MSRB Seeks Comment on Rule G-11, Files Technical Changes

The Municipal Securities Rulemaking Board has asked for public comment on whether certain provisions in its Rule G-11 on new-issue syndicate practices raise privacy concerns for broker-dealers participating in the syndicates in light of federal legislation that discourages the release of financial information.

In a three-page notice issued this week, the board described the provisions and asked that comments on them be submitted by May 2 to assistant general counsel Catherine A. Courtney.

At issue is the rule's requirement that a dealer that submits a group order to a syndicate or a member of a syndicate disclose the identity of the person for whom the order is submitted. The rule also requires the senior syndicate manager to provide to syndicate members a summary statement that shows the identity of each person submitting a group order to which an allocation has been made, as well as the amount and maturity date of securities to be allocated.

But the Gramm-Leach-Bliley Act of 1999, and other federal legislation, suggest that a customer's identity should be treated as confidential "financial" information, the board said.

"Thus, the MSRB is requesting comment on whether revealing the identity of the person for whom a group order is submitted, as required by Rule G-11, is in tension with the obligation to safeguard a customer's financial information under the various regulatory regimes to which dealers are subject," the notice said.

In addition, the board is requesting comments on whether the requirement may result in certain investors electing not to participate in an offering because of their concerns about having their identities revealed, possibly resulting in a higher net interest cost to issuers for such issues.

Specifically, the MSRB wants to know if the provisions should be deleted from the rule or if they should be modified to address potential privacy concerns and their potential impact on issuers while continuing to provide syndicate members with information about group orders.

Meanwhile, the board also announced late Tuesday that it had filed technical amendments to its Rules G-11 on new-issue syndicate practices and G-12 on uniform practices. The MSRB said it has consolidated the syndicate practice provisions by deleting them from Rule G-12 and inserting them into Rule G-11.

The consolidation will put the board's syndicate practice requirements into a single rule and thereby reduce the possibility of rule violations due to inadvertent failures to note the additional syndicate practice provisions currently embedded in G-12 among other unrelated provisions, the board said.

In addition, the MSRB deleted a section of Rule G-12 on good faith deposits in order to clarify and modernize the rule.

The board said that in the past, a good faith deposit generally was delivered to a municipal bond issuer by a firm competing for the underwriting business of the issuer. If the syndicate was not successful in purchasing the issue, the rule required the syndicate manager to return the deposit to the members of the syndicate within two business days following its return by the issuer. But under current practice, such deposits are generally not advanced because they are not required by issuers or are treated as an expense of the syndicate.

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