Request for Comment on Proposal to Streamline New Issue Information Submission Requirements Under MSRB Rules G-32 and G-34

The Municipal Securities Rulemaking Board (the “MSRB”) is requesting comment on draft amendments to MSRB Rules G-32 and G-34 that would allow underwriters to satisfy certain of their submission requirements under Rule G-32 in connection with new issues of municipal securities by their submission of data to the New Issue Information Dissemination Service (“NIIDS”) operated by the Depository Trust and Clearing Corporation (“DTCC”) pursuant to Rule G-34. In addition, the draft amendments would revise deadlines for the submission of data to NIIDS; remove certain exceptions from the NIIDS submission requirements under Rule G-34 for short term instruments with effective maturities of nine months or less; and modify the MSRB’s Electronic Municipal Market Access (EMMA®)[1] system to include certain elements of the NIIDS data on the EMMA website.

Comment is requested from market participants on all aspects of the proposed rule changes, including other measures that could improve the timeliness and quality of price transparency information for new issues of municipal securities. Comments should be submitted no later than May 8, 2012 and may be submitted in electronic or paper form. Comments may be submitted electronically by clicking here. Comments submitted in paper form should be sent to Ronald W. Smith, Corporate Secretary, Municipal Securities Rulemaking Board, 1900 Duke Street, Suite 600, Alexandria, VA 22314. All comments will be available for public inspection on the MSRB’s website.[2]

Questions about this notice should be directed to Justin R. Pica, Director, Product Management – Market Transparency, or Karen Du Brul, Associate General Counsel, at 703-797-6600.

BACKGROUND

MSRB Rule G-32 requires underwriters to submit selected information about most new issues of municipal securities to the MSRB by completing electronic Form G-32. This information includes, among other items, the issuer name and issue description for the new issue and, for each maturity of the new issue, the CUSIP numbers, principal amounts and initial offering prices/yields. Separately, MSRB Rule G-34 requires underwriters for most new issues to submit comprehensive information to NIIDS. Information required to be submitted to NIIDS generally includes all of the information required for dealers to produce a “when, as and if issued” customer trade confirmation and also includes many of the same items of information included in Form G-32.

New Issue EMMA Submission Requirements Under Rule G-32. EMMA is an information facility of the MSRB for receiving electronic submissions of official statements, initial offering prices and other information about new issues as well as on-going municipal securities disclosure and other key documents and related information. EMMA makes such documents and information, together with trade price and interest rate information, available to the public at no charge on an Internet website or by paid subscription. The submission of data under Rule G-32 to EMMA is required to be commenced by no later than the end of the day of the date of first execution.[3] The submission of documents relating to issues of municipal securities, including official statements or preliminary official statements (if applicable), and of certain additional items of information, is subject to other submission deadlines as outlined in Rule G-32.[4]

New Issue NIIDS Submission Requirements Under Rule G-34. NIIDS is a centralized system for collecting from underwriters and disseminating to market participants standardized electronic information describing new issue securities. It was developed to ensure that all market participants have access to information necessary for processing transactions once the underwriter executes its first transactions in the new issue. The information submitted by underwriters to NIIDS, required to be completed by no later than two hours after Time of Formal Award[5] for most new issues of municipal securities,[6] is disseminated in real time to DTCC participants and other subscribers, such as information vendors. Submissions to NIIDS also provide a mechanism for underwriters to communicate the Time of Formal Award and Time of First Execution[7] to market participants that may trade in the new issue to promote orderly trade execution and processing on the first day of trading in a new issue. Consistent communication of these events ensures that all market participants have sufficient data to process and time to prepare pending trades in new issues for execution, real-time trade reporting and sending of when-issued customer confirmations.

Planned Integration of EMMA and NIIDS New Issue Submission Requirements. The MSRB launched EMMA as a pilot on March 31, 2008.[8] Shortly thereafter, on September 30, 2008, amendments to Rule G-34 became effective that instituted the requirement for underwriters to provide new issue information to NIIDS.[9] During the early stages of planning for EMMA, the MSRB had planned on integrating into EMMA’s Primary Market Disclosure Service the NIIDS data submitted by underwriters under Rule G-34 for the purpose of also fulfilling the data submission requirements under Rule G-32 and making such information available to the public through the EMMA website. Due to divergent development schedules and limited opportunities to ensure effective interoperability between the two systems, the Primary Market Disclosure Service was launched on June 1, 2009 requiring a separate submission of new issue data to EMMA through Form G-32, although at that time the MSRB continued to plan for future integration of the submission processes under Rules G-32 and G-34.[10]

The MSRB believes there would be significant benefits in moving forward at this time to integrate the NIIDS data into the EMMA submission process. While the information required to be submitted under Rule G-32 is less extensive than the information required for a NIIDS submission pursuant to Rule G-34, re-keying information under both Rules G-32 and G-34 is time consuming and this duplication of effort may increase the possibility of error. In addition to reducing the submission burden on underwriters, elimination of this duplicative data entry would result in improved data quality on EMMA and throughout the marketplace. It would allow both underwriters and enforcement agencies to concentrate their compliance activities on ensuring exacting data submissions through this single pipeline through which data would flow uniformly to EMMA as well as to other market data vendors receiving the NIIDS subscription feed.

The integration of the NIIDS data into the EMMA submission process also would accelerate the availability of Form G-32 data on EMMA by displaying such information in real time upon receipt from NIIDS by no later than two hours after the Time of Formal Award as provided under Rule G-34, rather than by the close of business on the date of first execution as currently provided under Rule G-32. In particular, use of the NIIDS data to populate EMMA will allow for more rapid intra-day, rather than end of day, dissemination of the maturity schedule, interest rates and initial offering prices[11] for new issues within two hours after the Time of Formal Award. Furthermore, additional NIIDS data elements not currently available through EMMA, such as the Time of Formal Award and Time of First Execution as announced by the underwriter, would be displayed on EMMA. To enhance real-time transparency for a broader scope of new issues of municipal securities, the MSRB also is proposing to eliminate exceptions under Rule G-34 for submitting data for certain new issues to NIIDS.

SUMMARY OF PROPOSED RULE CHANGES

The MSRB is proposing revisions to Rules G-32 and G-34 and to the EMMA information facility. As further described below, the proposed revisions would have the effect of:

• Providing underwriters with a straight-through process for populating many of the items of information required on Form G-32 with the information about new issues submitted to and disseminated from NIIDS by underwriters pursuant to Rule G-34;
  
• Posting on EMMA in real-time those items of information disseminated by NIIDS that are currently posted to EMMA only after submission of Form G-32, thereby accelerating the time EMMA receives key information about new issues, including the plain English issuer name, plain English issue description, maturity principal amounts, initial offering prices/yields and expected issue closing date;
  
• Clarifying that underwriters would continue to be required to provide those items of information required on Form G-32 that are not included in the information collected by and disseminated from NIIDS, including, among other things, information concerning the existence of a continuing disclosure undertaking by the issuer or obligated person;
  
• Removing the Rule G-34 exception for underwriters to submit to NIIDS information about certain short-term instruments with effective maturities of nine months or less, including variable rate instruments and auction rate products but retaining the exception for commercial paper, so that information for virtually all security types is received by EMMA on the accelerated timeframe in Rule G-34;
  
• Retaining direct EMMA submission requirements for commercial paper and any other securities ineligible for submission to NIIDS, including non-CUSIP eligible issues and municipal fund securities; and
  
• Adding to the EMMA website the underwriter-announced Time of Formal Award and Time of First Execution to ensure access by all market participants to these key items of information.

PROPOSED REVISIONS TO RULE G-32

Rule G-32 currently requires underwriters to submit to EMMA both data and documents concerning certain new issues of municipal securities, subject to various exceptions. An underwriter is required to initiate submission of certain data to EMMA on Form G-32 at or prior to the end of the Date of First Execution, and to complete such submission by the dates prescribed in Rule G-32 or the EMMA Dataport Manual. These requirements do not apply to certain commercial paper offerings or remarketings exempt under Securities Exchange Act Rule 15c2-12.[12] An underwriter is also required to submit certain documents relating to the new issue of municipal securities at various times specified under Rule G-32, subject to certain exceptions.[13]

Proposed revisions to Rule G-32 would provide that an underwriter’s obligations to submit data about a new issue of municipal securities under Rule G-32(b)(i)(A) would be deemed submitted, subject to confirmation and completion, if such data has been submitted at the time and in the manner required pursuant to Rule G-34. Any changes to data submitted pursuant to Rule G-34(a)(ii)(C) shall be made promptly and, to the extent feasible, in the manner originally submitted. This would ensure that all changes to information submitted to NIIDS would be disseminated to all market participants; however, if such changes were not able to be made using NIIDS, underwriters would be required to submit such changes to EMMA. Further, the proposed revisions to Rule G-32 would clarify that any data not required to be submitted to NIIDS pursuant to Rule G-34(a)(ii)(C) (such as non-CUSIP eligible issues, commercial paper and municipal fund securities) would continue to be subject to Rule G-32(b)(i)(A)(1). Other proposed changes to Rule G-32 would require that information about the underwriting spread or agency fee (if not included in the official statement), and notification of the timing set forth in the continuing disclosure undertaking for the submission of annual financial information by the issuer and/or any obligated person be submitted on or prior to the date of first execution. As noted above, these revisions would allow underwriters to comply with certain of their obligations under Rule G-32 and eliminate certain steps in the data submission process.

A second proposed revision to Rule G-32 is set forth in subsection (b)(i)(F). This revision would delete the reference to paragraph (d)(1)(iii) under Rule 15c2-12 and replace it with a reference to “paragraph (d)(5)” to conform with amendments to Rule 15c2-12 adopted by the Securities and Exchange Commission in 2010.

REQUEST FOR COMMENT

• The proposed revisions to Rule G-32 would allow underwriters to comply with certain of their obligations under Rule G-32 by submitting certain data to NIIDS pursuant to Rule G-34. Further, while underwriters would still be required to complete a limited number of data elements on Form G-32 by submitting to EMMA such other data, including the existence of the continuing disclosure undertaking, the underwriting spread or agency fee (if not included in the official statement), and the timing set forth in the continuing disclosure undertaking for the submission of annual financial information by the issuer and/or any obligated person (such information not currently included in the information disseminated from NIIDS), all such data would now be required to be submitted on or prior to the date of first execution. Should the deadline for completing this portion of Form G-32 be accelerated to, for example, the Time of First Execution? This would ensure that all Form G-32 information is available on EMMA before the underwriter executes the first transactions in the new issue.
  
• The proposed revisions to Rule G-32 would have the effect of accelerating the availability of Form G-32 data on EMMA by displaying such information in real time upon receipt from NIIDS. For those types of securities that are ineligible for submission to NIIDS, including non-CUSIP eligible issues, commercial paper issues and municipal fund securities, should the current deadlines for submitting all of the Form G-32 information about these ineligible issues be accelerated to be consistent with the deadlines for NIIDS-eligible issues?

PROPOSED REVISIONS TO RULE G-34

Rule G-34 currently requires that information about most new issues of municipal securities be submitted to NIIDS and completed by no later than two hours following Time of Formal Award. Rule G-34 also states that only the hours between 9:00 A.M. and 5:00 P.M. Eastern on an RTRS Business Day are counted for purposes of the time tables listed in the rule. Rule G-34 exempts from this requirement short-term instruments with less than nine months in effective maturity, including variable rate instruments, auction rate products, and commercial paper, and instead permits the underwriter to submit certain CUSIP information and the Time of Formal Award by no later than the Time of First Execution of a transaction in the new issue.

Proposed changes to Rule G-34 would remove the exception for underwriters to submit to NIIDS information about those short-term instruments that are eligible for submission to NIIDS, which include variable rate instruments and auction rate products, but would retain this exception for those securities that are ineligible for NIIDS submissions. Currently, such securities include non-CUSIP eligible issues, commercial paper issues and municipal fund securities. Removing this exception would ensure that information about substantially all security types is received by EMMA on the timeframe specified in Rule G-34.

REQUEST FOR COMMENT

• Would removing the exception for certain short-term instruments with effective maturities of nine months or less present compliance challenges to meeting this deadline?
  
• Comments are also requested on whether the current requirement to announce a Time of First Execution that is at least two hours after the time that all required information is provided to NIIDS should be shortened. Since electronically formatted information can be retransmitted immediately and since underwriters have had several years’ experience in implementing the NIIDS system for automated submissions, is there a more appropriate, shorter timeframe that would provide time for NIIDS information to be disseminated and entered into trade processing systems, yet continue to promote orderly trade execution and processing on the first day of trading in a new issue? Would it be appropriate to provide different time periods for competitive and negotiated underwritings?
  
• Only the hours between 9:00 A.M and 5:00 P.M. Eastern Time on an RTRS Business Day are used for purposes of the times listed in Rule G-34. For example, if an underwriter does not obtain and transmit all information necessary for Trade Eligibility to NIIDS by 3:00 P.M. Eastern Time, the underwriter would not be able to set a Time of First Execution until the following day as a result of the current requirement to provide at least two hours advance notice of the time of first execution. The MSRB requests comment on whether the 9:00 A.M and 5:00 P.M. Eastern Time window should be expanded.

PROPOSED REVISIONS TO THE EMMA FACILITY

Proposed changes to the EMMA facility would include the display on EMMA of certain data submitted by underwriters to NIIDS, thereby eliminating the delay, between the Time of First Execution and the end of the Date of First Execution, in receiving and displaying key information about new issues of municipal securities. This step would also address concerns raised by market participants about the timely distribution of new issue data and “not reoffered” designations. Since neither NIIDS nor Form G-32 allows the designation of “NRO” for a new issue of municipal securities, the price or yield information about each maturity of an issue would be displayed within the current time frame applicable to the dissemination of NIIDS data, instead of by the end of the Date of First Execution when submitted by the underwriter under Rule G-32.

Other proposed changes would include the display of the Time of Formal Award and Time of First Execution on EMMA. Including the Time of First Execution on the EMMA website would ensure that all market participants would have advance notification of the underwriter’s planned time for first execution. While underwriters are currently required to submit a Time of First Execution as part of its NIIDS data, including this data on EMMA would give dealers that are not in the underwriting group advance notice of when their own transactions in the new issue should begin, and enhance the ability of those dealers to report their initial transactions in a timely and accurate manner. In addition, posting this data on EMMA would give advance notice to all participants as to when the first transactions in the new issue would be executed.

REQUEST FOR COMMENT

• Should additional items of information disseminated from NIIDS be displayed on EMMA?

April 10, 2012

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TEXT OF DRAFT AMENDMENTS [14]

G-32: Disclosures in Connection with Primary Offerings

(a) Customer Disclosure Requirements. No change.

(b) Underwriter Submissions to EMMA.

(i) Official Statements, Preliminary Official Statements, and Information Concerning Exempt Offerings.

(A) Form G-32 Information Submission. Except as otherwise provided in paragraph (F) of this subsection (i), the underwriter of a primary offering of municipal securities shall submit, in addition to any applicable documents and information required to be submitted pursuant to paragraphs (B) through (E) of this subsection (i), [initiate the submission of] Form G-32 information relating to the offering [on or prior to the date of first execution, and shall,] in a timely and accurate manner as follows: [, complete the submission of all information required to be submitted by Form G-32 relating to such offering at such times and in such manner as required under subsection (b)(vi) of this rule and as set forth in the EMMA Dataport Manual.]

(1) NIIDS-Eligible Primary Offerings. For any primary offering of municipal securities that is a new issue eligible for submission of information to NIIDS under Rule G-34(a)(ii)(C), the underwriter of such offering shall submit all information required to be submitted under this paragraph (A) on Form G-32 relating to such offering at such times and in such manner as required under Rule G-34(a)(ii)(C), and the submission of such information under Rule G-34(a)(ii)(C) in a full and timely manner shall be deemed to be in compliance with the submission requirement of this paragraph (b)(i)(A); provided, however, that:

(a) Any items of information required to be included on Form G-32 but for which no corresponding data element then is available through NIIDS shall be submitted through EMMA on Form G-32 on or prior to the date of first execution in such manner as required under subsection (b)(vi) of this rule and as set forth in the EMMA Dataport Manual; and

(b) Any corrections to data submitted pursuant to Rule G-34(a)(ii)(C) shall be made promptly and, to the extent feasible, in the manner originally submitted.

(2) Primary Offerings Ineligible for NIIDS. For any primary offering of municipal securities that is not a new issue eligible for submission of information to NIIDS under Rule G-34(a)(ii)(C), the underwriter of such offering shall initiate the submission of Form G-32 information relating to the offering on or prior to the date of first execution, and shall complete the submission of all information required to be submitted by Form G-32 relating to such offering at such times and in such manner as required under subsection (b)(vi) of this rule and as set forth in the EMMA Dataport Manual.

(B) – (E) No change.

(F) Exemption for Certain Commercial Paper Offerings or Remarketings. The underwriter of a primary offering of municipal securities that consists of commercial paper not subject to Securities Exchange Act Rule 15c2-12 by virtue of paragraph (d)(1)(ii) thereof or of a remarketing of municipal securities not subject to paragraphs (b)(1) through (b)(4) of Securities Exchange Act Rule 15c2-12 by virtue of paragraph (d)(5) [(d)(1)(iii)] thereof shall not be required to comply with the requirements of paragraph (A) of this subsection (i) or to submit the official statement or any preliminary official statement to EMMA if:

(1) no official statement is prepared for the offering; or

(2) the official statement used in connection with such offering:

(a) has previously been properly submitted to EMMA in connection with a prior primary offering; and

(b) has not been supplemented or amended subsequent to such prior submission.

(ii) – (vi) No change.

(c) No change.

(d) Definitions. For purposes of this rule, the following terms have the following meanings:

(i) - (xiv) No change.

(xv) The term “NIIDS” shall mean a new issue information dissemination system as described in Rule G-34(a)(ii)(C).

* * * * *

G-34: CUSIP Numbers, New Issue, and Market Information Requirements

(a) New Issue Securities.

(i) No change.

(ii) (A) - (B) No change.

(C) The underwriter of a new issue of municipal securities shall communicate information about the new issue in accordance with the requirements of this paragraph (a)(ii)(C) to ensure that other brokers, dealers and municipal securities dealers have timely access to information necessary to report, compare, confirm, and settle transactions in the new issue and to ensure that registered securities clearing agencies receive information necessary to provide comparison, clearance and depository services for the new issue; provided however, that this paragraph (a)(ii)(C) shall not apply to any new issue of municipal securities ineligible for submission to a new issue information dissemination system. [short-term instruments under nine months in effective maturity, including variable rate instruments, auction rate products, and commercial paper.]

(1) – (3) No change.

(D) The underwriter of any [a] new issue of municipal securities ineligible for submission to a new issue information dissemination system [of short-term instruments under nine months in effective maturity, including variable rate instruments, auction rate products, and commercial paper,] shall as promptly as possible announce each item of information listed below in a manner reasonably designed to reach market participants that may trade the new issue. All information shall be announced no later than the time of the first execution of a transaction in the new issue by the underwriter.

(1) - (2) No change.

(E) No change.

(iii) No change.

(b) - (d) No change.

(e) NIIDS Registration and Testing Requirements. NIIDS is an automated, electronic system that receives comprehensive new issue information on a market-wide basis for the purposes of establishing depository eligibility and immediately re-disseminating such information to information vendors supplying formatted municipal securities information for use in automated trade processing systems. It is operated by Depository Trust and Clearing Corporation (DTCC), a securities clearing agency registered with the Securities and Exchange Commission providing depository services for municipal securities.

(i) NIIDS Registration. Prior to acting as underwriter for a new issue of municipal securities eligible for submission to NIIDS [with nine months or greater effective maturity], each broker, dealer or municipal securities dealer must register to use NIIDS with DTCC.

(ii) NIIDS Testing.

(A) NIIDS Web Interface. Prior to acting as underwriter for a new issue of municipal securities eligible for submission to NIIDS [with nine months or greater effective maturity], each broker, dealer or municipal securities dealer shall test its capability to use NIIDS by successfully submitting two test new issues using the NIIDS Web Interface.

(B) NIIDS Autofeed Interface. Prior to acting as underwriter for a new issue of municipal securities eligible for submission to NIIDS [with nine months or greater effective maturity], each broker, dealer or municipal securities dealer that plans to establish computer-to-computer connections with NIIDS (either directly or through a vendor) shall test its capability to use NIIDS by successfully submitting two test new issues using computer-to-computer connections.

[(iii) NIIDS Start-Up. Each broker, dealer or municipal security dealer that has acted at any time after September 30, 2007 and plans to continue to act as an underwriter for a new issue of municipal securities with nine months or greater effective maturity shall complete the requirements of this section (d) by no later than September 15, 2008.]

[3]  Under Rule G-32(b)(vi)(C)(1) and Section 2.6.2 of the EMMA Dataport Manual (Information by the Date of First Execution of Transactions), underwriters are required to initiate the Form G-32 submission process by no later than the date of first execution of transactions in securities sold in the offering, and to submit certain issue-specific information about the new issue. “Date of first execution” is defined in Rule G-32(d)(xi) as:

the date on which the underwriter executes its first transactions with a customer or another broker, dealer or municipal securities dealer in any security offered in a primary offering; provided that, for offerings subject to Rule G-34(a)(ii)(C), ‘date of first execution’ shall mean the date corresponding to the Time of First Execution as defined in Rule G-34(a)(ii)(C)(1)(b); further provided that, solely for purposes of this rule, the date of first execution shall be deemed to occur by no later than the closing date.

[4]  Section 2.6.4 of the EMMA Dataport Manual (Summary of Basic Information Requirements) sets out the basic timeframes for submitting documents and information to EMMA in connection with a new issue, and Section 2.6.5 of the EMMA Dataport Manual (Additional Items in Connection with Special Cases) describes additional submission requirements and timeframes in cases where (i) the official statement is not available for submission by closing, (ii) the offering consists solely of one or more limited offerings for which the official statement will not be made available by the underwriter through EMMA, (iii) any issue in the offering advance refunds outstanding securities, (iv) the underwriter is underwriting only a portion of an issue, (v) the official statement is amended, or (vi) corrections are necessary to information previously provided.

[5]  “Time of Formal Award” is defined in Rule G-34(a)(ii)(C)(1)(a) as:

for competitive issues, the later of the time the issuer announces the award or the time the issuer notifies the underwriter of the award, and, for negotiated issues, the later of the time the contract to purchase the securities from the issuer is executed or the time the issuer notifies the underwriter of its execution. If the underwriter and issuer have agreed in advance on a Time of Formal Award, that time may be submitted to the new issue information dissemination system in advance of the actual Time of Formal Award.

[6]  Rule G-34(a)(ii)(C) currently provides exceptions to the submission requirements for certain short-term instruments with effective maturities of nine months or less, including variable rate instruments, auction rate products and commercial paper. In addition, this requirement does not apply to new issues that do not meet the eligibility criteria for CUSIP number assignments or that consist of municipal fund securities (such as interests in 529 college savings plans) under the general exemption provided in Rule G-34(d).