an email to: PRA_
Mailbox@sec.gov.
Dated: February 8, 2024.
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024–02950 Filed 2–12–24; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–99484; File No. SR–MSRB–
2023–07]
Self-Regulatory Organizations;
Municipal Securities Rulemaking
Board; Order Granting Approval of a
Proposed Rule Change To Amend
MSRB Rule G–12 To Promote the
Completion of Allocations,
Confirmations, and Affirmations by the
End of Trade Date
February 7, 2024.
I. Introduction
On December 20, 2023, the Municipal
Securities Rulemaking Board (‘‘MSRB’’)
filed with the Securities and Exchange
Commission (‘‘SEC’’ or ‘‘Commission’’),
pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (‘‘Act’’
or ‘‘Exchange Act’’) 1 and Rule 19b–4
thereunder,2 a proposed rule change to
amend MSRB Rules G–12 (‘‘Rule G–
12’’), on uniform practice, to promote
the completion of allocations,
confirmations, and affirmations by the
end of the day on trade date for
municipal securities transactions
between brokers, dealers and municipal
securities dealers and their institutional
customers to facilitate the move to a
settlement cycle of one business day
(the ‘‘proposed rule change’’).3
The MSRB requested that the
proposed rule change be approved with
an implementation date of May 28,
2024, to align with the implementation
date for Exchange Act Rule 15c6–1, as
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 Securities Exchange Act Release No. 34–99226
(December 21, 2023), 88 FR 89796 (December 28,
2023) (‘‘Notice’’).
2 17
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amended,4 and new Exchange Act Rule
15c6–2.5
The proposed rule change was
published for comment in the Federal
Register on December 28, 2023.6 The
Commission received two comment
letters 7 on the proposed rule change.
On February 1, 2024, the MSRB
responded to the comment letters.8 As
described further below, the
Commission is approving the proposed
rule change.
II. Description of the Proposed Rule
Change
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The MSRB stated that the proposed
rule change would amend Rule G–12 by
adding a new section (k) to promote the
completion of allocations,
confirmations, and affirmations by the
end of the day on trade date for
transactions in municipal securities
between brokers, dealers and municipal
securities dealers (‘‘dealers’’) and their
institutional customers.9 According to
the MSRB, this proposed rule change
would align with the same-day
allocation, confirmation, and
affirmation process for equities and
corporate bonds under Exchange Act
Rule 15c6–2, as adopted.10 Although
Exchange Act Rule 15c6–2, as
adopted,11 does not apply to municipal
securities transactions, the MSRB
believes that the same-day allocation,
confirmation, and affirmation process
for municipal securities transactions in
the secondary market should be
consistent with that for equity and
corporate bond transactions.12
According to the MSRB, the proposed
rule change is designed to facilitate the
industry’s move to a settlement cycle of
one business day (‘‘T+1’’) as described
further below.13 To align with Exchange
4 See Securities Exchange Act Release No. 96930
(Feb. 15, 2023), 88 FR 13872, 13916 (Mar. 6, 2023)
(‘‘SEC’s T+1 Adopting Release’’).
5 See SEC’s T+1 Adopting Release, 88 FR at
13918. If the Commission’s compliance date were
to change, the MSRB stated that it would issue a
regulatory notice to modify the compliance date to
remain aligned with the Commission’s compliance
date. See Notice, 88 FR at 89799.
6 See Notice, 88 FR at 89796.
7 See Letter from Leslie M. Norwood, Managing
Director and Associate General Counsel, Securities
Industry and Financial Markets Association, dated
January 18, 2024 (‘‘SIFMA Letter’’); and Letter from
RJ Rondini, Director, Securities Operations,
Investment Company Institute, dated January 18,
2024 (‘‘ICI Letter’’).
8 See Letter to Secretary, Commission, from
Ernesto A. Lanza, Chief Regulatory and Policy
Officer, MSRB, dated February 1, 2024 (‘‘MSRB
Letter’’).
9 See Notice, 88 FR at 89797.
10 17 CFR 240.15c6–2.
11 Id.
12 See Notice, 88 FR at 89797.
13 Id.
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Act Rule 15c6–2, as adopted,14 the
MSRB is proposing to amend Rule G–12
by adding a section (k) to require dealers
effecting municipal securities
transactions subject to the T+1
settlement cycle to either enter into
written agreements as specified in the
proposed rule change or establish,
maintain, and enforce written policies
and procedures reasonably designed to
address certain objectives related to
completing allocations, confirmations,
and affirmations as soon as
technologically practicable and no later
than the end of the day on the trade
date.15
A. Background
The Commission initially adopted
Exchange Act Rule 15c6–1 16 in 1993 to
shorten the settlement cycle of most
equity and corporate bond transactions
from the industry standard of within
five business days (‘‘T+5’’) to requiring
settlement within three business days
(‘‘T+3’’).17 The T+3 settlement cycle
remained in effect until 2017 when the
Commission amended Exchange Act
Rule 15c6–1 18 to require the settlement
of most equity and corporate bond
transactions within two business days
(‘‘T+2’’).19 On February 15, 2023, the
Commission adopted amendments to
Exchange Act Rule 15c6–1 (‘‘Amended
Exchange Act Rule 15c6–1’’) 20 to
further shorten the settlement process,
requiring the settlement of most equity
and corporate bond transactions on T+1.
In alignment with Amended Exchange
Act Rule 15c6–1, the MSRB amended its
Rule G–12(b)(ii)(B)–(D) and Rule G–
15(b)(ii)(B)–(C) to define regular-way
settlement as occurring on the first
business day following the trade date
rather than on the second business day
following the trade date.21
In the SEC’s T+1 Adopting Release,
the Commission stated that
implementing a T+1 standard settlement
cycle would require significant
improvements in the current rates of
same-day allocations, confirmations,
and affirmations to help ensure timely
settlement in a T+1 environment.22 In
14 Id.
15 See
Notice, 88 FR at 89797–98.
CFR 240.15c6–1.
17 Exchange Act Release No. 33023 (Oct. 6, 1993),
58 FR 52891 (Oct. 13, 1993). In adopting Exchange
Act Rule 15c6–1, the Commission set a compliance
date of June 1, 1995, 58 FR at 52891.
18 17 CFR 240.15c6–1.
19 Securities Exchange Act Release No. 80295
(Mar. 22, 2017), 82 FR 15564 (Mar. 29, 2017).
20 17 CFR 240.15c6–1.
21 See Exchange Act Release No. 97585 (May 25,
2023), 88 FR 35961 (June 1, 2023) (File No. SR–
MSRB–2023–03).
22 See SEC’s T+1 Adopting Release, 88 FR at
13890.
16 17
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10111
the SEC’s T+1 Adopting Release, the
Commission adopted new Exchange Act
Rule 15c6–2 to establish requirements
that facilitate the completion of
allocations, confirmations, and
affirmations by the end of the trade date,
helping to facilitate the settlement of
institutional transactions in a T+1 or
shorter standard settlement cycle by
promoting the timely and orderly
transmission of trade data necessary to
achieve settlement.23
Exchange Act Rule 15c6–2 provides
two options by which broker-dealers
may comply with the rule, as adopted.24
The first option under Exchange Act
Rule 15c6–2 provides that, where
parties have agreed to engage in an
allocation, confirmation, or affirmation
process, a broker-dealer would be
prohibited from effecting or entering
into a contract for the purchase or sale
of a security (other than an exempted
security, a government security, a
municipal security, commercial paper,
bankers’ acceptances, or commercial
bills) on behalf of a customer unless
such broker-dealer has entered into a
written agreement with the customer
that requires the allocation,
confirmation, affirmation, or any
combination thereof, to be completed no
later than the end of the day on trade
date in such form as may be necessary
to achieve settlement in compliance
with Exchange Act Rule 15c6–1(a).25
The second option under Exchange Act
Rule 15c6–2 provides an alternative
where, in lieu of a written agreement, a
broker-dealer may choose to establish,
maintain, and enforce written policies
and procedures reasonably designed to
ensure the completion of the allocation,
confirmation, affirmation, or any
combination thereof, for the transaction
as soon as technologically practicable
and no later than the end of the day on
trade date in such form as necessary to
achieve settlement of the transaction.26
Exchange Act Rule 15c6–2 sets out
several specific requirements for such
written policies and procedures.27
B. Summary of the Proposed Rule
Change
The MSRB explained that shortening
the affirmation, allocation, and
confirmation process can serve to
reduce operational risks that can be
present between trade date and
settlement date, which can promote
investor protection, help reduce the risk
settlement fails and the capital required
23 See
id. at 13947.
CFR 240.15c6–2.
25 17 CFR 240.15c6–2(a)(1).
26 17 CFR 240.15c6–2(a)(2).
27 17 CFR 240.15c6–2(b)(1–5).
24 17
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Federal Register / Vol. 89, No. 30 / Tuesday, February 13, 2024 / Notices
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to mitigate this risk.28 The MSRB stated
that, in support of these objectives and
to promote regulatory consistency, the
affirmation, allocation, and
confirmation processes for municipal
securities transactions in the secondary
market should be consistent with that
for equity and corporate bond
transactions.29 The MSRB noted that
market efficiencies could be eroded if
market participants encounter different
affirmation, allocation, and
confirmation processes when replacing
equity or corporate bonds with
municipal securities.30 According to the
MSRB, in order to continue to maintain
consistency across asset classes and
harmonize with Amended Exchange Act
Rule 15c6–2,31 it proposed to amend
Rule G–12 to require affirmation,
allocation, and confirmation as
occurring on T+1.32
The MSRB stated that the proposed
amendments to Rule G–12 would add a
new section (k) that would establish the
core standard of same-day allocation,
confirmation and affirmation for all
regular-way transactions in municipal
securities required to be settled on the
first business day following the trade
date under Rule G–12(b)(ii)(B) or MSRB
Rule G–15(b)(ii)(B).33 The MSRB
explained that, similar to Exchange Act
Rule 15c6–2, proposed Rule G–12(k)(ii)
would provide two options by which
dealers would comply with the rule to
meet the standard of same-day
allocation, confirmation and affirmation
for all regular-way transactions in
municipal securities, also referred to as
‘‘same-day affirmation.’’ 34 According to
the MSRB, the first option under the
newly added section (k)(ii)(A) to Rule
G–12 would allow dealers to enter into
a written agreement with the relevant
parties to ensure completion of the
allocation, confirmation, affirmation, or
any combination thereof, for the
transaction as soon as technologically
practicable and no later than the end of
the day on trade date in such form as
necessary to achieve settlement of the
transaction.35
The MSRB also explained the second
option to meet the core standard of
same-day allocation, confirmation, and
affirmation is listed in the proposed
amendment to Rule G–12 under the
newly added section (k)(ii)(B).36
28 See Notice, 88 FR at 89800. See also SEC’s T+1
Adopting Release, 88 FR at 13919.
29 See Notice, 88 FR at 89797.
30 See Notice, 88 FR at 89800.
31 17 CFR 240.15c6–2.
32 See Notice, 88 FR at 89799.
33 See id. at 89797.
34 See id. at 89797–98.
35 See id. at 89798.
36 See id.
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According to the MSRB, under this
option dealers would be required to
establish, maintain, and enforce written
policies and procedures reasonably
designed to ensure completion of the
allocation, confirmation, and
affirmation for the transaction as soon as
technologically practicable and no later
than the end of the day on trade date.37
The MSRB explained that the proposed
new section Rule G–12(k)(ii)(B) sets five
minimum requirements that the policies
and procedures must meet.38 The MSRB
also explained that under proposed Rule
G–12(k)(iii)(A), such policies and
procedures must be reasonably designed
to ensure that the dealer considers
holistically the range of systems and
tools it has available to facilitate the
same-day affirmation objective, as well
as the range of operations and processes
that a dealer uses to facilitate same-day
affirmations across different customer
and commercial relationships.39 The
MSRB stated that this policies and
procedures alternative in proposed Rule
G–12(k)(ii)(B) could help ensure that,
when the parties to a transaction
encounter obstacles that may prevent
them from completing an allocation,
confirmation, or affirmation on trade
date, they have policies and procedures
to navigate, address, and, when
possible, mitigate or overcome such
obstacles.40
C. Compliance Date
The MSRB stated that the compliance
date of the proposed rule change will
correspond with the industry’s
transition to T+1 settlement consistent
with the compliance date for amended
Exchange Act Rule 15c6–1,41 which is
currently scheduled for May 28, 2024.
The MSRB indicated that if the
Commission’s compliance date were to
change, the MSRB would issue a
regulatory notice to modify the
compliance date of the proposed rule
change to remain aligned with the
Commission’s revised compliance
date.42
III. Summary of Comments Received to
the Proposed Rule Change
The Commission received two
comment letters 43 on the proposed rule
change, as well as a response 44 from the
MSRB to the comment letters. The two
commenters expressed support for the
proposed rule change and no
commenters objected to the proposed
rule change.
Two commenters expressed support
for the proposed rule change related to
the alignment of the allocation,
confirmation, and affirmation process
for municipal securities with the
process for equities and corporate bonds
under Exchange Act Rule 15c6–2, as
amended.45
One commenter opined that that it is
not practical for securities trading after
4:30 p.m. to meet the same-day
affirmation requirements and requested
that the affirmation process for
securities trading after 4:30 p.m. be
extended to the next day.46 The MSRB
responded that it appreciated this
feedback, but noted that extending the
affirmation process to the next day
would deter the core purpose of the
proposed rule change of facilitating the
industry’s move to T+1 settlement.47
One commenter questioned the
practicality of requiring trade
allocations by 7:00 p.m. and
affirmations by 9:00 p.m. on trade
date.48 The MSRB responded that the
proposed rule change does not include
a requirement to complete trade
allocations by 7:00 p.m. and
affirmations by 9:00 p.m. on trade
date.49 Instead, the MSRB explained, the
proposed rule change intentionally
adopts the language ‘‘end of the day on
trade date’’ (rather than requiring a
specific time) to allow firms to
maximize their internal processes to
meet the appropriate cutoff times and
other deadlines, as soon as
technologically practicable.50
One commenter expressed concerns
over examination and enforcement of
the proposed rule change.51 The MSRB
responded that it does not have
enforcement or examination authority
and believes that the appropriate
regulatory agencies will undertake their
examination and enforcement duties in
a manner consistent with Exchange Act
Rule 15c6–2.52
One commenter requested that
enforcement of the proposed rule
change be delayed because of its
opinion that dealers will have a shorter
time frame to implement the provisions
of the proposed rule change as
compared to the implementation of
Exchange Act Rule 15c6–2.53 The MSRB
37 See
45 See
38 See
46 See
id.
id.
39 See id.
40 See id.
41 Notice, 88 FR at 89799. See also SEC’s T+1
Adopting Release, 88 FR at 13916.
42 Notice, 88 FR at 89799.
43 See SIFMA Letter; ICI Letter.
44 See MSRB Letter.
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SIFMA Letter; ICI Letter.
SIFMA Letter at 3.
47 See MSRB Letter at 2–3.
48 See SIFMA Letter at 3.
49 See MSRB Letter at 3.
50 See id.
51 See SIFMA Letter at 3.
52 See MSRB Letter at 4.
53 See SIFMA Letter at 4.
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responded that while it believes that
dealers have had adequate notice to
allow them to make the necessary
preparations to comply with the
proposed rule change, it is ultimately up
to the Commission, the Financial
Industry Regulatory Authority
(‘‘FINRA’’), and other appropriate
regulatory agencies to make
determinations regarding their
examination or enforcement postures.54
The MSRB stated that it continues to
believe the proposed rule change is
reasonable and that the proposed rule
change is necessary and appropriate to
foster cooperation and coordination
with persons engaged in regulating,
clearing, settling, processing
information with respect to, and
facilitating transactions in municipal
securities by applying the same
standard for same-day affirmation across
all asset classes.55
IV. Discussion and Commission’s
Findings
The Commission has carefully
considered the proposed rule change,
the comment letters received, and the
MSRB’s response thereto. 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
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, 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.56 The Commission
believes that the proposed rule change
will: (i) foster cooperation and
coordination with persons engaged in
regulating, clearing, settling, processing
information with respect to, and
facilitating transactions in municipal
securities by applying the same
standard for same-day allocation,
confirmation and affirmation
54 See
MSRB Letter at 4–5.
id. at 5.
56 15 U.S.C. 78o–4(b)(2)(C).
55 See
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established by the SEC to transactions in
municipal securities; (ii) remove
impediments to and perfect the
mechanism of a free and open market in
municipal securities and municipal
financial products; and (iii) protect
investors, municipal entities, obligated
persons, and the public interest.
A. Foster Cooperation and Coordination
With Persons Engaged in Regulating,
Clearing, Settling, Processing
Information With Respect to, and
Facilitating Transactions in Municipal
Securities
The Commission believes that the
proposed amendments to Rule G–12
would 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. In particular, the Commission
notes that the proposed rule change
applies the same standard for same-day
allocation, confirmation and affirmation
established by the Commission to
transactions in municipal securities. As
such, the Commission finds that the
proposed rule change would continue to
ensure that the standard for same-day
allocation, confirmation and affirmation
remains synchronous across classes of
securities (including municipal
securities). By avoiding different
standards for same-day allocation,
confirmation and affirmation for
municipal securities, the proposed rule
change would avoid regulatory
confusion, simplify compliance, and
reduce risk (e.g., operational error).
In addition, the proposed rule change
would foster cooperation and
coordination among regulators (such as
the MSRB, the Commission, FINRA, and
other authorities that examine dealers
for compliance with MSRB rules) by
having similar same-day allocation,
confirmation, and affirmation standards
as the Commission. The Commission
further believes that the proposed rule
change would foster cooperation and
coordination among market participants
by incentivizing dealers to identify and
deploy effective practices for achieving
allocations, confirmations, and
affirmations ex ante, thereby improving
the rate of allocations, confirmations,
and affirmations over time, which in
turn can enhance the adoption of the
industry’s move to T+1. These positive
effects would be experienced by
municipal securities market participants
involved in regulating, clearing and
settling, and processing information for
municipal securities transactions. As
the proposed rule change promotes
cooperation and coordination among
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10113
market participants and regulators, the
Commission finds that the proposed
rule change would 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.
B. Remove Impediments to and Perfect
the Mechanism of a Free and Open
Market
The Commission also believes the
proposed rule change would serve to
remove impediments to and perfect the
mechanism of a free and open market in
municipal securities and municipal
financial products. The Commission
notes that the proposed rule change
yields long-term benefits for a range of
market participants by promoting an
orderly settlement process that reduces
exceptions and other processing errors
that could lead to settlement failures. In
particular, the Commission notes that
proposed rule change would allow for
agreements or policies and procedures
to be in place that would give dealers
means by which to address potential
obstacles in the same-day affirmation,
allocation, and confirmation processes.
The Commission believes that such
agreements or policies and procedures
will promote accuracy and efficiency in
the market by lowering the likelihood of
a settlement failure and fostering
improvements to processes over time.
As the proposed rule change reduces
operational risk and increases accuracy
and efficiency, the Commission finds
that the proposed rule change removes
impediments to and perfects the
mechanism of a free and open market in
municipal securities and municipal
financial products.
C. Protect Investors, Municipal Entities,
Obligated Persons, and the Public
Interest
The Commission believes that the
proposed rule change would promote
investor protection and the public
interest. The Commission notes that
without the proposed rule change,
market participants would encounter
different standards between municipal
securities and other securities such as
equity and corporate bonds, which
could result in market inefficiencies and
cause confusion, especially for investors
who trade both municipal securities and
other securities. The Commission notes
that the proposed rule change
harmonizes those standards across
security classes, which reduces the
potential for settlement failures, and
more generally, reduces the potential for
operational risk. Given the associated
E:\FR\FM\13FEN1.SGM
13FEN1
lotter on DSK11XQN23PROD with NOTICES1
10114
Federal Register / Vol. 89, No. 30 / Tuesday, February 13, 2024 / Notices
risk reduction, the Commission finds
that the proposed rule change would
promote investor protection and the
public interest.
In approving the proposed rule
change, the Commission has considered
the proposed rule change’s impact on
efficiency, competition, and capital
formation. Section 15B(b)(2)(C) of the
Act 57 requires that MSRB rules not be
designed to impose any burden on
competition not necessary or
appropriate in furtherance of the
purposes of the Act. The Commission
believes the proposed rule change to
amend Rule G–12 would not impose
any burden on competition and would
not have an impact on competition, as
the proposed rule change would apply
a uniform standard for same-day
allocation, confirmation, and
affirmation for municipal securities to
align with the standard applicable to,
among other securities, equity and
corporate bond transactions under
Amended Exchange Act Rule 15c6–2.58
In addition, the proposed rule change
would apply equally to all dealers. As
all components of the proposed rule
change would be applied equally to all
registered dealers transacting in
municipal securities, the Commission
believes that the proposed rule change
would not impose any additional
burdens on competition that are not
necessary or appropriate in furtherance
of the purposes of the Act.
The Commission also finds that the
proposed rule change will not hinder
capital formation. As noted above, the
proposed rule change ensures a uniform
standard for same-day allocation,
confirmation, and affirmation across all
asset classes of securities (including
municipal securities), and would be
applied equally to all dealers. As such,
the Commission believes that the
proposed rule change would promote
clearer regulatory requirements for the
trade matching and affirmation process
of municipal securities transactions.
Furthermore, a shorter standard for
allocations, confirmations, and
affirmations may reduce the volume of
unsettled transactions that could
potentially pose settlement risk, and
decrease liquidity risk by enabling
market participants to access the
proceeds of their transactions sooner.
Therefore, the Commission also finds
that the proposed rule change would
promote efficiency of the trade matching
and affirmation process, and would not
negatively impact the municipal
securities market’s operational
efficiency.
57 15
58 17
U.S.C. 78o–4(b)(2)(C).
CFR 240.15c6–2.
VerDate Sep<11>2014
16:57 Feb 12, 2024
As noted above, the Commission
received two comment letters on the
filing. The Commission believes that the
MSRB, through its response, addressed
the commenters’ concerns. For the
reasons noted above, the Commission
believes that the proposed rule change
is consistent with the Exchange Act.
V. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Exchange Act,59
that the proposed rule change (SR–
MSRB–2023–07) be, and hereby is,
approved.
For the Commission, pursuant to delegated
authority.60
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024–02862 Filed 2–12–24; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[SEC File No. 270–819, OMB Control No.
3235–0780]
Submission for OMB Review;
Comment Request; Extension: Rule 0–
5
Upon Written Request, Copies Available
From: Securities and Exchange
Commission, Office of FOIA Services,
100 F Street NE, Washington, DC
20549–2736
Notice is hereby given that pursuant
to the Paperwork Reduction Act of 1995
(44 U.S.C. 3501 et seq.), the Securities
and Exchange Commission (the
‘‘Commission’’) has submitted to the
Office of Management and Budget a
request for approval of the collection of
information discussed below.
Rule 0–5 (17 CFR 270.0–5) under the
Investment Company Act (the ‘‘Act’’)
(15 U.S.C. 80a et seq.) entitled
‘‘Procedure with Respect to
Applications and Other Matters,’’) sets
forth procedure for applications seeking
orders for exemptions or other relief
under the Investment Company Act.
Rule 0–5(e) requires applicants seeking
expedited review to include certain
information with the application. Rule
0–5(e)(1) requires that the cover page of
the application include a notation
prominently stating ‘‘EXPEDITED
REVIEW REQUESTED UNDER 17 CFR
270.0–5(d).’’ Rule 0–5(e)(2) requires
applicants to submit exhibits with
marked copies of the application
showing changes from the final versions
of two precedent applications identified
59 15
60 17
Jkt 262001
PO 00000
U.S.C. 78s(b)(2).
CFR 200.30–3(a)(12).
Frm 00094
Fmt 4703
Sfmt 4703
as substantially identical. Rule 0–5(e)(3)
requires an accompanying cover letter,
signed, on behalf of the applicant, by
the person executing the application (i)
identifying two substantially identical
applications and explaining why the
applicant chose those particular
applications, and if more recent
applications of the same type have been
approved, why the applications chosen,
rather than the more recent
applications, are appropriate; and (ii)
certifying that that the applicant
believes the application meets the
requirements of rule 0–5(d) and that the
marked copies required by rule 0–5(e)(2)
are complete and accurate.
Rule 0–5(g) provides that, if an
applicant has not responded in writing
to a request for clarification or
modification of an application filed
under standard review within 120 days
after the request, the application will be
deemed withdrawn. As an oral response
would not stop an application from
being deemed withdrawn, rule 0–5(g),
requires applicants to respond ‘‘in
writing’’ and therefore create an
additional cost within the meaning of
the PRA.
The information collected under rule
0–5(g) and (e) is intended to provide an
expedited review procedure for certain
applications and establish an internal
timeframe for review of applications
outside of the expedited procedure. The
rule is meant to provide relief as
efficiently and timely as possible, while
also ensuring that applications continue
to be carefully analyzed consistent with
the relevant statutory standards.
Applicants for orders under the Act
can include investment companies and
affiliated persons of investment
companies. Applicants file applications
as they deem necessary. The
Commission receives approximately 116
applications per year under the Act, and
of the 116 applications, we estimate to
receive approximately 32 applications
seeking expedited review under the Act.
Although each application is typically
submitted on behalf of multiple entities,
the entities in the vast majority of cases
are related companies and are treated as
a single applicant for purposes of this
analysis. Each application subject to
rules 0–5(e) and 0–5(g) does not impose
any ongoing obligations or burdens on
the part of an applicant.
Much of the work of preparing an
application is performed by outside
counsel. Based on conversations with
applicants and Staff experience,
approximately 20 percent of
applications are prepared by in-house
counsel.
The mandatory requirements under
rule 0–5(e) increase the estimated hour
E:\FR\FM\13FEN1.SGM
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]]>Agencies
[Federal Register Volume 89, Number 30 (Tuesday, February 13, 2024)]
[Notices]
[Pages 10110-10114]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-02862]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-99484; File No. SR-MSRB-2023-07]
Self-Regulatory Organizations; Municipal Securities Rulemaking
Board; Order Granting Approval of a Proposed Rule Change To Amend MSRB
Rule G-12 To Promote the Completion of Allocations, Confirmations, and
Affirmations by the End of Trade Date
February 7, 2024.
I. Introduction
On December 20, 2023, the Municipal Securities Rulemaking Board
(``MSRB'') filed with the Securities and Exchange Commission (``SEC''
or ``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'' or ``Exchange Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to amend MSRB Rules G-12 (``Rule
G-12''), on uniform practice, to promote the completion of allocations,
confirmations, and affirmations by the end of the day on trade date for
municipal securities transactions between brokers, dealers and
municipal securities dealers and their institutional customers to
facilitate the move to a settlement cycle of one business day (the
``proposed rule change'').\3\
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Securities Exchange Act Release No. 34-99226 (December 21,
2023), 88 FR 89796 (December 28, 2023) (``Notice'').
---------------------------------------------------------------------------
The MSRB requested that the proposed rule change be approved with
an implementation date of May 28, 2024, to align with the
implementation date for Exchange Act Rule 15c6-1, as
[[Page 10111]]
amended,\4\ and new Exchange Act Rule 15c6-2.\5\
---------------------------------------------------------------------------
\4\ See Securities Exchange Act Release No. 96930 (Feb. 15,
2023), 88 FR 13872, 13916 (Mar. 6, 2023) (``SEC's T+1 Adopting
Release'').
\5\ See SEC's T+1 Adopting Release, 88 FR at 13918. If the
Commission's compliance date were to change, the MSRB stated that it
would issue a regulatory notice to modify the compliance date to
remain aligned with the Commission's compliance date. See Notice, 88
FR at 89799.
---------------------------------------------------------------------------
The proposed rule change was published for comment in the Federal
Register on December 28, 2023.\6\ The Commission received two comment
letters \7\ on the proposed rule change. On February 1, 2024, the MSRB
responded to the comment letters.\8\ As described further below, the
Commission is approving the proposed rule change.
---------------------------------------------------------------------------
\6\ See Notice, 88 FR at 89796.
\7\ See Letter from Leslie M. Norwood, Managing Director and
Associate General Counsel, Securities Industry and Financial Markets
Association, dated January 18, 2024 (``SIFMA Letter''); and Letter
from RJ Rondini, Director, Securities Operations, Investment Company
Institute, dated January 18, 2024 (``ICI Letter'').
\8\ See Letter to Secretary, Commission, from Ernesto A. Lanza,
Chief Regulatory and Policy Officer, MSRB, dated February 1, 2024
(``MSRB Letter'').
---------------------------------------------------------------------------
II. Description of the Proposed Rule Change
The MSRB stated that the proposed rule change would amend Rule G-12
by adding a new section (k) to promote the completion of allocations,
confirmations, and affirmations by the end of the day on trade date for
transactions in municipal securities between brokers, dealers and
municipal securities dealers (``dealers'') and their institutional
customers.\9\ According to the MSRB, this proposed rule change would
align with the same-day allocation, confirmation, and affirmation
process for equities and corporate bonds under Exchange Act Rule 15c6-
2, as adopted.\10\ Although Exchange Act Rule 15c6-2, as adopted,\11\
does not apply to municipal securities transactions, the MSRB believes
that the same-day allocation, confirmation, and affirmation process for
municipal securities transactions in the secondary market should be
consistent with that for equity and corporate bond transactions.\12\
According to the MSRB, the proposed rule change is designed to
facilitate the industry's move to a settlement cycle of one business
day (``T+1'') as described further below.\13\ To align with Exchange
Act Rule 15c6-2, as adopted,\14\ the MSRB is proposing to amend Rule G-
12 by adding a section (k) to require dealers effecting municipal
securities transactions subject to the T+1 settlement cycle to either
enter into written agreements as specified in the proposed rule change
or establish, maintain, and enforce written policies and procedures
reasonably designed to address certain objectives related to completing
allocations, confirmations, and affirmations as soon as technologically
practicable and no later than the end of the day on the trade date.\15\
---------------------------------------------------------------------------
\9\ See Notice, 88 FR at 89797.
\10\ 17 CFR 240.15c6-2.
\11\ Id.
\12\ See Notice, 88 FR at 89797.
\13\ Id.
\14\ Id.
\15\ See Notice, 88 FR at 89797-98.
---------------------------------------------------------------------------
A. Background
The Commission initially adopted Exchange Act Rule 15c6-1 \16\ in
1993 to shorten the settlement cycle of most equity and corporate bond
transactions from the industry standard of within five business days
(``T+5'') to requiring settlement within three business days
(``T+3'').\17\ The T+3 settlement cycle remained in effect until 2017
when the Commission amended Exchange Act Rule 15c6-1 \18\ to require
the settlement of most equity and corporate bond transactions within
two business days (``T+2'').\19\ On February 15, 2023, the Commission
adopted amendments to Exchange Act Rule 15c6-1 (``Amended Exchange Act
Rule 15c6-1'') \20\ to further shorten the settlement process,
requiring the settlement of most equity and corporate bond transactions
on T+1. In alignment with Amended Exchange Act Rule 15c6-1, the MSRB
amended its Rule G-12(b)(ii)(B)-(D) and Rule G-15(b)(ii)(B)-(C) to
define regular-way settlement as occurring on the first business day
following the trade date rather than on the second business day
following the trade date.\21\
---------------------------------------------------------------------------
\16\ 17 CFR 240.15c6-1.
\17\ Exchange Act Release No. 33023 (Oct. 6, 1993), 58 FR 52891
(Oct. 13, 1993). In adopting Exchange Act Rule 15c6-1, the
Commission set a compliance date of June 1, 1995, 58 FR at 52891.
\18\ 17 CFR 240.15c6-1.
\19\ Securities Exchange Act Release No. 80295 (Mar. 22, 2017),
82 FR 15564 (Mar. 29, 2017).
\20\ 17 CFR 240.15c6-1.
\21\ See Exchange Act Release No. 97585 (May 25, 2023), 88 FR
35961 (June 1, 2023) (File No. SR-MSRB-2023-03).
---------------------------------------------------------------------------
In the SEC's T+1 Adopting Release, the Commission stated that
implementing a T+1 standard settlement cycle would require significant
improvements in the current rates of same-day allocations,
confirmations, and affirmations to help ensure timely settlement in a
T+1 environment.\22\ In the SEC's T+1 Adopting Release, the Commission
adopted new Exchange Act Rule 15c6-2 to establish requirements that
facilitate the completion of allocations, confirmations, and
affirmations by the end of the trade date, helping to facilitate the
settlement of institutional transactions in a T+1 or shorter standard
settlement cycle by promoting the timely and orderly transmission of
trade data necessary to achieve settlement.\23\
---------------------------------------------------------------------------
\22\ See SEC's T+1 Adopting Release, 88 FR at 13890.
\23\ See id. at 13947.
---------------------------------------------------------------------------
Exchange Act Rule 15c6-2 provides two options by which broker-
dealers may comply with the rule, as adopted.\24\ The first option
under Exchange Act Rule 15c6-2 provides that, where parties have agreed
to engage in an allocation, confirmation, or affirmation process, a
broker-dealer would be prohibited from effecting or entering into a
contract for the purchase or sale of a security (other than an exempted
security, a government security, a municipal security, commercial
paper, bankers' acceptances, or commercial bills) on behalf of a
customer unless such broker-dealer has entered into a written agreement
with the customer that requires the allocation, confirmation,
affirmation, or any combination thereof, to be completed no later than
the end of the day on trade date in such form as may be necessary to
achieve settlement in compliance with Exchange Act Rule 15c6-1(a).\25\
The second option under Exchange Act Rule 15c6-2 provides an
alternative where, in lieu of a written agreement, a broker-dealer may
choose to establish, maintain, and enforce written policies and
procedures reasonably designed to ensure the completion of the
allocation, confirmation, affirmation, or any combination thereof, for
the transaction as soon as technologically practicable and no later
than the end of the day on trade date in such form as necessary to
achieve settlement of the transaction.\26\ Exchange Act Rule 15c6-2
sets out several specific requirements for such written policies and
procedures.\27\
---------------------------------------------------------------------------
\24\ 17 CFR 240.15c6-2.
\25\ 17 CFR 240.15c6-2(a)(1).
\26\ 17 CFR 240.15c6-2(a)(2).
\27\ 17 CFR 240.15c6-2(b)(1-5).
---------------------------------------------------------------------------
B. Summary of the Proposed Rule Change
The MSRB explained that shortening the affirmation, allocation, and
confirmation process can serve to reduce operational risks that can be
present between trade date and settlement date, which can promote
investor protection, help reduce the risk settlement fails and the
capital required
[[Page 10112]]
to mitigate this risk.\28\ The MSRB stated that, in support of these
objectives and to promote regulatory consistency, the affirmation,
allocation, and confirmation processes for municipal securities
transactions in the secondary market should be consistent with that for
equity and corporate bond transactions.\29\ The MSRB noted that market
efficiencies could be eroded if market participants encounter different
affirmation, allocation, and confirmation processes when replacing
equity or corporate bonds with municipal securities.\30\ According to
the MSRB, in order to continue to maintain consistency across asset
classes and harmonize with Amended Exchange Act Rule 15c6-2,\31\ it
proposed to amend Rule G-12 to require affirmation, allocation, and
confirmation as occurring on T+1.\32\
---------------------------------------------------------------------------
\28\ See Notice, 88 FR at 89800. See also SEC's T+1 Adopting
Release, 88 FR at 13919.
\29\ See Notice, 88 FR at 89797.
\30\ See Notice, 88 FR at 89800.
\31\ 17 CFR 240.15c6-2.
\32\ See Notice, 88 FR at 89799.
---------------------------------------------------------------------------
The MSRB stated that the proposed amendments to Rule G-12 would add
a new section (k) that would establish the core standard of same-day
allocation, confirmation and affirmation for all regular-way
transactions in municipal securities required to be settled on the
first business day following the trade date under Rule G-12(b)(ii)(B)
or MSRB Rule G-15(b)(ii)(B).\33\ The MSRB explained that, similar to
Exchange Act Rule 15c6-2, proposed Rule G-12(k)(ii) would provide two
options by which dealers would comply with the rule to meet the
standard of same-day allocation, confirmation and affirmation for all
regular-way transactions in municipal securities, also referred to as
``same-day affirmation.'' \34\ According to the MSRB, the first option
under the newly added section (k)(ii)(A) to Rule G-12 would allow
dealers to enter into a written agreement with the relevant parties to
ensure completion of the allocation, confirmation, affirmation, or any
combination thereof, for the transaction as soon as technologically
practicable and no later than the end of the day on trade date in such
form as necessary to achieve settlement of the transaction.\35\
---------------------------------------------------------------------------
\33\ See id. at 89797.
\34\ See id. at 89797-98.
\35\ See id. at 89798.
---------------------------------------------------------------------------
The MSRB also explained the second option to meet the core standard
of same-day allocation, confirmation, and affirmation is listed in the
proposed amendment to Rule G-12 under the newly added section
(k)(ii)(B).\36\ According to the MSRB, under this option dealers would
be required to establish, maintain, and enforce written policies and
procedures reasonably designed to ensure completion of the allocation,
confirmation, and affirmation for the transaction as soon as
technologically practicable and no later than the end of the day on
trade date.\37\ The MSRB explained that the proposed new section Rule
G-12(k)(ii)(B) sets five minimum requirements that the policies and
procedures must meet.\38\ The MSRB also explained that under proposed
Rule G-12(k)(iii)(A), such policies and procedures must be reasonably
designed to ensure that the dealer considers holistically the range of
systems and tools it has available to facilitate the same-day
affirmation objective, as well as the range of operations and processes
that a dealer uses to facilitate same-day affirmations across different
customer and commercial relationships.\39\ The MSRB stated that this
policies and procedures alternative in proposed Rule G-12(k)(ii)(B)
could help ensure that, when the parties to a transaction encounter
obstacles that may prevent them from completing an allocation,
confirmation, or affirmation on trade date, they have policies and
procedures to navigate, address, and, when possible, mitigate or
overcome such obstacles.\40\
---------------------------------------------------------------------------
\36\ See id.
\37\ See id.
\38\ See id.
\39\ See id.
\40\ See id.
---------------------------------------------------------------------------
C. Compliance Date
The MSRB stated that the compliance date of the proposed rule
change will correspond with the industry's transition to T+1 settlement
consistent with the compliance date for amended Exchange Act Rule 15c6-
1,\41\ which is currently scheduled for May 28, 2024. The MSRB
indicated that if the Commission's compliance date were to change, the
MSRB would issue a regulatory notice to modify the compliance date of
the proposed rule change to remain aligned with the Commission's
revised compliance date.\42\
---------------------------------------------------------------------------
\41\ Notice, 88 FR at 89799. See also SEC's T+1 Adopting
Release, 88 FR at 13916.
\42\ Notice, 88 FR at 89799.
---------------------------------------------------------------------------
III. Summary of Comments Received to the Proposed Rule Change
The Commission received two comment letters \43\ on the proposed
rule change, as well as a response \44\ from the MSRB to the comment
letters. The two commenters expressed support for the proposed rule
change and no commenters objected to the proposed rule change.
---------------------------------------------------------------------------
\43\ See SIFMA Letter; ICI Letter.
\44\ See MSRB Letter.
---------------------------------------------------------------------------
Two commenters expressed support for the proposed rule change
related to the alignment of the allocation, confirmation, and
affirmation process for municipal securities with the process for
equities and corporate bonds under Exchange Act Rule 15c6-2, as
amended.\45\
---------------------------------------------------------------------------
\45\ See SIFMA Letter; ICI Letter.
---------------------------------------------------------------------------
One commenter opined that that it is not practical for securities
trading after 4:30 p.m. to meet the same-day affirmation requirements
and requested that the affirmation process for securities trading after
4:30 p.m. be extended to the next day.\46\ The MSRB responded that it
appreciated this feedback, but noted that extending the affirmation
process to the next day would deter the core purpose of the proposed
rule change of facilitating the industry's move to T+1 settlement.\47\
---------------------------------------------------------------------------
\46\ See SIFMA Letter at 3.
\47\ See MSRB Letter at 2-3.
---------------------------------------------------------------------------
One commenter questioned the practicality of requiring trade
allocations by 7:00 p.m. and affirmations by 9:00 p.m. on trade
date.\48\ The MSRB responded that the proposed rule change does not
include a requirement to complete trade allocations by 7:00 p.m. and
affirmations by 9:00 p.m. on trade date.\49\ Instead, the MSRB
explained, the proposed rule change intentionally adopts the language
``end of the day on trade date'' (rather than requiring a specific
time) to allow firms to maximize their internal processes to meet the
appropriate cutoff times and other deadlines, as soon as
technologically practicable.\50\
---------------------------------------------------------------------------
\48\ See SIFMA Letter at 3.
\49\ See MSRB Letter at 3.
\50\ See id.
---------------------------------------------------------------------------
One commenter expressed concerns over examination and enforcement
of the proposed rule change.\51\ The MSRB responded that it does not
have enforcement or examination authority and believes that the
appropriate regulatory agencies will undertake their examination and
enforcement duties in a manner consistent with Exchange Act Rule 15c6-
2.\52\
---------------------------------------------------------------------------
\51\ See SIFMA Letter at 3.
\52\ See MSRB Letter at 4.
---------------------------------------------------------------------------
One commenter requested that enforcement of the proposed rule
change be delayed because of its opinion that dealers will have a
shorter time frame to implement the provisions of the proposed rule
change as compared to the implementation of Exchange Act Rule 15c6-
2.\53\ The MSRB
[[Page 10113]]
responded that while it believes that dealers have had adequate notice
to allow them to make the necessary preparations to comply with the
proposed rule change, it is ultimately up to the Commission, the
Financial Industry Regulatory Authority (``FINRA''), and other
appropriate regulatory agencies to make determinations regarding their
examination or enforcement postures.\54\
---------------------------------------------------------------------------
\53\ See SIFMA Letter at 4.
\54\ See MSRB Letter at 4-5.
---------------------------------------------------------------------------
The MSRB stated that it continues to believe the proposed rule
change is reasonable and that the proposed rule change is necessary and
appropriate to foster cooperation and coordination with persons engaged
in regulating, clearing, settling, processing information with respect
to, and facilitating transactions in municipal securities by applying
the same standard for same-day affirmation across all asset
classes.\55\
---------------------------------------------------------------------------
\55\ See id. at 5.
---------------------------------------------------------------------------
IV. Discussion and Commission's Findings
The Commission has carefully considered the proposed rule change,
the comment letters received, and the MSRB's response thereto. 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 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, 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.\56\ The Commission believes that the proposed rule
change will: (i) foster cooperation and coordination with persons
engaged in regulating, clearing, settling, processing information with
respect to, and facilitating transactions in municipal securities by
applying the same standard for same-day allocation, confirmation and
affirmation established by the SEC to transactions in municipal
securities; (ii) remove impediments to and perfect the mechanism of a
free and open market in municipal securities and municipal financial
products; and (iii) protect investors, municipal entities, obligated
persons, and the public interest.
---------------------------------------------------------------------------
\56\ 15 U.S.C. 78o-4(b)(2)(C).
---------------------------------------------------------------------------
A. Foster Cooperation and Coordination With Persons Engaged in
Regulating, Clearing, Settling, Processing Information With Respect to,
and Facilitating Transactions in Municipal Securities
The Commission believes that the proposed amendments to Rule G-12
would 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. In particular, the Commission notes that the
proposed rule change applies the same standard for same-day allocation,
confirmation and affirmation established by the Commission to
transactions in municipal securities. As such, the Commission finds
that the proposed rule change would continue to ensure that the
standard for same-day allocation, confirmation and affirmation remains
synchronous across classes of securities (including municipal
securities). By avoiding different standards for same-day allocation,
confirmation and affirmation for municipal securities, the proposed
rule change would avoid regulatory confusion, simplify compliance, and
reduce risk (e.g., operational error).
In addition, the proposed rule change would foster cooperation and
coordination among regulators (such as the MSRB, the Commission, FINRA,
and other authorities that examine dealers for compliance with MSRB
rules) by having similar same-day allocation, confirmation, and
affirmation standards as the Commission. The Commission further
believes that the proposed rule change would foster cooperation and
coordination among market participants by incentivizing dealers to
identify and deploy effective practices for achieving allocations,
confirmations, and affirmations ex ante, thereby improving the rate of
allocations, confirmations, and affirmations over time, which in turn
can enhance the adoption of the industry's move to T+1. These positive
effects would be experienced by municipal securities market
participants involved in regulating, clearing and settling, and
processing information for municipal securities transactions. As the
proposed rule change promotes cooperation and coordination among market
participants and regulators, the Commission finds that the proposed
rule change would 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.
B. Remove Impediments to and Perfect the Mechanism of a Free and Open
Market
The Commission also believes the proposed rule change would serve
to remove impediments to and perfect the mechanism of a free and open
market in municipal securities and municipal financial products. The
Commission notes that the proposed rule change yields long-term
benefits for a range of market participants by promoting an orderly
settlement process that reduces exceptions and other processing errors
that could lead to settlement failures. In particular, the Commission
notes that proposed rule change would allow for agreements or policies
and procedures to be in place that would give dealers means by which to
address potential obstacles in the same-day affirmation, allocation,
and confirmation processes. The Commission believes that such
agreements or policies and procedures will promote accuracy and
efficiency in the market by lowering the likelihood of a settlement
failure and fostering improvements to processes over time. As the
proposed rule change reduces operational risk and increases accuracy
and efficiency, the Commission finds that the proposed rule change
removes impediments to and perfects the mechanism of a free and open
market in municipal securities and municipal financial products.
C. Protect Investors, Municipal Entities, Obligated Persons, and the
Public Interest
The Commission believes that the proposed rule change would promote
investor protection and the public interest. The Commission notes that
without the proposed rule change, market participants would encounter
different standards between municipal securities and other securities
such as equity and corporate bonds, which could result in market
inefficiencies and cause confusion, especially for investors who trade
both municipal securities and other securities. The Commission notes
that the proposed rule change harmonizes those standards across
security classes, which reduces the potential for settlement failures,
and more generally, reduces the potential for operational risk. Given
the associated
[[Page 10114]]
risk reduction, the Commission finds that the proposed rule change
would promote investor protection and the public interest.
In approving the proposed rule change, the Commission has
considered the proposed rule change's impact on efficiency,
competition, and capital formation. Section 15B(b)(2)(C) of the Act
\57\ requires that MSRB rules not be designed to impose any burden on
competition not necessary or appropriate in furtherance of the purposes
of the Act. The Commission believes the proposed rule change to amend
Rule G-12 would not impose any burden on competition and would not have
an impact on competition, as the proposed rule change would apply a
uniform standard for same-day allocation, confirmation, and affirmation
for municipal securities to align with the standard applicable to,
among other securities, equity and corporate bond transactions under
Amended Exchange Act Rule 15c6-2.\58\ In addition, the proposed rule
change would apply equally to all dealers. As all components of the
proposed rule change would be applied equally to all registered dealers
transacting in municipal securities, the Commission believes that the
proposed rule change would not impose any additional burdens on
competition that are not necessary or appropriate in furtherance of the
purposes of the Act.
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\57\ 15 U.S.C. 78o-4(b)(2)(C).
\58\ 17 CFR 240.15c6-2.
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The Commission also finds that the proposed rule change will not
hinder capital formation. As noted above, the proposed rule change
ensures a uniform standard for same-day allocation, confirmation, and
affirmation across all asset classes of securities (including municipal
securities), and would be applied equally to all dealers. As such, the
Commission believes that the proposed rule change would promote clearer
regulatory requirements for the trade matching and affirmation process
of municipal securities transactions. Furthermore, a shorter standard
for allocations, confirmations, and affirmations may reduce the volume
of unsettled transactions that could potentially pose settlement risk,
and decrease liquidity risk by enabling market participants to access
the proceeds of their transactions sooner. Therefore, the Commission
also finds that the proposed rule change would promote efficiency of
the trade matching and affirmation process, and would not negatively
impact the municipal securities market's operational efficiency.
As noted above, the Commission received two comment letters on the
filing. The Commission believes that the MSRB, through its response,
addressed the commenters' concerns. For the reasons noted above, the
Commission believes that the proposed rule change is consistent with
the Exchange Act.
V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Exchange Act,\59\ that the proposed rule change (SR-MSRB-2023-07) be,
and hereby is, approved.
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\59\ 15 U.S.C. 78s(b)(2).
For the Commission, pursuant to delegated authority.\60\
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\60\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-02862 Filed 2-12-24; 8:45 am]
BILLING CODE 8011-01-P
