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Self-Regulatory Organizations; Order Approving a Proposed Rule Change by the Municipal Securities Rulemaking Board Relating to Rules G-8 and G-38 and Form G-37/G-38

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Information about this document as published in the Federal Register.

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This document has been published in the Federal Register. Use the PDF linked in the document sidebar for the official electronic format.

Start Preamble January 25, 2001.

I. Introduction

On January 27, 2000, the Municipal Securities Rulemaking Board (“Board” or “MSRB”) submitted to 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 amending Rule G-38, on consultants, Rule G-8, on books and records, and Section IV of Form G-37/G-38 and the attachment page to the form. The Board filed Amendment No. 1 to the proposed rule change on November 15, 2000.[3] The proposed rule change was published for comment in the Federal Register on November 22, 2000.[4] The Commission received on the proposal. This order approves the proposal, as amended.

II. Description of the Proposal

The Board believes that the current language of Rules G-38 and G-8 and the formats of Form G-37/G-38, the attachment page, and the Instructions, are not as clear as they could be about the information required for identifying a consultant. The Board states that it has received inquiries from dealers that have indicated that there is confusion about certain information required to be reported in Section IV of Form G-37/G-38 as well as the attachment page to the form. The proposed rule change would amend Rule G-38 to remove the separate references to the consultant's company name from the requirements regarding the consultant agreement, the disclosure to issuers, and the disclosure to the Board. In addition, the proposed rule change would remove the requirement in Rule G-8 for dealers to maintain a separate record of the consultant's company name. The proposed rule change would also amend Rules G-8(a)(xviii)(A) and G-38(d) and (e) to add the phrase “pursuant to the Consultant Agreement” after the consultant's name.[5] The proposed rule change would also revise the formats of Section IV of Form G-37/G-38 and the attachment page to state “Name of Consultant (pursuant to Consultant Agreement)” and delete the reference to the “Consultant Company Name.” Thus, a dealer would provide the name of an individual, if the consultant is an individual, or of a company, if the consultant is a company, depending upon whether the dealer has entered into a consultant agreement with an individual or a company.

Another area addressed by the proposed rule change concerns the role of the consultant. Pursuant to Rule G-38, a dealer is required to include within the consultant agreement the role of the consultant, to disclose this role to the issuer and to the Board and, pursuant to Rule G-8, to maintain a record of the role. The Instructions for Completing and Filing Form G-37/G-38 state that, in describing a consultant's role, a dealer should include the state or geographic area in which the consultant is working on behalf of the dealer. In addition, the Board issued a Question and Answer notice on Rule G-38 in which it stated that dealers must include the state or geographic area in which the consultant is working on behalf of the dealer.[6]

III. Discussion

The Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder.[7] In particular, the Commission finds that the proposed rule change is consistent with Section 15B(b)(2)(C) [8] of the Act. Section 15B(b)(2)(C) of the Act requires, among other things, that the rules of the Board be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market, and, in general, to protect investors and the public interest.

The Commission believes that the proposed rule change should assist brokers, dealers and municipal securities dealers with complying with their obligations under MSRB Rules G-37/38 and Form G-37/38. Specifically, the Commission believes that the proposed rule change should make clear whether the individual consultant's or the consultant company's name must be disclosed on Form G-37/38. Under the proposed rule change a dealer must review its consultant agreement to determine whether its consultant is an individual or a company. If the consultant agreement is with an individual, then only the individual's name need be reported on the form and not a company name. Conversely, if the consultant agreement is with a company, only the company's name need be reported and not an individual's name. The Commission believes that deleting from Rule G-38 and Form G-37/38 references to “consultant company name” will eliminate existing ambiguities resulting from the requirement that information regarding both an individual and a company be provided.

In addition, the Commission believes that amending Rules G-8(a)(xviii)(A) and G-38(d)(e) to add the phrase “pursuant to the Consultant Agreement” after the consultant's name will make clear that dealers are to look to their consultant agreement in determining whether the consultant is an individual or a company. Furthermore, the Commission believes that revising Rules G-38 and G-8 to explicitly require reporting of the state or georgraphic area in which a consultant is working on behalf of a dealer will ensure that the Board receive this information that is currently required by the Instructions to Form G-37/38.

Finally, the Commission notes that pursuant to recent amendments to Rules G-38, G-8, and G-37,[9] If an individual is a consultant, the individual will relay to the dealer his or her reportable political contributions, reportable political party payments, and the reportable contributions and reportable payments of any political action committee (“PAC”) controlled by the Start Printed Page 8822individual. If the consultant is a company, the company will relay its reportable contributions and reportable payments to the dealer, as well as those made by any partner, director, officer or employee of the consultant who communicates with issuers to obtain municipal securities business on behalf of the dealer, and any PAC controlled by the consultant or any partner, director, officer or employee of the consultant who communicates with issuers to obtain municipal securities business or behalf of the dealer. Dealers will report this contribution and payment information to the Board on Form G-37/G-38 by contributor category (i.e., company, individual, company controlled PAC, or individual controlled PAC).

IV. Conclusion

It is Therefore Ordered, pursuant to Section 119(b)(2) [10] of the Act, that the proposed rule change, as amended (SR-MSRB-00-02) is approved.

Start Signature

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.[11]

Margaret H. McFarland,

Deputy Secretary.

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Footnotes

3.  The Board submitted a new Form 19b-4, which replaced the original filing (“Amending No. 1”). Specifically, Amendment No. 1 amended MSRB Rules G-38 and G-8 to clarify that the name of the consultant is obtained from the consultant agreement. Amendment No. 1 also revised the filing to include the statutory basis for the proposed rule change.

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4.  Securities Exchange Act Release No. 43568 (Nov. 15, 2000), 65 FR 70371.

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5.  See Amendment No. 1, supra note 3.

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6.  See Rule G-38 Question and Answer number 1 dated November 18, 1996, MSRB Rule Book (January 1, 2000) at 210. The Rule G-38 Questions and Answers are also posted on the Board's web site at www.msrb.org.

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7.  In approving this proposal, the Commission has considered the proposal rule's impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).

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8.  15 U.S.C. 78o-4(b)(2)(C).

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9.  See Securities Exchange Act Release No. 42205 (December 7, 1999), 64 FR 69808 (December 14, 1999).

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[FR Doc. 01-2849 Filed 2-1-01; 8:45 am]

BILLING CODE 8010-01-M