Amendments to Rules G-11 and G-12 Filed with SEC

On August 6, 2009, the Municipal Securities Rulemaking Board (“MSRB”) filed with the Securities and Exchange Commission (“SEC”) amendments to Rule G-11(i) (settlement of syndicate or similar account), Rule G-11(j) (payment of designations), and Rule G-12(i) (settlement of joint or similar account).[1] For the proposed amendments to Rule G-11, the MSRB requested that the amendments become effective for new issues of municipal securities for which the Time of Formal Award (as defined in Rule G-34(a)(ii)(C)(1)(a)) is more than 30 calendar days after the date the amendments are approved by the SEC.  For the proposed amendments to Rule G-12, the MSRB requested that the amendments become effective for secondary market trading accounts formed more than 30 days after the date the amendments are approved by the SEC.

SUMMARY OF PROPOSED AMENDMENTS

The proposed amendments accelerate the settlement of syndicate accounts and secondary market trading accounts, and the payment of designations, by shortening certain time periods within the rules.  These proposals are designed to reduce the exposure of syndicate and secondary market trading account members to the risk of potential deterioration in the credit of the syndicate or account manager during the pendency of account settlements.  Since the existing rules were adopted in the 1970s, dealers and those firms who invoice them for syndicate expenses have adopted significantly more efficient billing and accounting systems.  The MSRB believes that such systems make reductions in the time periods for distribution of syndicate and secondary market trading account profits feasible and not unduly burdensome to dealers.  Furthermore, many fees are agreed upon in advance or can be estimated with considerable accuracy soon after settlement.

Currently, Rule G-11(i), on settlement of syndicate or similar account, requires that final settlement of an underwriting syndicate or similar account be made within 60 calendar days following the date all securities have been delivered by the syndicate or account manager to the syndicate or account members (“bond closing”).  Rule G-11(j), on payments of designations, requires that any credit designated by a customer in connection with the purchase of new issue securities as due to a member of a syndicate shall be distributed to such member by any dealer handling such order within 30 calendar days following bond closing.

The proposed amendments change the deadlines in Rule G-11 to 30 calendar days after bond closing for distributions (currently 60 calendar days) and 10 calendar days after bond closing for designations (currently 30 calendar days).  To facilitate implementation of these reduced time periods, the MSRB also determined to add a new requirement that all syndicate members submit their designations to the syndicate manager within two business days after bond closing. 

Rule G-12(i), on settlement of joint or similar account, contains requirements for the settlement of joint or similar accounts formed in the secondary market.  The rule currently requires that the settlement of these accounts be made within 60 days following the date all securities have been delivered by the syndicate or account manager to the syndicate or account members (“delivery date”).  The proposed amendments change the deadline in the rule to 30 calendar days following delivery date. 

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Questions concerning the amendments should be directed to Peg Henry, Associate General Counsel, at (703) 797-6600.

August 6, 2009

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TEXT OF AMENDMENTS [2]

Rule G-11: New Issue Syndicate Practices

(a) – (h) No change.

(i) Settlement of Syndicate or Similar Account. Final settlement of a syndicate or similar account formed for the purchase of securities shall be made within [60] 30 calendar days following the date [all securities have been delivered by the syndicate or account manager] the issuer delivers the securities to the syndicate [or account members].

(j) Payments of Designations. All syndicate or similar account members shall submit the allocations of their designations according to the rules of the syndicate or similar account to the syndicate or account manager within two business days following the date the issuer delivers the securities to the syndicate.  Any credit designated by a customer in connection with the purchase of securities as due to a member of a syndicate or similar account shall be distributed to such member by the broker, dealer or municipal securities dealer handling such order within [30] 10 calendar days following the date the issuer delivers the securities to the syndicate. 

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Rule G-12: Uniform Practice

(a) – (h) No change.

(i) Settlement of [Joint or Similar] Secondary Market Trading Account. Final settlement of a [joint or similar] secondary market trading account formed for the purchase of securities shall be made within [60] 30 calendar days following the date all securities have been delivered by the [syndicate or] account manager to the [syndicate or] account members. 

(j) No change.