[Federal Register Volume 78, Number 31 (Thursday, February 14, 2013)]
[Notices]
[Pages 10656-10663]
[FR Doc No: 2013-03385]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68872; File No. SR-MSRB-2013-01]

Self-Regulatory Organizations; Municipal Securities Rulemaking
Board; Notice of Filing of a Proposed Rule Change Relating to
Amendments to MSRB Rules G-37 and G-8 and Form G-37

February 8, 2013.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on February 4, 2013, the Municipal Securities Rulemaking Board
(``MSRB'' or ``Board'') filed with the Securities and Exchange
Commission (``SEC'' or ``Commission'') the proposed rule change as
described in Items I, II, and III below, which Items have been prepared
by the MSRB. The Commission is publishing this notice to solicit
comments on 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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    The MSRB is filing with the Commission a proposed rule change
consisting of amendments to Rules G-37, on political contributions and
prohibitions on municipal securities business, and G-8, on books and
records, and Form G-37 (the ``proposed rule change''). The MSRB
requested an effective date for the proposed rule change of no later
than the start of the second calendar quarter following the date of SEC
approval.
    The text of the proposed rule change is available on the MSRB's Web
site at www.msrb.org/Rules-and-Interpretations/SEC-Filings/2013-Filings.aspx, at the MSRB's principal office, and at the Commission's
Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the MSRB included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The MSRB has prepared summaries, set forth in Sections
A, B, and C below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The proposed rule change amends Rule G-37 to require the public
disclosure of additional information related to contributions made by
brokers, dealers and municipal securities dealers (``dealers''), their
municipal finance professionals (``MFPs''),\3\ political action
committees (``PACs'') controlled by the dealer or their MFPs and non-
MFP executive officers \4\ (individually, a ``covered party'' and
collectively, ``covered parties'') to bond ballot campaigns and the
municipal securities business \5\ engaged in by dealers resulting from
voter approval of the bond ballot measure to which such contributions
were given. The additional information will be required to be reported
on revised MSRB Form G-37 \6\ and submitted to the MSRB.\7\ The
proposed rule change also amends Rule G-8 to require dealers to
maintain records pertaining to the additional information disclosed
under the proposed amendments to Rule G-37. The proposed rule change is
further described below under ``Summary of Proposed Rule Change'' and
under ``Discussion of Comments.''
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    \3\ Rule G-37(g)(iv) defines municipal finance professional as:
(A) Any associated person primarily engaged in municipal securities
representative activities (exclusive of sales activities with
natural persons); (B) any associated person (including but not
limited to any affiliated person of the dealer, as defined in Rule
G-38) who solicits municipal securities business; (C) any associated
person who is both (i) a municipal securities principal or a
municipal securities sales principal and (ii) a supervisor of any
persons described in (A) or (B) above; (D) any associated person who
is a supervisor of any person described in (C) above up through and
including, in the case of a dealer other than a bank dealer, the
Chief Executive Officer or similarly situated official and, in the
case of a bank dealer, the officer or officers designated by the
board of directors of the bank as responsible for the day-to-day
conduct of the bank's municipal securities dealer activities; or (E)
any associated person who is a member of the dealer (or, in the case
of a bank dealer, the separately identifiable department or division
of the bank) executive or management committee or similarly situated
officials, if any.
    \4\ Rule G-37(g)(v) defines non-MFP executive officer as an
associated person in charge of a principal business unit, division
or function or any other person who performs similar policy making
functions for the dealer (or, in the case of a bank dealer, the
separately identifiable department or division of the bank, as
defined in Rule G-1), but does not include any MFP. Although Rule G-
37 requires disclosure of non-MFP executive officer contributions,
such contributions do not result in a ban on engaging in municipal
securities business.
    \5\ Rule G-37(g)(vii) defines municipal securities business as:
(A) The purchase of a primary offering of municipal securities from
an issuer on other than a competitive bid basis (e.g., a negotiated
underwriting); (B) the offer or sale of a primary offering of
municipal securities on behalf of any issuer (e.g., a private
placement); (C) the provision of financial advisory or consultant
services to or on behalf of an issuer with respect to a primary
offering of municipal securities in which the dealer was chosen to
provide such services on other than a competitive bid basis; or (D)
the provision of remarketing agent services to or on behalf of an
issuer with respect to a primary offering of municipal securities in
which the dealer was chosen to provide such services on other than a
competitive bid basis.
    \6\ MSRB Form G-37 is the document pursuant to which dealers
disclose contribution information as currently required by Rule G-
37. The form is being revised to conform to the requirements
resulting from the proposed rule change.
    \7\ Form G-37 is submitted by dealers through the existing MSRB
Political Contribution Submission Service, which is the current
system that accepts the submissions of Form G-37. Submitted Forms G-
37 are made publicly available through the MSRB Web site.
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Background

    Rule G-37, in effect since 1994, has provided substantial benefits
to the industry and the investing public by greatly reducing the direct
connection between political contributions given to issuer officials
\8\ and the awarding of municipal securities business to dealers. Rule
G-37 requires dealers to disclose (on Form G-37) certain contributions
to issuer officials, contributions to bond ballot campaigns, and
payments to political parties of states and political subdivisions made
by covered parties. The rule prohibits dealers from engaging in
municipal securities business with an issuer within two years after
contributions to an official of such issuer are made by certain covered
parties (other than certain permitted de minimis contributions).\9\ The
rule's prohibition on engaging in municipal securities business is not
triggered by contributions that are made to bond ballot campaigns by
covered parties.
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    \8\ Rule G-37(g)(vi) defines ``official of such issuer'' or
``official of an issuer'' as any person (including any election
committee for such person) who was, at the time of the contribution,
an incumbent, candidate or successful candidate: (A) For elective
office of the issuer which office is directly or indirectly
responsible for, or can influence the outcome of, the hiring of a
broker, dealer or municipal securities dealer for municipal
securities business by the issuer; or (B) for any elective office of
a state or of any political subdivision, which office has authority
to appoint any person who is directly or indirectly responsible for,
or can influence the outcome of, the hiring of a broker, dealer or
municipal securities dealer for municipal securities business by an
issuer.
    \9\ Contributions made by MFPs to issuer officials for whom such
MFP is entitled to vote will not result in a ban on municipal
securities business if such contributions, in total, do not exceed
$250 to each issuer official, per election.
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Bond Ballot Contributions

    Since February 1, 2010,\10\ the MSRB has required disclosure, under
Rule G-37, of non-de minimis contributions \11\ to bond ballot
campaigns made by covered parties. Rule G-37 also requires dealers to
maintain records of such reportable contributions to bond ballot
campaigns pursuant to Rule G-8. The 2010 amendments to Rule G-37 and
the corresponding amendments to Rule G-8 resulted, in part, from
concerns that contributions by covered parties to bond ballot campaigns
could assist dealers with obtaining municipal securities business. The
amendments also resulted from the MSRB's concern about the lack of
effective transparency regarding bond ballot campaign
contributions.\12\
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    \10\ See Securities Exchange Act Release No. 61381 (January 20,
2010), 75 FR 4126 (January 26, 2010) (File No. SR-MSRB-2009-18).
    \11\ Dealers are not required to disclose contributions made by
MFPs and non-MFP executive officers to a bond ballot campaign for a
ballot initiative with respect to which such person is entitled to
vote if such contributions, in total, do not exceed $250 per ballot
initiative.
    \12\ The MSRB noted that the lack of effective transparency
results from political contribution disclosure requirements that
vary from state to state and the difficulty of locating and
extracting the relevant dealer-related and bond initiative-related
information from the various public disclosure facilities. See MSRB
Notice 2009-35 (June 22, 2009).
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    Some industry participants and market observers continue to express
concerns regarding the potential adverse effect on the integrity of the
municipal securities market from dealer and dealer personnel
contributions to bond ballot campaigns.\13\ The proposed rule change
addresses these concerns by augmenting the disclosures currently
required under Rule G-37. These more detailed disclosures also will
help inform the Board whether further action regarding bond ballot
campaign contributions is warranted, up to and including a
corresponding ban on engaging in

municipal securities business as a result of certain contributions.
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    \13\ Similar concerns have been expressed with regard to such
contributions made by some municipal advisors. The Board expects to
consider undertaking parallel rulemaking with respect to municipal
advisor contributions to bond ballot campaigns when it develops
additional rules for municipal advisors.
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Summary of Proposed Rule Change

    The MSRB requested comment on a draft of the proposed rule change
on August 15, 2012.\14\ The description of the proposed rule change
below revises certain provisions of the draft that was provided for
comment in the Request for Comment based on the MSRB's review of
comment letters, as further described below and in ``Discussion of
Comments'' below. The proposed rule change revises Rule G-
37(e)(i)(B)(2) to provide that, in disclosing the contribution amount
made to a bond ballot campaign, the dealer also must include, in the
case of in-kind contributions, the value and nature of the goods or
services provided, including any ancillary services provided to, on
behalf of, or in furtherance of the bond ballot campaign. The proposed
rule change also requires dealers to disclose the specific date on
which such contributions to bond ballot campaigns were made.
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    \14\ See MSRB Notice 2012-43 (August 15, 2012) (``Request for
Comment'').
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    Proposed Rule G-37(e)(i)(B) requires dealers to disclose the full
issuer name and full issue description of any primary offering
resulting from voter approval of a bond ballot measure to which a
contribution required to be disclosed has been made. All information is
required to be reported in the calendar quarter in which the closing
date for the issuance that was authorized by the bond ballot measure
occurred. The proposed rule change contains a look-back provision for
bond ballot campaign contributions that are made by an MFP or a non-MFP
executive officer during the two years prior to an individual becoming
an MFP or a non-MFP executive officer of a dealer.\15\ The look-back
provision will limit the additional disclosures required under proposed
Rule G-37(e)(i)(B) to those items that would have been required to be
disclosed if such individual had been an MFP or a non-MFP executive
officer at the time of such contribution. Proposed Rule G-37(e)(i)(B)
also requires dealers to disclose both the amount and source of any
payments or reimbursements related to any bond ballot contribution,
received by a dealer or its MFPs from any third party.\16\
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    \15\ There is a similar look-back provision in current Rule G-37
for contributions to issuer officials. See Rule G-37(b)(i). As with
that provision, disclosure is only required with respect to
municipal securities business that results from the bond ballot
measure after the effective date of the proposed rule change.
    \16\ Third parties include issuers.
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    The proposed rule change revises Rule G-37(g) to expand the
definition of ``contribution'' and create a new term, the ``reportable
date of selection.'' The proposed amendments to the definition of
``contribution'' distinguish between contributions made to an official
of an issuer and contributions made to a bond ballot campaign. The term
``reportable date of selection'' is defined to refer to the specific
date on which a dealer is selected, either in writing or orally, to
engage in municipal securities business that must be reported on Form
G-37.
    Lastly, conforming amendments to Rule G-8(a)(xvi)(H) and (I)
require dealers to maintain records of the supplemental information
related to bond ballot campaign contributions that are required to be
disclosed on Form G-37 under the proposed rule change.

Effective Date Of Proposed Rule Change

    The MSRB requested an effective date for the proposed rule change
no later than the start of the second calendar quarter following the
date of SEC approval.
2. Statutory Basis
    The MSRB believes that the proposed rule change is consistent with
Section 15B(b)(2)(C) of the Act, which provides 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.

    The MSRB believes that the proposed rule change is consistent with
Section 15B(b)(2)(C) of the Act because it is intended to protect
investors and the public interest and prevent fraudulent and
manipulative acts and practices by adding greater specificity to the
public disclosures surrounding contributions made by covered parties to
bond ballot campaigns, and any municipal securities business awarded
pursuant to such bond ballot measure. Access to such information in a
centralized format on the MSRB's Web site (through Form G-37) has and
will continue to substantially increase the amount of information
available to market participants, thereby increasing market
transparency and strengthening market integrity. The revisions also
will assist the MSRB in its on-going review of Rule G-37 and potential
conflicts of interest or other practices that may present challenges to
the integrity of the municipal securities market related to political
contributions by dealers and dealer personnel.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The MSRB does not believe that the proposed rule change would
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. The MSRB solicited comment on
the potential burdens of the proposed rule change in the Request for
Comment. Among the questions asked were:
     Would the draft amendments help to protect the integrity
of the municipal securities market, and are there specific benefits
that issuers, investors and the public (including taxpayers) would
realize from adopting the draft amendments?
     Would the draft amendments have any negative effects on
issuers, investors and the public, or on the fairness, efficiency or
overall integrity of the municipal securities market? If so, please
describe in detail.
     Dealers are already required to collect, report and retain
records of certain information in connection with bond ballot campaigns
under the current provisions of Rules G-37 and G-8. What would be the
incremental additional burden, if any, to dealers to collect, report
and retain records of the additional items of information that would be
required under the draft amendments?
     Are there alternative methods to providing the protections
sought under the draft amendments that the MSRB should consider and
that would be more effective and/or less burdensome?
    The specific comments and responses thereto are discussed in Part
5. Of those commenters addressing issues of burdens, two stated that
any burden in connection with the proposed rule change would be
outweighed by the benefits, and five commenters supported even more
expansive regulation to, among other things, ban dealers from making
contributions to bond ballot campaigns. The MSRB addressed those
commenters that were critical of the burdens from the proposed rule
change by clarifying certain definitions and allowing additional time
for implementation. The MSRB also notes that dealers already are
required to report information on certain contributions and municipal

securities business on Form G-37. The proposed rule change augments
existing Rule G-37 by providing greater clarity and context to the
information already provided under the rule. The MSRB believes that the
burdens resulting from the proposed new disclosures are outweighed by
the benefits accruing to investors and the marketplace in general.
    The MSRB believes that these incremental burdens are necessary and
appropriate to address ongoing concerns of pay-to-play practices with
respect to bond ballot campaign contributions. The additional
information required to be reported under the proposed rule change
should be readily available to dealers and the public and is generally
consistent with the type of information currently required to be
reported under Rule G-37.

C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others

    In the Request for Comment,\17\ the MSRB requested comment on a
draft of the proposed rule change. Specifically, the MSRB sought
comment on whether the proposed revisions to Rule G-37 and Rule G-8, as
described herein, that would require additional public disclosure of
certain information related to contributions made by covered parties to
bond ballot campaigns, and the municipal securities business engaged in
by dealers resulting from the bond ballot campaign to which they
contributed, on revised Form G-37, and the maintenance of records
related to such contributions, would be useful and helpful to the
market in monitoring and accessing such dealer contribution
information. In addition, the Board sought comments from the industry
and other interested parties on all aspects of the proposed rule change
and the range of practices that are undertaken by dealers, municipal
advisors and other market participants in connection with contributions
to bond ballot campaigns and related activities that can give rise to
concerns regarding the integrity of the municipal securities market.
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    \17\ See footnote 14.
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Discussion Of Comments
    Comments on the Request for Comment were received from: (1)
Barclays; (2) California Association of County Treasurers and Tax
Collectors (``CACTTC''); (3) Center for Competitive Politics (``CCP'');
(4) Government Financial Strategies Inc. (``GFS''); (5) Magis Advisors
(``Magis''); (6) Morgan Stanley; (7) National Association of
Independent Public Finance Advisors (``NAIPFA''); and (8) Securities
Industry and Financial Markets Association (``SIFMA''). Summaries of
these comments and the MSRB's responses follow.

General Support

    Comments: Barclays stated the ``Board has clearly identified the
legitimate concerns of industry participants and market observers
regarding the adverse effect bond ballot activity by dealers and MFPs
has on the integrity of the municipal securities market. Such concerns
have a tendency to extend beyond issuances supported by bond ballot
campaigns and reflect poorly on our industry as a whole.'' GFS stated
that the disclosures contemplated by the proposed rule change would be
an important step in preventing pay-to-play activities related to bond
ballot campaign contributions. The MSRB discusses additional comments
from these and other commenters below.
    The Board should consider amendments to Rule G-37 to ban dealer
contributions to bond ballot campaigns, or impose a ban on future
business similar to that for certain dealer campaign contributions to
issuer officials.
    Comments: CACTTC recommended that the MSRB consider amendments to
the rule that would include, ``an outright ban on brokers, dealers, or
any other municipal finance professionals from contributing to bond
ballot measures and/or their related committees'' and argued that such
a ``ban would simply expand the existing ban on political contributions
to public officials involved in approving related bond transactions.''
\18\ CACTTC stated that pay-to-play activities in municipal bond
elections and transactions undermines the competitive process that
ensures that taxpayer money is spent in the most efficient and
effective manner and suggested that the MSRB amend Rule G-37 to
``either shed light on or eliminate pay-to-play activities.'' Magis
expressed opposition to any circumstance where any market professional
is permitted to directly, or indirectly, contribute to bond ballot
campaigns that serve the interests of such a participant.
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    \18\ CACTTC indicated that the bond ballot contribution problem
is most prevalent for school district financings in California due
to proposition 39. The proposition was enacted in 2000 and, lowered
to 55% from 66%, the amount of voter approval needed to approve a
bond ballot measure.
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    Barclays asked the Board to seek a more direct means to ``address
conflicts of interest, actual and apparent, raised by cash and in-kind
contributions of dealers and their municipal finance personnel
(``MFPs'') to bond ballot campaigns.'' Barclays suggested that the
Board consider measures that would prohibit dealers from engaging in
municipal securities business for a clearly defined period of time
after the dealer or any of its MFPs has made a non-de minimis cash or
in-kind contribution to support a bond ballot campaign authorizing such
municipal securities business. Barclays argued that the terms of such a
prohibition should not turn on whether a dealer expects to be, or is,
reimbursed for such contributions, and should apply with respect to the
kinds of support activities identified in the Request for Comment \19\
(e.g., polling) whether or not local law would permit an issuer to
engage in such activity.
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    \19\ See footnote 14.
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    Morgan Stanley cited a San Francisco Chronicle article that
observed that ``in 150 of 155 cases (97%) where a dealer contributed to
support a bond ballot election that authorized the bonds the
underwriter was hired to underwrite'' and stated that ``[t]he continued
allowance of this widely perceived pay-to-play practice damages the
integrity of the municipal marketplace and allows outsiders
(regulators, journalists and politicians) to question the practices of
our marketplace.'' NAIPFA stated that the proposed amendments to Rule
G-37 do not go far enough in terms of curtailing the practice of
contributing to bond ballot campaign committees and will likely not
have a significant impact on such contributions. NAIPFA also stated
that it is unsure how the amendments alone will benefit issuers or the
public interest since the proposed rule change does not prohibit or
limit the practice of contributions to bond ballot campaigns. Finally,
NAIPFA stated that bond ballot contributions are often made, ``for the
purpose of influencing the selection or retention of underwriters, and
are thus the equivalent of the impermissible pay-to-play contributions
already banned under current Rule G-37.'' GFS believes that further
action will be warranted as the Board continues to examine this area of
rulemaking.
    MSRB Response: The MSRB believes that the additional disclosures
required by the proposed rule change are an appropriate regulatory
response to the concerns identified. The MSRB believes that providing
public access to disclosures of dealer contributions to bond ballot
campaigns in a centralized format on the MSRB's Web site (through Form
G-37) has substantially increased the amount of information available
to

market participants, thereby increasing market transparency and
strengthening market integrity.
    The information gathered pursuant to the proposed rule change,
coupled with the existing requirements of Rule G-37, will assist the
Board as it continues to monitor dealer and dealer personnel
contribution disclosures. Such monitoring will allow the Board to
determine, in the future, whether a corresponding ban on business, as a
result of such contributions, would be necessary to address any real or
perceived linkage between such contributions to bond ballot campaigns
(and related activities) and the award of municipal securities
business.
    The MSRB should amend Rule G-37 to request certain additional
disclosures related to dealers' and their MFPs' contributions to bond
ballot campaigns.
    Comments: CACTTC supported the additional disclosure requirements
for bond ballot campaigns and stated that an amendment to Rule G-37 is
``necessary to reduce the perception of pay-to-play and to help ensure
that underwriters and other municipal financial professionals are not
awarded bond transactions because they have contributed to related bond
ballot measures.'' SIFMA \20\ also supported the proposed rule change
to require disclosure of whether a dealer or any of its MFPs or non-MFP
executive officers received payments or reimbursements, related to any
bond issuance resulting from a bond ballot campaign to which the
dealer, its MFP or non-MFP executive officer or applicable PAC
contributed, from any third party. SIFMA stated that these payments or
reimbursements are not common and should be disclosed. SIFMA stated
that such payments would be known to the dealer and disclosure would
not cause much burden on the dealer and it would be material if any
such payments were made. SIFMA also supported the proposed rule change
to require dealers to provide the complete name of the entity that will
issue the bonds that were authorized by the bond ballot campaign, to
which a contribution was made by the dealer, its MFP or non-MFP
executive officer (other than a de minimis contribution) or applicable
PAC. SIFMA stated that the name of the issuer is always known by the
dealer and would be beneficial if disclosed on Form G-37 and that such
increased transparency would create more benefits than burdens on the
regulated dealer community.
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    \20\ Morgan Stanley supports the SIFMA comment letter.
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    GFS expressed concern about the lack of transparency in school bond
campaign fundings and how it leads to corruption. GFS stated that it
would be helpful to place in the public record information regarding
the specific issuers and bond issues implicated through the actions of
MFPs. GFS suggested requiring the disclosure, ``of compensation in
excess of general industry compensation practices * * *.'' GFS also
suggested requiring the disclosure of relevant information to investors
when firms participating in the bond issue have contributed to election
campaigns and the election campaigns to which the underwriters have
contributed are administered by municipal advisors. Magis stated that
there may be compelling reasons to require that disclosure of potential
conflicts of interest also be made in official statements ``in order to
avoid introducing error or omission to the issuer's official
statement.'' GFS also recommended requiring reporting of payments made
by underwriters to (not only payments received from) other
professionals, such as financial advisors and election advisors and
channeled through bond ballot campaigns.
    MSRB Response: The MSRB believes that the additional disclosures
that will be required under the proposed rule change provide the
appropriate types of information that should be disclosed to the
general public, including investors, about when firms participating in
bond issues have contributed to election campaigns, by providing
additional information that has not previously been collected and made
available to the public. Such additional information includes: (a)
Requiring dealers to disclose the full issuer name and the full issue
description, which will provide increased public disclosure of the
specific primary offering or offerings that resulted from the bond
ballot campaign to which the dealer, or their personnel, contributed
and was required to disclose under existing Rule G-37; and (b)
requiring dealers to disclose additional information about in-kind
contributions that are made to bond ballot campaigns, including the
value and nature of goods and services that are provided to the
campaign and any ancillary services that are provided to, on behalf of,
or in furtherance of the bond ballot campaign by a dealer.
    The MSRB does not believe there presently is a readily accessible
standard or a ``base-line'' level of compensation for municipal
securities transactions that would allow disclosure of ``excess''
compensation as urged by GFS. In response to comments suggesting that
dealers should disclose whether a bond ballot campaign is administered
by a municipal advisor, the MSRB believes that actual knowledge of
whether the bond ballot campaign is administered by a municipal advisor
would be required, and that such information is not generally known or
available to support a comprehensive disclosure standard for the
industry at this time.
    In response to Magis's suggestion to require the disclosure of
potential conflicts of interest in official statements, the MSRB notes
that it does not have regulatory authority over issuers, and therefore
does not have the authority to establish requirements regarding the
content of official statements. The MSRB believes that GFS's
recommendation to report the payments made by underwriters to other
professionals that may be channeled through bond election campaigns is
not necessary because, to the extent that such payments would represent
indirect contributions by the dealer to a bond ballot campaign, such
indirect contributions already are required to be disclosed under
current Rule G-37.
    The proposed amendments to Rule G-37 raise constitutional concerns.
    Comments: CCP noted its concerns that ``the Board may take further
action regarding dealer and dealer personnel contributions to bond
ballot campaigns, up to and including a corresponding ban on business
as a result of certain contributions.'' CCP stated that the Board has
overlooked the long-standing constitutional distinction between
contributions to candidates and those given to support or oppose ballot
initiatives. ``Simply put, ballot measure committees receive stronger
constitutional protection against government regulation than do
candidates.'' CCP also argued that the MSRB's concern about certain
practices related to bond ballot campaigns have nothing to do with the
creation of a quid pro quo arrangement between the bond ballot measure
committee and the contributors because the bond ballot measure
committee is, under the law, an entirely separate entity from the
issuer. ``There is no identity of interests between the person
supported for election and the person making hiring and issuing
decisions, as is the case in the candidate context and as the D.C.
Circuit required in Blount. The Board's announcement and analysis make
no mention of this crucial distinction.'' CCP suggested that the Board
take into consideration the fact that ``ballot issue, ballot measure,
and independent expenditure committees are granted far more
constitutional protection than are candidate committees.''

    MSRB Response: The MSRB recognizes the distinctions between
contributions to candidates and bond ballot campaigns. The MSRB
believes that the requirement under the proposed rule change to have
dealers provides additional, basic information pertaining to
contributions to bond ballot campaigns and any subsequent municipal
securities business does not impinge upon the First Amendment rights of
individuals and/or firms that will be responsible for providing
disclosure of bond ballot campaign contributions.\21\ As noted
previously, the proposed rule change only will require disclosure of
additional information pertaining to contributions to, and municipal
securities business from, bond ballot campaigns and will not prohibit
contributions to such campaigns.
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    \21\ In Blount v. Securities and Exchange Commission, 61 F.3d
938, 948 (DC Cir. 1995), the District Court determined that existing
Rule G-37 advanced a compelling governmental interest to protect
investors that did not abridge First Amendment rights and stated
that ``municipal finance professionals are not in any way restricted
from engaging in the vast majority of political activities,
including making direct expenditures for the expression of their
views * * *.''
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    Certain dealer and dealer personnel contributions to, and
activities related to, bond ballot campaigns violate state laws in
certain jurisdictions.
    Comments: Magis cited an opinion of the California Legislative
Counsel's Office that ``a school district or other local agency may not
condition the award of an agreement to provide bond underwriting
services on the underwriter also providing campaign services in support
of that bond measure or another bond measure proposed by the school
district or other local agency.'' Magis also stated that California law
prohibits the expenditure of public monies on electioneering.
    GFS argued that certain bond ballot campaign practices are contrary
to the Best Practice recommendation of the Government Finance Officers
Association and that

    [t]here are variations in bond election contribution patterns.
Other underwriters simply administer bond election campaigns
themselves. In doing so, those firms provide both monetary and in-
kind value. Those underwriters may advertise this function as a
``service'' provided to issuers. Yet, in California and other states
the issuers cannot administer bond election campaigns themselves.
Still, in those facts and circumstances, the issuers invariably
employ those underwriters to underwrite the bonds the voters
approve. The practice has the appearance of those issuers doing
indirectly through municipal finance professionals what the issuers
cannot do directly.

    MSRB Response: The MSRB has previously stated that contributions
and expenditures by certain dealers and dealer personnel may assist an
issuer in avoiding state law restrictions, and depending on the
totality of the facts and circumstances, could independently violate
Rule G-17, even if not precluded by Rule G-37.\22\ The MSRB does not
believe that any additional changes in Rule G-37 are necessary at this
time.
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    \22\ MSRB Rule G-17 provides that, in the conduct of its
municipal securities or municipal advisory activities, each dealer
and municipal advisor shall deal fairly with all persons and shall
not engage in any deceptive, dishonest, or unfair practice. These
principles of fair practice have previously been viewed as
applicable in the context of the MSRB's efforts to eliminate pay-to-
play activities in the municipal securities market. See, e.g., MSRB
Notice 2003-32 (August 6, 2003); In the Matter of Pryor, McClendon,
Counts & Co. et al., Order Making Findings and Imposing Remedial
Sanctions and a Cease-and-Desist Order (February 6, 2002) (broker-
dealer violated Rule G-17 by concealing certain political
contributions that would have triggered a ban on business under Rule
G-37). See also MSRB Reports, Draft Rule G-37, Concerning Political
Contributions in the Municipal Securities Market, Volume 13, Number
4 (August, 1993); Testimony of Charles W. Fish, Chairman, Municipal
Securities Rulemaking Board before the Subcommittee on
Telecommunications and Finance of the Committee on Energy and
Commerce, United States House of Representatives (September 7, 1993)
at 59, n.86.
---------------------------------------------------------------------------

    The proposed amendments to the definitions of ``contribution'' and
``de minimis'' in Rule G-37 are problematic.
    Comments: SIFMA stated that including election services or
collateral work provided on behalf of an issuer, in addition to work
done on behalf of a bond ballot campaign committee, in the revised
definition of ``contribution'' to include the full range of cash and
in-kind contributions is a significant change that greatly expands the
scope of the reporting obligations to cover frequent routine
communications between issuers and underwriters. SIFMA believes the
proposed amendment blurs the line between work done for the bond ballot
campaign committee which is to be reported on Form G-37 and traditional
work for the issuer completed as part of the public finance
transaction. SIFMA stated that only in-kind contributions to the bond
ballot committee itself should be reportable and that references to
work provided to the issuer should be struck from the proposed rule
change. SIFMA argued that it would be burdensome on the dealer
community to separately distinguish, track, quantify and report such
information to the MSRB. SIFMA agreed that work done for or
contributions made to the actual bond ballot campaign committee should
be disclosed, as the bond ballot campaign committee is a separate legal
entity from the issuer.
    NAIPFA stated its support of the MSRB's proposed amendment to
address ``in-kind'' contributions. GFS stated that it would be helpful
to include reporting of in-kind contributions and the value of in-kind
contributions, which are excluded from current reporting requirements
under Rule G-37.
    MSRB Response: The MSRB believes the public disclosure of all
political contributions, including cash and in-kind services, will
allow for greater public scrutiny of such contributions and the
potential connection between them and the awarding of municipal
securities business. However, the MSRB agrees that the definition of
``contribution'' should not include work provided to or on behalf of
the issuer that is related to the completion of municipal securities
business. The MSRB has amended the proposed rule change to clarify the
appropriate nexus between ancillary services provided to, on behalf of,
or in furtherance of a bond ballot campaign by a dealer or dealer
personnel. The revisions will assist with clarifying that in-kind
contributions that would be required to be reported by dealers will
solely be required with respect to activities related to a bond ballot
campaign and not with respect to activities undertaken to complete the
associated municipal securities business.
    The MSRB also notes that the term ``contribution,'' as defined in
Rule G-37, includes anything of value, which has been interpreted to
include in-kind contributions.\23\ The proposed rule change will
establish that the disclosure of in-kind contributions must include
both the value and the nature of the goods or services provided.
---------------------------------------------------------------------------

    \23\ See Rule G-37 Interpretations, Questions and Answers
Concerning Political Contributions and Prohibitions on Municipal
Securities Business: Rule G-37, Question II. 18 (May 24, 1994). For
example, if a MFP uses dealer's resources (e.g., a political
position paper prepared by dealer personnel) or incurs expenses in
the conduct of dealer volunteer work (e.g., hosting a reception),
then the value of such resources or expenses would constitute a
contribution.
---------------------------------------------------------------------------

    The proposed amendments will impose undue burdens on dealers.
    Comment: CCP stated that the proposed rule change would impose only
recordkeeping burdens and would do little to advance the MSRB's
anticorruption mission. CCP stated that the recordkeeping requirements
for in-kind contributions do little to prevent corruption and would
chill a kind of political participation--volunteer work. In addition,
CCP stated that by requiring recordkeeping of non-de minimis
contributions, and defining such contributions at the same rate as
those

for candidates, the proposed revisions conflate contributions to
candidates with those to support or oppose ballot initiatives.
    MSRB Response: The MSRB believes the requirements of the proposed
rule change are necessary and appropriate and will assist the Board and
the public in determining whether the awarding of municipal securities
business is linked to certain dealer and dealer personnel contributions
to bond ballot campaigns. The proposed rule change will assist with
advancing the anticorruption objective of Rule G-37. The MSRB believes
that potential burdens that may be caused by the recordkeeping
requirements of the proposed rule change will be offset by the benefits
to the MSRB and the public through greater clarity and context to
existing bond ballot campaign contribution disclosures. The MSRB notes
that dealers currently report certain political campaign contributions
and the increased reporting and submission requirements of the proposed
rule change will only involve a slight, incremental increase to
existing requirements.
    The MSRB also notes that certain dealers also are required to
report bond ballot contribution information at the state and local
level. These requirements demonstrate the strong public interest for
reporting such contributions, and for dealers in such jurisdictions,
the burdens of the proposed rule change are arguably even lower.
    The MSRB does not believe that the proposed rule change will
prohibit or regulate personal volunteer work by dealers and MFPs nor
will it chill volunteer work as suggested by CCP. The proposed rule
change will require the disclosure of the contribution amounts that are
made to bond ballot campaigns by covered parties which, in the case of
in-kind contributions, include both the value and the nature of the
goods or services provided, including any ancillary services provided
to, on behalf of, or in furtherance of the bond ballot campaign. As
with existing Rule G-37, the proposed rule change does not prohibit or
restrict individual personal volunteer work.\24\
---------------------------------------------------------------------------

    \24\ Ibid. The MSRB has previously provided guidance regarding
the treatment of contributions as the use of dealer resources or the
incurrence of expenses by dealers in connection with a political
campaign. The MSRB has made clear that Rule G-37 does not prohibit
or limit individuals from providing volunteer services in support of
an issuer official, and has also noted that certain incidental
expenses incurred by such individual would generally not be treated
as a contribution. See Rule G-37 Question and Answer II.18 (May 24,
1994). For example, personal expenses incurred by an MFP in the
conduct of volunteer work, which expenses are purely incidental to
the volunteer work and are unreimbursed by the dealer (e.g., cab
fares and personal meals), would not constitute a contribution. Also
see Rule G-37, Question II.19 (August 18, 1994). An employee of a
dealer generally can donate their time to an issuer official's
campaign without such time being viewed as a contribution by the
dealer to the official, so long as the employee is volunteering his
or her time during non-work hours, or is using previously accrued
vacation time or the dealer is not otherwise paying the employee's
salary (e.g., an unpaid leave of absence). These principles would
apply equally to individuals providing volunteer services in
connection with a bond ballot campaign.
---------------------------------------------------------------------------

    The MSRB does not agree with CCP's comment that defining de minimis
contributions at the same level as those for candidates, and the
attendant recordkeeping requirements for in-kind contributions, is
improper. Rather, the MSRB believes that there are efficiencies in
maintaining consistent de minimis levels for Rule G-37, even with
respect to in-kind contributions.
    Comment: SIFMA stated that requiring the dealer to provide the
specific date on which a contribution was given by the dealer to the
bond ballot campaign is burdensome depending upon the number of non-de
minimis reportable contributions that need to be tracked and reported
to the MSRB. SIFMA requested that the MSRB not expand the Form G-37
disclosure to include the specific date the dealer was selected to
engage in municipal securities business because the date the dealer was
selected to engage in such municipal securities business may not be
clear or ascertainable by the dealer. SIFMA believes that each issuer
typically has its own method for the selection and final approval of
underwriters, which makes it difficult or impossible to standardize the
process.
    MSRB Response: In response to SIFMA's concern over difficulties in
identifying the precise date when a dealer is selected to engage in a
municipal securities business, the MSRB has proposed defining a new
term: ``reportable date of selection.'' Specifically, the ``reportable
date of selection'' will be the date of the earliest to occur of (i)
The execution of an engagement letter, (ii) the execution of a bond
purchase agreement, or (iii) the receipt of formal notification
(provided either in writing or orally) from, or on behalf of, the
issuer that the dealer has been selected to engage in municipal
securities business.
    Comments: SIFMA requested that any rule change be applied from its
effective date forward, with no contributions made, or transactions
sold or issued before the effective date of the rule, be subject to
reporting. SIFMA proposed ``a two-year look back for contributions by
current individual MFPs or non-MFPs executive officers for bond ballot
campaign contributions that result in a municipal bond offering
underwritten by the dealer, to be phased in from the effective date of
the rule.'' \25\ SIFMA also proposed a limitation on reporting
municipal securities business resulting from a bond ballot campaign to
which a contribution was made so that the dealer would only be required
to look back two years prior to the business being undertaken, and that
``transactions underwritten by the dealer after a contribution was made
to a bond ballot campaign committee by a former employee should not
need to be reported.''
---------------------------------------------------------------------------

    \25\ SIFMA also stated any applicable look back provision should
not take into account contributions made, or transactions sold or
issued before the effective date of the rule.
---------------------------------------------------------------------------

    NAIPFA stated that ``any burden, incremental or otherwise, placed
upon municipal market participants in connection with the imposition of
the Amendments will be outweighed by the benefits that the Amendments
will have to the municipal market in terms of improving hiring
practices, market transparency, and the policing'' of dealer
contributions to bond ballot campaigns. Similarly, GFS stated that it
does not believe the disclosure requirements that are contemplated by
the proposed rule change would impose undue burdens on underwriters,
nor would a future extension of the disclosure requirements to
municipal advisors.
    MSRB Response: The MSRB believes that the proposed rule change
should only apply with respect to municipal securities business with a
sale or issuance date on or after the effective date of the proposed
rule change. As a result, dealers will not be required to supplement
the bond ballot campaign disclosures made with respect to offerings
prior to the effective date. However, with respect to offerings after
the effective date, dealers must look back at any contribution made by
a covered party on or after February 1, 2010 (the date on which dealers
were first required to record and disclose contributions to bond ballot
campaigns).\26\
---------------------------------------------------------------------------

    \26\ See footnote 10.
---------------------------------------------------------------------------

    In addition, the MSRB believes that the look-back provisions for
contributions made by an individual prior to becoming an MFP or a non-
MFP executive officer of a dealer should be limited to two years,
consistent with the existing timeframe for which such

contributions are ordinarily attributable to the dealer under Rule G-
37. The MSRB also believes that dealers must continue to report primary
offerings pertaining to bond ballot campaign contributions of an MFP or
non-MFP executive officer that left the dealer, as such contributions
are properly attributable to such dealer.
    The proposed amendments to Rule G-37 should apply to municipal
advisors.
    Comments: NAIPFA believes that municipal advisors should be subject
to the proposed amendments when and if adopted. In addition, NAIPFA
supported the inclusion of municipal advisors within the provisions of
current Rule G-37 and, in particular, those portions contained within
Rule G-37(c) and (d) in order to prevent municipal advisors from
circumventing their disclosure obligations as well as the ban on
campaign contributions. GFS stated that ``[a]mong other things, once
the definition of the `municipal advisor' concept is finalized by the
Securities and Exchange Commission, financial advisors and other
municipal advisors can be brought within the scope of the regulation.''
Magis and SIFMA also supported the application of the proposed
amendments to municipal advisors.
    MSRB Response: The MSRB previously proposed a new rule that would
apply pay-to-play restrictions to municipal advisors but withdrew such
proposal pending final rulemaking by the SEC on a permanent municipal
advisor registration rule and related definitional matters.\27\ The
MSRB will consider including the same types of disclosures required by
the proposed rule change in any such rule it may propose in the future
with regard to municipal advisors.
---------------------------------------------------------------------------

    \27\ See MSRB Notice 2011-46 (August 19, 2011); MSRB Notice
2011-51 (September 12, 2011).
---------------------------------------------------------------------------

    Rule G-37 should have more timely and/or expansive reporting
requirements.
    Comments: GFS recommended that the Board consider requiring
reporting promptly after contributions are made, and in any event,
prior to elections and in time to inform the electorate. Magis
expressed concern that existing Form G-37 submissions by underwriters
occur only quarterly and suggested that the Board consider ``more
timely disclosure of these conflicts of interest prior to the bond
election. * * *''
    MSRB Response: The MSRB believes that the current quarterly
reporting scheme required under Rule G-37 provides adequate and timely
information about dealer and dealer personnel contributions to bond
ballot campaigns and does not intend to expand the reporting
requirements at this time.
    The EMMA system should provide for easier access to the disclosures
submitted by dealers relating to bond ballot campaign contributions and
related information.
    Comments: GFS stated that ``EMMA's online campaign contribution
report records are difficult to search in a systematic manner. For
example, EMMA's records cannot be searched at present by issuer names
or titles of bond issues, which voters may wish to do.'' GFS
recommended making campaign contribution reports more easily searchable
on EMMA by issuer name and by titles of bond issues. Magis also stated
that EMMA is exceedingly difficult to search by issuer name because the
records are ``dealer name-centric.'' Magis supports the ability to
access Form G-37 information by state or type of issuer.
    MSRB Response: Comments about the usability and functionality of
disclosure on EMMA are beyond the scope of the proposed rule change.
The MSRB is continually evaluating the effectiveness of EMMA and may
consider initiating such changes in the future.

III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action

    Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove such proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change 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_ADDRESS>Please include
File Number SR-MSRB-2013-01 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.

All submissions should refer to File Number SR-MSRB-2013-01. 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 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; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-MSRB-2013-01 and should be
submitted on or before March 7, 2013.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\28\
---------------------------------------------------------------------------

    \28\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-03385 Filed 2-13-13; 8:45 am]
BILLING CODE 8011-01-P


[Federal Register Volume 77, Number 25 (Tuesday, February 7, 2012)]
[Notices]
[Pages 6171-6172]
[FR Doc No: 2012-2744]

-----------------------------------------------------------------------

DEPARTMENT OF TRANSPORTATION

Federal Railroad Administration

[Docket Number FRA-2011-0012]

Petition for Waiver of Compliance

    In accordance with Part 211 of Title 49 of the Code of Federal
Regulations (CFR), notice is hereby given that the Federal Railroad
Administration (FRA) has received a request for a waiver of compliance
from certain requirements of its safety standards.
    In a letter dated January 27, 2011, the Hoosier Valley Railroad
Museum, Inc. (HVRM) of North Judson, IN, petitioned for a permanent
waiver of compliance for one switching locomotive (HVRM 11) from the
requirements of 49 CFR part 223, Railroad Safety Glazing Standards,
which require certified glazing in all windows. The request was
assigned Docket Number FRA-2011-0012. This 95-ton diesel-electric
locomotive, built by General Electric (s/n 31517) in Erie, PA, in May
of 1952, is equipped with safety glass that is in good condition, clear
and unscratched. The locomotive is used on a semiregular basis to
primarily pull excursion trains over trackage owned by the Town of
North Judson and operated by the Chesapeake and Indiana Railroad
(CKIN). CKIN trackage, over which this locomotive is operated, is in a
very rural area (mostly farmland); and there have been no issues with
glass vandalism in the past. The maximum speed for movement over CKIN
trackage is 15 mph for passenger trains and the locomotive itself is
geared to a maximum speed of 25 mph. HVRM states that they are a
501(c)(3) nonprofit organization with the mission to preserve railroad
history in northwest Indiana and would very much like to keep the
locomotive's as-built appearance. Moreover the expense of

retrofitting the subject locomotive with FRA-certified glazing will
impose a high financial burden.
    Pursuant to the receipt of the waiver request, FRA is hereby
providing the public an opportunity to comment on this waiver.
Interested parties are invited to participate in these proceedings by
submitting written views, data, or comments. FRA does not anticipate
scheduling a public hearing in connection with these proceedings since
the facts do not appear to warrant a hearing. If any interested party
desires an opportunity for oral comment, they should notify FRA, in
writing, before the end of the comment period and specify the basis for
their request.
    All communications concerning these proceedings should identify the
appropriate docket number (FRA-2011-0012) and must be submitted to the
Docket Clerk, Docket Operations Facility, U.S. Department of
Transportation, 1200 New Jersey Avenue SE., W12-140, Washington, DC
20590.
    Communications received within 45 days of the date of this notice
will be considered by FRA before final action is taken. Comments
received after that date will be considered as far as practicable. All
written communications concerning these proceedings are available for
examination during regular business hours (9 a.m.-5 p.m.) at the above
facility. All documents in the public docket are also available for
inspection and copying on the Internet at the docket facility's Web
site at http://www.regulations.gov.
    Anyone is able to search the electronic form of all comments
received into any of our dockets by the name of the individual
submitting the comment (or signing the comment, if submitted on behalf
of an association, business, labor union, etc.). You may review the
U.S. Department of Transportation's complete Privacy Act Statement in
the Federal Register published on April 11, 2000 (Volume 65, Number 70;
Pages 19477-78), or online at http://www.dot.gov/privacy.html.

    Issued in Washington, DC, on February 2, 2012.
Michael W. Lestingi,
Acting Director for the Office of Safety Assurance and Compliance.
[FR Doc. 2012-2744 Filed 2-6-12; 8:45 am]
BILLING CODE 4910-06-P


        Fact Sheet

Hot Work on Hollow or Enclosed Structures

in Marine Terminals

Hot work being performed on hollow structures located within a marine
terminal can present a hazard

to both the worker and facility.   OSHA defines hot work to mean
riveting, welding, flame cutting, or other fire or spark producing
operations (29 CFR 1917.152(a)).

Hollow or enclosed structures include, but are not limited to; drums,
inaccessible voids,  hatches, coamings, pipe stanchions, booms, lamp
posts, crane pedestals, crane portal beams, doubler-plates, railings,
mooring bitts, bollards, vents, container frames and bulkheads,
sponsons, pontoons, floats, and buoys. Additional requirements for work
on or in tanks or confined spaces, including the testing of confined
spaces, can be found in 29 CFR 1917.152. As a reminder any hot work
being done in conjunction with ship repair falls under regulations found
in 29 CFR 1915.

HKnown hazards of hollow or enclosed structures:

May contain flammable or toxic gases, liquids, or residue;

Commonly filled with combustible preservatives;

Often contaminated with saltwater, fuel oils, solvents, degreasers, or
cleaning chemicals.

May contain high pressure or vacuum effects due to fluctuations in
temperatures.

Some hollow structures may contain polyurethane foam insulation and
extreme caution must be taken when performing hot work against this
material.

Recommended control measures prior to hot work on hollow or enclosed
structures:

Always wear proper PPE, clothing, gloves, and eye protection during
drilling, cutting and hot work operations (29 CFR 1917 Subpart E and 29
CFR 1918 Subpart J).

Inspect any adjacent areas which may be affected by the hot work to
ensure any combustible material is  removed, covered or isolated.

Open all sampling ports to drain residual products and have a Designated
Person test for the presence of flammable or combustible gases or
liquids.

When a sampling port is not available, drill a small hole into the
structure to facilitate air sampling and testing.  Use sharp bits and
blades, and always lubricate the drilling bits and metal blades with
cutting oil or soapy water to minimize the generation of heat and sparks

Hollow structures that have contained flammable or combustible
substances shall be made safe prior to hot work. A Designated Person
should be contacted to ensure that an appropriate method is used. (e.g.
filled with water, cleaned, pressure-washed, degreased, steamed,
ventilated or inerted)

Before heat is applied to a hollow structure, an opening to release
built-up pressure during heat application shall be provided (29 CFR
1917.152(c)(8)(ii)).

This is one in a series of informational fact sheets highlighting OSHA
programs, policies or standards.  It does not impose any new compliance
requirements.  For a comprehensive list of compliance requirements of
OSHA standards or regulation, refer to Title 29 of the Code of Federal
Regulations.  This information will be made available to
sensory-impaired individuals upon request.  The voice phone is (202)
693-1999; teletypewriter (TTY) number:<PHONE_NUMBER>.


[Federal Register Volume 77, Number 26 (Wednesday, February 8, 2012)]
[Notices]
[Pages 6610-6613]
[FR Doc No: 2012-2832]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66310; File No. SR-NASDAQ-2012-015]

 Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend Rule 4618

February 2, 2012.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on January 19, 2012, the
NASDAQ Stock Market LLC (``NASDAQ'') filed with the Securities and
Exchange Commission (``Commission'') the proposed rule change described
in Items I and II

below, which Items have been prepared primarily by NASDAQ. NASDAQ filed
the proposal pursuant to Section 19(b)(3)(A) (iii) of the Act \2\ and
Rule 19b-4(f)(6) \3\ thereunder so that the proposal was effective upon
filing with the Commission. The Commission is publishing this notice to
solicit comments on the rule change from interested parties.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \3\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    NASDAQ is filing this proposed rule change to amend Rule 4618. The
text of the proposed rule change is shown below. Proposed new language
is italicized, and proposed deletions are in brackets.
4618. Clearance and Settlement
    (a) All transactions through the facilities of the Nasdaq Market
Center shall be cleared and settled through a registered clearing
agency using a continuous net settlement system. This requirement may
be satisfied by direct participation, use of direct clearing services,
[or] by entry into a correspondent clearing arrangement with another
member that clears trades through such a[n]clearing agency[.], or by
use of the services of CDS Clearing and Depository Services, Inc. in
its capacity as a member of such a clearing agency.
    (b) Notwithstanding paragraph (a), transactions may be settled
``ex-clearing'' provided that both parties to the transaction agree.

II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, NASDAQ included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. NASDAQ has prepared summaries, set forth in sections
(A), (B), and (C) below, of the most significant aspects of these
statements.\4\
---------------------------------------------------------------------------

    \4\ The Commission has modified the text of the summaries
prepared by NASDAQ.
---------------------------------------------------------------------------

(A) Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

1. Purpose
    NASDAQ proposes to modify Rule 4618 to clarify that the use of a
long-standing arrangement between National Securities Clearing
Corporation (``NSCC'') and CDS Clearing and Depository Services, Inc.
(``CDS'') \5\ for clearing transactions in U.S. securities provides an
acceptable method for clearing transactions executed on NASDAQ. Among
other things, CDS operates Canada's national clearance and settlement
operations for cash equities trading, performing a role analogous to
NSCC in the U.S. CDS is regulated by the Ontario and Quebec securities
commissions and the Bank of Canada and has working and reporting
relationships with the Canadian Securities Administrators, other
Canadian provincial securities commissions, and the Canadian Office of
the Superintendent of Financial Institutions. CDS is also a full
service member of NSCC and a participant in The Depository Trust
Company (``DTC'').
---------------------------------------------------------------------------

    \5\ CDS was formerly known as The Canadian Depository for
Securities Limited.
---------------------------------------------------------------------------

    Currently, a Canadian broker-dealer seeking to buy or sell U.S.
securities may do so through a U.S. registered broker-dealer with which
it establishes a relationship for that purpose. In such a relationship,
the US broker-dealer manages the clearance and settlement of the
resulting trades, either through direct membership at NSCC or
indirectly through a clearing broker with which it has established a
relationship. Under the proposed change, a Canadian broker-dealer that
is a member of CDS may make use of CDS, and its direct membership in
NSCC, to clear and settle the resulting trades. Specifically, the
clearing report for the trade will ``lock in'' CDS, making reference to
the CDS membership of the Canadian broker-dealer, as a party to the
trade.\6\ NSCC will then look to CDS for the satisfaction of the
clearance and settlement obligations of the Canadian broker-dealer.
NSCC requires CDS to commit collateral to the NSCC clearing fund like
any other NSCC member, the amount of which is based on a risk-based
margining methodology. In a similar manner, CDS requires its
participants to commit collateral to CDS. The sole risk incurred by
NASDAQ and then by NSCC in the arrangement is the highly remote risk
that CDS itself might default on its obligations to clear and settle on
behalf of the Canadian broker-dealer. This risk is conceptually
indistinguishable from the risk of a clearing broker default, but
because the value of the trades of the Canadian broker-dealers cleared
through the mechanism is likely to be small in comparison to the values
cleared through many large U.S. clearing brokers, the magnitude of this
risk is correspondingly smaller.
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    \6\ As an NSCC member, CDS is responsible for the clearing and
settling of its participants' trades conducted with U.S. broker-
dealers. For purposes of ``locking-in'' parties, certain CDS
participants have discrete NSCC participant codes that identify the
Canadian broker-dealer and its participation in the NSCC/CDS
clearing arrangement. On midnight of T+1, NSCC takes on the buyer's
credit risk and the seller's delivery risk.
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    The relationship between NSCC and CDS was established more than two
decades ago, and various aspects of the relationship have been
recognized through several prior filings \7\ and no-action letters.\8\
A recent description of the parameters of the relationship may be found
in NSCC's Assessment of Compliance with the CPSS/IOSCO Recommendations
for Central Counterparties.\9\ The most prominent use of the
relationship arises under FINRA Rule 7220A, which allows over-the-
counter trades executed on behalf of CDS members to be reported through
the FINRA/NASDAQ Trade Reporting Facility and cleared through the CDS/
NSCC relationship. NASDAQ also understands that the EDGA Exchange and
the EDGX Exchange permit clearance of trades executed on behalf of
Canadian broker-dealers through this mechanism.
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    \7\ See, e.g., Securities Exchange Act Release No. 34-36918
(March 4, 1996), 61 FR 9739 (March 11, 1996) (SR-NASD-95-49)
(approving access to Automated Confirmation Transaction Service for
CDS members); Securities Exchange Act Release No. 34-40523 (October
6, 1998), 63 FR 54739 (October 13, 1998) (approving establishment of
a CDS omnibus account at DTC to facilitate cross-border clearing).
    \8\ See, e.g., Letter from Dan W. Schneider, Deputy Associate
Director, Commission, to Karen L. Saperstein, Assistant General
Counsel, NSCC (November 26, 1984) (available at 1984 WL 47355)
(taking no-action position with respect to use of CDS and NSCC with
respect to clearing of trades executed on behalf of Canadian broker-
dealers on the Boston Stock Exchange); Letter from Dan W. Schneider,
Deputy Associate Director, Commission, to Karen L. Saperstein,
Assistant General Counsel, NSCC (October 24, 1984) (available at
1984 WL 47356) (taking no-action position with respect to CDS
becoming a member of NSCC).
    \9\ ``Assessment of Compliance with the CPSS/IOSCO
Recommendations for Central Counterparties,'' NSCC (November 14,
2011) (available at http://www.dtcc.com/legal/compliance/NSCC_Self_Assessment.pdf).
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    In order to clearly establish that use of the CDS/NSCC relationship
is a permissible method of clearing transactions executed on NASDAQ,
NASDAQ is proposing to amend Rule

4618. Currently, the rule provides that trades must be cleared through
a registered clearing agency using a continuous net settlement
(``CNS'') system and that this requirement may be satisfied by direct
participation, use of direct clearing services, or by entry into a
correspondent clearing arrangement with another member that clears
trades through such an agency. NSCC is currently the only registered
clearing agency using a CNS system for trades executed on NASDAQ. While
it is possible that the term ``direct clearing services'' could be
construed to cover CDS's participation in NSCC on behalf of its members
because CDS is a direct member of NSCC for the purpose of providing
clearing services to its members the term has not previously been
construed by NASDAQ in that manner. Accordingly, NASDAQ believes that
the clarity of the rule would be enhanced by directly recognizing the
CDS/NSCC relationship in the rule text. NASDAQ proposes amending the
rule to provide that the rule may be satisfied through ``use of the
services of CDS Clearing and Depository Services, Inc. in its capacity
as a member of such a clearing agency.'' Whenever a clearing
arrangement making use of CDS's membership in NSCC is established, the
NASDAQ member, the Canadian broker on whose behalf it is acting, CDS,
and NASDAQ will sign a short agreement addressed to NSCC in which the
parties acknowledge their use of the CDS/NSCC arrangement.
2. Statutory Basis
    NASDAQ believes that the proposed rule change is consistent with
the provisions of Section 6 of the Act \10\ in general and with Section
6(b)(5) of the Act \11\ in particular in that the proposal is designed
to prevent fraudulent and manipulative acts and practices, to promote
just and equitable practices of trade, to foster cooperation and
coordination with persons engaged in regulating, clearing, settling,
processing information with respect to, and facilitating transactions
in securities, to remove impediments to and perfect the mechanism of a
free and open market and a national market system and in general to
protect investors and the public interest. Specifically, by allowing
Canadian broker-dealers whose trades are executed on NASDAQ to make use
of the long-standing arrangement between NSCC and CDS for clearing
transactions, NASDAQ believes that the proposed rule change will
directly foster cooperation and coordination with the two primary North
American cash equities clearinghouses and their respective members and
will thereby promote a free and open market. Because the arrangement
between NSCC and CDS, which has been in place in varying forms for over
two decades, includes mechanisms to provide for the collateralization
of the obligations arising thereunder, NASDAQ believes that the
proposed change is fully consistent with the protection of investors
and the public interest.
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    \10\ 15 U.S.C. 78f.
    \11\ 15 U.S.C. 78f(b)(5).
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(B) Self-Regulatory Organization's Statement on Burden on Competition

    NASDAQ does not believe that the proposed rule change will result
in any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act. The proposed change will ensure
that Canadian broker-dealers whose trades are executed on NASDAQ are
able to make use of an additional option for clearing such
transactions, thereby promoting competition with respect to the
availability of clearing services. The change will enhance NASDAQ's
ability to compete in the over-the-counter market with other exchanges
that offer the ability to clear through the CDS/NSCC relationship.

(C) Self-Regulatory Organization's Statement on Comments on the
Proposed Rule Change Received From Members, Participants, or Others

    Written comments relating to the proposed rule change have not been
solicited or received. NASDAQ will notify the Commission of any written
comments received by NASDAQ.

III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action

    Because the foregoing proposed rule change does not significantly
affect the protection of investors or the public interest, does not
impose any significant burden on competition, and, by its terms, does
not become operative for 30 days from the date on which it was filed,
or such shorter time as the Commission may designate, it has become
immediately effective pursuant to Section 19(b)(3)(A) of the Act \12\
and Rule 19b-4(f)(6) thereunder.\13\
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires the Exchange to give the Commission written notice of the
Exchange's intent to file the proposed rule change, along with a
brief description and text of the proposed rule change, at least
five business days prior to the date of filing of the proposed rule
change, or such shorter time as designated by the Commission. The
Exchange has satisfied the five-day prefiling requirement.
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    NASDAQ has requested that the Commission waive the 30-day operative
waiting period contained in Exchange Act Rule 19b-4(f)(6)(iii). The
Commission believes that waiver of the operative delay is consistent
with the protection of investors and the public interest because the
arrangement between NSCC and CDS countenanced by the proposed rule
change has been in place and has been used for over two decades,
includes mechanisms to provide for the collateralization of the
obligations arising thereunder, and has long been recognized under
FINRA and NASD rules for use in clearing over-the-counter transactions.
The technology changes at NASDAQ necessary to allow implementation of
the proposed rule change have already been made. Accordingly, the
Commission believes that the change does not significantly affect the
protection of investors or the public interest and does promote
competition. Conversely, because delay of implementation would only
serve to delay the availability of a well-established clearing
mechanism for clearing certain trades executed on NASDAQ and would
thereby inhibit customer choice and flexibility without advancing any
regulatory goal, it would be consistent with the protection of
investors and the public interest to waive the waiting period.
Therefore, the Commission designates the proposed rule change as
operative upon filing.\14\
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    \14\ For purposes only of waiving the 30-day operative delay,
the Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule change should be approved or
disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change 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_ADDRESS>Please include
File Number SR-NASDAQ-2012-015 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2012-015. 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 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
a.m. and 3 p.m. Copies of such filings also will be available for
inspection and copying at the principal office of NASDAQ.
    All comments received will be posted without change; the Commission
does not edit personal identifying information from submissions. You
should submit only information that you wish to make available
publicly. All submissions should refer to File Number SR-NASDAQ-2012-
015 and should be submitted on or before February 29, 2012.

    For the Commission by the Division of Trading and Markets,
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Kevin O'Neill,
Deputy Secretary.
[FR Doc. 2012-2832 Filed 2-7-12; 8:45 am]
BILLING CODE 8011-01-P