[Federal Register: May 29, 2007 (Volume 72, Number 102)]
[Notices]
[Page 29564-29565]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr29my07-118]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-55792, File No. SR-MSRB-2006-10]
Self-Regulatory Organizations; Municipal Securities Rulemaking
Board; Order Approving Proposed Rule Change Relating to Amendments to
Rule G-27, on Supervision, Rule G-8, on Recordkeeping, and Rule G-9, on
Record Retention
May 22, 2007.
On November 24, 2006, 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 consisting of amendments to Rule G-27, on
supervision, and the related recordkeeping and record retention
requirements of Rules G-8 and G-9. The MSRB proposed that the
amendments become effective six months after Commission approval of the
proposed rule change. The proposed rule change was published for
comment in the Federal Register on December 20, 2006.\3\ The Commission
received two comment letters regarding the proposal.\4\ On May 7, 2007,
the MSRB filed a response to the comment letters.\5\ This order
approves the proposed rule change.
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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. 54930 (December 13,
2006), 71 FR 76400 (December 20, 2006).
\4\ See letter from Leslie M. Norwood, Vice President and
Assistant General Counsel, Securities Industry and Financial Markets
Association (``SIFMA''), dated January 31, 2007, and letter from Tab
T. Stewart, Assistant General Counsel, Banc of America Securities
(``Banc of America''), dated January 31, 2007.
\5\ See letter from Jill C. Finder, Associate General Counsel,
MSRB, to Nancy M. Morris, Secretary, Commission, dated May 7, 2007.
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The proposed amendments to Rule G-27 incorporate most of the NASD
requirements contained in its Rules 3010 (Supervision) and 3012
(Supervisory Control System) in order to promote regulatory consistency
and make these requirements specifically applicable to the municipal
securities activities of securities firms and bank dealers. The MSRB
intends generally that the provisions of Rule G-27 be read consistently
with the analogous NASD provisions, unless the MSRB specifically
indicates otherwise. The MSRB believes that adopting most of the
requirements of NASD Rules 3010 and 3012 will help ensure a coordinated
regulatory approach in the area of supervision, and will facilitate
inspection and enforcement.
SIFMA's comment letter requests clarification that the proposed
rule change would allow principals to delegate day-to-day supervisory
activities to non-principals. SIFMA points out that under current MSRB
Rule G-27 and NASD Rule 3010, principals regularly delegate day-to-day
supervisory activities to appropriately trained employees who are not
principals even though the principals are ultimately responsible for
supervision.
In response to SIFMA's request for clarification concerning
delegation, the MSRB notes that the proposed rule change states that
the MSRB intends generally that the provisions of Rule G-27 be read
consistently with the analogous NASD provisions, unless the MSRB
specifically indicates otherwise. Thus, relevant NASD interpretations
would be presumed to apply to the comparable MSRB provision, subject to
the MSRB's right to make distinctions when necessary and appropriate.
The MSRB also notes that NASD has previously stated that ``certain
supervisory tasks may be delegated to a registered representative.
However, in all cases, ultimate supervisory responsibility * * *must be
assigned to one or more appropriately registered principals.''
[Emphasis in original.] \6\ The MSRB believes, and the Commission
concurs, that this guidance applies equally to Rule G-27--both as
currently written and pursuant to the proposed rule change.
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\6\ See NASD Notice to Members 99-45 (June 1999), which provided
guidance on supervisory responsibilities.
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Banc of America's comment letter supports the proposed rule change
in principle but believes that the proposed rule change will, if
adopted, create an unnecessary hardship on dealers in municipal
securities, and ultimately to issuers of municipal securities, in one
specific area. Banc of America understands the requirement to designate
one or more appropriately registered principals in each office of
supervisory jurisdiction (``OSJ'') to mean that an appropriately
registered municipal securities principal must be located on site in
each OSJ. However, Banc of America believes this requirement is not
practical in instances where a particular office's activities are such
that the office meets the definition of an OSJ in the proposed rule
change but there is a very small number of registered associates
located in that office (and in many cases, only one). Banc of America
further states that
[[Page 29565]]
requiring each small-staff OSJ to have an on-site municipal securities
principal for supervision of the activities in that office adds an
undue burden to dealers that, in many cases, is either impractical or
not cost effective. Banc of America believes that if the proposed rule
change is approved, dealers may be forced to close certain regional
offices, since adding staff would not be cost effective; in turn, this
could lead to a reduction in financing services, and/or increased
borrowing costs, to issuers of municipal securities.
The MSRB states in its response that under current NASD
requirements and the MSRB's proposed amendments, dealers must designate
one or more appropriately registered principals in each OSJ and each
such principal must be located on site in each OSJ. The MSRB
understands that in the equities market, which is subject to NASD's
supervisory requirements, there are many one-person offices which, as
OSJs, are involved in structuring corporate financing. The MSRB further
understands that such functions, when performed at an OSJ, are
significant enough to warrant supervision by an on-site principal who
is permanently located in that office. The MSRB concluded that in the
case of the one-person OSJ described by Banc of America, the practical
effect of the proposed rule change on bank dealers would be to require
that one person to be registered as a municipal securities principal,
just as NASD requires securities firms to register as a principal any
one-person OSJ. The MSRB further noted that the purpose of the proposed
rule change is to promote regulatory consistency, and that the MSRB
does not believe that the situation described by Banc of America
justifies deviating from this purpose. After considering Banc of
America's comment letter and the MSRB's response, the Commission finds
that the proposed rule change conforms Rule G-27 to the relevant NASD
rules on supervision and does not believe that the proposed rule change
is inconsistent with the Act.
The Commission finds that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder applicable to the MSRB \7\ and, in particular, the
requirements of Section 15B(b)(2)(C) of the Act \8\ and the rules and
regulations thereunder. Section 15B(b)(2)(C) of the Act requires, among
other things, that the MSRB's rules 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.\9\ In particular, the
Commission finds that, by conforming Rule G-27 to the relevant NASD
rules on supervision and thereby making such requirements specifically
applicable to the municipal securities activities of securities firms
and bank dealers, the proposed rule change will promote regulatory
consistency by facilitating dealer compliance with such requirements,
as well as by facilitating the inspection and enforcement thereof. The
proposal will be effective six months after Commission approval, as
requested by the MSRB.
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\7\ In approving this rule the Commission notes that it has
considered the proposed rule's impact on efficiency, competition and
capital formation. 15 U.S.C. 78c(f).
\8\ 15 U.S.C. 78o-4(b)(2)(C).
\9\ Id.
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It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\10\ that the proposed rule change (SR-MSRB-2006-10) be, and it
hereby is, approved.
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\10\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\11\
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\11\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-10201 Filed 5-25-07; 8:45 am]
BILLING CODE 8010-01-P