[Federal Register: July 28, 2010 (Volume 75, Number 144)]
[Notices]
[Page 44296-44303]
[DOCID:fr28jy10-132]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62550; File No. SR-MSRB-2010-02]

Self-Regulatory Organizations; Municipal Securities Rulemaking
Board; Notice of Filing of Amendment No. 1 to Proposed Rule Change to
MSRB Rule G-34, CUSIP Numbers and New Issue Requirements, To Enhance
the Interest Rate and Descriptive Information Currently Collected and
Made Transparent by the MSRB on Municipal Auction Rate Securities and
Variable Rate Demand Obligations

July 22, 2010.
    On March 10, 2010, the Municipal Securities Rulemaking Board
(``MSRB'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to enhance the interest rate and descriptive
information currently collected and made transparent by the MSRB on
municipal Auction Rate Securities (``ARS'') and Variable Rate Demand
Obligations (``VRDOs''). The proposed rule change was published for
comment in the Federal Register on April 2, 2010.\3\ The Commission
received five comment letters about the proposed rule change.\4\ On
July 9, 2010, the MSRB filed with the Commission, pursuant to section
19(b)(1) of the Exchange Act \5\ and Rule 19b-4

thereunder,\6\ Amendment No. 1 to the proposed rule change. Amendment
No. 1 is described in items I, II, and III below, which items have been
prepared by the MSRB. The Commission is publishing this notice of
Amendment No. 1 to solicit comments on the proposed rule change, as
amended, from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 61793 (March 26,
2010), 75 FR 16878 (April 2, 2010) (File No. SR-MSRB-2010-02).
    \4\ See letters from: Vladimir Drozdoff, Centerport, New York,
dated April 4, 2010; Joseph S. Fichera, Saber Partners, LLC, New
York, New York (``Saber Partners''), dated April 12, 2010; Heather
Traeger, Associate Counsel, Investment Company Institute (``ICI''),
dated April 23, 2010; Leslie M. Norwood, Managing Director and
Associate General Counsel, Securities Industry and Financial Markets
Association (``SIFMA''), dated April 23, 2010; and Robert J.
Stracks, Counsel, BMO Capital Markets GKST Inc. (``BMO Capital''),
dated April 23, 2010.
    \5\ 15 U.S.C. 78s(b)(1).
    \6\ 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 Amendment No. 1 to File No.
SR-MSRB-2010-02, originally filed on March 10, 2010 (the ``original
proposed rule change''). Amendment No. 1 amends and restates the
original proposed rule change relating to enhancements to the interest
rate and descriptive information currently collected and made
transparent by the MSRB on municipal Auction Rate Securities (``ARS'')
and Variable Rate Demand Obligations (``VRDOs'') (as amended, the
``proposed rule change''). The proposed rule change would: (i) amend
Rules G-8, books and records, and G-34(c), variable rate security
market information, to require brokers, dealers and municipal
securities dealers (collectively ``dealers'') to (a) submit to the MSRB
documents that define auction procedures and interest rate setting
mechanisms for ARS and liquidity facilities for VRDOs (``short-term
obligation document disclosure rule change''); (b) report to the MSRB
ARS bidding information (``ARS bidding information rule change''); (c)
report to the MSRB additional VRDO information (``VRDO information rule
change''); and (d) communicate to an ARS Program Dealer the fact that
an order submitted for inclusion in an auction is on behalf of an ARS
issuer or conduit borrower (``ARS issuer bidding rule change'')
(collectively, the ``rule change proposal''); (ii) amend the MSRB
Short-term Obligation Rate Transparency (``SHORT'') System Facility to
collect and disseminate information identified in the ARS bidding
information rule change and the VRDO information rule change and
documents identified in the short-term obligation document disclosure
rule change (the ``SHORT System Facility amendment proposal''); and
(iii) amend the MSRB EMMA Short-term Obligation Rate Transparency
Service to make the documents collected in the SHORT System Facility
amendment proposal available on the MSRB's Electronic Municipal Market
Access (EMMA) Web site (the ``EMMA Short-term Obligation Rate
Transparency Service amendment'').
    The MSRB has requested that the proposed rule change, which may be
implemented in phases, be made effective on such date or dates as would
be announced by the MSRB in notices published on the MSRB Web site,
which dates would be no later than nine months after Commission
approval of the proposed rule change and would be announced no later
than sixty (60) days prior to the effective dates.
    The text of the proposed rule change is available on the MSRB's Web
site (http://www.msrb.org), at the MSRB's principal office, and at the
Commission's Public Reference Room. If approved, the rule text for the
Short-term Obligation Rate Transparency System, as well as for the EMMA
Short-Term Obligation Rate Transparency Service, would be available on
the MSRB Web site at http://www.msrb.org/Rules-and-Interpretations/
Information-Facilities.aspx.

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
    Amendment No. 1 makes certain modifications to the original
proposed rule change based on comments received on the original
proposed rule change, as described below.
    The proposed rule change would enhance the interest rate and
descriptive information currently collected and made transparent by the
MSRB on municipal Auction Rate Securities (``ARS'') and Variable Rate
Demand Obligations (``VRDOs''). The proposed rule change would: (i)
Amend MSRB Rules G-8, books and records, and G-34(c), variable rate
security market information, to require brokers, dealers and municipal
securities dealers (collectively ``dealers'') to (a) submit to the MSRB
documents that define auction procedures and interest rate setting
mechanisms for ARS and liquidity facilities for VRDOs; (b) report to
the MSRB ARS bidding information; (c) report to the MSRB additional
VRDO information; and (d) communicate to an ARS Program Dealer the fact
that an order submitted for inclusion in an auction is on behalf of an
ARS issuer or conduit borrower (collectively ``rule change proposal'');
(ii) amend the MSRB Short-term Obligation Rate Transparency (``SHORT'')
System Facility to collect and disseminate the documents identified in
the rule change proposal (``SHORT System Facility amendment
proposal''); and (iii) amend the MSRB EMMA Short-term Obligation Rate
Transparency Service to make the documents collected in the SHORT
System Facility amendment proposal available on the MSRB's Electronic
Municipal Market Access (EMMA) Web site (the ``EMMA Short-term
Obligation Rate Transparency Service amendment'').
    SHORT and EMMA are components of an integrated suite of programs,
services and systems (``MSRB market information programs'') for the
collection of municipal securities market data and documents from
dealers and other market participants and the dissemination of such
data and documents to the public. The MSRB market information programs
leverage the components of the various individual programs, services
and systems to enhance the overall efficiency and effectiveness of the
MSRB market information programs. In particular, processes, software,
hardware or other components initially placed into service for a
particular program, service or system may be utilized by other
programs, services and systems within the MSRB market information
programs to optimize the effectiveness of the MSRB market information
programs and the individual components thereof.\7\
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    \7\ For example, certain elements of the SHORT System Facility
amendment proposal would rely on components previously placed into
service pursuant to the EMMA primary market or continuing disclosure
services for purposes of processing submissions made to the MSRB.
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    Background. Since January 30, 2009 for ARS and April 1, 2009 for
VRDOs, MSRB Rule G-34(c), on variable rate security market information,
has required dealers that act as Program Dealers \8\ for ARS or
Remarketing Agents for VRDOs to report (either directly or through an
agent) certain information following an ARS auction or VRDO

interest rate reset to the SHORT System.\9\ Information generally is
required to be reported to the SHORT System by no later than 6:30 p.m.
e.t. on the day that an ARS auction or VRDO interest rate reset occurs
and all collected information is made available to market participants
for free in real-time on the MSRB's Electronic Municipal Market Access
(``EMMA'') Web site.\10\ The specific items of interest rate and
descriptive information about ARS and VRDOs currently required to be
reported to the SHORT System are listed below.
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    \8\ An ARS Program Dealer is defined in Rule G-34(c) as a dealer
that submits an order directly to an Auction Agent for its own
account or on behalf of another account to buy, hold or sell ARS
through the auction process.
    \9\ See Securities Exchange Act Release No. 34-59212, January 7,
2009 (File No. SR-MSRB-2008-07).
    \10\ The 6:30 p.m. e.t. deadline only applies to those ARS
auctions and VRDO interest rate resets that occur during an ``RTRS
Business Day,'' as defined in Rule G-14(d)(ii). Information about
ARS auctions and VRDO interest rate resets that occur outside of the
hours of an ``RTRS Business Day'' is required to be submitted to the
SHORT System by no later than 6:30 p.m. e.t. on the next ``RTRS
Business Day.''
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    The following is a list of the information currently required to be
reported to the SHORT System by an ARS Program Dealer following an ARS
auction:
     CUSIP number;
     Interest rate for the next reset period;
     Identity of Program Dealer(s);
     Number of days of the reset period;
     Minimum denomination;
     Date and time of the auction;
     Date and time of posting of auction results by an Auction
Agent;
     Indication of whether the interest rate represents a
``maximum rate,'' an ``all hold rate,'' or a rate that was ``set by
auction;''
     Minimum and maximum rates, if any, applicable at the time
of the auction or, if not calculable as of the time of auction,
indication that such rate or rates are not calculable; \11\ and
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    \11\ Some ARS and VRDOs have minimum and maximum rates that are
set pursuant to formulas that are unable to be calculated at the
time a submission to the SHORT System is required. In these cases, a
value of ``NC'' is required to be included in a submission to the
SHORT System to show that the minimum and maximum rates are ``not
calculable.'' This exception does not apply to minimum and maximum
rates that are linked to an index or bank lending rate, such as
LIBOR. Such rates are required to be computed and the resulting
values included on a submission to the SHORT System.
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     Par amount auctioned, not including hold orders effective
at any rate.
    The following is a list of the information currently required to be
reported to the SHORT System by a VRDO Remarketing Agent following a
VRDO interest rate reset:
     CUSIP number;
     Interest rate for the next reset period;
     Identity of Remarketing Agent;
     Date of interest rate reset;
     Length of the interest rate reset period;
     Length of Notification Period;
     Indication of whether interest rate is ``set by formula,''
``set by Remarketing Agent'' or a ``maximum rate;''
     Minimum and maximum rates, if any, applicable at the time
of the interest rate reset or, if not calculable as of the time of the
interest rate reset, indication that such rate or rates are not
calculable; \12\
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    \12\ Id.
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     Minimum denomination;
     Type of liquidity facility(ies); \13\ and
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    \13\ Dealers are required to submit to the SHORT System whether
each applicable liquidity facility is a letter of credit or standby
bond purchase agreement.
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     Expiration date of each liquidity facility.
    Description of the Rule Change Proposal. The proposed rule change
would enhance the interest rate and descriptive information currently
made available to market participants about ARS and VRDOs. The proposed
rule change would require dealers to report to the MSRB documents that
set forth auction procedures and interest rate setting mechanisms for
ARS and liquidity facilities for VRDOs, as well as ARS bidding
information and additional VRDO information. All collected documents
and information would be made available in real-time on EMMA.\14\ The
documents and information about ARS and VRDOs that would be required to
be provided to the MSRB under the proposed rule change are described
below.
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    \14\ In the future, the MSRB also plans to make all information
collected under the rule change proposal available on a subscription
basis.
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    ARS Bidding Information. As amended and restated by this amendment,
the proposed rule change would require each ARS Program Dealer to
report to the SHORT System ``ARS bidding information,'' which would
include information about all orders placed by an ARS Program Dealer
with an ARS Auction Agent for inclusion in an auction. This information
would augment the interest rate and descriptive information currently
provided to market participants by also providing information that
would show, for example, how the interest rate was determined for a
successful auction. The specific items of ARS bidding information an
ARS Program Dealer would be required to report to the SHORT System are
listed below.\15\ All items would be required to be reported within the
same timeframe as the ARS interest rate and descriptive information
currently required to be reported under Rule G-34(c). ARS bidding
information would be required to be submitted to the SHORT System as
data elements in the same manner as the interest rate and descriptive
information currently required to be reported to the SHORT System.\16\
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    \15\ In response to comments received on the original proposed
rule change, as discussed below, this amendment modifies the list of
specific items of ARS bidding information in the original proposed
rule change. This amendment deletes the requirement to report the
``interest rate(s) and aggregate par amount(s) of orders to sell at
a specific interest rate and aggregate par amount of such orders
that were executed.''
    \16\ In response to comments received on the original proposed
rule change, as discussed below, this amendment modifies the
original proposed rule change by requiring ARS Program Dealers to
report ARS bidding information as data elements. The original
proposed rule change specified that ARS bidding information would be
required to be reported as a word-searchable electronic document.
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     Aggregate par amount of orders to sell at any interest
rate and aggregate par amount of such orders that were executed;
     Interest rate(s) and aggregate par amount(s) of orders to
hold at a specific interest rate and aggregate par amount of such
orders that were successfully held;
     Interest rate(s) and aggregate par amount(s) of orders to
buy and aggregate par amount of such orders that were executed;
     Interest rate(s), aggregate par amount(s), and type of
order--either buy, sell or hold--by a Program Dealer for its own
account and aggregate par amounts of such orders, by type, that were
executed; and
     Interest rate(s), aggregate par amount(s), and type of
order--either buy, sell or hold--by an issuer or conduit borrower for
such Auction Rate Security.\17\
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    \17\ In response to comments received on the original proposed
rule change, as discussed below, this amendment modifies the
original proposed rule change by deleting the requirement for ARS
Program Dealers to report whether orders submitted by an issuer or
conduit borrower for an ARS were executed.
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    ARS Issuer Bidding . One of the items of ARS bidding information
that would be required to be submitted to the SHORT System by ARS
Program Dealers are orders by issuers or conduit borrowers for the ARS.
In response to comments received on the original proposed rule change,
as discussed below, this amendment adds a requirement for dealers other
than ARS Program Dealers that receive orders for inclusion in an
auction for ARS from an issuer or conduit borrower of such ARS to
disclose this fact when submitting such order to an ARS Program Dealer.
This would ensure that ARS Program

Dealers are able to submit to the SHORT System orders by issuers or
conduit borrowers for the ARS when such orders are not submitted
directly to the ARS Program Dealer by the issuer or conduit borrower.
    Additional VRDO Information. As amended and restated by this
amendment, the proposed rule change would require VRDO Remarketing
Agents to submit additional items of VRDO information to the SHORT
System in conjunction with the VRDO interest rate and descriptive
information currently required to be reported under Rule G-34(c). This
information would provide additional details concerning the interest
rate set for a VRDO, such as the effective date of the interest rate,
and would facilitate the tendering of a position in a VRDO by investors
by requiring VRDO Remarketing Agents to report the identity of the
agent of the issuer of the VRDOs to which a holder may tender their
security (``Tender Agent'').
    The additional VRDO information would also provide transparency
related to the current holders of the VRDO. Information about current
holders of a VRDO would indicate, for example, that the interest rate
set represents an interest rate paid to holders of the VRDO instead of
instances when the VRDO is held entirely by a liquidity provider (as a
``Bank Bond'') and that the interest rate set is therefore not set by
market demand.
    The proposed rule change would require a VRDO Remarketing Agent to
report to the SHORT System the effective date that the interest rate
reset is applicable as well as the following information available to
the VRDO Remarketing Agent as of the time of the interest rate reset:
\18\
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    \18\ In response to comments received on the original proposed
rule change, as discussed below, this amendment modifies the
original proposed rule change by clarifying that the VRDO
Remarketing Agent is only required to report the identities of the
Tender Agent and liquidity provider(s) reflective of information
available to the VRDO Remarketing Agent as of the time of the
interest rate reset.
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     Identity of the Tender Agent;
     Identity of the liquidity provider(s) including a
indication of those VRDOs for which an issuer provides ``self
liquidity'' and the identity of the party providing such self-
liquidity; \19\
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    \19\ Some VRDOs have liquidity provisions under which the
liquidity is provided by the issuer, conduit borrower or affiliate
instead of by a third-party. Rule G-34(c) currently requires
Remarketing Agents to report the type of liquidity facility
applicable to a VRDO. Currently, SHORT System specifications only
provide two options for this data element--letter of credit and
standby bond purchase agreement--and in conjunction with proposed
rule change the MSRB would revise the specifications to also capture
VRDOs that have ``self liquidity.''
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     Par amount of the VRDO, if any, held as a Bank Bond; and
     Par amount of the VRDO, if any, held by parties other than
a liquidity provider, which includes the par amounts held by a VRDO
Remarketing Agent and by investors.
    ARS and VRDO Documents. As amended and restated by this amendment,
the proposed rule change would require ARS Program Dealers and VRDO
Remarketing Agents to submit certain documents to the SHORT System to
ensure that market participants have centralized access to critical
documents about ARS programs and VRDO issues. For existing ARS
programs, dealers would be required to submit the current versions of
ARS documents defining current auction procedures and interest rate
setting mechanisms to the SHORT System within ninety days after the
effective date of the proposed rule change. For existing VRDO issues,
dealers would be required to undertake and document \20\ best efforts
to obtain current versions of VRDO liquidity facility documents,
including Letters of Credit, Stand-by Bond Purchase Agreements and any
other document that establishes an obligation to provide liquidity, and
submit such documents to the SHORT System within ninety days after the
effective date of the proposed rule change. On an ongoing basis,
dealers would be required to submit any new or amended versions of
these documents within five business days of receipt.\21\
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    \20\ For documents of existing VRDO issues that are unable to be
obtained through best efforts, the proposed rule change would
require dealers to keep records of all efforts undertaken for a
period of three years. Such records of best efforts would include,
for example, all written requests for documents to and any responses
from an issuer or liquidity provider. In response to comments
received on the original proposed rule change, as discussed below,
this amendment modifies the original proposed rule change by
clarifying that such records are only required to be kept for those
documents that are unable to be obtained.
    \21\ In response to comments received on the original proposed
rule change, as discussed below, this amendment modifies the
original proposed rule change by changing the deadline to submit new
or amended versions of documents from one to five business days of
receipt.
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    The MSRB recognizes that for some ARS programs, documents defining
current auction procedures and interest rate setting mechanisms may
already be available in the SHORT System. This may occur in the case of
an ARS with multiple Program Dealers in which one Program Dealer has
already submitted to the SHORT System the required document. In these
cases, in lieu of submitting duplicate documents, dealers would be
provided the capability to signify that a document required to be
submitted has already been submitted to the SHORT System by identifying
the relevant document.
    Since January 1, 2010, all documents submitted to EMMA have been
required to be word-searchable PDF files. While this same requirement
would apply to the submission of ARS and VRDO documents to the SHORT
System, MSRB acknowledges that some of these documents for outstanding
ARS and VRDOs are likely to be older documents that may not be
available in electronic format or a format that would easily permit a
dealer to produce a word-searchable PDF file of the document.
Accordingly, the proposed rule change would only require ARS and VRDO
documents submitted to EMMA to be word-searchable for new or amended
versions of documents produced after the effective date of the proposed
rule change.
    Description of the SHORT System Facility Amendment Proposal. The
SHORT System is an MSRB Facility for the collection and public
dissemination of information about ARS and VRDO. The proposed rule
change would amend this facility to provide for the collection and
public dissemination of documents identified in the rule change
proposal.\22\
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    \22\ This amendment does not modify the provisions of the
original proposed rule change relating to the SHORT System Facility.
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    Submissions to the SHORT System. The SHORT System receives
submissions of information and documents about securities bearing
interest at short-term rates under MSRB Rule G-34, on CUSIP numbers,
new issue and market information requirements.
    Information and Documents to be Submitted. The basic items of
information and documents that would be required to be submitted to the
SHORT System are the same as those required to be submitted to the MSRB
under MSRB Rule G-34(c). Submitters of documents would be required to
provide to the SHORT System related indexing information with respect
to each document submitted, including an indication of the document
type, date such document became available to the dealer, and CUSIP
number(s) of the municipal securities to which such document relates. A
submitter required to submit a document that is already available in
its entirety in the SHORT System would be permitted to, in lieu of
submitting a duplicate document, identify the document already
submitted and provide such items of related indexing information as are
required by MSRB rules or the SHORT System input specifications and
system

procedures. A submitter required to submit a document that is not able
to be obtained through best efforts as provided in the proposed rule
change would be required to provide an affirmative indication that a
document required to be submitted is not available for submission
notwithstanding the submitter's best efforts to obtain such document.
The complete list of data elements that would be required on a
submission to the SHORT System would be available in input
specifications and system procedures made available on http://
www.msrb.org. Submitters would be responsible for the accuracy and
completeness of all information submitted to the SHORT System.
    Submitters. Submissions to the SHORT System may be made solely by
authorized submitters using password-protected accounts in the MSRB's
user authentication system, MSRB Gateway. MSRB Gateway is designed to
be a single, secure access point for all MSRB applications. Submitters
of information to the SHORT System are required to obtain an account in
MSRB Gateway in order to submit information to the SHORT System.
Through MSRB Gateway, submitters also have the ability to designate
third-party agents to submit information to the SHORT System on the
submitter's behalf.
    Submissions may be made by the following classes of submitters:
     ARS Program Dealer;
     VRDO Remarketing Agent;
     ARS Auction Agent; and
     Designated Agent, which may submit any information
otherwise permitted to be submitted by another class of submitter which
has designated such agent, as provided below.
    All ARS Auction Agents are allowed to submit information about an
auction to the SHORT System without prior designation by an ARS Program
Dealer. Dealers optionally may designate agents to submit information
on their behalf, and may revoke the designation of any such agents,
through MSRB Gateway. All actions taken by a Designated Agent on behalf
of a dealer that has designated such agent shall be the responsibility
of the dealer.
    Timing of Submissions. Submitters are required to make submissions
to the SHORT System within the timeframes set forth in MSRB Rule G-
34(c) and related MSRB procedures. Submissions of information to the
SHORT System may be made throughout any RTRS Business Day, as defined
in Rule G-14 RTRS Procedures, from at least the hours of 6 a.m. to 9
p.m., e.t., subject to the right of the MSRB to make such processes
unavailable at times as needed to ensure the integrity of the SHORT
System and any related systems. Submissions of documents would be able
to be made throughout any day, subject to the right of the MSRB to make
such processes unavailable between the hours of 3 a.m. and 6 a.m. each
day, e.t., for required maintenance, upgrades or other purposes, or at
other times as needed to ensure the integrity of MSRB systems. The MSRB
provides advance notice of any planned periods of unavailability and
shall endeavor to provide information to submitters as to the status of
the submission interface during unanticipated periods of
unavailability, to the extent technically feasible.
    Method of Submission. Information and documents may be submitted to
the SHORT System through a secure, password-protected, Web-based
electronic submitter interface or through a secure, authenticated
computer-to-computer data connection, at the election of the submitter.
When making submissions using the Web-based interface, related
information is entered manually into an on-line form and documents
would be required to be uploaded as portable document format (PDF)
files. Computer-to-computer submissions utilize XML files for data and
PDF files for documents. Appropriate schemas and procedures for Web-
based and computer-to-computer submissions would be available in input
specifications and system procedures made available on http://
www.msrb.org.
    Designated Electronic Format for Documents. All documents submitted
to the SHORT System would be required to be in portable document format
(PDF), configured to permit documents to be saved, viewed, printed and
retransmitted by electronic means. If the submitted file is a
reproduction of the original document, the submitted file must maintain
the graphical and textual integrity of the original document. Documents
submitted to the SHORT System created on or after the effective date of
the proposed rule change would be required to be word-searchable
(without regard to diagrams, images and other non-textual elements).
SHORT System Processing
    The SHORT System provides a single portal for the submission of
information and documents. The SHORT System, as well as other MSRB
systems and services, performs various data checks to ensure that
information and documents are submitted in the correct format. In
addition, data checks are performed to monitor dealer compliance with
MSRB Rule G-34(c) as well as to identify information submitted in
correct formats that may contain errors due to information not falling
within reasonable ranges of expected values for a given item of
information. All submissions generate an acknowledgement or error
message, and all dealers that have information or documents submitted
on their behalf by either an ARS Auction Agent or a Designated Agent
are able to monitor such submissions.
    SHORT System Information and Document Dissemination. Information
and documents submitted to the SHORT System that pass the format and
data checks described above are processed and disseminated on a real-
time basis. Any changes to submissions also are processed upon receipt
and updated information and documents are disseminated in real-time.
Information submitted to the SHORT System is, in general, disseminated
to the EMMA short-term obligation rate transparency service within 15
minutes of acceptance, although during peak traffic periods
dissemination may occur within one hour of acceptance. Submissions of
documents to the SHORT System accepted during the hours of 8:30 a.m. to
6 p.m. e.t. on an MSRB business day would generally be disseminated to
the EMMA short-term obligation transparency service within 15 minutes
of acceptance, although during peak traffic periods posting may occur
within one hour of acceptance. Submissions outside of such hours often
would be posted within 15 minutes although some submissions outside of
the MSRB's normal business hours may not be processed until the next
business day. SHORT System information and documents, along with
related indexing information, would be made available to the public
through the EMMA portal for the life of the related securities.
    The MSRB plans to offer subscriptions to the information and
documents submitted to the SHORT System in the future.
    Description of The Emma Short-Term Obligation Rate Transparency
Service Amendment Proposal. The EMMA short-term obligation rate
transparency service currently makes the information collected by the
SHORT System available to the public, at no charge, on the EMMA portal.
The proposed rule change would add the documents identified in the rule
change proposal to this service so that such documents would also be
available to the public, at no charge, on the EMMA portal.\23\
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    \23\ This amendment does not modify the provisions of the
original proposed rule change relating to the short-term obligation
rate transparency service.

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2. Statutory Basis
    The MSRB believes that the proposed rule change is consistent with
section 15B(b)(2)(C) of the Act,\24\ which requires, among other
things, that MSRB rules must 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, to remove impediments to and perfect the mechanism of a
free and open market in municipal securities, and, in general, to
protect investors and the public interest.
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    \24\ 15 U.S.C. 78o-4(b)(2)(C).
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    The MSRB believes that the proposed rule change is consistent with
the Act. The proposed rule change would serve as an additional
mechanism by which the MSRB works toward removing impediments to and
helping to perfect the mechanisms of a free and open market in
municipal securities by providing a centralized venue for free public
access to information about and documents relating to ARS and VRDO. The
proposed rule change would provide greater access to information about
and documents relating to ARS and VRDO to all participants in the
municipal securities market on an equal basis thereby removing
potential barriers to obtaining such information. These factors serve
to promote the statutory mandate of the MSRB to protect investors and
the public interest.

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

    The MSRB does not believe the proposed rule change would impose any
burden on competition not necessary or appropriate in furtherance of
the purposes of the Act, since it would apply equally to dealers in
municipal securities.

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

    The Commission received five \25\ comment letters regarding the
original proposed rule change and the Commission has requested that the
MSRB respond. While all of the commentators indicated general support
for the MSRB's effort to increase transparency of ARS and VRDO several
compliance concerns as well as suggested improvements to the proposed
rule change were noted. The provisions of the original proposed rule
change, comments received and a discussion of these comments are below.
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    \25\ See supra note 4.
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    Additional VRDO Information. The original proposed rule change
would increase the information that a VRDO Remarketing Agent would be
required to report to the SHORT System in conjunction with the VRDO
interest rate and descriptive information currently required to be
reported on the day that an interest rate reset occurs. The specific
items of information include:
     Effective date that the interest rate reset is applicable;
     Identity of the Tender Agent;
     Identity of the liquidity provider(s) including an
indication of those VRDOs for which an issuer provides ``self
liquidity'' and the identity of the party providing such self-
liquidity;
     Information available to the VRDO Remarketing Agent as of
the time of the interest rate reset of the par amount of the VRDO, if
any, held as a Bank Bond; and
     Information available to the VRDO Remarketing Agent as of
the time of the interest rate reset of the aggregate par amount of the
VRDO, if any, held by parties other than a liquidity provider, which
includes the par amounts held by a VRDO Remarketing Agent and by
investors.
    SIFMA stated concerns with the requirement in the proposed rule
change to report the identities of the Tender Agent and liquidity
providers. SIFMA noted that the identities of these parties may change
and that the VRDO Remarketing Agent may not receive timely notification
of such changes. Accordingly, SIFMA suggested that VRDO Remarketing
Agents only be required to report such information on a ``best
efforts'' basis. While the MSRB acknowledges that the identities of
Tender Agents and liquidity providers may change, and that VRDO
Remarketing Agents may not receive timely notification that such
information has changed, the MSRB does not believe that it is
appropriate for VRDO Remarketing Agents to be required only to exercise
best efforts to report this information. However, the MSRB is sensitive
to compliance concerns in the event that the identity of a Tender Agent
or liquidity provider changes, unbeknownst to the VRDO Remarketing
Agent, yet a report to the SHORT System has been made that includes
outdated information. Under the terms of the original proposed rule
change, the VRDO Remarketing Agent would be required to modify any past
submissions to the SHORT System in the event updated information about
the Tender Agents and liquidity providers becomes known, which could
place a significant compliance burden on dealers and result in frequent
corrections to reports made to the SHORT System. Accordingly, in
response to this comment, the MSRB has amended the original proposed
rule change to clarify that the requirement to report these identities
is based upon information known to the VRDO Remarketing Agent as of the
time of the interest rate reset. The MSRB believes that this
clarification would alleviate concerns with respect to dealers failing
to receive timely information about a change in the identity of a
Tender Agent or liquidity facility provider and provide a clearer
requirement that such information is anticipated to be reported than
would be provided through a best efforts provision.
    SIFMA also stated concerns related to reporting the par amount of
Bank Bonds that are focused on whether the VRDO Remarketing Agent would
be able to obtain and report accurate information. SIFMA noted that
VRDO Remarketing Agents may not know the precise amount of securities
held as Bank Bonds as a result of revised amortization schedules for
securities held as Bank Bonds as well as instances when holders tender
securities directly to a Tender Agent. The MSRB believes that the
original proposed rule change already adequately addresses SIFMA's
concern as it only requires VRDO Remarketing Agents to report the par
amount of Bank Bonds based upon ``information available to the VRDO
Remarketing Agent as of the time of the interest rate.''
    ARS Bidding Information. The original proposed rule change
identified ARS Bidding Information that an ARS Program Dealer would be
required to report within the same timeframe as the ARS interest rate
and descriptive information currently required to be reported. The
proposed rule change identified the following items of ``bidding
information'' that would be required to be submitted to the SHORT
System as a word-searchable portable document format (``PDF'') file.
     Interest rate(s) and aggregate par amount(s) of orders to
sell at a specific interest rate and aggregate par amount of such
orders that were executed;
     Aggregate par amount of orders to sell at any interest
rate and aggregate par amount of such orders that were executed;
     Interest rate(s) and aggregate par amount(s) of orders to
hold at a specific interest rate and aggregate par amount of such
orders that were successfully held;

     Interest rate(s) and aggregate par amount(s) of orders to
buy and aggregate par amount of such orders that were executed;
     Interest rate(s), aggregate par amount(s), and type of
order--either buy, sell or hold--by a Program Dealer for its own
account and aggregate par amounts of such orders, by type, that were
executed; and
     Interest rate(s), aggregate par amount(s), and type of
order--either buy, sell or hold--by an issuer or conduit borrower for
such Auction Rate Security and aggregate par amounts of such orders, by
type, that were executed.
    Saber Partners and SIFMA both stated that ARS Bidding Information
should be reported as individual data elements instead of as a word-
searchable document. A document-based approach for collecting such
information was included in the original proposed rule change based in
large part upon earlier comments from SIFMA that it would be costly and
time consuming to require the collection of such information as
individual data elements.\26\ In response to the original proposed rule
change, SIFMA noted that ``a data element level of submission would not
only be easier but also a superior method of data management and
analysis.'' The MSRB agrees with Saber Partners and SIFMA's comments on
the original proposed rule change that having ARS bidding information
collected as data elements would be a preferred method of data
collection as it would facilitate data analysis and the computation of
statistics, such as a bid-to-cover ratio, that would provide meaningful
information about the demand for a specific ARS. Accordingly, in
response to these comments, the MSRB has amended the original proposed
rule change to require ARS bidding information to be reported to the
SHORT System as individual data elements.
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    \26\ See Securities Exchange Act Release No. 34-61793, March 26,
2010 (File No. SR-MSRB-2010-02).
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    SIFMA also stated concerns with the requirement to report orders
submitted by an issuer or conduit borrower. SIFMA noted that some
issuers or conduit borrowers utilize the services of a third party for
submitting orders to an ARS Program Dealer. In these cases, the ARS
Program Dealer may not know that an order represents an order submitted
by an issuer or conduit borrower and would not be able to identify
these orders in reports to the SHORT System. MSRB acknowledges that
issuers or conduit borrowers may not always submit orders for an ARS
directly to an ARS Program Dealer. To ensure ARS Program Dealers are
provided with information that an order represents an order by an
issuer or conduit borrower when such orders are placed with other
dealers, the MSRB has amended the original proposed rule change to
include a new requirement whereby any dealer that receives an order for
inclusion in an auction for ARS from an issuer or conduit borrower of
such ARS to disclose this fact when submitting the order to an ARS
Program Dealer. MSRB has also amended the original proposed rule change
by removing the requirement to identify whether orders placed by an
issuer or conduit borrower were executed. MSRB notes that ARS Program
Dealers would not be able to reliably ascertain whether orders on
behalf of an issuer or conduit borrower submitted by a third-party
dealer were executed, particularly if the third-party dealer submits
more orders than just those on behalf of the issuer or conduit borrower
and only some of those orders are filled.
    SIFMA also suggested that the requirement to report ``hold at
rate'' and ``sell at rate'' orders is redundant. MSRB acknowledges that
this requirement could be consolidated to simplify the rule language
and has therefore amended the original proposed rule change to remove
the requirement to report ``sell at rate'' orders as the remaining
``hold at rate'' and ``sell at any interest rate'' categories of orders
should provide for the reporting of all sell orders.
    ARS and VRDO Documents. The original proposed rule change would
require ARS Program Dealers and VRDO Remarketing Agents to submit to
the MSRB current and any new or amended versions of the following
documents:
     ARS documents defining auction procedures and interest
rate setting mechanisms;
     VRDO documents consisting of liquidity facilities,
including Letter of Credit Agreements and Stand-by Bond Purchase
Agreements.
    For existing documents, the original proposed rule change would
require VRDO Remarketing Agents to make and document best efforts to
obtain existing VRDO documents and specified a timeframe of ninety days
from the date of effectiveness of a rule change for dealers to submit
such documents to the MSRB. For ARS documents, ARS Program Dealers
would be required to submit existing documents to the MSRB no later
than ninety days from the date of effectiveness of a rule change. On an
ongoing basis, the original proposed rule change included a requirement
to submit new or amended versions of ARS and VRDO documents no later
than one business day after receipt by the dealer.
    ICI stated that it ``believes there is a need for timely receipt of
the proposed information for outstanding ARS and VRDOs.'' Accordingly,
ICI stated that it ``supports the MSRB's original proposed submission
deadline of [thirty] days from the effective date of the proposed
[rule] change.'' \27\ While MSRB agrees that it is important to have a
centralized source of ARS and VRDO documents as soon as practical,
given the large number of documents that would need to be submitted to
the MSRB and the fact that, for outstanding issues, dealers may need
time to request documents from third parties, the MSRB believes that
ninety days is an appropriate timeframe for having such documents
submitted to the MSRB.
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    \27\ See MSRB Notice 2009-43 (July 13, 2009).
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    ICI also stated that it ``strongly supports the one-business day
submission requirement for new or amendment versions of the ARS and
VRDO documents.'' SIFMA, however, suggested that the deadline for
submitting such new or amended documents be five business days after
receipt. SIFMA noted the lack of a uniform manner in which dealers
receive such documents from issuers and liquidity facility providers
and that ``it may take a couple of days internally at a broker dealer
for these documents to get routed to the proper place for submission to
[the MSRB].'' MSRB acknowledges that it is unlikely that dealers would
have an existing process in place to support submitting new or amended
versions of ARS and VRDO documents within one business day of receipt.
While MSRB believes that five business days is a generous amount of
time, MSRB recognizes that it is consistent with the timeframe for
submitting advance refunding documents to the MSRB and would be an
appropriate timeframe, at least initially, for such new or amended
versions of ARS and VRDO documents to be submitted to the MSRB.
Accordingly, in response to this comment, MSRB has amended the original
proposed rule change to provide a five business day deadline for
submitting new or amended versions of ARS and VRDO documents to the
MSRB.
    SIFMA also requested clarification of the recordkeeping requirement
for VRDO Remarketing Agents to document best efforts to obtain existing
VRDO documents and whether such documents would be required to contain

signatures. MSRB, in response to this comment, amended the original
proposed rule change to clarify that such records are only required to
be kept for those documents that are unable to be obtained. MSRB also
notes that all documents would be required to be final, operative
versions of such documents. While this requirement does not necessarily
require that the document be signed, MSRB notes that signatures would
provide a clear indication that the document reflects a final version.
    Other Comments. ICI recommended that the proposed rule change
include a ``catch-all'' category to require dealers to report
information ``about new products that fall outside of the scope of the
ARS and VRDO disclosure requirements.'' MSRB agrees that new products
may benefit from the transparency offered for ARS and VRDO by the SHORT
System, yet technically fall outside of the definitions of such
products, and plans to review in the future whether changes to the
SHORT System and associated rules could accommodate future products
without subsequent system and rule modifications.
    ICI also suggested that VRDO ``credit enhancement'' data and
documentation be required to be reported. MSRB believes that such
information should not be limited to VRDOs and notes a separate MSRB
initiative to display on EMMA information offered by credit ratings
agencies would provide additional access to credit enhancement features
associated with municipal securities on a market-wide basis.\28\
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    \28\ See MSRB Notice 2010-13 (May 20, 2010).
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III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action

    Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period: (i) As the Commission
may designate up to 90 days of such date 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 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, 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 e-mail to<EMAIL_ADDRESS>Please include
File Number SR-MSRB-2010-02 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-2010-02. This file
number should be included on the subject line if e-mail 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,\29\ 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 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-2010-02 and should be submitted on or before August 18, 2010.
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    \29\ The text of Amendment No. 1 to the proposed rule change is
available on the Commission's Web site at http://www.sec.gov/.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\30\
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    \30\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-18442 Filed 7-27-10; 8:45 am]
BILLING CODE 8010-01-P


Comment Info: =================

General Comment:I would request for the comment period to be extended to at least 180 days, preferably further.  75 days is insufficient time to comment on the proposed deeming regulations.