82 FR 54455 - Self-Regulatory Organizations; Municipal Securities Rulemaking Board; Notice of Filing of Amendment No. 1 to Proposed Rule Change To Amend MSRB Rule G-34, on CUSIP Numbers, New Issue, and Market Information Requirements

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 82, Issue 221 (November 17, 2017)

[Federal Register Volume 82, Number 221 (Friday, November 17, 2017)]
[Notices]
[Pages 54455-54457]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-24928]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82053; File No. SR-MSRB-2017-06]


Self-Regulatory Organizations; Municipal Securities Rulemaking 
Board; Notice of Filing of Amendment No. 1 to Proposed Rule Change To 
Amend MSRB Rule G-34, on CUSIP Numbers, New Issue, and Market 
Information Requirements

November 13, 2017.

I. Introduction

    On August 30, 2017, 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 (``Exchange Act'' or ``Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change consisting of amendments to Rule 
G-34 on CUSIP numbers, new issue, and market information requirements. 
The proposed rule change was published for comment in the Federal 
Register on September 18, 2017.\3\ The Commission received eleven 
comment letters on the proposal.\4\ On October 18, 2017, the MSRB 
granted an extension of time for the Commission to act on the filing 
until December 15, 2017. On November 7, 2017, the MSRB responded to the 
comments \5\ and filed Amendment No. 1 to the proposed rule change 
(``Amendment No. 1''). The text of Amendment No. 1 is available on the 
MSRB's Web site.\6\ The Commission is publishing this notice to solicit 
comments on Amendment No. 1 to the proposed rule change from interested 
persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Exchange Act Release No. 81595 (September 13, 2017), 82 FR 
43587 (``Notice''). The comment period closed on October 10, 2017.
    \4\ See Letter to Secretary, Commission, from Leslie M. Norwood, 
Managing Director and Associate General Counsel, Securities Industry 
and Financial Markets Association (``SIFMA''), dated October 10, 
2017; Letter to Secretary, Commission, from Susan Gaffney, Executive 
Director, National Association of Municipal Advisors (``NAMA''), 
dated October 10, 2017; Letter to Secretary, Commission, from Steve 
Apfelbacher, President, EHLERS Inc., dated October 10, 2017; Letter 
to Secretary, Commission, from Noreen P. White, Co-President, and 
Kim W. Whelan, Co-President, Acacia Financial Group, Inc., dated 
October 10, 2017; Letter to Secretary, Commission, from Cristeena G. 
Naser, Vice President and Senior Counsel, American Bankers 
Association (``ABA''), dated October 10, 2017; Letter to Secretary, 
Commission, from Michael G. Sudsina, President, Sudsina & 
Associates, LLC, dated October 10, 2017; Letter to Secretary, 
Commission, from Marianne F. Edmonds, Senior Managing Director, 
Public Resources Advisory Group (``PRAG''), dated October 10, 2017; 
Letter to Secretary, Commission, from Emily Swenson Brock, Director, 
Federal Liaison Center, Government Finance Officers Association 
(``GFOA''), dated October 10, 2017; Letter to Secretary, Commission, 
from Peter Warms, Senior Manager of Fixed Income, Entity, Regulatory 
Content and Symbology, Bloomberg L.P., dated October 10, 2017; 
Letter to Secretary, Commission, from Dennis Dix, Principal, 
DIXWORKS LLC, dated October 10, 2017; Letter to Secretary, 
Commission, from Stephan Wolf, CEO, Global Legal Entity Identifier 
Foundation (``GLEIF''), dated October 9, 2017. Staff from the Office 
of Municipal Securities discussed the proposed rule change with 
representatives from PFM Financial Advisors LLC and PFM Asset 
Management LLC on October 26, 2017.
    \5\ See Letter from Margaret R. Blake, Associate General 
Counsel, MSRB, to Secretary, SEC, dated November 7, 2017 (``MSRB 
Response Letter''), available at https://www.sec.gov/comments/sr-msrb-2017-06/msrb201706-2674227-161458.pdf.
    \6\ Amendment No. 1 is available at http://www.msrb.org/~/media/
Files/SEC-Filings/2017/MSRB-2017-06-A-1.ashx.
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II. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Amendment

    In response to concerns raised in the comments, the MSRB is 
proposing to amend proposed paragraph Rule G-34(a)(i)(F) of the 
proposed rule change to require dealers (and municipal advisors in a 
competitive sale) seeking to rely on the principles-based exception to 
reasonably believe the purchaser's present intent is to hold the 
municipal securities to maturity ``or earlier redemption or mandatory 
tender.'' \7\ The MSRB believes the proposed rule change should be 
amended to more accurately reflect the terms of direct purchase 
transactions including the potential for earlier redemption or 
mandatory tender.\8\ The MSRB is proposing this same amendment to the 
proposed principles-based exception for dealers from the depository 
eligibility requirements of the rule set forth in proposed subparagraph 
Rule G-34(a)(ii)(A)(3) for consistency.\9\ The MSRB stated that this 
provision would clarify that the depository eligibility requirements of 
Rule G-34(a)(ii)(A) do not apply to municipal securities included in 
the principles-based exception.\10\
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    \7\ See Amendment No. 1.
    \8\ Id.
    \9\ Id.
    \10\ Id.
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    In response to concerns raised in the comments, the MSRB also is 
proposing amending the proposed rule change to

[[Page 54456]]

expand the principles-based exception in proposed paragraph Rule G-
34(a)(i)(F) to include cases where a municipal entity purchases the 
municipal securities with funds that are at least in part proceeds of 
the purchasing entity's issue of municipal obligations, or the 
municipal securities being purchased are used to fully or partially 
secure or pay the purchasing entity's issue of municipal 
obligations.\11\ The MSRB believes that certain sales of municipal 
securities to municipal entities should be excepted from the CUSIP 
number requirements for the same policy reasons underlying the 
principles-based exception for purchases by banks and their non-dealer 
control affiliates.\12\ In particular, the MSRB believes that where a 
municipal entity is purchasing municipal securities using funds that 
are at least in part proceeds of that purchasing entity's issuance of 
other municipal obligations, or where the municipal securities being 
purchased are used to fully or partially secure or pay the purchasing 
entity's issue of municipal obligations, there is a strong expectation 
that the purchase of the underlying municipal securities is intended to 
be held and not traded in the secondary market.\13\ As with the 
exception for dealers (or municipal advisors in a competitive sale) 
engaging in direct purchase transactions of new issue municipal 
securities to banks, the MSRB believes that requiring a CUSIP number in 
these scenarios would not serve the purposes of Rule G-34 to, among 
other things, improve efficiencies in the processing, receiving, 
delivering and safekeeping of municipal securities.\14\ The MSRB also 
believes that, just as in the case of purchases by banks and their non-
dealer control affiliates, for a dealer (or municipal advisor in a 
competitive sale) to rely on the principles-based exception in this 
instance, it would be required to have a reasonable belief (e.g., by 
obtaining a written representation) that the purchasing municipal 
entity has the present intent to hold the municipal securities to 
maturity or earlier redemption or mandatory tender.\15\ The MSRB is 
also proposing this same amendment to the principles-based exception 
for dealers from the depository eligibility requirements of the rule 
set forth in subparagraph Rule G-34(a)(ii)(A).\16\
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    \11\ Id.
    \12\ Id.
    \13\ Id.
    \14\ Id.
    \15\ Id.
    \16\ Id.
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    In response to comments that the principles-based exception should 
apply to all sales of municipal securities from one municipal entity to 
another where a dealer (or municipal advisor in a competitive sale) is 
engaged, the MSRB stated that it disagrees.\17\ The MSRB stated that 
the principles-based exception is meant to facilitate financings by 
permitting the underwriting of new issue municipal securities by 
dealers (or advising by municipal advisors in a competitive sale) 
without requiring application be made for a CUSIP number where such new 
issues are not intended to trade in the secondary market.\18\ However, 
the MSRB stated that it understands that a municipal entity purchasing 
municipal securities for investment purposes may find itself in need of 
liquidity and thus may look to resell those municipal securities into 
the secondary market.\19\ In this instance, the MSRB stated, the holder 
of the municipal securities may find itself unable to readily resell 
the municipal securities because there is no CUSIP number and, based on 
discussions with industry participants, the MSRB stated that it 
understands there is also no established process for obtaining a CUSIP 
number at that late stage for secondary market trading.\20\ The MSRB 
believes that by applying for the CUSIP number on the new issue up 
front, the dealer (or municipal advisor in a competitive sale) avoids 
these potential problems and ensures that this important aspect needed 
for secondary market trading is in place.\21\ As a result, the MSRB 
stated that it does not believe the principles-based exception should 
be expanded to create a generalized private placement exception for all 
sales of municipal securities to another municipal entity where a 
dealer (or a municipal advisor in a competitive sale) is engaged, but 
rather, should be limited as set forth above.\22\
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    \17\ Id.
    \18\ Id.
    \19\ Id.
    \20\ Id.
    \21\ Id.
    \22\ Id.
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    The MSRB is proposing to make the proposed rule change effective 
six months after Commission approval and is requesting accelerated 
approval of Amendment No. 1.\23\ The MSRB believes the Commission has 
good cause, pursuant to Section 19(b)(2) of the Act, for granting 
accelerated approval of Amendment No. 1.\24\ The MSRB believes that the 
only substantive change to the proposed rule change is responsive to 
commenters and expands the application of the previously proposed 
principles-based exception to include sales of new issue municipal 
securities to municipal entities that are purchasing the underlying 
municipal securities with funds that are at least in part proceeds of 
the purchasing entity's issue of municipal obligations, or the 
municipal securities being purchased are used to fully or partially 
secure or pay the purchasing entity's issue of municipal 
obligations.\25\ The MSRB believes that the other amendment to the 
proposed rule change merely clarifies that in a direct purchase 
transaction there may be a redemption or mandatory tender that occurs 
prior to the municipal security's maturity.\26\ The MSRB also stated 
that, in light of one of the purposes of the principles-based exception 
in the proposed rule change--to allow dealers and municipal advisors to 
provide services without inhibiting their issuer clients' access to 
certain financings--the revisions are consistent with the proposed rule 
change and are unlikely to be controversial.\27\
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    \23\ Id.
    \24\ Id.
    \25\ Id.
    \26\ Id.
    \27\ Id.
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III. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the filing as 
amended by Amendment No. 1 is consistent with the Act. Comments may be 
submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-MSRB-2017-06 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-MSRB-2017-06. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the

[[Page 54457]]

Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for Web site viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE., Washington, 
DC 20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the MSRB. All comments received 
will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-MSRB-2017-06 and should be submitted on 
or before December 1, 2017.
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    \28\ 17 CFR 200.30-3(a)(12).

    For the Commission, pursuant to delegated authority.\28\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-24928 Filed 11-16-17; 8:45 am]
 BILLING CODE 8011-01-P