MSRB Proposes Changes to Rule G-8

The Municipal Securities Rulemaking Board proposed changes to its Rule G-8 on books and records yesterday that would require dealers to maintain records related to municipal auction-rate securities and variable-rate demand obligations.

The rule change, which the board submitted to the Securities and Exchange Commission, will require dealers to retain for three years records that would show both that they had an obligation to submit ARS and VRDO information to the MSRB and that the information they submitted was accurate.

Dealers are required by a separate rule - G-34 on Cusip numbers and new-issue requirements - to submit such information to the board's transparency system for the short-term securities, dubbed SHORT, for Short-term Obligation Rate Transparency.

"These records would provide organizations responsible for inspecting and enforcing MSRB rules with information that would assist the enforcement of compliance" with G-34, the board said in its notice.

The MSRB also asked the SEC to approve the rule change on an accelerated effectiveness so that it could be implemented on June 1. The accelerated process effectively means that it will be approved upon filing with the SEC, barring any comment letters arguing that the changes present huge obstacles.

Earlier this year, the board launched the first phases of the SHORT system, which includes basic reset and remarketing information for ARS and VRDOs. When complete, the system will provide information on prices, bidding, and program documents for ARS and VRDOs.

Prior to this year, trades of such securities were reported at par and did not include their clearing or interest rates. Previously, no publicly available source of comprehensive same-day information about either type of security existed.

For ARS, the proposed changes to Rule G-8 would require dealers to retain a record of all of the ARS for which the dealer acts as a program dealer, a record of all information submitted to and received from an auction agent tied to an auction, and all information required to be submitted to the SHORT system.

Dealers would be required to retain a record of all of VRDOs for which the dealer acts as a remarketing agent and all of the information required to be submitted to the SHORT system.

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