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Presentation Slides

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 January
1,
2009
 
 The rules contained in this Rule Book were in effect as of the above date. The most up-to-date version of the MSRB’s rules is posted on the MSRB’s web site at www.msrb.org. i

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 Copyright ©2009 Municipal Securities Rulemaking Board ii

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 TABLE
OF
CONTENTS
 About
the
Municipal
Securities
Rulemaking
Board .............................................................................. vii  Officers
and
Members........................................................................................................................... ix  Professional
Staff.................................................................................................................................... x  Organizations
with
Inspection
and
Enforcement
Authority
for
Board
Rules ........................................ xi  Rules
of
the
Municipal
Securities
Rulemaking
Board
 ADMINISTRATIVE
RULES
 RULE  A‐1
 Rules
of
the
Board ................................................................................................................. 1  A‐2
 Powers
of
the
Board .............................................................................................................. 1  A‐3
 Membership
on
the
Board..................................................................................................... 1  A‐4
 Meetings
of
the
Board ........................................................................................................... 3  A‐5
 Officers
and
Employees
of
the
Board .................................................................................... 3  A‐6
 Committees
of
the
Board ...................................................................................................... 4  A‐7
 Assessments .......................................................................................................................... 4  A‐8
 Rulemaking
Procedures ......................................................................................................... 4  A‐9
 Fiscal
Year .............................................................................................................................. 4  A‐10
 Independent
Audit................................................................................................................. 4  A‐11
 **RESERVED** ...................................................................................................................... 4  A‐12
 Initial
Fee ............................................................................................................................... 4  A‐13
 Underwriting
and
Transaction
Assessments
for
Brokers,
Dealers
and

 Municipal
Securities
Dealers ................................................................................................. 6  A‐14
 Annual
Fee ............................................................................................................................. 8  A‐15
 Notification
to
Board
of
Termination
of
Municipal
Securities
Activities
and

 Change
of
Name
or
Address.................................................................................................... 9  A‐16
 **RESERVED** .................................................................................................................... 10  A‐17
 Confidentiality
of
Examination
Reports............................................................................... 10  DEFINITIONAL
RULES
 D‐1
 General ................................................................................................................................ 11  D‐2
 "Act" .................................................................................................................................... 11  D‐3
 "Commission" ...................................................................................................................... 11  iii

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 D‐4
 "Board" ................................................................................................................................ 11  D‐5
 "Member"............................................................................................................................ 11  D‐6
 "Whole
Board"..................................................................................................................... 11  D‐7
 "Proposed
Rules
and
Rules
of
the
Board" ........................................................................... 11  D‐8
 "Bank
Dealer" ...................................................................................................................... 11  D‐9
 "Customer" .......................................................................................................................... 11  D‐10
 "Discretionary
Account" ...................................................................................................... 12  D‐11
 “Associated
Persons”........................................................................................................... 12  D‐12
 “Municipal
Fund
Security” ................................................................................................... 12  GENERAL
RULES
 G‐1
 Separately
Identifiable
Department
or
Division
of
a
Bank .................................................. 15  G‐2
 Standards
of
Professional
Qualification............................................................................... 18  G‐3
 Classification
of
Principals
and
Representatives;
Numerical
Requirements;

 Testing;
Continuing
Education
Requirements ..................................................................... 19  G‐4
 Statutory
Disqualifications................................................................................................... 34  G‐5
 Disciplinary
Actions
by
Appropriate
Regulatory
Agencies;
Remedial
Notices

 by
Registered
Securities
Associations.................................................................................. 35  G‐6
 Fidelity
Bonding
Requirements............................................................................................ 36  G‐7
 Information
Concerning
Associated
Persons....................................................................... 38  G‐8
 Books
and
Records
to
be
Made
by
Brokers,
Dealers
and
Municipal
Securities
Dealers...... 40  G‐9
 Preservation
of
Records....................................................................................................... 57  G‐10
 Delivery
of
Investor
Brochure.............................................................................................. 61  G‐11
 New
Issue
Syndicate
Practices............................................................................................. 62  G‐12
 Uniform
Practice.................................................................................................................. 67  G‐13
 Quotations
Relating
to
Municipal
Securities ..................................................................... 100  G‐14
 Reports
of
Sales
or
Purchases............................................................................................ 103  G‐15
 Confirmation,
Clearance,
Settlement
and
Other
Uniform
Practice

 Requirements
with
Respect
to
Transactions
with
Customers ........................................... 116  G‐16
 Periodic
Compliance
Examination ..................................................................................... 150  G‐17
 Conduct
of
Municipal
Securities
Activities ........................................................................ 151  G‐18
 Execution
of
Transactions.................................................................................................. 175  G‐19
 Suitability
of
Recommendations
and
Transactions;
Discretionary
Accounts..................... 176  iv

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 G‐20
 Gifts,
Gratuities
and
Non‐Cash
Compensation .................................................................. 182  G‐21
 Advertising......................................................................................................................... 185  G‐22
 Control
Relationships......................................................................................................... 195  G‐23
 Activities
of
Financial
Advisors .......................................................................................... 197  G‐24
 Use
of
Ownership
Information
Obtained
in
Fiduciary
or
Agency
Capacity ....................... 204  G‐25
 Improper
Use
of
Assets ..................................................................................................... 205  G‐26
 Customer
Account
Transfers ............................................................................................. 207  G‐27
 Supervision ........................................................................................................................ 210  G‐28
 Transactions
with
Employees
and
Partners
of
Other
Municipal
Securities

 Professionals...................................................................................................................... 222  G‐29
 Availability
of
Board
Rules ................................................................................................. 223  G‐30
 Prices
and
Commissions .................................................................................................... 224  G‐31
 Reciprocal
Dealings
with
Municipal
Securities
Investment
Companies ............................ 235  G‐32
 Disclosures
in
Connection
with
New
Issues....................................................................... 236  G‐33
 Calculations ....................................................................................................................... 248  G‐34
 CUSIP
Numbers
and
New
Issue
Requirements .................................................................. 255  G‐35
 Arbitration ......................................................................................................................... 262  G‐36
 Delivery
of
Official
Statements,
Advance
Refunding
Documents
and

 Forms
G‐36(OS)
and
G‐36(ARD)
to
Board
or
its
Designee ................................................. 263  G‐37
 Political
Contributions
and
Prohibitions
on
Municipal
Securities
Business ....................... 271  G‐38
 Solicitation
of
Municipal
Securities
Business..................................................................... 305  G‐39
 Telemarketing.................................................................................................................... 311  G‐40
 Electronic
Mail
Contacts .................................................................................................... 314  G‐41
 
 Anti‐Money
Laundering
Compliance
Program .................................................................. 317  v

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K
 THE
MUNICIPAL
SECURITIES
RULEMAKING
BOARD
 About the MSRB The Municipal Securities Rulemaking Board (MSRB) was established as a self-regulatory organization by Congress in 1975 under the Securities Exchange Act to develop rules regulating securities firms and banks involved in underwriting, trading and selling municipal securities (dealers). The MSRB also operates information systems, including the Electronic Municipal Market Access (EMMA) system, to promote transparency and access to municipal bond information, and conducts extensive outreach and education. The MSRB is composed of 15 members from the municipal securities dealer community and the public, and is charged with protecting investors and promoting a fair and efficient market. Members of the MSRB meet throughout the year to make policy decisions, approve rulemaking, enhance information systems and review developments in the municipal securities market. The operations of the MSRB are funded through assessments on dealers and a professional staff in Alexandria, Virginia manages the MSRB’s day-to-day operations. Rulemaking Authority Process The Securities Exchange Act sets forth certain areas appropriate for the MSRB’s rulemaking, including rules to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade and, in general, to protect investors and the public interest. In order to provide the maximum opportunity for industry participation, the MSRB generally issues rulemaking proposals in exposure draft form and provides for public comment period. Substantive comments on rule proposals received as a result of these procedures have had an important impact on the MSRB’s deliberations. Upon adoption by the MSRB in final form, rule proposals are filed with the Securities and Exchange Commission. In its rule filings, the MSRB is required to address the terms and purpose of the proposed rules, the statutory basis for their adoption, an analysis of the comments received, and the statutory justification for any anticipated burden on competition the rule proposals might impose. The Securities Exchange Act generally requires the SEC to publish the MSRB’s rule proposals in the Federal Register and for public comment. Upon SEC approval, MSRB rules have the force and effect of federal law.1 The MSRB’s rules are enforced by the Financial Industry Regulatory Authority for securities firms, bank regulatory agencies (the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, The Federal Deposit Insurance Corporation and the Office of Thrift Supervision) for bank dealers, and the SEC for all brokers, dealers and municipal securities dealers. Although the MSRB does not have inspection or enforcement powers, an important aspect of its rulemaking activities involves the ongoing interpretation of its rules. This is done by means of interpretive letters and notices. The MSRB also closely coordinates with the organizations charged with enforcement of the MSRB’s rules concerning the meaning and proper application of the rules. Principles-Based Rules MSRB rules reflect the special characteristics of the municipal securities market and its unique regulatory needs, and are designed to regulate dealer conduct in the municipal securities market. In general, MSRB rules are “principles-based” with specific guidance given where appropriate. MSRB rules can generally be categorized as (1) fair practice rules (e.g., requirements for dealers to provide affirmative disclosures of material facts to investors; to ensure the suitability of dealer recommendations of municipal securities transactions; to fairly price transactions; to avoid conflicts of interest; and to publish fair and accurate advertisements and price quotations); (2) uniform practice rules (e.g., rules to ensure that standard procedures are followed in underwriting, clearing, confirming and settling transactions in municipal securities; helping to ensure the efficiency of market operations while acommodating 1 The MSRB’s rules ordinarily are subject to approval by the SEC prior to becoming effective. Exceptions include rules relating solely to the administration of the MSRB and assessments. These become effective upon filing with the SEC but may thereafter be rescinded by the SEC within 60 days if the SEC finds cause to do so. vii

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 the differences between municipal securities and other debt instruments); (3) professional qualification rules (e.g., requirements for dealer personnel to pass tests demonstrating competency; continuing education requirement); (4) operational standards (e.g., rules regarding recordkeeping, supervision of professionals); and (5) marketplace disclosure rules (e.g., rules requiring dealer real-time reporting of trade prices, underwriter filing of issuer’s disclosure documents, and dealer disclosure of political contributions to the MSRB for public dissemination). These rules require dealers to observe the highest professional standards in their activities and relationships with customers, and go significantly beyond the general anti-fraud principles that constrain federal securities laws. Operating Procedures and Finances The MSRB’s administrative rules provide for a chair and vice chair, elected by the members for a one-year term. The MSRB has established standing committees and ad hoc committees have focused on such areas as EMMA and uniform practice matters. As a self-regulatory organization, the MSRB is not financed by the federal government, but solely by the municipal securities industry. The MSRB’s operations are supported by fees and assessments paid by securities firms and bank dealers engaged in the municipal securities business, including an initial and annual fee for all municipal securities dealers, an assessment based on the volume of new issue underwriting in which a securities firm or bank dealer participates and an assessment based on municipal securities transactions. viii

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 MUNICIPAL
SECURITIES
RULEMAKING
BOARD
 Officers  2008-2009 RONALD A. STACK Chair PETER T. CLARKE Vice Chair Members  Bank Representatives  PETER T. CLARKE, Managing Director J.P. Morgan Securities Inc. New York, NY JAMES A. POSTHAUER, Director, Municipal Trading and Underwriting SunTrust Robinson Humphrey Atlanta, GA RONALD A. STACK, Managing Director, Head of Public Finance Barclays Capital New York, NY MARTIN H. VOGTSBERGER, Vice President and Managing Director, Head of Institutional Brokerage Fifth Third Securities, Inc. Columbus, OH STEPHEN C. WOOL, Municipal Sales Keybanc Capital Markets Chicago, IL Public Representatives  TERRY AGRISS, President TAgriss Advisory Services New York, NY F. THOMAS HOWARD, Executive Director Office of Financial Management, Finance and Administration Cabinet, Commonwealth of Kentucky Frankfort, KY DAVID A. LIPTON, Director of Securities Law Program Catholic University of America Washington, DC KATHLEEN A. MCDONOUGH, Retired, Senior Managing Director Ambac Financial Group New York, NY ROBERT M. ZUBAK, Senior Portfolio Manager Allstate Investments, LLC Northbrook, IL Securities
Firm
Representatives
 MAUD SMITH DAUDON, President and Chief Executive Officer Seattle-Northwest Securities Corporation Seattle, WA STANLEY E. GRAYSON, President and Chief Operating Officer M.R. Beal & Company New York, NY MICHAEL F. IMHOFF, Managing Director Stifel Nicolaus & Co., Inc. Denver, CO ALAN MURPHY, Senior Vice President Duncan-Williams, Inc. Jersey City, NJ JOHN W. YOUNG II, Managing Director Samuel A. Ramirez & Co., Inc. New York, NY ix

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 PROFESSIONAL
STAFF
 Senior Management  Lynnette Kelly Hotchkiss, Executive Director Harold L. Johnson, Deputy Executive Director Ernesto A. Lanza, General Counsel Janet Eakes, Chief Operating Officer Melanie S. Richardson, Chief Financial Officer Jennifer A. Galloway, Chief Communications Officer   Rulemaking and Policy Development   Leslie Carey, Associate General Counsel Peg Henry, Associate General Counsel Lawrence P. Sandor, Associate General Counsel Ronald W. Smith, Corporate Secretary Uniform Practice Policy  Justin R. Pica, Director   Research  Marcelo Vieira, Director   Finance  Bonnie J. Moynihan, Controller   Market Information Programs  John F. Doyle, Director, Project Management Karl Eiholzer, Director, Market Information Programs   Professional Qualifications   Loretta Jones, Director   Human Resources
 Claire M. Burns, Director 
 Computer Systems

 Al Morisato, Senior Director Steve Cook, Director of Systems Development Jason Peace, Director of Information System Operations Melvyn Rexrode, Director of Information Technology Operations x

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 ORGANIZATIONS
WITH
INSPECTION
AND
ENFORCEMENT
AUTHORITY
FOR
BOARD
RULES
 Securities
and
Exchange
Commission
 100 F Street, N.E. Washington, D.C. 20549 www.sec.gov Financial
Industry
Regulatory
Authority
 1735 K Street, N.W. Washington, D.C. 20006 Attn: Member Regulation Fixed Income Securities Group www.finra.org Federal
Deposit
Insurance
Corporation
 550 17th Street, N.W. Washington, D.C. 20552 Attn: Planning & Program Development Section Division of Supervision and Consumer Protection www.fdic.gov Board
of
Governors
of
the
Federal
Reserve
System
 20th and C Streets, N.W. Washington, D.C. 20551 Attn: Market and Liquidity Risk Section Division of Banking Supervision and Regulation www.federalreserve.gov Office
of
the
Comptroller
of
the
Currency
 250 E Street, S.W. Washington, D.C. 20219 Attn: Credit and Market Risk MS 9-14 www.occ.treas.gov Office
of
Thrift
Supervision
 1700 G Street, N.W. Washington, D.C. 20552 Attn: Trust and Specialty Programs www.ots.treas.gov xi

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 ADMINISTRATIVE
RULES
 Rule
A‐1:
Rules
of
the
Board
 The rules of the Board shall be classified as administrative rules, definitional rules and general rules, respectively. Administrative rules shall pertain to the operation and administration of the Board and shall be identified by the prefix “A”. Definitional rules shall define terms used in the rules of the Board and shall be identified by the prefix “D”. General rules shall pertain to all other matters within the scope of the Board's authority and shall be identified by the prefix “G”. Rule
A‐2:
Powers
of
the
Board
 Subject to the provisions of the Act and the rules and regulations of the Commission thereunder, and other applicable law, the Board shall have the power to determine all matters relating to the operation and administration of the Board and to exercise all other rights and powers granted by the Act and other applicable law to the Board. Notwithstanding anything to the contrary in the Board’s rules or By-laws, no delegation will derogate from Board powers under the Act or other applicable law. Rule
A‐3:
Membership
on
the
Board
 
 (a) Number and Representation. The Board shall consist of 15 members, at all times equally divided among the following groups: (i) Public Representatives. Individuals who are not associated with any broker, dealer, or municipal securities dealer (other than by reason of being under common control with, or indirectly controlling, any broker or dealer which is not a broker, dealer or municipal securities dealer that effects municipal securities transactions), at least one of whom shall be representative of investors in municipal securities, and at least one of whom shall be representative of issuers of municipal securities; (ii) Broker-Dealer Representatives. Individuals who are associated with and representative of brokers, dealers and municipal securities dealers which are not banks or subsidiaries or departments or divisions of banks; (iii) Bank Representatives. Individuals who are associated with and representative of municipal securities dealers which are banks or subsidiaries or departments or divisions of banks. (b) Increase or Decrease in Number. The total number of members of the Board may be increased or decreased from time to time by rule of the Board, but in no event shall the total number of members of the Board be less than 15. Any such increase or decrease shall be in multiples of six so that the total number of members of the Board shall always be an odd number, equally divided among the three groups of representatives enumerated in section (a) of this rule. (c) Nomination and Election of Members. (i) Members shall be nominated and elected in accordance with the procedures specified by this rule. All members of the Board shall be elected for terms of three years, so that the terms of office of one-third of the whole Board shall expire each year. The terms of office of all members of the Board shall commence on October 1 of the year in which elected and shall terminate on September 30 of the year in which their terms expire. A member of the Board may serve additional terms as a Board member upon nomination and election for each such additional term in accordance with the procedures specified by this rule, provided that, a member of the Board may immediately succeed himself or herself in office for only a single successive term and only upon nomination and election for such successive term in accordance with the procedures specified by this rule. No broker-dealer representative or bank representative may be succeeded in office by any person associated with the broker, dealer or municipal securities dealer with which such member was associated at the expiration of such member’s term except in the case of a Board member who succeeds himself or herself in office. (ii) The Board will appoint a Nominating Committee composed of nine members. The membership of the Nominating Committee shall consist of six Board members and three persons who are not members of the Board. Of the six Board members, two shall be bank representatives, two shall be broker-dealer representatives, and two shall be public representatives. Of the three non-Board members, one shall be associated with and representative of bank dealers, one shall be associated with and representative of brokers, dealers, and municipal securities dealers other than bank dealers, and one shall not be associated with any broker, dealer, or municipal securities dealer (other than by reason of being under common control with, or indirectly controlling any broker or dealer which is not a broker, dealer or municipal securities dealer that effects municipal securities transactions). In appointing persons to serve on the Nominating Committee, factors to be considered include, without limitation, diversity in the geographic location, size and type of brokers, dealers and municipal securities dealers represented on such Committee. (iii) The Nominating Committee shall publish a notice in a financial journal having general national circulation among members of the municipal securities industry soliciting nominations for the positions on the Board to be filled in 1 Rule
A‐3


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 such year. The notice shall require that recommendations be accompanied by a statement of the position for which the person is recommended, the background and qualifications for membership on the Board of the person recommended and information concerning such person's association with any broker, dealer, or municipal securities dealer. The Nominating Committee shall accept recommendations pursuant to such notice for a period of at least 30 days. Any interested member of the public, whether or not associated with a broker, dealer, or municipal securities dealer, may submit recommendations to the Nominating Committee. The names of all persons recommended to the Nominating Committee shall be made available to the public upon request. (iv) The Nominating Committee shall nominate one person for each of the Board positions to be filled and shall submit the nominees to the Board for approval. In making such nominations, factors to be considered include, without limitation, diversity in the geographic location, size and type of brokers, dealers, and municipal securities dealer represented. Each nomination shall be accompanied by a statement indicating the position for which such person is nominated, the nominee’s qualifications to serve as a member of the Board, and information concerning the nominee’s association with any broker, dealer, or municipal securities dealer. The names of the nominees will be confidential. (v) The Board shall accept or reject each nominee submitted by the Nominating Committee. In the event that the Board rejects a nominee, the Nominating Committee will propose another nominee for Board consideration. (vi) The public representatives on the Board will, prior to their assumption of office, be subject to approval by the Commission to assure that no one of them is associated with any broker, dealer or municipal securities dealer (other than by reason of being under common control with, or indirectly controlling, any broker or dealer which is not a broker, dealer or municipal securities dealer that effects municipal securities transactions) and that at least one of the public representatives of the Board is representative of investors in municipal securities and at least one is representative of issuers of municipal securities. (vii) Upon completion of the procedures for nomination and election of new Board members, the Board will announce the names of the new members not later than October 1 of each year. (d) Resignation and Removal of Members. A member may resign from the Board by submitting a written notice of resignation to the Chairman of the Board which shall specify the effective date of such member’s resignation. In no event shall such date be more than 30 days from the date of delivery of such notice to the Chairman. If no date is specified, the resignation shall become effective immediately upon its delivery to the Chairman. In the event the Board shall find that any member has willfully violated any provision of the Act, any rule or regulation of the Commission thereunder, or any rule of the Board or has abused his or her authority or has otherwise acted, or failed to act, so as to affect adversely the public interest or the best interests of the Board, the Board may, upon the affirmative vote of two-thirds of the whole Board (which shall include the affirmative vote of at least one public representative, one broker-dealer representative and one bank representative), remove such member from office. (e) Vacancies. Vacancies on the Board shall be filled by vote of the members of the Board, subject to the Commission’s power of approval referred to in section (c) of this rule with respect to public representatives. Any person so elected to fill a vacancy shall serve for the term, or any unexpired portion of the term, for which such person’s predecessor was elected. For purposes of this rule, the term "vacancies on the Board" shall include any vacancy resulting from the resignation of any person duly elected to the Board prior to the commencement of his or her term. (f) Compensation and Expenses. The Board may provide for reasonable compensation of the MSRB Chair, Committee Chairs, members of the Board, and members of any Committee, including Committees made up entirely of non-Board members. The Board also may provide for reimbursement of actual and reasonable expenses incurred by such persons in connection with the business of the MSRB. BACKGROUND  Rule A-3 relates to the nomination and election of new Board members. Of the 15 initial members of the Board appointed by the Commission, five members left office in September 1977, five in 1978 and the remaining five in 1979. The Board annually appoints a Nominating Committee composed of six Board members and three persons from the municipal securities industry and the public who are not Board members, to assist in the selection of the new Board members to take office in October. The Nominating Committee solicits recommendations for nominees to the Board and nominates one person for each position to be filled. The Board then accepts or rejects the nominees from the slate submitted by the Nominating Committee. In the event a nominee is rejected, the Nominating Committee must hold a meeting to choose another nominee. Rule
A‐3
 2

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 Rule
A‐4:
Meetings
of
the
Board
 (a) Meetings. Regular meetings of the Board shall be held at least quarterly and at such time and place as from time to time determined by resolution of the Board or provided by rule of the Board. Special meetings of the Board shall be called by the Chairman of the Board or at the written request of not less than three members, which request shall in each case specify the purpose or purposes of the meeting. At special meetings, the Board shall consider only those specific matters for which the meeting was called, unless all members consent either at the meeting or in writing before or after the meeting to the consideration of other matters. (b) Notice of Meetings. Notice of the time and place of special meetings of the Board shall be provided to each member, as well as to the Secretary of the Board, not later than the third calendar day preceding the date on which the meeting is to be held or as otherwise required by law, provided that such advance notice may be waived by unanimous consent of all Board members attending such meeting. Notice of a special meeting shall also set forth the purpose or purposes of the meeting. Notice of a special meeting need not be given to any member who submits a signed waiver of notice before or after the meeting, or who attends the meeting without protesting, prior thereto or at the commencement thereof, the lack of notice to such member. No notice of regular meetings of the Board shall be required. (c) Quorum and Voting Requirements. A quorum of the Board shall consist of two-thirds of the whole Board (at least one of whom shall be a public representative, one a broker-dealer representative and one a bank representative), and any action taken by the affirmative vote of a majority of the whole Board at any meeting at which a quorum is present shall, except as otherwise provided by rule of the Board, constitute the action of the Board. Unless otherwise specified by the Act or by rule of the Board, action by the Board may be by resolution. Resolutions of the Board shall take effect immediately, unless a different effective date shall be specified therein. (d) Action Without a Meeting. Action by the Board may be taken without a meeting by written consent of the Board setting forth the action so taken or by telephone or e-mail poll of all members of the Board, provided that, in the case of action taken by telephone or e-mail poll, the Board, at a meeting, or the chairman of the Board authorizes the action to be taken by such means. The Executive Director shall transmit to each Board member, as soon as practicable after a telephone or e-mail poll is taken, a written statement setting forth the question or questions with respect to which the telephone or e-mail poll was taken and the results of the telephone or e-mail poll. Such statement shall also be entered in the minutes of the next Board meeting. In the case of action taken without a meeting by written consent, telephone or e-mail poll, an affirmative vote of a majority of the whole Board is required. Rule
A‐5:
Officers
and
Employees
of
the
Board
 (a) Officers of the Board. The officers of the Board shall consist of a Chairman and a Vice Chairman, and such other officers as the Board may deem necessary or appropriate. The Chairman shall preside at meetings of the Board. During the absence or inability to act of the Chairman, or while the office of Chairman is vacant, the Vice Chairman shall be vested with all of the powers and shall perform all of the duties of the Chairman. In the event of the absence of both the Chairman and Vice Chairman at any meeting of the Board, the Board may designate one of the members present as acting Chairman for the purpose of presiding at such meeting. The officers of the Board shall have such other powers and perform such other duties as the Board may determine by resolution. (b) Election of Officers of the Board. Officers of the Board shall be elected annually from among the members, by secret, written ballot of the members, at a meeting of the Board held prior to October 1 of each year according to procedures adopted by the Board. Officers shall serve for a term commencing on the October 1 next following their election and ending with the succeeding September 30; provided, however, that any officer may resign his or her office prior to the expiration of his or her term by filing a written notice of resignation with the Secretary to the Board which shall specify the effective date of such resignation. In no event shall such date be less than 10 days or more than 30 days from the date of filing of such notice. If no date is specified, the resignation shall become effective 10 days from the date of filing. The Board may remove any officer at any time by two-thirds vote of the whole Board. Vacancies in office shall be filled as soon as practicable by vote of the members and any person elected to fill a vacancy shall serve only for the remainder of his or her predecessor’s term. (c) Executive and Administrative Staff. The staff of the Board shall consist of an Executive Director, a General Counsel, a Secretary to the Board, a Treasurer to the Board, and such other personnel as the Board shall deem necessary or appropriate. The duties and responsibilities of the Executive Director shall be as prescribed by the Board. The duties and responsibilities of all other staff shall be as prescribed by the Executive Director. (d) Attorneys, Consultants and Others. The Board may retain such attorneys, consultants and other independent contractors as the Board may deem necessary or appropriate. 3 Rule
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A‐6:
Committees
of
the
Board
 (a) Establishment. The Board may establish one or more standing or special committees, each to have and exercise such powers and authority as may be provided by the Board in the resolution establishing such committee; provided, however, that no such committee shall have the authority to exercise any of the powers and authority specifically required to be exercised by the entire Board by the Act or by rule of the Board or other applicable law. The Chairman of the Board shall be an ex officio member of each committee. (b) Procedure. The Board shall, by resolution, establish rules of procedure for each committee appointed by the Board, to the extent deemed necessary or appropriate by the Board. To the extent not so provided by the Board, each committee may determine its own rules of procedure. Rule
A‐7:
Assessments
 The Board shall, by rule, provide for the costs and expenses of its operation and administration by levying such fees and charges on brokers, dealers and municipal securities dealers as may be determined necessary or appropriate by the Board. Rule
A‐8:
Rulemaking
Procedures

 (a) Adoption of Proposed Rules and Submission to Commission. The Board shall adopt such proposed rules as the Board shall deem necessary or appropriate to effect the purposes of the Act with respect to transactions in municipal securities effected by brokers, dealers and municipal securities dealers, including, as a minimum, proposed rules relating to those matters prescribed in section 15B(b)(2)(A) through (K) of the Act. Upon their adoption by the Board, the Board shall submit proposed rules to the Commission in accordance with the procedures set forth in section 19(b) of the Act and shall file such proposed rules with the appropriate regulatory agencies in accordance with the provisions of section 17(c) of the Act. A proposed rule of the Board shall become a rule of the Board upon its approval by the Commission, pursuant to section 19(b)(2) of the Act, or upon filing with the Commission in accordance with the provisions of section 19(b)(3)(A) of the Act, or upon the determination of the Commission in accordance with the provisions of section 19(b)(3)(B) of the Act. Documents required to be submitted to the Commission in connection with the proposed rules of the Board shall be signed on behalf of the Board by the Secretary of the Board, or by any person designated by the Board for that purpose by resolution. (b) Advisory Opinions and Interpretations. The Board may from time to time render or cause to be rendered advisory opinions and interpretations of rules of the Board at the request of any interested person. Such opinions and interpretations shall represent the Board's intent in adopting the rules which are the subject of such opinions and interpretations. (c) Procedures. The Board may from time to time prescribe and amend procedures relating to the administration of Board rules. Such procedures and amendments may be approved by the Board pursuant to rule A-4(d). Each broker, dealer and municipal securities dealer shall be subject to such procedures and amendments thereto in the same manner as the broker, dealer and municipal securities dealer is subject to the rules of the Board. Procedures and amendments thereto shall become effective no earlier than 10 business days after publication of such procedures and amendments. (d) Access to Board Rules and Other Action. The Board shall establish procedures designed to provide access by all interested persons to rules of the Board and other official Board action, and otherwise to keep all interested persons informed and advised of all such rules and action. Rule
A‐9:
Fiscal
Year
 The fiscal year of the Board shall commence on October 1 of each year and end on September 30 of the following year. Rule
A‐10:
Independent
Audit
 The books and records of the Board shall be audited annually by independent certified public accountants selected by the Board, who shall certify the results of their audit to the Board not later than 90 days following the close of each fiscal year of the Board. Rule
A‐11:
**RESERVED**
 Rule
A‐12:
Initial
Fee
 Prior to effecting any transaction in or inducing or attempting to induce the purchase or sale of any municipal security, a broker, dealer, or municipal securities dealer shall pay to the Board an initial fee of $100, accompanied by a written statement- Rule
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 setting forth the name, address and Securities and Exchange Commission registration number of the broker, dealer, or municipal securities dealer on whose behalf such fee is paid. The Commission registration number shall also be set forth on the face of the remittance. Such fee shall be payable at the offices of the Board. In the event any person subject to this rule shall fail to pay the required fee, the Board may recommend to the Commission that the registration of such person with the Commission be suspended or revoked. MSRB INTERPRETATIONS  INTERPRETIVE LETTERS  Extent of municipal securities activities. You inquire whether your firm is subject to the initial fee imposed by rule A12 of the Municipal Securities Rulemaking Board ("MSRB"). In that letter, you argue that the fee would constitute a substantial portion of the income of the [company name omitted.] from the sale of a municipal securities and that firms with a low volume of business should not be required to pay this fee. The MSRB was established by the Securities Acts Amendments of 1975 as the primary rulemaking authority with respect to the activities of municipal securities brokers and dealers and transactions in municipal securities. All municipal securities brokers and dealers, regardless of the volume of their municipal securities business, are subject to the rules promulgated by the MSRB. MSRB rule A-12 provides for an initial assessment upon all municipal securities brokers and dealers to defray a portion of the MSRB's costs and expenses. In approving this rule, the Commission determined that such an assessment does not impose an undue burden and is consistent with the statutory requirement that the MSRB be self-funding. Thus, we can find no reason to recommend that the Commission exempt the Company from the provisions of MSRB rule A-12. SEC interpretation of January 6, 1977. Extent of municipal securities activities. We have received a copy of your letter of December 17, 1976, addressed to the Municipal Securities Rulemaking Board ("MSRB"), in which you question the applicability of MSRB Rule A-12 to [name of company omitted], a registered broker-dealer which, in 1976, engaged in occasional municipal securities transactions involving securities which totaled under $12,000 in face amount. The MSRB was established by the Securities Acts Amendments of 1975 (the "Amendments") as the primary rulemaking authority with respect to the activities of municipal securities brokers and dealers and with respect to transactions in municipal securities. All municipal securities brokers and dealers, regardless of whether they were registered broker-dealers prior to the Amendments and regardless of the volume of their municipal securities business, are subject to the rules promulgated by the MSRB. MSRB Rule A-12 provides for a single, initial assessment of $100 upon all municipal securities brokers and dealers to defray a portion of the MSRB's costs and expenses in carrying out its Congressionally mandated function of devising a system of rules and regulations applicable to all municipal securities professionals. The bulk of those costs and expenses are currently defrayed by revenues from fees assessed pursuant to Rule A-13 which applies to underwriters of municipal securities. In approving MSRB Rule A-12, the Commission determined that such an assessment does not impose an undue burden and is consistent with the statutory requirement that the MSRB be self-funding. Therefore, we would not recommend that the Commission consider exempting [name of company omitted] from the provisions of MSRB Rule A-12. SEC interpretation of January 4, 1977. Previously registered entities. Thank you for your letter [name and date deleted] which has been referred to me for response. The letter relates to the Municipal Securities Rulemaking Board's rule A12, which imposes an initial fee of $100 on municipal securities brokers and municipal securities dealers. We note that the terms "municipal securities broker" and "municipal securities 5 dealer" are not restricted under the Securities Acts Amendments of 1975 (the "1975 Amendments") to securities firms and banks effecting transactions exclusively in municipal securities. Many municipal securities brokers and municipal securities dealers (other than bank dealers) were registered with the Securities and Exchange Commission (the "Commission") as brokers or dealers prior to the 1975 Amendments. Municipal securities brokers and municipal securities dealers already registered with the Commission were not required to re-register with respect to their municipal securities activities, but nevertheless are subject to payment of the Board's initial fee. In addition, many municipal securities brokers and municipal securities dealers have been and are members of the national securities exchanges and the National Association of Securities Dealers, Inc. We are unable to conclude from the information set forth in your letter that the initial fee imposed by the Board's rule A12 is inapplicable to your firm. MSRB interpretation of June 16, 1976. Introducing broker. We are in receipt of your letter dated March 23, 1976, concerning the Municipal Securities Rulemaking Board's initial fee of $100 payable by municipal securities brokers and municipal securities dealers. We note that the term "broker" as defined in section 3(a)(4) of the Securities Exchange Act of 1934 (the "Act") is not restricted to securities firms that directly effect transactions for the account of others. Rule 15c3-1(a)(2) of the Securities and Exchange Commission, which establishes the … minimum net capital requirement applicable to brokers that generally do not carry customer accounts, necessarily assumes that the introduction and forwarding of transactions and accounts "to another broker or dealer" is itself the performance of a brokerage function. The definition of Rule
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 the term "municipal securities broker" set forth in section 3(a)(31) of the Act incorporates the statutory definition of "broker" and therefore appears similarly not restricted to firms directly effecting transactions in municipal securities for the account of others. Pursuant to rule D-1 of the Board, which incorporates the definitions of terms used in the Act for purposes of the Board's rules, the term "municipal securities broker" as used in rule A-12 has the same meaning as set forth in section 3(a)(31) of the Act. Accordingly, we are unable to conclude from the information set forth in your letter that the fee imposed by rule A12 is inapplicable to your firm. MSRB interpretation of April 2, 1976. Introducing broker. Thank you for your letter [name and date deleted] which has been referred to me for response. Your letter relates to the Municipal Securities Rulemaking Board's rule A-12, which imposes an initial fee of $100 on municipal securities brokers and municipal securities dealers. More particularly, you question whether an introducing broker with respect to municipal securities transactions is a "municipal securities broker" subject to the Board's rule A-12. We note that the term "broker" as defined in section 3(a)(4) of the Securities Exchange Act of 1934 (the "Act") is not restricted to securities firms that directly effect transactions in securities for the account of others. We call your attention to various rules of the Securities and Exchange Commission governing the activities of "brokers" and "dealers" that recognize introducing brokers as "brokers" under the Act. See, e.g., rules 15c3-1(a)(2), 15c33(k)(2). The definition of the term "municipal securities broker" set forth in section 3(a)(31) of the Act incorporates the statutory definition of "broker" and therefore appears similarly not limited to firms directly effecting transactions in municipal securities for the account of others. With respect to the portion of your business that relates to transactions in municipal securities, we note that the term "municipal securities broker" is not limited under the Act to brokers effecting transactions exclusively in municipal securities. Such transactions need not constitute a principal part of a municipal securities broker's business. Pursuant to rule D-1 of the Board, which incorporates the definition of terms used in the Act for purposes of the Board's rules, the term "municipal securities broker" as used in rule A-12 has the same meaning as set forth in section 3(a)(31) of the Act. Accordingly, we are unable to conclude from the information set forth in your letter that the fee imposed by rule A-12 is inapplicable to your situation. You may wish, however, to consult the staff of the Securities and Exchange Commission with respect to your status. If we may be of any further assistance to you, please do not hesitate to contact us. MSRB interpretation of June 11, 1976. Affiliated entities. Thank you for your letter [name and date deleted] which has been referred to me for response. The letter relates to the Municipal Securities Rulemaking Board's rule A-12, which imposes an initial fee of $100 on municipal securities brokers and municipal securities dealers. Your letter indicates that you acquired the firm of [firm's name deleted.] which is registered with the Securities and Exchange Commission as a broker-dealer, as of April 1, 1976. The acquired firm, which is now called [firm's name deleted] is a wholly-owned subsidiary of your firm. We note that the Securities Exchange Act of 1934 (the "Act") defines the terms "municipal securities broker" and "municipal securities dealer" by reference to the types of activities engaged in by a "person," rather than by reference to the affiliation or ownership of the "person." Under section 3(a)(9) of the Act, parent and subsidiary corporations are considered to be separate "persons." Accordingly, we are unable to conclude from the information set forth in your letter that the initial fee imposed by the Board's rule A-12 is inapplicable to [the acquired firm] because of your ownership of that firm. We should point out, however, that the applicability of the initial fee depends upon the nature of [the acquired firm's] activities. If [the acquired firm] was a municipal securities broker or municipal securities dealer prior to its acquisition by you, the initial fee would be payable in accordance with rule A-12 regardless of the nature of [the acquired firm's] present securities activities. Of course, the initial fee would also be payable if [the acquired firm] is presently acting as a municipal securities broker or municipal securities dealer. As your letter does not discuss the activities of [the acquired firm] prior to or after its acquisition by you, we are unable to conclude that the Board's initial fee is inapplicable. MSRB interpretation of June 11, 1976. See
also: Rule A-14 Interpretive Letters – Fully disclosed broker, MSRB interpretation of April 4, 1978. – Extent and type of municipal securities activities, MSRB interpretation of May 3, 1978. – Registered municipal securities dealer, MSRB interpretation of June 11, 1981. Rule G-3 Interpretive Letter – Municipal securities principal: MSRB registered dealer, MSRB interpretation of March 30, 1994. Rule
A‐13:
Underwriting
and
Transaction
Assessments
for
Brokers,
Dealers
and
Municipal
Securities
Dealers
 (a) Underwriting Assessments-Scope. Each broker, dealer and municipal securities dealer shall pay to the Board an underwriting fee as set forth in section (b) for all municipal securities purchased from an issuer by or through such broker, dealer or municipal securities dealer, whether acting as principal or agent, as part of a primary offering, provided that section (b) of this rule shall not apply to a primary offering of securities if all such securities in the primary offering: (i) have an aggregate par value less than $1,000,000; (ii) have a final stated maturity of nine months or less; Rule
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 (iii) at the option of the holder thereof, may be tendered to an issuer of such securities or its designated agent for redemption or purchase at par value or more at least as frequently as every nine months until maturity, earlier redemption, or purchase by an issuer or its designated agent; (iv) have authorized denominations of $100,000 or more and are sold to no more than thirty-five persons each of whom the broker, dealer or municipal securities dealer reasonably believes: (A) has the knowledge and experience necessary to evaluate the merits and risks of the investment; and (B) is not purchasing for more than one account, with a view toward distributing the securities; or (v) constitute municipal fund securities. If a syndicate or similar account has been formed for the purchase of the securities, the underwriting fee shall be paid by the managing underwriter on behalf of each participant in the syndicate or similar account. (b) Underwriting Assessments-Amount. For those primary offerings subject to assessment under section (a) above, the amount of the underwriting fee is: (i) for primary offerings in which all securities offered have a final stated maturity less than two years, .001% ($.01 per $1,000) of the par value; (ii) for primary offerings in which all securities offered, at the option of the holder thereof, may be tendered to an issuer of such securities or its designated agent for redemption or purchase at par value or more at least as frequently as every two years until maturity earlier redemption, or purchase by an issuer or its designated agent, .001% ($.01 per $1,000) of the par value; and (iii) for all other primary offerings subject to this rule, .003% ($.03 per $1,000) of the par value. (c) Transaction Assessments. (i) Inter-Dealer Sales. Each broker, dealer and municipal securities dealer shall pay to the Board a fee equal to .0005% ($.005 per $1,000) of the total par value of inter-dealer municipal securities sales that it reports to the Board under rule G-14(b), except as provided in section (iii) of this paragraph (c). For those inter-dealer transactions reported to the Board by a broker, dealer or municipal securities dealer on behalf of another broker, dealer or municipal securities dealer, the inter-dealer transaction fee shall be paid by the broker, dealer or municipal securities dealer that reported the transaction to the Board. Such broker, dealer or municipal securities dealer may then collect the inter-dealer transaction fee from the broker, dealer or municipal securities dealer on whose behalf the transaction was reported. (ii) Customer Sales. Each broker, dealer and municipal securities dealer shall pay to the Board a fee equal to .0005% ($.005 per $1,000) of the total par value of sales to customers that it reports to the Board under rule G-14(b), except as provided in section (iii) of this paragraph (c). The customer transaction fee shall be paid by the broker, dealer or municipal securities dealer that effected the sale to the customer. (iii) Transactions Not Subject to Fee. Transaction fees are not assessed on transactions in municipal securities that: (a) have a final stated maturity of nine months or less; or (b) at the time of trade, may be tendered at the option of the holder to an issuer of such securities or its designated agent for redemption or purchase at par value or more at least as frequently as every nine months until maturity, earlier redemption, or purchase by an issuer or its designated agent. (d) Billing Procedure. The Board periodically will invoice brokers, dealers and municipal securities dealers for payment of underwriting and transaction fees. The underwriting and transaction fees must be paid within 30 days of the sending of the invoice by the Board. (e) Prohibition on Charging Fees Required Under this Rule to Issuers. No broker, dealer or municipal securities dealer shall charge or otherwise pass through the fee required under this rule to an issuer of municipal securities. (f) Definition. For purposes of this rule, the term "primary offering" shall mean an offering of municipal securities directly or indirectly by or on behalf of the issuer of such securities, including any remarketing of such securities directly by or on behalf of the issuer of such securities. MSRB INTERPRETATIONS  which requires each municipal securities broker and municipal securities dealer to pay the Board a fee [on] … the face amount of municipal securities purchased from an issuer as part of a new issue. These requests concern the applicability of the fee to securities which have a stated maturity of [nine months or less], but are INTERPRETIVE NOTICE ON UNDERWRITING ASSESSMENT April 7, 1976 The Municipal Securities Rulemaking Board (the "Board") has received several requests for interpretation of rule A-13, 7 Rule
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 part of a new issue having a final stated maturity of [more than nine months]. Rule A-13 is intended to impose the … underwriting assessment on the face amount of all securities purchased from an issuer that are part of a new issue of municipal securities if any part of the issue has a final stated maturity of [nine months or less] … from the date of the securities. Thus, calculation of the fee 
 should be based upon all municipal securities which are part of such new issue, including securities having a stated maturity of [nine months or less]. The assessment is not intended to apply, however, to short-term issues having a final maturity of [nine months or less]. NOTE: Revised to reflect subsequent amendments. INTERPRETIVE LETTERS  Underwriting assessment: intrastate underwriting. This will acknowledge receipt of your letter dated March 3, 1978 requesting that [Company name deleted.] be granted an exemption from rule A-13 of the Municipal Securities Rulemaking Board (the "Board"). Rule A-13 requires municipal securities brokers and municipal securities dealers to pay a fee to the Board based on their municipal securities underwriting activity. In your letter, you suggest that "the Company" should not be subject to the underwriting assessment imposed by the rule because it engages only in intrastate sales of municipal securities "to registered broker-dealers or institutional investors." As a technical matter, although the Board has the authority to interpret its rules and to amend them through prescribed statutory procedures, the Board does not have the authority to grant exemptions from the rules. The authority to grant exemptions is vested in the Securities and Exchange Commission by section 15B(a)(4) of the Securities Exchange Act of 1934, as amended (the "Act"). In considering whether "the Company" should request an exemption from the Commission, the following information concerning rule A-13 may be helpful. The purpose of rule A-13 is to provide a reasonable and equitable means of defraying the costs and expenses of operating and administering the Board, as contemplated by section 15B(b)(2)(J) of the Act. The rule applies to all municipal securities dealers, with respect to their municipal securities underwriting activities, and covers situations in which new issue municipal securities are sold by or through a municipal securities professional to other securities professionals and institutional customers, as well as to individuals. With respect to the intrastate character of the Company's" underwriting activity, we note that certain provisions of the Securities Acts Amendments of 1975 (Pub. L. 94-29) had the effect of including within the scope of municipal securities dealer regulation the intrastate activities of municipal securities dealers. (See sections 3(a)(17), 15(a)(1) and 15B(a)(1) of the Act.) Rule A-13 makes no distinction between interstate and intrastate offerings. MSRB interpretation of March 27, 1978. Underwriting assessment: application to private placements. This is in response to your request for a clarification of the application of Board rule A-13, concerning the underwriting assessment for municipal securities brokers and municipal securities dealers, to private placements of municipal securities. Rule A-13 imposes an assessment fee on the underwriting of new issue municipal securities as an equitable means of defraying the costs and expenses of operating the Board. The assessment fee applies to new issue municipal securities which are "... purchased from an issuer by or through [a] municipal securities broker, or municipal securities dealer, whether acting as principal or agent." The Board has consistently interpreted the rule as requiring payment of the assessment fee where a municipal securities dealer acting as agent for the issuer arranges the direct placement of new issue municipal securities with institutional customers or individuals. In such cases it can be said that the securities are purchased from an issuer "through" the municipal securities dealer. Of course, a municipal securities dealer who serves in an advisory role to an issuer on such matters as the structure or timing of a new issue, but who plays no part in arranging a private placement of the securities, would not be required to pay the assessment fee prescribed by rule A-13. MSRB interpretation of February 22, 1982. Rule
A‐14:
Annual
Fee
 In addition to any other fees prescribed by the rules of the Board, each broker, dealer and municipal securities dealer shall pay an annual fee to the Board of $300, with respect to each fiscal year of the Board in which the broker, dealer or municipal securities dealer conducts municipal securities activities. Such fee must be received at the office of the Board no later than October 31 of the fiscal year for which the fee is paid, accompanied by the invoice sent to the broker, dealer or municipal securities dealer by the Board, or a written statement setting forth the name, address and Commission registration number of the broker, dealer or municipal securities dealer on whose behalf the fee is paid. 
 MSRB INTERPRETATIONS  INTERPRETIVE LETTERS  Registered municipal securities dealer. Your letter dated February 11, 1981 has been referred to me for response. Rule
A‐14
 In your letter you state that [the firm] "has had no transactions in municipal securities since a trade on September 13, 1979." 8 You note that according to rule A-14 of the Board relating to annual fees, a fee … is payable for each fiscal year in which the

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 municipal securities broker or municipal securities dealer conducts business. You conclude that "[s]ince we did not conduct any business during the last fiscal year (10/1/79-9/30/80) it would appear that [the firm] should be entitled to a refund" for the fiscal year ending October, 1980, and should not be liable for payment of the annual fee for the fiscal year ending October, 1981. The purpose of the annual fee imposed by rule A-14 is to defray the costs of the Board's communications with those firms which are qualified to do a municipal securities business. There is no threshold level of municipal securities business which triggers liability for payment of the annual fee. Rather, the fee is imposed on all brokers and dealers who are registered as municipal securities brokers with the S.E.C. Since [the firm] is registered as a municipal securities dealer, it is liable for payment of the annual fee imposed by rule A-14 for the fiscal year ending October 1981. If your firm no longer intends to do a municipal securities business, rule A-15 of the Board provides a procedure for withdrawal from registration as a municipal securities dealer. Withdrawal from registration would, of course, enable your firm to avoid paying annual fees to the Board. However, at such time as your firm resumes any municipal securities business, it would be required to pay the initial and annual fees imposed by rules A-12 and A14, respectively. MSRB interpretation of June 11, 1981. Fully disclosed broker. I refer to your letter of March 24, 1978 in which you request a determination concerning whether as a broker who passes all of his business through a dealer on a fully disclosed basis you are subject to the Munici- pal Securities Rulemaking Board's rules A12 and A-14 which impose an initial and annual fee on municipal securities brokers and municipal securities dealer. I note that the term "broker" as defined in section 3(a)(4) of the Securities Exchange Act of 1934 (the "Act") is not restricted to securities firms that directly effect transactions in securities for the account of others. I call your attention to various rules of the Securities and Exchange Commission governing the activities of "brokers" and "dealers" that recognize introducing brokers as "brokers" under the Act. See e.g., rules 15c-3-1 1(a)(2) and 15c3-3(k)(2). The definition of the term "municipal securities broker" set forth in section 3(a)(31) of the Act incorporates the statutory definition of "broker" and therefore appears similarly not limited to firms directly effecting transactions in municipal securities for the account of others. Pursuant to rule D-1 of the Board, which incorporates the definition of terms used in the Act for purposes of the Board's rules, the term "municipal securities broker" as used in rules A-12 and A-14 has the same meaning as set forth in section 3(a)(31) of the Act. Accordingly, we are unable to conclude that the fees imposed by the Board are inapplicable to your situation. MSRB interpretation of April 4, 1978. Extent and type of municipal securities activities. Your letter dated March 23, 1978 concerning compliance with the Municipal Securities Rulemaking Board's requirements has been referred to me for response. The Municipal Securities Rulemaking Board was established by the Securities Acts Amendments of 1975 as the primary rulemaking authority with respect to the activities of municipal securities brokers and dealers and with respect to transactions in municipal securities. The Board's rules apply to each municipal securities broker and municipal securities dealer within the meaning of sections 3(a)(31) and 3(a)(30), respectively, of the Securities Exchange Act of 1934, as amended (the "Act"), and all municipal securities brokers and dealers regardless of the volume of their municipal securities business, are subject to the rules promulgated by the Board insofar as transactions in municipal securities are concerned, whether such transactions are solicited or unsolicited. Under section 15B(b)(2)(J) of the Act, the Board is directed to prescribe fees and charges payable by each municipal securities dealer and municipal securities broker to defray the costs and expenses of operating the Board. Pursuant to this authority, the Board adopted rules A-12 and A-14 which impose an initial fee and an annual fee on each municipal securities broker and municipal securities dealer. A copy of these rules are enclosed. In approving MSRB rules A-12 and A-14, the Securities and Exchange Commission determined that these assessments are consistent with the statutory requirement that the MSRB be self-funding. We therefore request that you comply with these rules and forward your checks to us promptly. MSRB interpretation of May 3, 1978. See
also: Rule G-3 Interpretive Letter – Municipal securities principal: MSRB registered dealer, MSRB interpretation of March 30, 1994. 
 Rule
A‐15:
Notification
to
Board
of
Termination
of
Municipal
Securities
Activities
and
Change
of
Name
or
Address
 (a) Procedure for Notifying Board of Termination. A broker, dealer, or municipal securities dealer that ceases to be engaged in municipal securities activities must promptly notify the Board of such broker’s, dealer’s or municipal securities dealer’s change of status by filing with the Board a written statement setting forth such broker’s, dealer’s or municipal securities dealer’s name, address and Commission registration number and the fact that such broker, dealer or municipal securities dealer is no longer engaging in municipal securities activities. (b) Obligation to Pay Fees. A broker, dealer, or municipal securities dealer that files notification with the Board pursuant to section (a) of this rule shall be obligated to pay the fees owed to the Board at the time of filing of such notification. (c) Notification of Name or Address Change. Each broker, dealer or municipal securities dealer which has followed the procedure set forth in Board rule A-12 shall notify the Board promptly of any changes to the information required by rule A-12. 9 Rule
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 INTERPRETIVE LETTERS  See: Rule G-3 Interpretive Letter – Municipal securities principal:  MSRB registered dealer, MSRB interpretation of March 30, 1994. Rule
A‐16:
**RESERVED**
 Rule
A‐17:

Confidentiality
of
Examination
Reports
 Any report of an examination or of information extracted from a report of an examination ("examination report") of a broker, dealer and municipal securities dealer furnished to the Board by the Securities and Exchange Commission pursuant to section 15(B)(c)(7)(B) of the Act and rule 15Bc7-1 thereunder shall be maintained and utilized in accordance with the following terms and conditions, in order to ensure the confidentiality of any information contained in such reports: (1) Any such examination report shall be reviewed only by authorized members of the Board’s staff; no member of the Board shall have access, directly or indirectly, to an examination report. Anything herein to the contrary notwithstanding, the staff of the Board may furnish to the Board or any appropriate committee thereof summaries or other communications relating to the examination reports, provided that such summaries or other communications shall not contain information which might make it possible to identify the brokers, dealers or municipal securities dealers or associated persons which are the subject of the examination reports to which any such summary or other communication relates. (2) The Executive Director and General Counsel shall designate jointly the members of the staff of the Board who shall have access to the examination reports. (3) Each member of the staff of the Board who is authorized pursuant to section (2) of this rule to have access to the examination reports shall execute a written undertaking that he or she will not copy or use for personal purposes any part of such reports, nor reveal the contents thereof to any unauthorized person. (4) The examination reports shall be maintained on the premises of the Board in locked cabinets with access thereto limited to authorized members of the staff of the Board. Rule
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 DEFINITIONAL
RULES
 Rule
D‐1:
General
 Unless the context otherwise specifically requires, the terms used in the rules of the Municipal Securities Rulemaking Board shall have the respective meanings set forth in the Securities Exchange Act of 1934 (15 U.S.C. § 78a et seq.) and the rules and regulations of the Securities and Exchange Commission thereunder. Rule
D‐2:
"Act"
 The term "Act" shall mean the Securities Exchange Act of 1934, as from time to time amended. Rule
D‐3:
"Commission"
 The term "Commission" shall mean the Securities and Exchange Commission. Rule
D‐4:
"Board"
 The term "Board" shall mean the Municipal Securities Rulemaking Board. Rule
D‐5:
"Member"
 The term "Member" shall mean a member of the Board. Rule
D‐6:
"Whole
Board"
 The term "Whole Board" shall mean the total number of members of the Board provided for in the administrative rules of the Board without regard to vacancies. Rule
D‐7:
"Proposed
Rules
and
Rules
of
the
Board"
 The term "Rule" shall mean a rule which the Board shall have adopted within the scope of its authority under section 15B of the Act, which shall have become effective in accordance with section 19(b) of the Act or which shall have been amended by the Commission pursuant to section 19(c) of the Act. The term "Proposed Rule" shall mean a rule of the Board prior to the time when the same shall have become effective in accordance with section 19(b) of the Act. Rule
D‐8:
"Bank
Dealer"
 The term "Bank Dealer" shall mean a municipal securities dealer which is a bank or a separately identifiable department or division of a bank as defined in rule G-1 of the Board. Rule
D‐9:
"Customer"
 Except as otherwise specifically provided by rule of the Board, the term "Customer" shall mean any person other than a broker, dealer, or municipal securities dealer acting in its capacity as such or an issuer in transactions involving the sale by the issuer of a new issue of its securities.   MSRB INTERPRETATION  brokers, dealers and municipal securities dealers would, under this definition, be “customers” with respect to transactions affected for their personal accounts. An issuer would be a “customer” within the meaning of the rule except in the case of a sale by it of a new issue of its securities. EXCERPT FROM NOTICE OF APPROVAL OF FAIR PRACTICE RULES October 24, 1978 Rule D-9 codifies, as a definitional rule of general application, the definition of the term “customer” presently set forth in various Board rules. Employees and other associated persons of 11 Rule
D‐9


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 Rule
D‐10:
"Discretionary
Account"
 The term "Discretionary Account" shall mean the account of a customer carried or introduced by a broker, dealer, or municipal securities dealer with respect to which such broker, dealer, or municipal securities dealer is authorized to determine what municipal securities will be purchased, sold or exchanged by or for the account.   MSRB INTERPRETATION  which the customer sometimes, but not always, makes investment decisions. Under rule D-10, a discretionary account will not be deemed to exist if the professional’s discretion is limited to the price at which, or the time at which, an order given by a customer for a definite amount of a specified security is executed. The definition relates to discretion concerning what municipal securities will be purchased, sold or exchanged, rather than when or at what price such transactions may occur. EXCERPT FROM NOTICE OF APPROVAL OF FAIR PRACTICE RULES October 24, 1978 Rule D-10 defines a discretionary account as an account for which a municipal securities professional has been authorized to determine what municipal securities will be purchased, sold or exchanged by or for the account. The definition covers accounts for which a municipal securities professional exercises discretionary authority from time to time, as well as accounts in Rule
D‐11:
“Associated
Persons”
 Unless the context otherwise requires or a rule of the Board otherwise specifically provides, the terms "broker," "dealer," "municipal securities broker," "municipal securities dealer," and "bank dealer" shall refer to and include their respective associated persons. Unless otherwise specified, persons whose functions are solely clerical or ministerial shall not be considered associated persons for purposes of the Board's rules.   MSRB INTERPRETATION  except that clerical and ministerial personnel are excluded from the definition for purposes of the Board’s rules, unless otherwise specified. Although the statutory definitions of associated persons include individuals and organizations in a control relationship with the securities professional, the context of the fair practice rules indicates that such rules will ordinarily not apply to persons who are associated with securities firms and bank dealers solely by reason of a control relationship. EXCERPT FROM NOTICE OF APPROVAL OF FAIR PRACTICE RULES October 24, 1978 Rule D-11 is designed to eliminate the need to make specific reference TO personnel of securities firms and bank dealers in each Board rule that applies both to the organization and its personnel. The term “associated person” in rule D-11 has the same meaning as set forth in section 3(a)(18) and 3(a)(32) of the Act, Rule
D‐12:
“Municipal
Fund
Security”
 The term “Municipal Fund Security” shall mean a municipal security issued by an issuer that, but for the application of Section 2(b) of the Investment Company Act of 1940, would constitute an investment company within the meaning of Section 3 of the Investment Company Act of 1940.   MSRB INTERPRETATION  INTERPRETATION RELATING TO SALES OF MUNICIPAL FUND SECURITIES IN THE PRIMARY MARKET January 18, 2001 The Municipal Securities Rulemaking Board (the “Board”) has learned that sales of certain interests in trust funds held by state or local governmental entities may be effected by or through brokers, dealers or municipal securities dealers (“dealers”). In particular, the Board has reviewed two types of state or local governmental programs in which dealers may effect transactions in such interests: pooled investment funds under trusts established by Rule
D‐12
 state or local governmental entities (“local government pools”)1 and higher education savings plan trusts established by states (“higher education trusts”).2 In response to a request of the Board, staff of the Division of Market Regulation of the Securities and Exchange Commission (the “SEC”) has stated that “at least some interests in local government pools and higher education trusts may be, depending on the facts and circumstances, ‘municipal securities’ for purposes of the [Securities] Exchange Act [of 1934].”3 Any such interests that may, in fact, constitute municipal securities are referred to herein as “municipal fund securities.” To the extent that dealers effect transactions in municipal fund securi12

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 ties, such transactions are subject to the jurisdiction of the Board pursuant to Section 15B of the Securities Exchange Act of 1934 (the “Exchange Act”). With respect to the applicability to municipal fund securities of Exchange Act Rule 15c2-12, relating to municipal securities disclosure, staff of the SEC’s Division of Market Regulation has stated: [W]e note that Rule 15c2-12(f)(7) under the Exchange Act defines a “primary offering” as including an offering of municipal securities directly or indirectly by or on behalf of an issuer of such securities. Based upon an analysis of programs that have been brought to our attention, it appears that interests in local government pools or higher education trusts generally are offered only by direct purchase from the issuer. Accordingly, we would view those interests as having been sold in a “primary offering” as that term is defined in Rule 15c2-12. If a dealer is acting as an “underwriter” (as defined in Rule 15c2-12(f)(8)) in connection with that primary offering, the dealer may be subject to the requirements of Rule 15c2-12.4 Rule 15c2-12(f)(8) defines an underwriter as “any person who has purchased from an issuer of municipal securities with a view to, or offers or sells for an issuer of municipal securities in connection with, the offering of any municipal security, or participates or has a direct or indirect participation in any such undertaking, or participates or has a participation in the direct or indirect underwriting of any such undertaking.”5 Consistent with SEC staff’s view regarding the sale in primary offerings of municipal fund securities, dealers acting as underwriters in primary offerings of municipal fund securities generally would be subject to the requirements of rule G-36, on delivery of official statements, advance refunding documents and Forms G-36(OS) and G-36(ARD) to Board or its designee. Thus, unless such primary offering falls within one of the stated exemptions in Rule 15c2-12, the Board expects that the dealer would receive a final official statement from the issuer or its agent under its contractual agreement entered into pursuant to Rule 15c212(b)(3).6 Such final official statement should be received from the issuer in sufficient time for the dealer to send it, together with Form G-36(OS), to the Board within one business day of receipt but no later than 10 business days after any final agreement to purchase, offer, or sell the municipal fund securities, as required under rule G-36(b)(i).7 “Final official statement,” as used in rule G-36(b)(i), has the same meaning as in Rule 15c2-12(f)(3), which states, in relevant part: The term final official statement means a document or set of documents prepared by an issuer of municipal securities or its representatives that is complete as of the date delivered to the Participating Underwriter(s) and that sets forth information concerning the terms of the proposed issue of securities; information, including financial information or operating data, concerning such issuers of municipal securities and those other entities, enterprises, funds, accounts, and other persons material to an evaluation of the Offering; and a description of the undertakings to be provided pursuant to paragraph (b)(5)(i), paragraph (d)(2)(ii), and paragraph (d)(2)(iii) of this section, if applicable, and of any instances in the previous five years in which each person specified pursuant to paragraph (b)(5)(ii) of this section failed to comply, in all material respects, with any previous undertakings in a written contract or agreement specified in paragraph (b)(5)(i) of this section.8 The Board understands that issuers of municipal fund securities typically issue and deliver the securities continuously as customers make purchases, rather than issuing and delivering a single issue on a specified date. As used in Board rules, the term “underwriting period” with respect to an offering involving a single dealer (i.e., not involving an underwriting syndicate) is defined as the period (A) commencing with the first submission to the dealer of an order for the purchase of the securities or the purchase of the securities from the issuer, whichever first occurs, and (B) ending at such time as the following two conditions both are met: (1) the issuer delivers the securities to the dealer, and (2) the dealer no longer retains an unsold balance of the securities purchased from the issuer or 21 calendar days elapse after the date of the first submission of an order for the securities, whichever first occurs.9 Since an offering consisting of securities issued and delivered on a continuous basis would not, by its very nature, ever meet the first condition for the termination of the underwriting period, such offering would continuously remain in its underwriting period.10 Further, since rule G-36(d) requires a dealer that has previously provided an official statement to the Board to send any amendments to the official statement made by the issuer during the underwriting period, such dealer would remain obligated to send to the Board any amendments made to the official statement during such continuous underwriting period. However, in view of the increased possibility that an issuer may change the dealer that participates in the sale of its securities during such a continuous underwriting period, the Board has determined that rule G-36(d) would require that the dealer that is at the time of an amendment then serving as underwriter for securities that are still in the underwriting period send the amendment to the Board, regardless of whether that dealer or another dealer sent the original official statement to the Board. In addition, municipal fund securities sold in a primary offering would constitute new issue municipal securities for purposes of rule G-32, on disclosures in connection with new issues, so long as the securities remain in their underwriting period. Rule G-32 generally requires that a dealer selling a new issue municipal security to a customer must deliver the official statement in final form to the customer by settlement of such transaction. Thus, a dealer effecting transactions in municipal fund securities that are sold during a continuous underwriting period would be required to deliver to the customer the official statement by settlement of each such transaction. However, in the case of a customer purchasing such securities who is a repeat purchaser, no new delivery of the official statement would be required so long as the customer has previously received it in connection with a prior purchase and the official statement has not been changed from the one previously delivered to that customer.11 Certain other implications arise under Board rules as a result of the status, in the view of SEC staff, of sales of municipal fund 13 Rule
D‐12


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 securities as primary offerings. For example, dealers are reminded that the definition of “municipal securities business” under rule G37, on political contributions and prohibitions on municipal securities business, and rule G-38, on consultants, includes the purchase of a primary offering from the issuer on other than a competitive bid basis or the offer or sale of a primary offering on behalf of any issuer. Thus, a dealer’s transactions in municipal fund securities may affect such dealer’s obligations under rules G-37 and G-38. In addition, rule G-23, on activities of financial advisors, applies to a dealer’s financial advisory or consultant services to an issuer with respect to a new issue of municipal securities. not in excess of the usual and customary distributors’ or sellers’ commission, concession, or allowance. 2 The Board understands that local government pools are established by state or local governmental entities as trusts that serve as vehicles for the pooled investment of public moneys of participating governmental entities. Participants purchase interests in the trust and trust assets are invested in a manner consistent with the trust’s stated investment objectives. Investors generally do not have a right to control investment of trust assets. See generally National Association of State Treasurers, Special Report: Local Government Investment Pools (July 1995); Standard & Poor’s Fund Services, Local Government Investment Pools (May 1999). The Board understands that higher education trusts generally are established by states under section 529(b) of the Internal Revenue Code as “qualified state tuition programs” through which individuals make investments for the purpose of accumulating savings for qualifying higher education costs of beneficiaries. Individuals purchase interests in the trust and trust assets are invested in a manner consistent with the trust’s stated investment objectives. Investors do not have a right to control investment of trust assets. See generally College Savings Plans Network, Special Report on State and College Savings Plans (1998). 3 If a primary offering of municipal fund securities is exempt from Rule 15c2-12 (other than as a result of being a limited offering as described in section (d)(1)(i) of the Rule) and an official statement in final form has been prepared by the issuer, then the dealer would be expected to send the official statement in final form, together with Form G-36(OS), to the Board under rule G-36(c)(i). Dealers seeking guidance as to whether a particular document or set of documents constitutes a final official statement for purposes of rule G36(b)(i) should consult with SEC staff to determine whether such document or set of documents constitutes a final official statement for purposes of Rule 15c2-12. 9 See rule G-32(c)(ii)(B). If approved by the SEC, the proposed rule change will redesignate this section as rule G-32(d)(ii)(B). 10 This is equally true for other forms of municipal securities for which a customer has already received an official statement in connection with an earlier purchase and who proceeds to make a second purchase of the same securities during the underwriting period. Furthermore, in the case of a repeat purchaser of municipal securities for which no official statement in final form is being prepared, no new delivery of the written notice to that effect or of any official statement in preliminary form would be required so long as the customer has previously received it in connection with a prior purchase. However, if an official statement in final form is subsequently prepared, the customer’s next purchase would trigger the delivery requirement with respect to such official statement. Also, if an official statement which has previously been delivered is subsequently amended during the underwriting period, the customer’s next purchase would trigger the delivery requirement with respect to such amendment. The definition of underwriter excludes any person whose interest is limited to a commission, concession, or allowance from an underwriter or dealer Rule
D‐12
 Similarly, an offering involving an underwriting syndicate and consisting of securities issued and delivered on a continuous basis also would remain in its underwriting period under the definition thereof set forth in rule G11(a)(ix). 11 SEC Letter. 5 7 Letter dated February 26, 1999 from Catherine McGuire, Chief Counsel, Division of Market Regulation, SEC, to Diane G. Klinke, General Counsel of the Board, in response to letter dated June 2, 1998 from Diane G. Klinke to Catherine McGuire, published as Municipal Securities Rulemaking Board, SEC No-Action Letter, Wash. Serv. Bur. (CCH) File No. 032299033 (Feb. 26, 1999) (the “SEC Letter”). 4 Section (b)(3) of Rule 15c2-12 requires that a dealer serving as a Participating Underwriter in connection with a primary offering subject to the Rule contract with an issuer of municipal securities or its designated agent to receive copies of a final official statement at the time and in the quantities set forth in the Rule. 8 1 6 14

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 GENERAL
RULES
 Rule
G‐1:
Separately
Identifiable
Department
or
Division
of
a
Bank
 (a) A separately identifiable department or division of a bank, as such term is used in section 3(a)(30) of the Act, is that unit of the bank which conducts all of the activities of the bank relating to the conduct of business as a municipal securities dealer ("municipal securities dealer activities"), as such activities are hereinafter defined, provided that: (1) Such unit is under the direct supervision of an officer or officers designated by the board of directors of the bank as responsible for the day-to-day conduct of the bank's municipal securities dealer activities, including the supervision of all bank employees engaged in the performance of such activities; and (2) There are separately maintained in or separately extractable from such unit's own facilities or the facilities of the bank, all of the records relating to the bank's municipal securities dealer activities, and further provided that such records are so maintained or otherwise accessible as to permit independent examination thereof and enforcement of applicable provisions of the Act, the rules and regulations thereunder and the rules of the Board. (b) For purposes of this rule, the activities of the bank which shall constitute municipal securities dealer activities are as follows: (1) underwriting, trading and sales of municipal securities; (2) financial advisory and consultant services for issuers in connection with the issuance of municipal securities; (3) processing and clearance activities with respect to municipal securities; (4) research and investment advice with respect to municipal securities; (5) any activities other than those specifically enumerated above which involve communication, directly or indirectly, with public investors in municipal securities; and (6) maintenance of records pertaining to the activities described in paragraphs (i) through (v) above; provided, however, that the activities enumerated in paragraphs (iv) and (v) above shall be limited to such activities as they relate to the activities enumerated in paragraphs (i) and (ii) above. (c) The fact that directors and senior officers of the bank may from time to time set broad policy guidelines affecting the bank as a whole and which are not directly related to the day-to-day conduct of the bank's municipal securities dealer activities, shall not disqualify the unit hereinbefore described as a separately identifiable department or division of the bank or require that such directors or officers be considered as part of such unit. (d) The fact that the bank’s municipal securities dealer activities are conducted in more than one geographic organizational or operational unit of the bank shall not preclude a finding that the bank has a separately identifiable department or division for purposes of this rule, provided, however, that all such units are identifiable and that the requirements of paragraphs (i) and (ii) of section (a) of this rule are met with respect to each such unit. All such geographic, organizational or operational units of the bank shall be considered in the aggregate as the separately identifiable department or division of the bank for purposes of this rule.   MSRB INTERPRETATIONS  See:
 Rule G-23 Interpretation – Notice of Application of Board Rules to Financial Advisory Services Rendered to Corporate Obligors on Industrial Development Bonds, May 23, 1983.   INTERPRETIVE LETTERS  Separately identifiable department or division of a bank. This will acknowledge receipt of your letter of November 12, 1975, in which you request, on behalf of the Dealer Bank Association, an interpretative opinion with respect to the rule of the Municipal Securities Rulemaking Board (the “Board”) defining the term “separately identifiable department or division of a bank,” as used in section 3(a)(30) of the Securities Exchange Act of 1934, as amended (the “Act”). Such rule was originally numbered rule 4 of the Board and became effective on October 15, 1975. The rule is presently numbered rule G-1 of the Board. 15 In your letter you pose a series of questions concerning rule G-1, as follows: (1) A bank has an operations department that performs processing and clearance activities, and maintains records, with respect to the bank's underwriting, trading and sales of municipal securities, Rule
G‐1


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 as well as with respect to certain other bank activities. Can this bank have a “separately identifiable department or division” as defined in rule G-1? (2) In a bank with numerous branches, an employee or officer in a branch will on occasion accept or solicit an order from a customer for municipal securities. Does this preclude a finding that the bank has a “separately identifiable department or division”? (3) Mr. X is a senior vice president of a bank. He is not a director. Mr. X's only relationship to the bank's municipal securities dealer activities is that he is a member of a management committee within the bank that determines the amount of the bank's funds that will be made available for the bank's municipal securities dealer activities, as well as for other bank activities. The bank has a separately identifiable department or division that otherwise meets the requirements of rule G-1. Is Mr. X a person who must be designated by the board of directors of the bank under rule G-1(a)(1)? (4) A bank has a corporate trust department that, among other things, serves as paying agent for certain municipal securities and performs clearing functions in municipal securities, in addition to the processing and clearance activities performed in connection with the bank's underwriting, trading and sales of municipal securities. Are the persons in the bank's corporate trust department who engage solely in activities that do not relate to the underwriting, trading and sales of municipal securities by the bank performing municipal securities dealer activities? With respect to question (1) above, paragraph (d) of rule G-1 contemplates that the municipal securities dealer activities of a bank, as such activities are defined in paragraph (b) of the rule, may be conducted in more than one organizational or operational unit of the bank, for example, Rule
G‐1
 underwriting, trading and sales activities in the bond department, and processing and clearance activities in the operations department of the bank. Under the rule, all such units can be aggregated to constitute a separately identifiable department or division within the meaning of section 3(a)(30) of the Act, provided that each such unit is identifiable and under the direct supervision of an officer designated by the board of directors of the bank as responsible for the day-to-day conduct of the bank's municipal securities dealer activities. The officer so designated need not be the same for all such units. For example, the senior officer of the bank's bond department may be designated as responsible for the municipal securities dealer activities conducted by that department, while the senior officer of the bank's operations department may be designated as responsible for the municipal securities dealer activities conducted by that department. In addition, the records of each such unit relating to municipal securities dealer activities must be separately maintained or separately extractable so as to permit independent examination of such records and enforcement of applicable provisions of the Act, the rules and regulations of the Commission thereunder and the rules of the Board. Finally, each such unit comprising the separately identifiable department or division may be engaged in activities other than those relating to municipal securities dealer activities. For example, the bond department may also engage in activities relating to United States government obligations, while the operations department may perform processing and clearance functions for departments of the bank other than the bond department. With respect to question (2) above, paragraph (d) of rule G-1 also contemplates that the municipal securities dealer activities of a bank may be conducted at more than one geographic location. However, in order for such a bank to have a separately identifiable department or division, the branch employees who accept or solicit orders for municipal securities must, with respect to acceptance or solicitation of such orders, be affiliated with one of the identifiable units of the bank comprising such department or division and must, with respect to acceptance or solicitation of such orders, be responsible to an officer designated by the board of directors of the bank 16 as responsible for the day-to-day conduct of the bank's municipal securities dealer activities. Further, the bank's records relating to the transactions effected by such branch employees must meet the criteria of paragraph (a) of rule G-1 with respect to separate maintenance and accessibility. With respect to question (3) above, paragraph (c) of rule G-1 recognizes that senior officers of a bank may make determinations affecting bank policy as a whole which have an indirect effect on the municipal securities dealer activities of the bank. For example, determinations with respect to the deployment of the bank's funds may affect the size of the bank's inventory of municipal securities or volume of underwriting. Ordinarily such determinations would not directly relate to the dayto-day conduct of the bank's municipal securities dealer activities and senior officers making such determinations need not be designated by the board of directors of the bank as responsible for the conduct of such activities. However, if the determinations of senior officers have a direct and immediate impact on the day-to-day conduct of the bank's municipal securities dealer activities, whether by reason of the scope of such determinations, the frequency with which such determinations are made, or by reason of other factors, such officers may be considered to be directly engaged in the conduct of the bank's municipal securities dealer activities and required to be designated by the board of directors of the bank as responsible for the day-to-day conduct of such activities. With respect to question (4) above, the regulatory focus of section 15B(b)(2)(H) of the Act is on the dealer activities of a bank. Accordingly, subparagraph (b)(2) of rule G-1 was intended to relate to such dealer activities, and not to describe other activities of the bank which might involve municipal securities. Employees of a bank's corporate trust department who perform clearance and other functions with respect to municipal securities, but which do not relate to the underwriting, trading and sales activities of the bank, do not perform municipal securities dealer activities within the meaning of rule G-1. This opinion is rendered on behalf of the Board, pursuant to authority delegated

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 by the Board. Copies of this opinion are being sent to the Securities and Exchange Commission, the bank regulatory agencies and the National Association of Securities Dealers, Inc. MSRB interpretation of November 17, 1975. Inclusion of IDB-related activities. This responds to your letter of June 14, 1983 concerning your request for an interpretation of Board rule G-1, which defines a “separately identifiable department or division" of a bank. In particular, you request our advice concerning whether certain activities engaged in by your Corporate Finance Division (the “Division”) should be considered "municipal securities dealer activities” for purposes of the rule. Your letter and a subsequent telephone conversation set forth the following facts: The Division acts as financial advisor to certain corporate customers of the Bank. Some of these customers wish to raise money through the issuance of IDBs. In order to assist these corporations in the placement of the IDBs, the Division contacts from one to ten institutional investors and provides them with information regarding the terms of the proposed financing and basic facts about the corporation. If the investor expresses interest in the financing, a confidential memorandum describing the financing, prepared by the corporation with the assistance of the Division, is sent. During negotiations between the corporation and the investor, the Division may act as a liaison between the two parties in the communication of comments on the financing documents. According to the bank, the Division is not an agent of the corporation and is not authorized to act on behalf of the corporation in accepting any terms or conditions associated with the proposed financing. For its services, the Division usually receives a percentage of the total dollar amount of securities issued, with a minimum contingent on the successful completion of the deal. While the bank has established a separately identifiable division pursuant to rule G-1, the Division is not part of it. Your inquiry was discussed by the Board at its July meeting. The Board is of the view that the activities of the Division, as described, constitute the sales of municipal securities for purposes of the definition of municipal securities dealer activities in Board rule G-1. Therefore, these activities should be conducted in the bank's registered separately identifiable department by persons qualified under the Board's professional qualifications rules. MSRB interpretation of July 26, 1983. Portfolio credit analyst. This will acknowledge with thanks receipt of your letter dated May 2, 1978 concerning the status of persons occupying the position of portfolio credit analyst at your bank. Your letter, as well as our telephone conversations prior and subsequent to the letter, raise two questions concerning the status of such persons under Board rules. First, are the functions of a portfolio credit analyst subject to the requirements of rule G-1, which defines a separately identifiable dealer department or division of a bank? Second, must a portfolio credit analyst qualify as a municipal securities representative or municipal securities principal under Board rule G-3? Although we recognize that the primary purpose of the portfolio credit analyst, as set forth in the material you furnished to me, is to review your bank's investment portfolio, a function not subject to Board regulation, to the extent that the analyst provides research advice and analysis in connection with your bank's underwriting, trading or sales activities, the analyst must be included within the municipal securities dealer department for purposes of rule G-1, and is subject to the qualification requirements of rule G-3. Under Board rule G-1, a separately identifiable department or division of a bank is that unit of the bank which conducts all of the municipal securities dealer 17 activities of the bank. Section (b) of the rule defines municipal securities dealer activities to include research with respect to municipal securities to the extent such research relates to underwriting, trading, sales or financial advisory and consultant services performed by the bank. Thus, we think it clear that for purposes of rule G-1, persons functioning as portfolio credit analysts who render research in connection with underwriting, trading or sales activities at your bank must be included within the separately identifiable department or division of the bank for purposes of rule G1. This is consistent with the underlying purpose of rule G-1 to assure that all of the functions performed at the bank relating to the business of the bank as a municipal securities dealer are appropriately identified for purposes of supervision, inspection and enforcement. Under rule G-3(a)(iii)[*], a municipal securities representative is defined as a person associated with a municipal securities broker or municipal securities dealer who performs certain functions similar to those defined as municipal securities dealer activities in rule G-1. The position of portfolio credit analyst as described in your letter and accompanying material appears to fit the definition of municipal securities representative to the extent that persons occupying such position perform research in connection with the bank's underwriting, trading or sales activities. Under rule G3(e)[†], municipal securities representatives are required to qualify in accordance with Board rules. A similar result would obtain with respect to qualification as a municipal securities principal, if the portfolio credit analyst functions in a supervisory capacity. MSRB interpretation of June 8, 1978. [*] [Currently codified at rule G-3(a)(i)] [†] [Currently codified at rule G-3(a)(ii)] Rule
G‐1


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 Rule
G‐2:
Standards
of
Professional
Qualification
 No broker, dealer or municipal securities dealer shall effect any transaction in, or induce or attempt to induce the purchase or sale of, any municipal security unless such broker, dealer or municipal securities dealer and every natural person associated with such broker, dealer or municipal securities dealer is qualified in accordance with the rules of the Board.   MSRB INTERPRETATIONS  INTERPRETIVE LETTERS  Execution of infrequent unsolicited orders. This is in response to your letter in which you state that your firm is a discount broker that executes orders on an unsolicited basis and that occasionally a customer will approach your firm to sell a municipal security they own or to purchase a specific issue. You ask that the Board give consideration to allowing a firm like yours to act as a broker/dealer for customers on an unsolicited basis without being required to have an associated person qualified as a municipal securities principal. Rule
G‐2
 Rule G-2, on standards of professional qualification, states that no dealer shall effect any transaction in, or induce or attempt to induce the purchase or sale of, any municipal security unless such dealer and every natural person associated with such dealer is qualified in accordance with the rules of the Board. Rule G-3, on professional qualifications, states that a dealer that conducts a general securities business shall have at least one associated person qualified as a municipal securities principal 18 to supervise the dealer’s municipal securities activities. The Board’s rules do not provide an exemption from the numerical requirements for municipal securities principals based on the type of transactions in municipal securities in which a dealer engages. There also is no exemption from the Board’s rules based on a de minimus number of transactions in municipal securities. MSRB interpretation of October 2, 1998.

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 Rule
G‐3:
Classification
of
Principals
and
Representatives;
Numerical
Requirements;
Testing;
Continuing
Educa‐ tion
Requirements
 No broker, dealer or municipal securities dealer or person who is a municipal securities representative, municipal securities principal, municipal securities sales principal or financial and operations principal (as hereafter defined) shall be qualified for purposes of rule G-2 unless such broker, dealer or municipal securities dealer or person meets the requirements of this rule. (a) Municipal Securities Representative. (i) Definition. The term “municipal securities representative” means a natural person associated with a broker, dealer or municipal securities dealer, other than a person whose functions are solely clerical or ministerial, whose activities include one or more of the following: (A) underwriting, trading or sales of municipal securities; (B) financial advisory or consultant services for issuers in connection with the issuance of municipal securities; (C) research or investment advice with respect to municipal securities; or (D) any other activities which involve communication, directly or indirectly, with public investors in municipal securities; provided, however, that the activities enumerated in subparagraphs (C) and (D) above shall be limited to such activities as they relate to the activities enumerated in subparagraphs (A) and (B) above. (ii) Qualification Requirements. (A) Except as otherwise provided in this paragraph (a)(ii), every municipal securities representative shall take and pass the Municipal Securities Representative Qualification Examination prior to being qualified as a municipal securities representative. The passing grade shall be determined by the Board. (B) The requirements of subparagraph (a)(ii)(A) of this rule shall not apply to any person who is duly qualified as a general securities representative by reason of having taken and passed the General Securities Registered Representative Examination. (C) The requirements of subparagraph (a)(ii)(A) of this rule shall not apply to any person who is duly qualified as a limited representative – investment company and variable contracts products by reason of having taken and passed the Limited Representative – Investment Company and Variable Contracts Products Examination, but only if such person’s activities with respect to municipal securities described in paragraph (a)(i) of this rule are limited solely to municipal fund securities. (D) Any person who ceases to be associated with a broker, dealer or municipal securities dealer (whether as a municipal securities representative or otherwise) for two or more years at any time after having qualified as a municipal securities representative in accordance with subparagraph (a)(ii)(A), (B) or (C) shall again meet the requirements of subparagraph (a)(ii)(A), (B) or (C) prior to being qualified as a municipal securities representative. (iii) Apprenticeship. (A) Any person who first becomes associated with a broker, dealer or municipal securities dealer in a representative capacity (whether as a municipal securities representative, general securities representative or limited representative – investment company and variable contracts products) without having previously qualified as a municipal securities representative, general securities representative or limited representative – investment company and variable contracts products shall be permitted to function in a representative capacity without qualifying pursuant to subparagraph (a)(ii)(A), (B) or (C) for a period of at least 90 days following the date such person becomes associated with a broker, dealer or municipal securities dealer, provided, however, that such person shall not transact business with any member of the public with respect to, or be compensated for transactions in, municipal securities during such 90 day period, regardless of such person’s having qualified in accordance with the examination requirements of this rule. A person subject to the requirements of this paragraph (a)(iii) shall in no event continue to perform any of the functions of a municipal securities representative after 180 days following the commencement of such person’s association with such broker, dealer or municipal securities dealer, unless such person qualifies as a municipal securities representative pursuant to subparagraph (a)(ii)(A), (B) or (C). (B) Prior experience, of at least 90 days, as a general securities representative, limited representative -- investment company and variable contracts products or limited representative -- government securities, will meet the requirements of this paragraph (a)(iii). (b) Municipal Securities Principal; Municipal Fund Securities Limited Principal. 19 Rule
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 (i) Definition. The term “municipal securities principal” means a natural person (other than a municipal securities sales principal), associated with a broker, dealer or municipal securities dealer that has filed with the Board in compliance with rule A-12, who is directly engaged in the management, direction or supervision of one or more of the following activities: (A) underwriting, trading or sales of municipal securities; (B) financial advisory or consultant services for issuers in connection with the issuance of municipal securities; (C) processing, clearance, and, in the case of brokers, dealers and municipal securities dealers other than bank dealers, safekeeping of municipal securities; (D) research or investment advice with respect to municipal securities; (E) any other activities which involve communication, directly or indirectly, with public investors in municipal securities; (F) maintenance of records with respect to the activities described in subparagraphs (A) through (E); or (G) training of municipal securities principals or municipal securities representatives. provided, however, that the activities enumerated in subparagraphs (D) and (E) above shall be limited to such activities as they relate to the activities enumerated in subparagraphs (A) or (B) above. (ii) Qualification Requirements. (A) Every municipal securities principal shall take and pass the Municipal Securities Principal Qualification Examination prior to being qualified as a municipal securities principal. The passing grade shall be determined by the Board. (B) Any person seeking to become qualified as a municipal securities principal in accordance with subparagraph (b)(ii)(A) of this rule must, prior to being qualified as a municipal securities principal: (1) have been duly qualified as either a municipal securities representative or a general securities representative; provided, however, that any person who qualifies as a municipal securities representative solely by reason of subparagraph (a)(ii)(C) shall not be qualified to take the Municipal Securities Principal Qualification Examination on or after October 1, 2002; or (2) have taken and passed either the Municipal Securities Representative Qualification Examination or the General Securities Registered Representative Examination. (C) Any person who ceases to act as a municipal securities principal for two or more years at any time after having qualified as such shall meet the requirements of subparagraphs (b)(ii)(A) and (B) prior to being qualified as a municipal securities principal. (D) For the first 90 days after becoming a municipal securities principal, the requirements of subparagraph (b)(ii)(A) shall not apply to any person who is qualified as a municipal securities representative, general securities representative or general securities principal, provided, however, that such person shall take and pass the Municipal Securities Principal Qualification Examination within that period. (iii) Numerical Requirements. Every broker, dealer and municipal securities dealer shall have at least two municipal securities principals, except: (A) every broker, dealer or municipal securities dealer which is a member of a registered securities association and which conducts a general securities business, or (B) every broker, dealer or municipal securities dealer having fewer than eleven persons associated with it in whatever capacity on a full-time or full-time equivalent basis who are engaged in the performance of its municipal securities activities, or, in the case of a bank dealer, in the performance of its municipal securities dealer activities, shall have at least one municipal securities principal. (iv) Municipal Fund Securities Limited Principal. (A) Definition. The term “municipal fund securities limited principal” means a natural person (other than a municipal securities principal or municipal securities sales principal), associated with a broker, dealer or municipal securities dealer that has filed with the Board in compliance with rule A-12, who is directly engaged in the functions of a municipal securities principal as set forth in paragraph (b)(i), but solely as such activities relate to transactions in municipal fund securities. (B) Qualification Requirements. Rule
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 (1) Every municipal fund securities limited principal shall take and pass the Municipal Fund Securities Limited Principal Qualification Examination prior to being qualified as a municipal fund securities limited principal. The passing grade shall be determined by the Board. (2) Any person seeking to become qualified as a municipal fund securities limited principal in accordance with clause (b)(iv)(B)(1) of this rule must, as a condition to being qualified as a municipal fund securities limited principal: (a) have been duly qualified as either a general securities principal or an investment company/variable contracts limited principal; or (b) have taken and passed either the General Securities Principal Qualification Examination or the Investment Company and Annuity Principal Qualification Examination. (3) Any person who ceases to act as a municipal fund securities limited principal for two or more years at any time after having qualified as such shall meet the requirements of clauses (b)(iv)(B)(1) and (2) prior to being qualified as a municipal fund securities limited principal. (4) For the first 90 days after becoming a municipal fund securities limited principal, the requirements of clauses (b)(iv)(B)(1) and (2) shall not apply to any person who is qualified as a general securities representative, investment company/variable contracts limited representative, general securities principal or investment company/variable contracts limited principal, provided, however, that such person shall meet the requirements of clauses (b)(iv)(B)(1) and (2) within that period. (C) Actions as Municipal Securities Principal. Any municipal fund securities limited principal may undertake all actions required or permitted under any Board rule to be taken by a municipal securities principal, but solely with respect to activities related to municipal fund securities, and shall be subject to all provisions of Board rules applicable to municipal securities principals except to the extent inconsistent with this paragraph (b)(iv). (D) Numerical Requirements. Any broker, dealer or municipal securities dealer whose municipal securities activities are limited exclusively to municipal fund securities may count any municipal fund securities limited principal toward the numerical requirement for municipal securities principal set forth in paragraph (b)(iii). (c) Municipal Securities Sales Principal. (i) Definition. The term “municipal securities sales principal” means a natural person (other than a municipal securities principal) associated with a broker, dealer or municipal securities dealer (other than a bank dealer) whose supervisory activities with respect to municipal securities are limited exclusively to supervising sales to and purchases from customers of municipal securities. (ii) Qualification Requirements. (A) Every municipal securities sales principal shall take and pass the General Securities Sales Supervisor Qualification Examination prior to acting in such capacity. The passing grade shall be determined by the Board. (B) Any person seeking to become qualified as a municipal securities sales principal in accordance with subparagraph (c)(ii)(A) of this rule, must, prior to being qualified as a municipal securities sales principal: (1) have been duly qualified as either a municipal securities representative or a general securities representative; or (2) have taken and passed either the Municipal Securities Representative Qualification Examination or the General Securities Registered Representative Examination. (C) Any person who ceases to act as a municipal securities sales principal for two or more years at any time after having qualified as such shall meet the requirements of subparagraphs (c)(ii)(A) and (B) prior to being qualified as a municipal securities sales principal. (D) For the first 90 days after becoming a municipal securities sales principal, the requirements of subparagraph (c)(ii)(A) shall not apply to any person who is qualified as a municipal securities representative, general securities representative or general securities principal, provided, however, that such person shall take and pass the General Securities Sales Supervisory Qualification Examination within that period. (d) Financial and Operations Principal. (i) Definition. The term “financial and operations principal” means a natural person associated with a broker, dealer or municipal securities dealer (other than a bank dealer or a broker, dealer or municipal securities dealer meeting the requirements of subparagraph (a)(2)(iv), (v) or (vi) of rule 15c3-1 under the Act or exempted from the requirements of rule 15c3-1 in accordance with paragraph (b)(3) thereof), whose duties include: 21 Rule
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 (A) approval of and responsibility for financial reports required to be filed with the Commission or any selfregulatory organization; (B) final preparation of such reports; (C) overall supervision of individuals who assist in the preparation of such reports; (D) overall supervision of and responsibility for individuals who are involved in the maintenance of the books and records from which such reports are derived; (E) overall supervision and/or performance of the responsibilities of the broker, dealer or municipal securities dealer pursuant to the financial responsibility rules under the Act; (F) overall supervision of and responsibility for all individuals who are involved in the administration and maintenance of the processing and clearance functions of such broker, dealer or municipal securities dealer; and (G) overall supervision of and responsibility for all individuals who are involved in the administration and maintenance of the safekeeping functions of such broker, dealer or municipal securities dealer. (ii) Qualification Requirements. (A) Every financial and operations principal shall be qualified in such capacity in accordance with the rules of a registered securities association. (B) Any person who ceases to be associated with a broker, dealer or municipal securities dealer as a financial and operations principal for two or more years at any time after having qualified as such in accordance with this paragraph (d)(ii) shall qualify in such capacity in accordance with the rules of a registered securities association prior to being qualified as a financial and operations principal. (iii) Numerical Requirements. Every broker, dealer and municipal securities dealer (other than a bank dealer and a broker, dealer or municipal securities dealer meeting the requirements of subparagraph (a)(2)(iv), (v) or (vi) of rule 15c3-1 under the Act or exempted from the requirements of rule 15c3-1 in accordance with paragraph (b)(3) thereof) shall have at least one financial and operations principal, including its chief financial officer, qualified in accordance with paragraph (d)(ii) of this rule. (e) Confidentiality of Qualification Examinations. No associated person of a broker, dealer or municipal securities dealer shall: (i) in the course of taking a qualification examination required by this rule receive or give assistance of any nature; (ii) disclose to any person questions, or answers to any questions, on any qualification examination required by this rule; (iii) engage in any activity inconsistent with the confidential nature of any qualification examination required by this rule, or with its purpose as a test of the qualification of persons taking such examinations; or (iv) knowingly sign a false certification concerning any such qualification examination. (f) Retaking of Qualification Examinations. Any associated person of a broker, dealer or municipal securities dealer who fails to pass a qualification examination prescribed by the Board shall be permitted to take the examination again after a period of 30 days has elapsed from the date of the prior examination, except that any person who fails to pass an examination three or more times in succession shall be prohibited from again taking the examination until a period of six months has elapsed from the date of such person's last attempt to pass the examination. (g) Waiver of Qualification Requirements. (i) The requirements of paragraphs (a)(ii), (a)(iii), (b)(ii), (b)(iv)(B) and (c)(ii) may be waived in extraordinary cases for any associated person of a broker, dealer or municipal securities dealer who demonstrates extensive experience in a field closely related to the municipal securities activities of such broker, dealer or municipal securities dealer. Such waiver may be granted by (A) a registered securities association with respect to a person associated with a member of such association, or (B) the appropriate regulatory agency as defined in section 3(a)(34) of the Act with respect to a person associated with any other broker, dealer or municipal securities dealer. (ii) The requirements of paragraph (d)(ii) may be waived for any associated person of a broker, dealer or municipal securities dealer in circumstances sufficient to justify the granting of a waiver if such person were seeking to register and qualify with a member of a registered securities association as a financial and operations principal. Such waiver may be granted by a registered securities association with respect to a person associated with a member of such association. (h) Continuing Education Requirements. Rule
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 This section (h) prescribes requirements regarding the continuing education of certain registered persons subsequent to their initial qualification and registration with a registered securities association with respect to a person associated with a member of such association, or the appropriate regulatory agency as defined in section 3(a)(34) of the Act with respect to a person associated with any other broker, dealer or municipal securities dealer (“the appropriate enforcement authority”). The requirements shall consist of a Regulatory Element and a Firm Element as set forth below. (i) Regulatory Element. (A) Requirements—No broker, dealer or municipal securities dealer shall permit any registered person to continue to, and no registered person shall continue to, perform duties as a registered person, unless such person has complied with the requirements of section (i) hereof. Each registered person shall complete the Regulatory Element on the occurrence of their second registration anniversary date and every three years thereafter or as otherwise prescribed by the Board. On each occasion, the Regulatory Element must be completed within 120 days after the person's registration anniversary date. A person’s initial registration date, also known as the “base date,” shall establish the cycle of anniversary dates for purposes of this section (i). The content of the Regulatory Element shall be determined by the Board for each registration category of persons subject to the rule. (B) Failure to Complete—Unless otherwise determined by the Board, any registered persons who have not completed the Regulatory Element within the prescribed time frames will have their registrations deemed inactive until such time as the requirements of the program have been satisfied. Any person whose registration has been deemed inactive under this section shall cease all activities as a registered person and is prohibited from performing any duties and functioning in any capacity requiring registration. A registration that is inactive for a period of two years will be administratively terminated. A person whose registration is so terminated may reactivate the registration only by reapplying for registration and meeting the qualification requirements of the applicable provisions of this rule. The appropriate enforcement authority may, upon application and a showing of good cause, allow for additional time for a registered person to satisfy the program requirements. (C) Disciplinary Actions—Unless otherwise determined by the appropriate enforcement authority, a registered person will be required to retake the Regulatory Element and satisfy all of its requirements in the event such person: (1) becomes subject to any statutory disqualification as defined in Section 3(a)(39) of the Securities Exchange Act of 1934; (2) becomes subject to suspension or to the imposition of a fine of $5,000 or more for violation of any provision of any securities law or regulation, or any agreement with or rule or standard of conduct of any securities governmental agency, securities self-regulatory organization, the appropriate enforcement authority or as imposed by any such regulatory or self-regulatory organization in connection with a disciplinary proceeding; or (3) is ordered as a sanction in a disciplinary action to retake the Regulatory Element by any securities governmental agency, the appropriate enforcement authority or securities self-regulatory organization. The retaking of the Regulatory Element shall commence with participation within 120 days of the registered person becoming subject to the statutory disqualification, in the case of (1) above, or the completion of the sanction or the disciplinary action becomes final, in the case of (2) or (3) above The date that the disciplinary action becomes final will be deemed the person’s new base date for purposes of this section (i). (D) Any registered person who has terminated association with a broker, dealer or municipal securities dealer and who has, within two years of the date of termination, become reassociated in a registered capacity with a broker, dealer or municipal securities dealer shall participate in the Regulatory Element at such intervals that apply (second registration anniversary and every three years thereafter) based on the initial registration anniversary date rather than based on the date of reassociation in a registered capacity. (E) Any former registered person who becomes reassociated in a registered capacity with a broker, dealer or municipal securities dealer more than two years after termination as such will be required to satisfy the program’s requirements in their entirety (second registration anniversary and every three years thereafter), based on the most recent registration date. (F) Definition of registered person—For purposes of this section, the term “registered person” means any person registered with the appropriate enforcement authority as a municipal securities representative, municipal securities principal, municipal securities sales principal or financial and operations principal pursuant to this rule. (G) In-Firm Delivery of the Regulatory Element. Brokers, dealers and municipal securities dealers will be permitted to administer the continuing education Regulatory Element program to their registered persons by instituting an in-firm program acceptable to the Board. The following procedures are required: 23 Rule
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 (1) Principal In-Charge. The broker, dealer or municipal securities dealer has designated a municipal securities principal or a general securities principal to be responsible for the in-firm delivery of the Regulatory Element. (2) Site Requirements. (a) The location of all delivery sites will be under the control of the broker, dealer or municipal securities dealer. (b) Delivery of Regulatory Element continuing education will take place in an environment conducive to training. (Examples: a training facility, conference room or other area dedicated to this purpose would be appropriate. Inappropriate locations would include a personal office or any location that is not or cannot be secured from traffic and interruptions). (c) Where multiple delivery terminals are placed in a room, adequate separation between terminals will be maintained. (3) Technology Requirements. The communication links and firm delivery computer hardware must comply with standards defined by the Board or its designated vendor. (4) Supervision. (a) The broker, dealer or municipal securities dealer’s written supervisory procedures must contain the procedures implemented to comply with the requirements of in-firm delivery of the Regulatory Element continuing education. (b) The broker, dealer or municipal securities dealer’s written supervisory procedures must identify the municipal securities principal or general securities principal designated pursuant to section (h)(i)(G)(1) of this rule and contain a list of individuals authorized by the broker, dealer or municipal securities dealer to serve as proctors. (c) Firm locations for delivery of the Regulatory Element continuing education will be specifically listed in the broker, dealer or municipal securities dealer’s written supervisory procedures. (5) Proctors. (a) All sessions will be proctored by an authorized person during the entire Regulatory Element session. Proctors must be present in the session room or must be able to view the person(s) sitting for Regulatory Element continuing education through a window or by video monitor. (b) The individual responsible for proctoring at each administration will sign a certification that required procedures have been followed, that no material from Regulatory Element continuing education has been reproduced, and that no candidate received any assistance to complete the session. Such certification may be part of the sign-in log required under section (h)(i)(G)(6)(c) of this rule. (c) Individuals serving as proctors must be persons registered with a self-regulatory organization and supervised by the designated principal for purposes of in-firm delivery of the Regulatory Element continuing education. (d) Proctors will check and verify the identification of all individuals taking Regulatory Element continuing education. (6) Administration. (a) All appointments will be scheduled in advance using the procedures and software specified by the Board to communicate with the Board’s system and designated vendor. (b) The broker, dealer or municipal securities dealer and its proctor will conduct each session in accordance with the administrative appointment scheduling procedures established by the Board or its designated vendor. (c) A sign-in log will be maintained at the delivery facility. Logs will contain the date of each session, the name and social security number of the individual taking the session, the fact that required identification was checked, the sign-in time, the sign-out time, and the name of the individual proctoring the session. Such logs are required to be retained pursuant to rules G-8 and G-9. (d) No material will be permitted to be utilized for the session nor may any session-related material be removed. (e) Delivery sites will be made available for inspection by the appropriate enforcement authority. (f) Before commencing the in-firm delivery of the Regulatory Element continuing education, brokers, dealers and municipal securities dealers are required to file with the Board a letter of attestation (as Rule
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 specified below) signed by a municipal securities principal or general securities principal attesting to the establishment of required procedures addressing principal in-charge, supervision, site, technology, proctors, and administrative requirements. Letters filed with the Board should be sent to the Municipal Securities Rulemaking Board, Professional Qualifications Department, 1900 Duke Street, Suite 600, Alexandria, Virginia, 22314. Letter of Attestation for In-Firm Delivery of Regulatory Element Continuing Education {Name of broker, dealer or municipal securities dealer} has established procedures for delivering Regulatory Element continuing education on its premises. I have determined that these procedures are reasonably designed to comply with SRO requirements pertaining to in-firm delivery of Regulatory Element continuing education, including that such procedures have been implemented to comply with principal in-charge, supervision, site, technology, proctors, and administrative requirements. _____________________________ Signature _____________________________ Printed name _____________________________ Title (Must be signed by a municipal securities principal or general securities principal of the broker, dealer or municipal securities dealer) _____________________________ Date (ii) Firm Element. (A) Persons Subject to the Firm Element—The requirements of this section shall apply to any person registered with a broker, dealer or municipal securities dealer who has direct contact with customers in the conduct of the broker, dealer or municipal securities dealer's securities sales, trading and investment banking activities, and to the immediate supervisors of such persons (collectively, “covered registered persons”). “Customer” shall mean any natural person and any organization, other than another broker, dealer or municipal securities dealer, executing securities transactions with or through or receiving investment banking services from a broker, dealer or municipal securities dealer. (B) Standards for the Firm Element. (1) Each broker, dealer and municipal securities dealer must maintain a continuing and current education program for its covered registered persons to enhance their securities knowledge, skill, and professionalism. At a minimum, each broker, dealer and municipal securities dealer shall at least annually evaluate and prioritize its training needs and develop a written training plan. The plan must take into consideration the broker, dealer and municipal securities dealer’s size, organizational structure, and scope of business activities, as well as regulatory developments and the performance of covered registered persons in the Regulatory Element. If a broker, dealer or municipal securities dealer’s analysis determines a need for supervisory training for persons with supervisory responsibility, such training must be included in the broker, dealer or municipal securities dealer’s training plan. (2) Minimum Standards for Training Programs—Programs used to implement a broker, dealer or municipal securities dealer's training plan must be appropriate for the business of the broker, dealer or municipal securities dealer and, at a minimum must cover the following matters concerning securities products, services and strategies offered by the broker, dealer or municipal securities dealer: (a) General investment features and associated risk factors; (b) Suitability and sales practice considerations; (c) Applicable regulatory requirements. (3) Administration of Continuing Education Program—A broker, dealer or municipal securities dealer must administer its continuing education programs in accordance with its annual evaluation and written plan and must maintain records documenting the content of the programs and completion of the programs by covered registered persons. (C) Participation in the Firm Element—Covered registered persons included in a broker, dealer or municipal securities dealer’s plan must take all appropriate and reasonable steps to participate in continuing education programs as required by the broker, dealer or municipal securities dealer. 25 Rule
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 (D) Specific Training Requirements--The appropriate enforcement authority may require a broker, dealer or municipal securities dealer, individually or as part of a larger group, to provide specific training to its covered registered persons in such areas the appropriate enforcement authority deems appropriate. Such a requirement may stipulate the class of covered registered persons for which it is applicable, the time period in which the requirement must be satisfied and, where appropriate, the actual training content. BACKGROUND  Board rule G-2 establishes the standard for professional qualification as a municipal securities broker or municipal securities dealer and their associated persons. Rule G-3 classifies professional participants in four categories (municipal securities principals, municipal securities sales principals, financial and operations principals and municipal securities representatives) and sets forth specifically the qualification requirements for each. NOTE: The Professional Qualification Handbook, the Board handbook explaining the qualification requirements, is available on the Board’s Web site (www.msrb.org). This handbook, organized according to the rule G-3 classification of professionals, sets forth in detail the examination, experience, and numerical requirements for professional qualification. Topics such as qualification examination procedures, waiver of qualification examinations, and special qualification circumstances are also discussed. MSRB INTERPRETATIONS  INTERPRETIVE NOTICE ON PROFESSIONAL QUALIFICATIONS January 27, 1977 On December 23, 1976, the Municipal Securities Rulemaking Board (the “Board”) issued an interpretive notice addressing certain questions received by the Board with respect to its professional qualifications rules (rules G-2 through G-7). Since that time, the Board has received additional questions concerning rule G-3 which are discussed in this interpretive notice. 1. Requirements for Financial and Operations Principals. Under the rule G-3(b)(ii)[*], every municipal securities broker and municipal securities dealer other than a bank dealer is required to have at least one qualified financial and operations principal. As defined in the rule, this person is responsible for the overall supervision and preparation of financial reports to the Securities and Exchange Commission and self-regulatory organizations and for the processing, clearance, safekeeping and recordkeeping activities of the firm. If more than one person shares these overall supervisory responsibilities, each such person must be qualified as a financial and operations principal. The question has been asked whether a financial and operations principal whose duties relate solely to financial and operational matters and not, for example, to underwriting, trading, or sales functions must qualify also as a municipal securities principal by passing the Board’s municipal securities principal examination when it is prescribed. The Board does not intend to impose such a requirement on persons whose functions are limited to those set forth in the definition of a financial and operations principal. The question has also been asked whether a person performing only the functions of a financial and operations principal on and after December 1, 1975 would be “grandfathered” as a municipal securities principal for purposes of taking the Board’s municipal securities principal examination when prescribed if such person begins supervising underwriting, trading or sales functions. Rule
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 Activities relating to financial and operational matters are substantially different from those relating to underwriting, trading and sales or other categories of activities supervised by municipal securities principals. The Board does not intend, therefore, that financial and operations principals be “grandfathered” for purposes of the Board’s examination requirements for municipal securities principals, or that a financial and operations principal would be qualified to engage in such other supervisory activities solely by reason of having met the Board’s requirements for financial and operations principals. The Board has also been asked whether senior officers or general partners of a firm, who may bear ultimate legal responsibility for the financial and operational activities of the firm, must be qualified as financial and operations principals under the Board’s rules. Although the answer depends on the particular factual situation, officers or partners not directly involved in the financial and operations affairs of a firm generally would not be required to qualify as financial and operations principals. 2. Activities Requiring Qualification as a Municipal Securities Principal. The question has been asked whether supervisory personnel in the processing and clearance areas must qualify as the municipal securities principals under rule G-3. In a securities firm, the financial and operations principal ordinarily would be the only person supervising operations-related activities who will be required to pass an examination. With respect to bank dealer supervisory personnel, to whom the financial and operations principal classification does not apply, qualification in a principal capacity in the operations area will not be required unless the person in question exercises policy-making authority. Thus, an individual may supervise a bank dealer’s processing activities without qualifying as a municipal securities principal, regardless of the number of persons supervised by such individual, if policy-making functions and discretionary authority are delegated to a higher level. Somewhat different considerations apply in determining which persons are required to be qualified as municipal securities 26

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 principals in connection with underwriting, trading, sales or other activities referred to in the Board’s rules as municipal securities principal activities. In these areas, the qualification requirements apply to persons having supervisory responsibility with respect to the day-to-day conduct of the activities in question, even though such persons may not have a policy-making role. The Board’s conclusions in this regard are based on the fact that in these other areas the supervisory person is responsible for the activities of personnel who communicate directly with issuers, traders, and investors. 3. Activities Requiring Qualification as a Municipal Securities Representative. In certain cases, communications from customers may be received at a time when a duly qualified municipal securities representative or municipal securities principal is unavailable. Similarly, there may be situations in which it becomes important to advise a customer promptly of transactions effected and orders confirmed, even though the individual responsible for the account may not be able to communicate with the customer at that time. In many cases under the rules of other self-regulatory organizations, communications of this nature, which in essence reflect a mechanical function, may be received and made by properly supervised competent individuals whose clerical and ministerial functions would not otherwise subject them to qualification requirements. The Board believes the principle underlying this practice and the application of other self–regulatory organizations' qualification rules is sound. Accordingly, the Board interprets rule G-3 to permit the recording and transmission in customary channels of orders, the reading of approved quotations, and the giving of reports of transactions by non-qualified clerical personnel when the duly qualified municipal securities representative or municipal securities principal who normally handles the account or customer is unavailable. The foregoing interpretation is applicable only to clerical personnel who are: (a) deemed capable and competent by a municipal securities principal or general securities principal to engage in such activities; (b) specifically authorized in writing to perform such functions on an occasional basis as necessary or directed to perform such functions in specific instances, in either case by a duly qualified municipal securities principal or general securities principal; (c) familiar with the normal type and size of transaction effected with or for the customer or the account; and (d) closely supervised by duly qualified municipal personnel. All orders for municipal securities received by clerical personnel under the foregoing interpretation must be reviewed and approved by duly qualified municipal personnel familiar with the customer or account prior to being accepted or effected by the municipal securities broker or municipal securities dealer. Solicitation of orders by clerical personnel is not permitted. Confirmations of transactions may be given and quotations read by clerical personnel only when approved by duly qualified municipal personnel. Individuals subject to the 90-day apprenticeship requirements of rule G-3(i)[†] are not clerical personnel and are not authorized or permitted to engage in such activities with members of the public. Also, the question has been raised whether a bank’s branch office personnel, who are not otherwise required to be qualified under rule G-3, will be required to take and pass the qualification examination for municipal securities representatives in order to respond to a depositor’s inquiry concerning possible investments in municipal securities. Insofar as the branch office personnel merely refer the depositor to qualified bank dealer personnel for discussion concerning the merits of an investment in municipal securities and execution of the depositor’s order, the branch office personnel would not be required to be qualified under the Board’s professional qualifications requirements. However, if branch office personnel seek to advise the depositor concerning the merits of a possible investment, or otherwise perform more than a purely ministerial function, qualification under the Board’s rules would be required. [*] [Currently codified at rule G-3(d)(iii)] [†] [Currently codified at rule G-3(a)(iii)] DEBRIEFING OF EXAMINATION CANDIDATES June 2, 1981 Board rule G-3 sets forth standards of qualifications for municipal securities brokers and municipal securities dealers and their associated persons, including examination requirements for municipal securities principals, municipal securities financial and operations principals, municipal securities sales principals, and municipal securities representatives. In order to assure that its examinations constitute valid tests of the qualifications of persons who take them, the Board has instituted various procedures, in the question writing as well as the administration phases, which are designed to preserve the confidentiality of the examinations. In addition, on one occasion the Board found it necessary to take legal action, alleging copyright violations, against a securities training school which had used in its training material questions and answers that appeared to have been taken from questions contained in Board qualification examinations. The Board wishes to point out that the practice of “debriefing” persons who have taken a municipal securities qualifications examination (i.e. requesting or encouraging such persons to reveal the contents of the examinations) may not only give rise to an infringement of the Board’s copyright but would, if engaged in by members of the municipal securities industry, constitute a violation of the Board’s rules. In this regard, rule G-3(g)[*] provides that no person associated with a municipal securities broker or municipal securities dealer shall (i) disclose to any person any question on any municipal securities qualification examination or the answers to any such questions, (ii) engage in any activity inconsistent with the confidential nature of any such qualification examination or its purpose as a test of the qualifications of persons taking such examination, or (iii) knowingly sign a false certification concerning any such qualification examination. [*] 27 [Currently codified at rule G-3(e)] Rule
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 USE OF NONQUALIFIED INDIVIDUALS TO SOLICIT NEW ACCOUNT BUSINESS December 21, 1984 The Board has received inquiries whether individuals who solicit new account business on behalf of municipal securities dealers must be qualified under the Board’s rules. In particular, it has come to the Board’s attention that nonqualified individuals are making “cold calls” to individuals and, by reading from prepared scripts, introduce the services offered by a municipal securities dealer, prequalify potential customers, or suggest the purchase of specific securities currently being offered by a municipal securities dealer. Board rule G-3(a) defines municipal securities representative activities to include any activity which involves communication with public investors regarding the sale of municipal securities but exempts activities that are solely clerical or ministerial. In the past, the Board has permitted nonqualified individuals, under the clerical or ministerial exemption, to contact existing customers in very limited circumstances. In an interpretive notice on rule G3, the Board permitted certain ministerial and clerical functions to be performed by nonqualified individuals when municipal securities representatives and principals who normally handle the customers' accounts are unavailable, subject to strict supervisory requirements. These functions are: the recording and transmission in customary channels of orders, the reading of approved quotations, and the giving of reports of transactions. In this notice, the Board added that solicitation of orders by clerical personnel is not permitted. The Board is of the view that individuals who solicit new account business are not engaging in clerical or ministerial activities but rather are communicating with public investors regarding the sale of municipal securities and thus are engaging in municipal securities representative activities which require such individuals to be qualified as representatives under the Board’s rules. Finally, under rule G-3(i)[*], a person serving an apprenticeship period prior to qualification as a municipal securities representative may not communicate with public investors regarding the sale of municipal securities. The Board sees no reason to allow nonqualified individuals to contact public investors, except for the limited functions noted above, when persons training to become qualified municipal securities representatives may not do so. [*] [Currently codified at rule G-3(a)(iii)] NOTICE REGARDING REGULATION OF TAXABLE MUNICIPAL SECURITIES October 6, 1986 Because of recent federal tax law changes which place additional restrictions on the issuance of tax-exempt municipal securities, issuers of municipal securities are issuing, or considering issuing, debt securities that are subject to federal taxation. As a result, the Municipal Securities Rulemaking Board has received numerous inquiries concerning the application of its rules to dealers effecting transactions in taxable municipal securities. The Board wishes to emphasize that its rules apply to transactions effected by brokers, dealers, and municipal securities dealers in all Rule
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 municipal securities. Thus, transactions in taxable municipal securities are subject to the Board’s rules, including rules regarding uniform and fair practice, automated clearance and settlement, the payment of the underwriting assessment fee, and the professional qualifications of registered representatives and principals. NOTICE CONCERNING MUNICIPAL SECURITIES SALES ACTIVITIES IN BRANCH AFFILIATE AND CORRESPONDENT BANKS WHICH ARE MUNICIPAL SECURITIES DEALERS March 11, 1983 The Board has received several inquiries from banks concerning the activities which may be performed in connection with the marketing of municipal securities through branch, affiliate, and correspondent banks. Rule G-2 of the Board provides that no municipal securities dealer may effect transactions in, or induce or attempt to induce the purchase or sale of any municipal security, unless the dealer in question and every individual associated with it is qualified in accordance with the rules of the Board. Board rule G-3 establishes qualification requirements for municipal securities representatives and other municipal securities professionals. Board rule G-27 requires supervision of municipal securities activities by qualified municipal securities principals. Activities of Branch, Affiliate and Correspondent Bank Personnel Bank employees who are not qualified municipal securities representatives may perform certain limited functions in connection with the marketing of municipal securities. Namely, such persons may: advise customers that municipal securities investment services are available in the bank; make available to customers material concerning municipal securities investments, such as market letters and listings of issues handled by the bank’s dealer department, which has been approved for distribution by the dealer department’s municipal securities principal; and, establish contact between the customer and the dealer department. Further sales-related activity would be construed as inducing or attempting to induce the purchase or sales of a municipal security, and may only be engaged in by duly-qualified municipal securities representatives. The Board wishes to emphasize that each bank dealer should take steps to assure that its branch, correspondent, and affiliate bank personnel understand and observe the restrictions outlined above concerning referrals of municipal securities customers to the bank’s dealer department. Placement and Supervision of Municipal Securities Representatives Bank dealers have also directed inquiries to the federal bank regulators and to the Board concerning whether qualified municipal securities representatives in affiliates or branches of a bank dealer may respond to customer inquiries concerning municipal securities and take customer orders for municipal securities if no municipal securities principal is located in such affiliates or branches. Board rule G-27 places on each broker, dealer, and mu28

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 nicipal securities dealer the obligation to supervise the municipal securities activities of its associated persons and the conduct of its municipal securities business. The rule requires that municipal securities dealers designate a municipal securities principal as responsible for the supervision and review of municipal securities transactions and other activities. There is no requirement that a municipal securities principal be located in each office or branch of a municipal securities dealer, provided that adequate supervision of all municipal securities activities can be assured. For purposes of the Board rules, each employee of a branch or affiliate of a bank dealer who communicates with public customers on investment opportunities in municipal securities and who takes customers' orders for such securities would be considered an “associated person” to whom the Board’s qualification and supervision requirements would apply. See
also:
 Rule G-23 Interpretation - Notice on Application of Board Rules to Financial Advisory Services Rendered to Corporate Obligors on Industrial Development Bonds, May 23, 1983 MSRB INTERPRETATIONS
 INTERPRETIVE LETTERS  Apprenticeship. This will acknowledge receipt of your letter dated January 30, 1978 and will confirm our recent telephone conversation. In your letter you seek clarification of the applicability of the requirements of rule G-3(i)[*] relating to apprenticeship periods to a municipal securities representative who has previously qualified as a general securities representative. As I indicated in our conversation, an individual who was previously qualified as a general securities representative is not required to serve the 90-day apprenticeship period. MSRB interpretation of February 17, 1978. [*] [Currently codified at rule G-3(a)(iii)] Municipal securities principal. This will acknowledge receipt of your letter of June 10, 1981. In your letter you indicate that the dealer department of [the bank] has recently been inspected by examiners from the Office of the Comptroller of the Currency, and that, during the course of such inspection, the examiners indicated that they believed certain persons should be qualified as municipal securities principals. You indicate your disagreement with the examiners' conclusions, and request an opinion from the Board concerning the need to qualify these personnel. The two cases you describe are as follows: (1) Mr. “X”, as head of the Operations Division of the bank's Financial Markets Group, is in charge of the operational support services for the bank's securities activities, including the TaxExempt Operations Department. The Tax-Exempt Operations Department is under the immediate supervision of yourself. For purposes of bank organizational structure you report to Mr. “X”; however, you also report to the head of the Tax-Exempt Securities Division in connection with “supporting the Tax-Exempt business operation.” You are qualified as a municipal securities principal, as is the head of the Tax-Exempt Securities Division; Mr. “X”, however, is not. The national bank examiners have expressed the view that he should be. (2) Two “senior traders” in the Municipal Dealer Department act under the supervision of the department head with regard to the trading and positioning of municipal securities. In connection with these activities they “direct more junior traders” in their municipal securities activities. These persons are not qualified as municipal securities principals; the national bank examiners contend that they should be. As a general matter we would hesitate to disagree with the opinion expressed by an on-site examiner in a matter of this sort. The examiner is, of course, in direct contact with the matter in question, and has access to the full details of the situation, rather than an abstraction or summary of the particulars. Accordingly, we are unable to express a view that the examiner's conclusions are incorrect in the circumstances you describe. With respect to the specific situations presented in your letter, it is certainly not impossible to establish a reporting and 29 supervisory structure such that a person who is in charge of the division which includes the operational aspects of a bank's municipal securities dealer department need not be qualified as a municipal securities principal. As is indicated in a Board interpretive notice concerning qualifications matters, qualification as a municipal securities principal is required of a person who supervises a bank dealer's processing and clearance activities with respect to municipal securities only to the extent that such person has policy-making authority over such activities. If such person does not have policy-making authority, or if such person's authority extends to the establishment of general guidelines or an overall framework for activities, with the specific function of making policy within that framework reserved for other persons, then such person would not be deemed to be a municipal securities principal. Further, it is a not uncommon arrangement to have the policy-making authority with respect to the municipal dealer operations activities of a bank allocated between the immediate supervisor of the municipal operations function and a principal in the dealer department itself. In these circumstances the operation supervisor reports to the principal in connection with the municipal dealer activities, and also reports to other, non-qualified persons in connection with bank organizational requirements. Therefore, the arrangement which you describe would not necessarily require that Mr. “X” be qualified as a municipal securities principal. Whether he should, in fact, be qualified as a municipal securities principal depends, of course, on the extent to which he does exercise policy-making authority over the municipal dealer opera- Rule
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 tions functions; this is a determination that, we suggest, is most appropriately made by yourselves and the national bank examiners. In the second situation you describe it appears to us clear that the “senior traders” are functioning as municipal securities principals and should be qualified as such. As you may know, the Board's rule defines the term “municipal securities principal” to include persons “who [are] directly engaged in the . . . direction or supervision of . . . underwriting, trading or sales of municipal securities. . .” Your description of the activities of these “senior traders” indicates that they “direct” other persons in trading activities. This certainly supports the conclusion that they are functioning as municipal securities principals. MSRB interpretation of June 24, 1981. Municipal securities principal: numerical requirements. This is in response to your letter of September 28, 1982 concerning the numerical requirements for municipal securities principals in Board rule G-3 . . . Rule G-3(b)(i)(B)[*] requires that every municipal securities broker or municipal securities dealer having fewer than eleven persons associated with it in whatever capacity on a fulltime or full-time equivalent basis who are engaged in the performance of its municipal securities activities, or, in the case of a bank dealer, in the performance of its municipal securities dealer activities, shall have at least one municipal securities principal. You inquired as to the meaning of “full-time equivalent basis” in the reference language. This phrase is intended to require the inclusion of individuals who should be considered as full-time employees, but because of some distinctive employment arrangement do not fit the norm of a fulltime employee. For example, a municipal securities representative who usually works out of his home which is in a remote location might not fit the firm's norm for “fulltime employment” but should nevertheless be counted for purposes of the rule as an associated person. You also inquired as to whether a bank dealer is required to have only one Rule
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 municipal securities principal even if it has fifteen full-time persons working in the municipal securities business. The provisions of the rule apply equally to securities firms and to bank dealers. Therefore, a bank dealer with eleven or more associated persons “engaged in the performance of its municipal securities dealer activities” is required to have at least two municipal securities principals. [*] [Currently codified at rule G-3(b)(iii)(B)] Municipal securities principal: MSRB registered dealer. This is in response to your March 21, 1994 letter to [name deleted] of the National Association of Securities Dealers, a copy of which you sent to my attention. The issue in question is whether [name deleted] (the “Dealer”) is required at this time to have someone qualified as a municipal securities principal. You note in your letter that the activities that the Dealer will be engaging in currently do not involve municipal securities, therefore, you concluded that the Dealer is not subject to the Board’s requirement that the dealer have at least one municipal securities principal. Board rules apply only to brokers, dealers and municipal securities dealers who have registered as such with the Securities and Exchange Commission (“SEC”) and who engage in municipal securities activities. A dealer “registers” with the Board, pursuant to rule A-12, on the Board’s initial fee, by submitting a letter with certain information and paying the … initial fee along with the … annual fee pursuant to rule A-14, on the Board’s annual fee. Rule A-12 requires that the information and fee be submitted to the Board prior to the dealer engaging in municipal securities activities. Once a dealer is “registered” with the Board all Board rules are applicable to that dealer including the requirement in rule G-3, on professional qualifications, that every dealer shall have at least one municipal securities principal.1 Regardless of whether the Dealer is currently engaging in municipal securities activities, the dealer has “registered” with the Board and is subject to 30 the Board’s requirement that the dealer have a municipal securities principal.2 If the Dealer determines that it does not wish to remain “registered” with the Board upon its conclusion that it is not engaging in municipal securities activities, rule A-15(a), on notification to Board of termination, requires that the Dealer submit a letter to the Board with a statement of its termination. In the future, should the dealer remain a registered broker or dealer with the SEC and make a determination that it will be engaging in municipal securities activities, the dealer will have to “register” with the Board pursuant to the requirements of rules A-12 and A-14 prior to engaging in municipal securities activities and, of course, meet the Board’s numerical requirements concerning municipal securities principals. MSRB interpretation of March 30, 1994. 1 Rule G-3(b)(iii) requires that a dealer have two municipal securities principals if the dealer performs only municipal securities activities and it employs eleven or more persons associated with it in whatever capacity on a full-time or full-time equivalent basis who are engaged in the performance of its municipal securities activities. 2 I have enclosed a copy of the December 14, 1993 letter you submitted to the Board pursuant to rule A-12. Municipal securities principal: bank operations. I am writing in response to your letter of April 26, 1983 concerning the results of a recent examination of your bank's municipal securities dealer department by examiners from the Office of the Comptroller of the Currency. In your letter you indicate that the examiners expressed the view that the bank's present organizational structure did not comport with the definition of a “separately identifiable department or division of a bank” set forth in Board rule G-1. You note that the examiners' basis for this conclusion was their belief that the municipal securities processing functions of the bank were not under the supervision of a qualified municipal securities principal. You state that you disagree with the examiners' conclusions, and you request that the Board indicate whether, in its view, the organizational structure through which the bank presently carries on its municipal securities activities is satis-

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 factory for purposes of compliance with Board rules. As a general matter we would hesitate to disagree with the opinion expressed by on-site examiners in a matter of this sort. The examiners are, of course, in direct contact with the matter in question, and have access to the full details of the situation, rather than an abstraction or summary of the particulars. Accordingly, we are unable to express a view that the examiners' conclusions are incorrect in the circumstances you describe. With respect to the specific issues which you raise, it is not impossible for a bank to establish a “separately identifiable department or division” for purposes of rule G-1 which includes areas in the bank which, for other purposes (e.g., for general bank organizational and reporting purposes), would be considered separate. To the extent that such areas are engaged in municipal securities dealer activities (as enumerated in rule G-1), however, they must be under the supervision of the person or persons designated by the bank's board of directors, in accordance with rule G1(a)(1), as responsible for the conduct of such activities. As you are aware, the person or persons who are responsible for the management and supervision of the day-to-day activities of the municipal securities processing area need not be qualified as municipal securities principals if they do not have policy-making authority with respect to such activities. However, such activities must be subject to the supervision of a municipal securities principal. Therefore, if those directly involved in the day-to-day supervision of the municipal securities processing activities do not have policymaking authority over such activities and, as a consequence, are not qualified as municipal securities principals, a person who is qualified as a municipal securities principal (whether that person designated by the bank's board of directors pursuant to rule G-1(a)(1) or some other person who is subordinate to that person) must be designated as having responsibility for the supervision of the processing activities. The bank's supervisory procedures should appropriately reflect such designation and set forth the manner in which the designated person will carry out these responsibilities. MSRB interpretation of May 13, 1983. Disqualification of municipal securities principals. In our recent telephone conversation you asked whether the Board has interpreted rule G-3(c)(iv)[*] as to the qualification status of a municipal securities principal in circumstances where the bank dealer, with which the individual is associated, fails to effect a municipal security transaction for a period of two or more years. You proposed that, if there are no municipal securities transactions for the principal to supervise, the individual would not be considered to be “acting as a municipal securities principal” and, consequently, the individual's qualification as a municipal securities principal would lapse after a two-year period of such inactivity. The Board has considered a similar situation and given an interpretation in the matter. It reaffirmed the interpretation that an individual whose responsibilities no longer include supervision of municipal securities activities probably will not be able to remain adequately informed in the supervisory and compliance matters of concern to municipal securities principals, and that continuing association with a municipal securities dealer, in a capacity other than that of a municipal securities principal, is not sufficient to maintain qualification as a municipal securities principal. However, the Board also concluded that it did not intend this interpretation of rule G3(c)(iv)[*] to mean that a dealer must necessarily effect transactions in municipal securities in order for its municipal securities principal to maintain such qualification. The Board noted that the definition of a municipal securities principal not only includes supervision of trading or sales, but of other municipal securities activities as well. Consequently, the Board determined that the qualification of a municipal securities principal should not automatically terminate because the individual is associated with a municipal securities broker or dealer which has not effected a municipal securities transaction in two or more years, but that to maintain such qualification the individual must demonstrate clearly that: -- the municipal securities broker or dealer was engaged in municipal securities activity during this period (e.g., determinations of suitability in31 volving municipal securities, recommendations to customers, advertising, financial advisory activity with respect to municipal issuers); and --the individual in question had been designated with supervisory responsibility for such municipal securities activities during this period. MSRB interpretation of January 15, 1987. [*] [Currently codified at rule G-3(b)(ii)(C)] “Municipal Securities Principal” defined. This is in response to your letter of January 28, 1987, and subsequent telephone conversations with the Board's staff, requesting an interpretation of Board rule G-3(a)(i)[*], the definition of the term “Municipal Securities Principal”. You ask whether an individual, who has day-to-day responsibility for directing the municipal underwriting activities of a firm, must be qualified as a municipal securities principal. You suggest that such activity seems to meet the definition of a municipal securities principal, namely, an individual who is “directly engaged in the management, direction or supervision of. . .underwriting . . .of municipal securities.” You note that this individual has the authority to make underwriting commitments in the name of the firm, but that the firm's president is designated with supervisory responsibility for this individual's underwriting activity. Also, you indicated that this individual does not have supervisory responsibility for any other representative. Your request for an interpretation was referred to a Committee of the Board which has responsibility for professional qualification matters. The Committee concluded that the individual you describe would not be required to qualify as a municipal securities principal, provided that her responsibilities are limited to directing the day-to-day underwriting activities of the dealer, and provided that these responsibilities are carried out within policy guidelines established by the dealer and under the direct supervision of a municipal securities principal. The Committee is also of the opinion that commitment authority alone is not indicative of principal activity, but rather is inherent in the underwriting activities of a municipal securities repre- Rule
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 sentative. MSRB interpretation of February 27, 1987. [*] [Currently codified at rule G-3(b)(i)] Municipal securities representative. Your letter dated October 16, 1978, has been referred to me for response. In your letter, you request clarification of whether personnel in your firm will have to take and pass the Board's qualification examination for municipal securities representatives, since they only effect transactions with other municipal securities professionals. Board rule G-3(a)(iii)[*] defines the term “municipal securities representative” to mean a natural person associated with a municipal securities broker or municipal securities dealer who performs certain specified functions, which include “trading or sales of municipal securities.” A person is deemed to be a municipal securities representative under the rule whether he or she engages in such activities with customers or only other municipal securities professionals. Accordingly, personnel in your firm who only trade with, or sell securities to other municipal securities professionals will have to take and pass the examination for municipal securities representatives, unless they are exempted under the provisions of rule G-3(e)(ii).[†] MSRB interpretation of October 27, 1978. [*] [†] [Currently codified at rule G-3(a)(i)] [Currently codified at rule G-3(a)(ii)(B)] Municipal securities representative: credit department employees. This will acknowledge receipt of your letter of October 18, 1979, concerning a proposed arrangement for the performance of municipal credit analysis functions at your bank. In your letter you indicate that the bank wishes to have certain basic statistical and data gathering activities with respect to proposed new issues of municipal securities performed by its Credit Department. The Credit Department will provide the information resulting from these activities to registered personnel in the Investment Department, which will evaluate the credit of the issuer and determine the appropriateness of the issue for the bank's own investment activities and for the bank's cus- Rule
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 tomers. You inquire whether the personnel in the Credit Department would be required to register and qualify as municipal securities representatives due to their performance of these activities. Your question was referred to a committee of the Board which has the responsibility for administering the professional qualifications program on the Board's behalf. The Committee concluded that such persons would not be required to register and qualify as representatives if their functions are limited to informationgathering and performance of basic statistical computations. However, if such persons engage in any type of evaluative activity or if such persons make recommendations or suggest conclusions with respect to the securities, registration and qualification would be required. Further, should these persons produce any documents or research products intended for distribution or for use in the solicitation of customers, they would be required to register and qualify. MSRB interpretation of December 10, 1979. Clerical or ministerial duties. This will acknowledge receipt of your letter in which you request advice concerning whether certain persons employed by [Name deleted] must qualify as municipal securities representatives under rule G-3. In the case of one of the individuals, you state in your letter that he is responsible for calculating coupon rates for new issue securities, based on information provided to him by persons in [Name deleted] underwriting department. According to your letter, the individual has some discretion to “revise coupon rates to a more marketable figure,” but all of his activities are subject to the approval of, and supervised by, municipal securities professionals in the department. We understand that he does not communicate with issuers, customers or other municipal securities dealers. Based upon the facts set forth in your letter, we are of the view that the individual described performs only clerical or ministerial functions in calculating the coupon scale, and he is therefore not a municipal securities representative within the meaning of rule G-3. 32 In your letter, you also request advice regarding certain individuals whose only function is to receive telephonic orders for municipal securities from municipal securities dealers. We understand that these individuals do not solicit orders, negotiate prices or the terms of transactions, or transmit offers to prospective purchasers, nor do they communicate at any time with customers. Based upon the facts you have provided, we are of the opinion that these individuals perform only clerical or ministerial functions, and they are therefore also not municipal securities representatives within the meaning of rule G-3. MSRB interpretation of December 8, 1978. Clerical or ministerial duties. I refer to your letter of June 22, 1979, in which you request advice regarding the applicability of rule G-3 on professional qualifications to an employee of [Company name deleted]. According to your letter, the activities of the employee in question are limited to checking the mathematical accuracy of bids received by an issuer for which [Company name deleted] acts as financial advisor and reporting the results to the issuer. Based on the facts stated in your letter, the employee is not required to qualify as a municipal securities representative under rule G-3. The Board does not intend the qualification requirements of the rule to apply to persons performing solely clerical or ministerial functions, such as in this case. MSRB interpretation of July 24, 1979. “Finder” of potential issuers. This responds to your letter of May 14, 1981 requesting our advice concerning the application of the qualification provisions of rule G-3 to a person employed by a municipal securities broker or dealer whose activities are limited solely to acting as a “finder” of potential issuers. Based upon the facts contained in your letter, and assuming that such person is not providing financial advisory or consultant services for issuers, it would appear that he or she is not performing functions, which are enumerated in rule G-3(a), the performance of which would require qualification as a municipal securities principal or a municipal securities representative. MSRB interpretation of June 24, 1981.

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 Persons engaged in financial advisory activities. I am writing to confirm our telephone conversation of this afternoon concerning the registration and qualification requirements applicable to persons in your firm's public finance department. In our conversation you inquired whether persons who function as financial advisors to municipal issuers, providing advice to such issuers regarding the structure, timing and terms of new issues of municipal securities to be sold by such issuers, are required to be qualified. As I indicated, such persons are required to be registered and qualified as municipal securities representatives. Furthermore, persons who supervise representatives performing such financial advisory services are required to be registered and qualified as municipal securities principals. For your information, the provision of financial advisory services to municipal issuers is defined to be a municipal securities representative function in Board rule G-3(a)(iii)(B).[*] The requirement that persons performing such function be qualified is set forth generally in rules G-2 and G-3, and the specific qualification requirements applicable to such persons are stated in [†] [‡] rules G-3(e) and (i) . MSRB interpretation of June 10, 1982. [*] [†] [‡] [Currently codified at rule G-3(a)(i)(B)] [Currently codified at rule G-3(a)(ii)] [Currently codified at rule G-3(a)(iii)] Cold calling. This is in response to your letter regarding the application of rule G-3, concerning professional qualifications, to non-qualified individuals contacting institutional investors. You refer to the Board’s December 21, 1984 notice stating that nonqualified individuals making “cold calls” to individuals and introducing the services offered by a municipal securities dealer, prequalifying potential customers or suggesting the purchase of securities must be qualified as a municipal securities representative. You ask whether a non-qualified individual may make a “cold call” to an institutional portfolio manager solely for the purpose of introducing the name of the municipal securities dealer to the port- folio manager and to inquire as to the type of securities in which it invests. You state that the individual or individuals making the calls would be specifically instructed not to discuss the purchase or sale of any specific security. Board rule G-3(a)(iii)[*] defines municipal securities representative activities to include any activity which involves communication with public investors regarding the sale of municipal securities but exempts activities that are solely clerical or ministerial. As you noted, in December 1984, the Board issued an interpretation of rule G-3 which states that individuals who solicit new account business are not engaging in clerical or ministerial activities but rather are communicating with public investors regarding the sale of municipal securities and thus are engaging in municipal securities representative activities which require such individuals to be qualified as representatives under the Board’s rules. Examples of solicitation of new account business stated in the notice included “cold calls” to individuals during which the non-qualified individual introduces the services offered by the dealers, prequalified potential customers, or suggests the purchase of specific securities currently being offered by a municipal securities dealer. An individual who introduces the name of the municipal securities dealer and inquires as to the type of securities in which a portfolio manager invests would be communicating with the public in an attempt to prequalify potential customers and thus must be qualified as a municipal securities representative. MSRB interpretation of January 5, 1987. representative, additionally must be qualified as a municipal securities principal because he has oversight and supervisory responsibility for the firm’s data processing department. Board rule G-3(a)(i)[*] defines a municipal securities principal as a person directly engaged in the management, direction or supervision of one or more enumerated representative activities. Consequently, whether or not this individual must be qualified as a municipal securities principal depends on whether he is supervising such activities, i.e., whether the data processing department employees are functioning as municipal securities representatives. You state that the data processing department assists this individual by performing the calculations necessary in the structuring of municipal bond issues and underwritings. Moreover, you note that the employees in the data processing department do not communicate with customers, including issuers, in carrying out their duties and that the above financial advisory and underwriting activities are otherwise supervised by a qualified municipal securities principal. Based upon the facts set forth above, we are of the view that the individual described supervises only clerical or ministerial functions, and he is therefore not a municipal securities principal within the meaning of Board rule G-3. MSRB interpretation of December 9, 1988. [*] Rule G-2 Interpretive Letter – Execution of infrequent unsolicited orders, MSRB interpretation of October 2, 1998. [Currently codified at rule G-3(a)(i).] Supervision of data processing functions. I am writing in response to your letter of November 7, 1988 and our subsequent telephone conversation by which you requested an interpretation of the Board’s qualification requirements for municipal securities principals. You asked whether an individual, who is presently qualified as a 33 [*] [Currently codified at rule G-3(b)(i)] See
also:
 Rule G-1 Interpretive Letter – Portfolio credit analyst, MSRB interpretation of June 8, 1978. Rule G-27 Interpretive Letter – Supervisory structure, MSRB interpretation of March 11, 1987. Rule
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Statutory
Disqualifications

 (a) Except as otherwise provided in sections (b) and (c) of this rule, no broker, dealer or municipal securities dealer or natural person shall be qualified for purposes of rule G-2 if, by action of a national securities exchange or registered securities association, such broker, dealer or municipal securities dealer has been and is expelled or suspended from membership or participation in such exchange or association, or such natural person has been and is barred or suspended from being associated with a member of such exchange or association: (i) for violation of any rules of such exchange or association which prohibit any act or transaction constituting conduct inconsistent with just and equitable principles of trade, or which requires any act the omission of which constitutes conduct inconsistent with such just and equitable principles of trade; or (ii) by reason of any statutory disqualification of the character described in subparagraphs (C), (D), (E) or (F) of section 3(a)(39) of the Act. (b) A broker, dealer or municipal securities dealer or natural person shall be qualified for purposes of rule G-2, notwithstanding the provisions of paragraph (a)(i) of this rule, if the Commission shall so determine upon application by such broker, dealer or municipal securities dealer or natural person in accordance with such standards and procedures as are set forth in rule 19h-1(d) under the Act with respect to registered brokers and dealers and their associated persons. (c) Notwithstanding the provisions of paragraph (a)(ii) of this rule, a broker, dealer or municipal securities dealer or natural person shall be qualified for purposes of rule G-2 upon a determination by a registered securities association in the case of one of its members or such member's associated persons, by the Commission in the case of any other broker, dealer or municipal securities dealer (other than a bank dealer) or their associated persons, or by the appropriate regulatory authority in the case of any bank dealer or such bank dealer's associated persons, upon application by such broker, dealer, or municipal securities dealer or natural person. Rule
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G‐5:
Disciplinary
Actions
by
Appropriate
Regulatory
Agencies;
Remedial
Notices
by
Registered
Securities
 Associations

 (a) No broker, dealer or municipal securities dealer shall effect any transaction in, or induce or attempt to induce the purchase or sale of, any municipal security in contravention of any effective restrictions imposed upon such broker, dealer or municipal securities dealer by the Commission pursuant to sections 15(b)(4) or (5) or 15B(c)(2) or (3) of the Act or by an appropriate regulatory agency pursuant to section 15B(c)(5) of the Act or by a registered securities association pursuant to rules adopted under section 15A(b)(7) of the Act, and no natural person shall be associated with a broker, dealer or municipal securities dealer in contravention of any effective restrictions imposed upon such person by the Commission pursuant to sections 15(b)(6) or 15B(c)(4) of the Act or by an appropriate regulatory agency pursuant to section 15B(c)(5) of the Act or by a registered securities association pursuant to rules adopted under section 15A(b)(7) of the Act. (b) No broker, dealer or municipal securities dealer that is a member of a registered securities association shall effect any transaction in, or induce or attempt to induce the purchase or sale of, any municipal security, or otherwise act in contravention of or fail to act in accordance with rules adopted by the association as of April 3, 1984, pertaining to remedial activities of members experiencing financial or operational difficulties, as if such rules were applicable to such broker, dealer or municipal securities dealer. 35 Rule
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G‐6:
Fidelity
Bonding
Requirements
 No broker, dealer or municipal securities dealer that is a member of a registered securities association shall be qualified for purposes of rule G-2 unless such broker, dealer or municipal securities dealer has met the fidelity bonding requirements set forth in the rules of such association, to the same extent as if such rules were applicable to such broker, dealer or municipal securities dealer. BACKGROUND  Rule G-6 prescribes fidelity bonding requirements for municipal securities brokers and non–bank municipal securities dealers. 
 NASD Rule
3020:
Fidelity
Bonds  (a) Coverage Required Each member required to join the Securities Investor Protection Corporation who has employees and who is not a member in good standing of the American Stock Exchange, Inc.; the Boston Stock Exchange; the Midwest Stock Exchange, Inc.; the New York Stock Exchange, Inc.; the Pacific Stock Exchange, Inc.; the Philadelphia Stock Exchange, Inc.; or the Chicago Board Options Exchange shall: (1) Maintain a blanket fidelity bond, in a form substantially similar to the standard form of Brokers Blanket Bond promulgated by the Surety Association of America, covering officers and employees which provides against loss and has agreements covering at least the following: (A) Fidelity (B) On Premises (C) In Transit (D) Misplacement (E) Forgery and Alteration (including check forgery) (F) Securities Loss (including securities forgery) (G) Fraudulent Trading (H) Cancellation Rider providing that the insurance carrier will use its best efforts to promptly notify the National Association of Securities Dealers, Inc. in the event the bond is cancelled, terminated or substantially modified. (2) Maintain minimum coverage for all insuring agreements required in this paragraph (a) of not less than $25,000; (3) Maintain required minimum coverage for Fidelity, On Premises, In Transit, Misplacement and Forgery and Alteration insuring agreements of not less than 120% of its required net capital under SEC Rule 15c3-1 up to $600,000. Minimum coverage for required net capital in excess of $600,000 shall be determined by reference to the following table: Net
Capital
Requirement
under
Rule
15c3‐1 Minimum
Coverage $600,000—1,000,000 $750,000 $1,000,001—2,000,000 $1,000,000 $2,000,001—3,000,000 $1,500,000 $3,000,001—4,000,000 $2,000,000 $4,000,001—6,000,000 $3,000,000 $6,000,001—12,000,000 $4,000,000 $12,000,001—and
above $5,000,000 (4) Maintain Fraudulent Trading coverage of not less than $25,000 or 50% of the coverage required in paragraph (a)(3), whichever is greater, up to $500,000; Rule
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 (5) Maintain Securities Forgery coverage of not less than $25,000 or 25% of the coverage required in paragraph (a)(3), whichever is greater, up to $250,000. (b) Deductible Provision (1) A deductible provision may be included in the bond of up to $5,000 or 10% of the minimum insurance requirement established hereby, whichever is greater. (2) If a member desires to maintain coverage in excess of the minimum insurance requirement then a deductible provision may be included in the bond of up to $5,000 or 10% of the amount of blanket coverage provided in the bond purchased, whichever is greater. The excess of any such deductible amount over the maximum permissible deductible amount described in subparagraph (1) above must be deducted from the member's net worth in the calculation of the member's net capital for purposes of SEC Rule 15c3-1. Where the member is a subsidiary of another Association member the excess may be deducted from the parent's rather than the subsidiary's net worth, but only if the parent guarantees the subsidiary's net capital in writing. (c) Annual Review of Coverage (1) Each member, other than members covered by subparagraph (2), shall annually review, as of the anniversary date of the issuance of the bond, the adequacy thereof by reference to the highest required net capital during the immediately preceding twelve-month period, which amount shall be used to determine minimum required coverage for the succeeding twelve-month period pursuant to subparagraphs (a)(2), (3), (4) and (5). (2) Each member which has been in business for one year shall, as of the first anniversary date of the issuance of its original bond, review the adequacy thereof by reference to an amount calculated by dividing the highest aggregate indebtedness it experienced during its first year by 15. Such amount shall be used in lieu of required net capital under SEC Rule 15c3-1 in determining the minimum required coverage to be carried in the member's second year pursuant to subparagraphs (a)(2), (3), (4) and (5). Notwithstanding the above, no such member shall carry less minimum bonding coverage in its second year than it carried in its first year. (3) Each member shall make required adjustments not more than sixty days after the anniversary date of the issuance of such bond. (4) Any member subject to the requirements of this paragraph (c) may apply for an exemption from the requirements of this paragraph (c). The application shall be made pursuant to Rule 9610 of the Code of Procedure. The exemption may be granted upon a showing of good cause, including a substantial change in the circumstances or nature of the member's business that results in a lower net capital requirement. The NASD may issue an exemption subject to any condition or limitation upon a member's bonding coverage that is deemed necessary to protect the public and serve the purposes of this Rule. (d) Notification of Change Each member shall report the cancellation, termination or substantial modification of the bond to the Association within ten business days of such occurrence. (e) Definitions For purposes of fidelity bonding the term “employee” or “employees” shall include any person or persons associated with a member firm (as defined in Article I, paragraph (q) of the By-Laws) except: (1) Sole Proprietors (2) Sole Stockholders (3) Directors or Trustees of member firms who are not performing acts coming within the scope of the usual duties of an officer or employee. 37 Rule
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G‐7:
Information
Concerning
Associated
Persons

 (a) No associated person (as hereinafter defined) of a broker, dealer or municipal securities dealer shall be qualified for purposes of rule G-2 of the Board unless such associated person meets the requirements of this rule. The term “associated person” as used in this rule means (i) a municipal securities principal, (ii) a municipal securities sales principal, (iii) a financial and operations principal, and (iv) a municipal securities representative. (b) Every broker, dealer and municipal securities dealer shall obtain from each of its associated persons (as defined in section (a) of this rule), and each associated person shall furnish to the broker, dealer or municipal securities dealer with which such person is or seeks to be associated, a questionnaire, which shall be signed by a municipal securities principal or general securities principal, containing at least the following information: (i) such person’s name, residence address, social security number, and the starting date or anticipated starting date of such person’s employment or other association with such broker, dealer or municipal securities dealer; (ii) date of birth; (iii) a complete, consecutive statement of employment and personal history for at least the immediately preceding ten years, including full time and part time employment, self employment, military service, unemployment, or full-time education. For each period of employment, the position held at the time of leaving said employment; (iv) a record of all residential addresses for at least the immediately preceding five years; (v) a record of any denial of membership or registration, and of any disciplinary action taken against, or sanction imposed upon, such person by any federal or state securities or federal or state bank regulatory agency or by any national securities exchange or registered securities association, including any finding that such person was a cause of any disciplinary action or violated any law; (vi) a record of any denial, suspension or revocation of registration with the Commission as a broker, dealer, or municipal securities dealer or of any denial, suspension or revocation of, or expulsion from, membership in a national securities exchange or a registered securities association, of any broker, dealer, or municipal securities dealer with which such person was associated in any capacity when such action was taken; (vii) a record of any permanent or temporary injunction entered against such person pursuant to which such person was enjoined from acting as an investment advisor, underwriter, broker, dealer, or municipal securities dealer, or from engaging in or continuing any conduct or practice in connection with any such activity, or in connection with purchase or sale of any security; (viii) a record of any convictions of such person within the past ten years involving the purchase or sale of any security, the taking of a false oath, the making of a false report, bribery, perjury, burglary, or conspiracy to commit any such offense; or arising out of the conduct of the business of a broker, dealer, municipal securities dealer, investment advisor, bank, insurance company or fiduciary; or involving the larceny, theft, robbery, extortion, forgery, counterfeiting, fraudulent concealment, embezzlement, fraudulent conversion, or misappropriation of funds or securities; or involving the violation of section 152, 1341, 1342, or 1343 or chapter 25 or 47 of title 18, United States Code; (ix) a record of any refusal by a surety company to issue a fidelity bond covering such person; any payments made by a surety company on coverage of such person or cancellation of such coverage; and a statement whether such person is currently bonded; and (x) a record of any other name or names by which such person has been known or which such person has used. A completed Form U-4 or similar form prescribed by the Commission or a registered securities association for brokers, dealers and municipal securities dealers other than bank dealers or, in the case of a bank dealer a completed Form MSD-4 or similar form prescribed by the appropriate regulatory agency for such bank dealer, containing the foregoing information, shall satisfy the requirements of this section. (c) To the extent any information furnished by an associated person pursuant to section (b) of this rule is or becomes materially inaccurate or incomplete, such associated person shall furnish in writing to the broker, dealer or municipal securities dealer with which such person is or seeks to be associated a statement correcting such information. (d) For the purpose of verifying the information furnished by an associated person pursuant to section (b) of this rule, every broker, dealer and municipal securities dealer shall make inquiry of all employers of such associated person during the three years immediately preceding such person’s association with such broker, dealer or municipal securities dealer concerning the accuracy and completeness of such information as well as such person’s record and reputation as related to the person’s ability to perform his or her duties and each such prior employer which is a broker, dealer or municipal securities dealer shall make such information available within ten business days following a request made pursuant to the requirements of this section (d). (e) Every broker, dealer and municipal securities dealer shall maintain and preserve a copy of the questionnaire furnished pursuant to section (b) of this rule, and of any additional statements furnished pursuant to section (c) of this rule, until at Rule
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 least three years after the associated person’s employment or other association with such broker, dealer or municipal securities dealer has terminated. (f) Every broker, dealer and municipal securities dealer shall maintain and preserve a record of the name and residence address of each associated person, designated by the category of function performed (whether municipal securities principal, municipal securities sales principal, municipal securities representative or financial and operations principal) and indicating whether such person has taken and passed the qualification examination for municipal securities principals, municipal securities sales principals, municipal securities representatives or financial and operations principals prescribed by the Board or was exempt from the requirement to take and pass such examination, indicating the basis for such exemption, until at least three years after the associated person's employment or other association with such broker, dealer or municipal securities dealer has terminated. (g) Every broker, dealer and municipal securities dealer which is a member of a registered securities association shall file with such association, every bank dealer shall file with the appropriate regulatory agency for such bank dealer, and every broker, dealer or municipal securities dealer other than a bank dealer which is not a member of a registered securities association shall file with the Commission, such of the information prescribed by this rule as such association, agency, or the Commission, respectively, shall by rule or regulation require. (h) Any records required to be maintained and preserved pursuant to this rule shall be preserved in accordance with the requirements of sections (d), (e) and (f) of rule G-9 of the Board. BACKGROUND  Rule G-7 prescribes certain types of information that associated persons are required to submit to the municipal securities brokers and municipal securities dealer with which they are associated. This information relates generally to such associated persons' employment history and professional background, including any disciplinary sanctions and the bases claimed, if any, for exemption from the Board’s examination requirements for municipal securities principals, financial and operations principals, and municipal securities representatives. 39 Rule
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G‐8:
Books
and
Records
to
be
Made
by
Brokers,
Dealers
and
Municipal
Securities
Dealers

 (a) Description of Books and Records Required to be Made. Except as otherwise specifically indicated in this rule, every broker, dealer and municipal securities dealer shall make and keep current the following books and records, to the extent applicable to the business of such broker, dealer or municipal securities dealer: (i) Records of Original Entry. “Blotters” or other records of original entry containing an itemized daily record of all purchases and sales of municipal securities, all receipts and deliveries of municipal securities (including certificate numbers and, if the securities are in registered form, an indication to such effect), all receipts and disbursement of cash with respect to transactions in municipal securities, all other debits and credits pertaining to transactions in municipal securities, and in the case of brokers, dealers and municipal securities dealers other than bank dealers, all other cash receipts and disbursements if not contained in the records required by any other provision of this rule. The records of original entry shall show the name or other designation of the account for which each such transaction was effected (whether effected for the account of such broker, dealer or municipal securities dealer, the account of a customer, or otherwise), the description of the securities, the aggregate par value of the securities, the dollar price or yield and aggregate purchase or sale price of the securities, accrued interest, the trade date, and the name or other designation of the person from whom purchased or received or to whom sold or delivered. With respect to accrued interest and information relating to “when issued” transactions which may not be available at the time a transaction is effected, entries setting forth such information shall be made promptly as such information becomes available. Dollar price, yield and accrued interest relating to any transaction shall be required to be shown only to the extent required to be included in the confirmation delivered by the broker, dealer or municipal securities dealer in connection with such transaction under rule G-12 or rule G-15. (ii) Account Records. Account records for each customer account and account of such broker, dealer or municipal securities dealer. Such records shall reflect all purchases and sales of municipal securities, all receipts and deliveries of municipal securities, all receipts and disbursements of cash, and all other debits and credits relating to such account. A bank dealer shall not be required to maintain a record of a customer’s bank credit or bank debit balances for purposes of this subparagraph. (iii) Securities Records. Records showing separately for each municipal security all positions (including, in the case of a broker, dealer or municipal securities dealer other than a bank dealer, securities in safekeeping) carried by such broker, dealer or municipal securities dealer for its account or for the account of a customer (with all “short” trading positions so designated), the location of all such securities long and the offsetting position to all such securities short, and the name or other designation of the account in which each position is carried. Such records shall also show all long security count differences and short count differences classified by the date of physical count and verification on which they were discovered. Such records shall consist of a single record system. With respect to purchases or sales, such records may be posted on either a settlement date basis or a trade date basis, consistent with the manner of posting the records of original entry of such broker, dealer or municipal securities dealer. For purposes of this subparagraph, multiple maturities of the same issue of municipal securities, as well as multiple coupons of the same maturity, may be shown on the same record, provided that adequate secondary records exist to identify separately such maturities and coupons. With respect to securities which are received in and delivered out by such broker, dealer or municipal securities dealer the same day on or before the settlement date, no posting to such records shall be required. Anything herein to the contrary notwithstanding, a non-clearing broker, dealer or municipal securities dealer which effects transactions for the account of customers on a delivery against payment basis may keep the records of location required by this subparagraph in the form of an alphabetical list or lists of securities showing the location of such securities rather than a record of location separately for each security. Anything herein to the contrary notwithstanding, a bank dealer shall maintain records of the location of securities in its own trading account. (iv) Subsidiary Records. Ledgers or other records reflecting the following information: (A) Municipal securities in transfer. With respect to municipal securities which have been sent out for transfer, the description and the aggregate par value of the securities, the name in which registered, the name in which the securities are to be registered, the date sent out for transfer, the address to which sent for transfer, former certificate numbers, the date returned from transfer, and new certificate numbers. (B) Municipal securities to be validated. With respect to municipal securities which have been sent out for validation, the description and the aggregate par value of the securities, the date sent out for validation, the address to which sent for validation, the certificate numbers, and the date returned from validation. (C) Municipal securities borrowed or loaned. With respect to municipal securities borrowed or loaned, the date borrowed or loaned, the name of the person from whom borrowed or to whom loaned, the description and the aggregate par value of the securities borrowed or loaned, the value at which the securities were borrowed or loaned, and the date returned. (D) Municipal securities transactions not completed on settlement date. With respect to municipal securities transactions not completed on the settlement date, the description and the aggregate par value of the securities which Rule
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 are the subject of such transactions, the purchase price (with respect to a purchase transaction not completed on the settlement date), the sale price (with respect to a sale transaction not completed on the settlement date), the name of the customer, broker, dealer or municipal securities dealer from whom delivery is due or to whom delivery is to be made, and the date on which the securities are received or delivered. All municipal securities transactions with brokers, dealers and municipal securities dealers not completed on the settlement date shall be separately identifiable as such. For purposes of this rule, the term “settlement date” means the date upon which delivery of the securities is due in a purchase or sale transaction. Such records shall be maintained as subsidiary records to the general ledger maintained by such broker, dealer or municipal securities dealer. Anything herein to the contrary notwithstanding, the requirements of this subparagraph will be satisfied if the information described is readily obtainable from other records maintained by such broker, dealer or municipal securities dealer. (v) Put Options and Repurchase Agreements. Records of all options (whether written or oral) to sell municipal securities (i.e., put options) and of all repurchase agreements (whether written or oral) with respect to municipal securities, in which such broker, dealer or municipal securities dealer has any direct or indirect interest or which such broker, dealer or municipal securities dealer has granted or guaranteed, showing the description and aggregate par value of the securities, and the terms and conditions of the option, agreement or guarantee. (vi) Records for Agency Transactions. A memorandum of each agency order and any instructions given or received for the purchase or sale of municipal securities pursuant to such order, showing the terms and conditions of the order and instructions, and any modification thereof, the account for which entered, the date and time of receipt of the order by such broker, dealer or municipal securities dealer, the price at which executed, the date of execution and, to the extent feasible, the time of execution and, if such order is entered pursuant to a power of attorney or on behalf of a joint account, corporation or partnership, the name and address (if other than that of the account) of the person who entered the order. If an agency order is canceled by a customer, such records shall also show the terms, conditions and date of cancellation, and, to the extent feasible, the time of cancellation. Orders entered pursuant to the exercise of discretionary power by such broker, dealer or municipal securities dealer shall be designated as such. For purposes of this subparagraph, the term “agency order” shall mean an order given to a broker, dealer or municipal securities dealer to buy a specific security from another person or to sell a specific security to another person, in either case without such broker, dealer or municipal securities dealer acquiring ownership of the security. Customer inquiries of a general nature concerning the availability of securities for purchase or opportunities for sale shall not be considered to be orders. For purposes of this subparagraph and subparagraph (vii) below, the term “memorandum” shall mean a trading ticket or other similar record. For purposes of this subparagraph, the term “instructions” shall mean instructions transmitted within an office with respect to the execution of an agency order, including, but not limited to, instructions transmitted from a sales desk to a trading desk. (vii) Records for Transactions as Principal. A memorandum of each transaction in municipal securities (whether purchase or sale) for the account of such broker, dealer or municipal securities dealer, showing the price and date of execution and, to the extent feasible, the time of execution; and in the event such purchase or sale is with a customer, a record of the customer’s order, showing the date and time of receipt, the terms and conditions of the order, and the name or other designation of the account in which it was entered and, if such order is entered pursuant to a power of attorney or on behalf of a joint account, corporation, or partnership, the name and address (if other than that of the account) of the person who entered the order. (viii) Records of Syndicate Transactions. With respect to each syndicate, joint or similar account formed for the purchase of municipal securities, records shall be maintained by a managing underwriter designated by the syndicate or account to maintain the books and records of the syndicate or account, showing the description and aggregate par value of the securities, the name and percentage of participation of each member of the syndicate or account, the terms and conditions governing the formation and operation of the syndicate or account (including a separate statement of all terms and conditions required by the issuer), all orders received for the purchase of the securities from the syndicate or account (except bids at other than syndicate price), all allotments of securities and the price at which sold, the date and amount of any good faith deposit made to the issuer, the date of settlement with the issuer, the date of closing of the account, and a reconciliation of profits and expenses of the account. (ix) Copies of Confirmations, Periodic Statements and Certain Other Notices to Customers. A copy of all confirmations of purchase or sale of municipal securities, of all periodic written statements disclosing purchases, sales or redemptions of municipal fund securities pursuant to rule G-15(a)(viii), of written disclosures to customers, if any, as required under rule G-15(f)(iii) and, in the case of a broker, dealer or municipal securities dealer other than a bank dealer, of all other notices sent to customers concerning debits and credits to customer accounts or, in the case of a bank dealer, notices of debits and credits for municipal securities, cash and other items with respect to transactions in municipal securities. 41 Rule
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 (x) Financial Records. Every broker, dealer and municipal securities dealer subject to the provisions of rule 15c3-1 under the Act shall make and keep current the books and records described in subparagraphs (a)(2), (a)(4)(iv) and (vi), and (a)(11) of rule 17a-3 under the Act. (xi) Customer Account Information. A record for each customer, other than an institutional account, setting forth the following information to the extent applicable to such customer: (A) customer's name and residence or principal business address; (B) whether customer is of legal age; (C) tax identification or social security number; (D) occupation; (E) name and address of employer; (F) information about the customer used pursuant to rule G-19(c)(ii) in making recommendations to the customer. For non-institutional accounts, all data obtained pursuant to rule G-19(b) shall be recorded. (G) name and address of beneficial owner or owners of such account if other than the customer and transactions are to be confirmed to such owner or owners; (H) signature of municipal securities representative, general securities representative or limited representative – investment company and variable contracts products introducing the account and signature of a municipal securities principal, municipal securities sales principal or general securities principal indicating acceptance of the account; (I) with respect to discretionary accounts, customer's written authorization to exercise discretionary power or authority with respect to the account, written approval of municipal securities principal or municipal securities sales principal who supervises the account, and written approval of municipal securities principal or municipal securities sales principal with respect to each transaction in the account, indicating the time and date of approval; (J) whether customer is employed by another broker, dealer or municipal securities dealer; (K) in connection with the hypothecation of the customer's securities, the written authorization of, or the notice provided to, the customer in accordance with Commission rules 8c-1 and 15c2-1; and (L) with respect to official communications, customer’s written authorization, if any, that the customer does not object to the disclosure of its name, security position(s) and contact information to a party identified in G15(g)(iii)(A)(1) for purposes of transmitting official communications under G-15(g). (M) Predispute Arbitration Agreements with Customers. (1) Any predispute arbitration clause shall be highlighted and shall be immediately preceded by the following language in outline form: This agreement contains a predispute arbitration clause. By signing an arbitration agreement the parties agree as follows: (a) All parties to this agreement are giving up the right to sue each other in court, including the right to a trial by jury, except as provided by the rules of the arbitration forum in which a claim is filed. (b) Arbitration awards are generally final and binding; a party's ability to have a court reverse or modify an arbitration award is very limited. (c) The ability of the parties to obtain documents, witness statements and other discovery is generally more limited in arbitration than in court proceedings. (d) The arbitrators do not have to explain the reason(s) for their award. (e) The panel of arbitrators will typically include a minority of arbitrators who were or are affiliated with the securities industry. (f) The rules of some arbitration forums may impose time limits for bringing a claim in arbitration. In some cases, a claim that is ineligible for arbitration may be brought in court. (g) The rules of the arbitration forum in which the claim is filed, and any amendments thereto, shall be incorporated into this agreement. (2) (a) In any agreement containing a predispute arbitration agreement, there shall be a highlighted statement immediately preceding any signature line or other place for indicating agreement that states that the agreement contains a predispute arbitration clause. The statement shall also indicate at what page and paragraph the arbitration clause is located. (b) Within thirty days of signing, a copy of the agreement containing any such clause shall be given to the customer who shall acknowledge receipt thereof on the agreement or on a separate document. Rule
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 (3) (a) A broker, dealer or municipal securities dealer shall provide a customer with a copy of any predispute arbitration clause or customer agreement executed between the customer and the broker, dealer or municipal securities dealer, or inform the customer that the broker, dealer or municipal securities dealer does not have a copy thereof, within ten business days of receipt of the customer's request. If a customer requests such a copy before the broker, dealer or municipal securities dealer has provided the customer with a copy pursuant to subparagraph (2)(b) above, the broker, dealer or municipal securities dealer must provide a copy to the customer by the earlier date required by this subparagraph (3)(a) or by subparagraph (2)(b) above. (b) Upon request by a customer, a broker, dealer or municipal securities dealer shall provide the customer with the names of, and information on how to contact or obtain the rules of, all arbitration forums in which a claim may be filed under the agreement. (4) No predispute arbitration agreement shall include any condition that: (i) limits or contradicts the rules of any self-regulatory organization; (ii) limits the ability of a party to file any claim in arbitration; (iii) limits the ability of a party to file any claim in court permitted to be filed in court under the rules of the forums in which a claim may be filed under the agreement; and (iv) limits the ability of arbitrators to make any award. (5) If a customer files a complaint in court against a broker, dealer or municipal securities dealer that contains claims that are subject to arbitration pursuant to a predispute arbitration agreement between the broker, dealer or municipal securities dealer and the customer, the broker, dealer or municipal securities dealer may seek to compel arbitration of the claims that are subject to arbitration. If the broker, dealer or municipal securities dealer seeks to compel arbitration of such claims, the broker, dealer or municipal securities dealer must agree to arbitrate all of the claims contained in the complaint if the customer so requests. (6) All agreements shall include a statement that “No person shall bring a putative or certified class action to arbitration, nor seek to enforce any predispute arbitration agreement against any person who has initiated in court a putative class action; who is a member of a putative class who has not opted out of the class with respect to any claims encompassed by the putative class action until: (i) the class certification is denied; or (ii) the class is decertified; or (iii) the customer is excluded from the class by the court. Such forbearance to enforce an agreement to arbitrate shall not constitute a waiver of any rights under this agreement except to the extent stated herein.” (7) These provisions of Rule G-8(a)(xi)(M) are effective as of May 1, 2005. For purposes of this subparagraph, the terms “general securities representative,” “general securities principal” and “limited representative – investment company and variable contracts products” shall mean such persons as so defined by the rules of a national securities exchange or registered securities association. For purposes of this subparagraph, the term “institutional account” shall mean the account of (i) a bank, savings and loan association, insurance company, or registered investment company; (ii) an investment adviser registered either with the Commission under Section 203 of the Investment Advisers Act of 1940 or with a state securities commission (or any agency or office performing like functions); or (iii) any other entity (whether a natural person, corporation, partnership, trust, or otherwise) with total assets of at least $50 million. Anything in this subparagraph to the contrary notwithstanding, every broker, dealer and municipal securities dealer shall maintain a record of the information required by items (A), (C), (F), (H), (I) and (K) of this subparagraph with respect to each customer which is an institutional account. (xii) Customer Complaints. A record of all written complaints of customers, and persons acting on behalf of customers, and what action, if any, has been taken by such broker, dealer or municipal securities dealer in connection with each such complaint. The term “complaint” shall mean any written statement alleging a grievance involving the activities of the broker, dealer or municipal securities dealer or any associated persons of such broker, dealer or municipal securities dealer with respect to any matter involving a customer’s account. (xiii) Records Concerning Deliveries of Official Statements. A record of all deliveries to purchasers of new issue municipal securities, of official statements or other disclosures concerning the underwriting arrangements required under rule G-32 and, if applicable, a record evidencing compliance with section (a)(i)(C) of rule G-32. (xiv) Designation of Persons Responsible for Recordkeeping. A record of all designations of persons responsible for the maintenance and preservation of books and records as required by rule G-27(b)(ii). (xv) Records Concerning Delivery of Official Statements, Advance Refunding Documents and Forms G-36(OS) and G-36(ARD) to the Board or its Designee. A broker, dealer or municipal securities dealer that acts as an underwriter in a primary offering of municipal securities subject to rule G-36 (or, in the event a syndicate or similar account has been formed for the purpose of underwriting the issue, the managing underwriter) shall maintain: (A) a record of the name, par amount and CUSIP number or numbers for all such primary offerings of municipal securities; the dates that the documents and written information referred to in rule G-36 are received from the is43 Rule
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 suer and are sent to the Board or its designee; the date of delivery of the issue to the underwriters; and, for issues subject to Securities Exchange Act Rule 15c2-12, the date of the final agreement to purchase, offer or sell the municipal securities; and (B) copies of the Forms G-36(OS) and G-36(ARD) and documents submitted to the Board or its designee along with the certified or registered mail receipt or other record of sending such forms and documents to the Board or its designee. (xvi) Records Concerning Political Contributions and Prohibitions on Municipal Securities Business Pursuant to Rule G-37. Records reflecting: (A) a listing of the names, titles, city/county and state of residence of all municipal finance professionals; (B) a listing of the names, titles, city/county and state of residence of all non-MFP executive officers; (C) the states in which the broker, dealer or municipal securities dealer is engaging or is seeking to engage in municipal securities business; (D) a listing of issuers with which the broker, dealer or municipal securities dealer has engaged in municipal securities business, along with the type of municipal securities business engaged in, during the current year and separate listings for each of the previous two calendar years; (E) the contributions, direct or indirect, to officials of an issuer and payments, direct or indirect, made to political parties of states and political subdivisions, by the broker, dealer or municipal securities dealer and each political action committee controlled by the broker, dealer or municipal securities dealer for the current year and separate listings for each of the previous two calendar years, which records shall include: (i) the identity of the contributors, (ii) the names and titles (including any city/county/state or other political subdivision) of the recipients of such contributions and payments, and (iii) the amounts and dates of such contributions and payments; (F) the contributions, direct or indirect, to officials of an issuer made by each municipal finance professional, any political action committee controlled by a municipal finance professional, and non-MFP executive officer for the current year, which records shall include: (i) the names, titles, city/county and state of residence of contributors, (ii) the names and titles (including any city/county/state or other political subdivision) of the recipients of such contributions, (iii) the amounts and dates of such contributions, and (iv) whether any such contribution was the subject of an automatic exemption, pursuant to Rule G-37(j), including the amount of the contribution, the date the broker, dealer or municipal securities dealer discovered the contribution, the name of the contributor, and the date the contributor obtained a return of the contribution; provided, however, that such records need not reflect any contribution made by a municipal finance professional or non-MFP executive officer to officials of an issuer for whom such person is entitled to vote if the contributions made by such person, in total, are not in excess of $250 to any official of an issuer, per election. In addition, brokers, dealers and municipal securities dealers shall maintain separate listings for each of the previous two calendar years containing the information required pursuant to this subparagraph (F) for those individuals meeting the definition of municipal finance professional pursuant to subparagraphs (A) and (B) of Rule G37(g)(iv) and for any political action committee controlled by such individuals, and separate listings for the previous six months containing the information required pursuant to this subparagraph (F) for those individuals meeting the definition of municipal finance professional pursuant to subparagraphs (C), (D) and (E) of Rule G-37(g)(iv) and for any political action committee controlled by such individuals and for any non-MFP executive officers; and (G) the payments, direct or indirect, to political parties of states and political subdivisions made by all municipal finance professionals, any political action committee controlled by a municipal finance professional, and nonMFP executive officers for the current year, which records shall include: (i) the names, titles, city/county and state of residence of contributors, (ii) the names and titles (including any city/county/state or other political subdivision) of the recipients of such payments, and (iii) the amounts and dates of such payments; provided, however, that such records need not reflect those payments made by any municipal finance professional or non-MFP executive officer to a political party of a state or political subdivision in which such persons are entitled to vote if the payments made by such person, in total, are not in excess of $250 per political party, per year. In addition, brokers, dealers and municipal securities dealers shall maintain separate listings for each of the previous two calendar years containing the information required pursuant to this subparagraph (G) for those individuals meeting the definition of municipal finance professional pursuant to subparagraphs (A) and (B) of rule G-37(g)(iv) and for any political action committee controlled by such individuals, and separate listings for the previous six months containing the information required pursuant to this subparagraph (G) for those individuals meeting the definition of municipal finance professional pursuant to subparagraphs (C), (D) and (E) of rule G-37(g)(iv) and for any political action committee controlled by such individuals and for any non-MFP executive officers. (H) Brokers, dealers and municipal securities dealers shall maintain copies of the Forms G-37 and G-37x sent to the Board along with the certified or registered mail receipt or other record of sending such forms to the Board. Rule
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 (I) Terms used in this paragraph (xvi) have the same meaning as in rule G-37. (J) No record is required by this paragraph (a)(xvi) of (i) any municipal securities business done or contribution to officials of issuers or political parties of states or political subdivisions made prior to April 25, 1994 or (ii) any payment to political parties of states or political subdivisions made prior to March 6, 1995. (K) No broker, dealer or municipal securities dealer shall be subject to the requirements of this paragraph (a)(xvi) during any period that such broker, dealer or municipal securities dealer has qualified for and invoked the exemption set forth in clause (B) of paragraph (e)(ii) of rule G-37; provided, however, that such broker, dealer or municipal securities dealer shall remain obligated to comply with clause (H) of this paragraph (a)(xvi) during such period of exemption. At such time as a broker, dealer or municipal securities dealer that has been exempted by this clause (K) from the requirements of this paragraph (a)(xvi) engages in any municipal securities business, all requirements of this paragraph (a)(xvi) covering the periods of time set forth herein (beginning with the then current calendar year and the two preceding calendar years) shall become applicable to such broker, dealer or municipal securities dealer. (xvii) Records Concerning Compliance with Rule G-20. Each broker, dealer and municipal securities dealer shall maintain: (A) a separate record of any gift or gratuity referred to in Rule G-20(a); (B) all agreements referred to in Rule G-20(c) and all compensation paid as a result of those agreements; and (C) records of all non-cash compensation referred to in Rule G-20(d). The records shall include the name of the person or entity making the payment, the names of the associated persons receiving the payments (if applicable), and the nature (including the location of meetings described in Rule G-20(d)(iii), if applicable) and value of non-cash compensation received. (xviii) Records Concerning Consultants Pursuant to Former Rule G-38. Each broker, dealer and municipal securities dealer shall maintain: (A) a listing of the name of the consultant pursuant to the Consultant Agreement, business address, role (including the state or geographic area in which the consultant is working on behalf of the broker, dealer or municipal securities dealer) and compensation arrangement of each consultant; (B) a copy of each Consultant Agreement referred to in former rule G-38(b); (C) a listing of the compensation paid in connection with each such Consultant Agreement; (D) where applicable, a listing of the municipal securities business obtained or retained through the activities of each consultant; (E) a listing of issuers and a record of disclosures made to such issuers, pursuant to former rule G-38(d), concerning each consultant used by the broker, dealer or municipal securities dealer to obtain or retain municipal securities business with each such issuer; (F) records of each reportable political contribution (as defined in former rule G-38(a)(vi)), which records shall include: (1) the names, city/county and state of residence of contributors; (2) the names and titles (including any city/county/state or other political subdivision) of the recipients of such contributions; and (3) the amounts and dates of such contributions; (G) records of each reportable political party payment (as defined in former rule G-38(a)(vii)), which records shall include: (1) the names, city/county and state of residence of contributors; (2) the names and titles (including any city/county/state or other political subdivision) of the recipients of such payments; and (3) the amounts and dates of such payments; (H) records indicating, if applicable, that a consultant made no reportable political contributions (as defined in former rule G-38(a)(vi)) or no reportable political party payments (as defined in former rule G-38(a)(vii)); (I) a statement, if applicable, that a consultant failed to provide any report of information to the dealer concerning reportable political contributions or reportable political party payments; (J) the date of termination of any consultant arrangement; and 45 Rule
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 (K) copies of the Forms G-38t sent to the Board along with the certified or registered mail receipt or other record of sending such forms to the Board. For purposes of this clause (xviii), the term “former rule G-38” shall have the meaning set forth in Rule G-38(c)(ii). (xix) Negotiable Instruments Drawn From a Customer's Account. No broker, dealer or municipal securities dealer or person associated with such broker, dealer or municipal securities dealer shall obtain from a customer or submit for payment a check, draft or other form of negotiable paper drawn on a customer's checking, savings, share, or similar account, without that person's express written authorization, which may include the customer's signature on the negotiable instrument. (xx) Records Concerning Compliance with Rule G-27. Each broker, dealer and municipal securities dealer shall maintain the records required under G-27(c) and G-27(d). (xxi) Records Concerning Sign-in Logs for In-Firm Delivery of the Regulatory Element Continuing Education. If applicable, each broker, dealer and municipal securities dealer shall maintain the records required by rule G-3(h)(i)(G)(6)(c). (xxii) **Reserved for future use** (xxiii) Records Concerning Compliance with Rule G-34. A broker, dealer or municipal securities dealer that acts as an underwriter in a primary offering of municipal securities subject to Rule G-34(a)(ii)(C)(1) shall maintain: (A) a record of the Time of Formal Award; (B) a record of the Time of First Execution; and (C) a record of the time the new issue received “Trade Eligibility” status in the new issue information dissemination system. (b) Manner in which Books and Records are to be Maintained. Nothing herein contained shall be construed to require a broker, dealer or municipal securities dealer to maintain the books and records required by this rule in any given manner, provided that the information required to be shown is clearly and accurately reflected thereon and provides an adequate basis for the audit of such information, nor to require a broker, dealer or municipal securities dealer to maintain its books and records relating to transactions in municipal securities separate and apart from books and records relating to transactions in other types of securities; provided, however, that in the case of a bank dealer, all records relating to transactions in municipal securities effected by such bank dealer must be separately extractable from all other records maintained by the bank. (c) Non-Clearing Brokers, Dealers and Municipal Securities Dealers. A broker, dealer or municipal securities dealer which executes transactions in municipal securities but clears such transactions through a clearing broker, dealer, or bank, or through a clearing agency, shall not be required to make and keep such books and records prescribed in this rule as are customarily made and kept by a clearing broker, dealer, bank or clearing agency; provided that, in the case of a broker, dealer or municipal securities dealer other than a bank dealer, the arrangements with such clearing broker, dealer or bank meet all applicable requirements prescribed in subparagraph (b) of rule 17a-3 under the Act, or the arrangements with such clearing agency have been approved by the Commission or, in the case of a bank dealer, such arrangements have been approved by the appropriate regulatory agency for such bank dealer; and further provided that such broker, dealer or municipal securities dealer shall remain responsible for the accurate maintenance and preservation of such books and records if they are maintained by a clearing agent other than a clearing broker or dealer. (d) Introducing Brokers, Dealers and Municipal Securities Dealers. A broker, dealer or municipal securities dealer which, as an introducing broker, dealer or municipal securities dealer, clears all transactions with and for customers on a fully disclosed basis with a clearing broker, dealer or municipal securities dealer, and which promptly transmits all customer funds and securities to the clearing broker, dealer or municipal securities dealer which carries all of the accounts of such customers, shall not be required to make and keep such books and records prescribed in this rule as are customarily made and kept by a clearing broker, dealer or municipal securities dealer and which are so made and kept; and such clearing broker, dealer or municipal securities dealer shall be responsible for the accurate maintenance and preservation of such books and records. (e) Definition of Customer. For purposes of this rule, the term “customer” shall not include a broker, dealer or municipal securities dealer acting in its capacity as such or the issuer of the securities which are the subject of the transaction in question. (f) Compliance with Rules 17a-3. Brokers, dealers and municipal securities dealers other than bank dealers which are in compliance with rule 17a-3 of the Commission will be deemed to be in compliance with the requirements of this rule, provided that the information required by subparagraph (a)(iv)(D) of this rule as it relates to uncompleted transactions involving customers; paragraph (a)(viii); and paragraphs (a)(xi) through (a)(xxiii) shall in any event be maintained. (g) Transactions in Municipal Fund Securities. (i) Books and Records Maintained by Transfer Agents. Books and records required to be maintained by a broker, dealer or municipal securities dealer under this rule solely with respect to transactions in municipal fund securities may be maintained by a transfer agent registered under Section 17A(c)(2) of the Act used by such broker, dealer or municipal se- Rule
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 curities dealer in connection with such transactions; provided that such broker, dealer or municipal securities dealer shall remain responsible for the accurate maintenance and preservation of such books and records. (ii) Price Substituted for Par Value of Municipal Fund Securities. For purposes of this rule, each reference to the term “par value,” when applied to a municipal fund security, shall be substituted with (A) in the case of a purchase of a municipal fund security by a customer, the purchase price paid by the customer, exclusive of any commission, and (B) in the case of a sale or tender for redemption of a municipal fund security by a customer, the sale price or redemption amount paid to the customer, exclusive of any commission or other charge imposed upon redemption or sale. BACKGROUND  Under rule G-8, municipal securities brokers and municipal securities dealers are required to make and keep current certain specified records concerning their municipal securities business. Rule G-9 requires that records relating to a firm or bank dealer’s municipal securities business be preserved for specified periods of time. Rules G-8(f) and G-9(g) provide that municipal securities brokers and municipal securities dealers other than bank dealers, who are in compliance with the recordkeeping rules of the Commission, will be deemed to be in compliance with Board rules G-8 and G-9, provided that the following additional records, not specified in the Commission’s rules, are maintained by such firms: records of uncompleted transactions involving customers (subparagraph (a)(iv)(D)); records relating to syndicate transactions (paragraph (a)(viii)); a new account information (paragraph (a)(xi)); and information concerning customer complaints (paragraph (a)(xii)). With respect to records on uncompleted customer transactions, the requirements of the Board’s rule will be satisfied if the information is readily obtainable from other records maintained by a firm or bank dealer. The Commission has adopted concurrent amendments to its own recordkeeping rules, rules 17a-3 and 17a-4, which provide that securities firms engaged in the municipal securities business will satisfy all regulatory requirements concerning recordkeeping with respect to such business if they are in compliance with the Board’s rules. See Securities Exchange Act Release No. 13295 (Feb. 24, 1977). An integrated securities firm could choose to follow rule G-8 with respect to records concerning its municipal business, and the Commission’s rules on recordkeeping for all other aspects of its business. In addition, a sole municipal securities firm could follow either the Commission’s or the Board’s rules in full, even though a portion of its business relates to federal government securities. (See Securities Exchange Act Release No. 13106 (Dec. 23, 1976).) Bank dealers must follow the Board’s recordkeeping rules. Securities firms will not be required to file a formal written notice of election to comply with the Board’s or the Commission’s rules, but satisfactory compliance with either set of rules will be subject to determination in the course of periodic compliance examinations conducted by the regulatory organizations charged with enforcement of Board and Commission rules. MSRB INTERPRETATIONS  examining the records of such firms. At the same time, the Board attempted to provide a degree of flexibility to firms concerning the manner in which their records are to be maintained, recognizing that various recordkeeping systems could provide a complete and accurate record of a firm’s municipal securities activities. The interpretations set forth in this notice are intended to be consistent with the foregoing purposes. This notice is not intended to address all of the questions which have arisen, or may arise; the Board will continue its policy of responding to written requests for individual interpretations and may issue further interpretive notices on recordkeeping should additional questions of general interest arise. The following topics are covered in this interpretive notice: General Purposes of Recordkeeping Rules Election to Follow Board or Commission Recordkeeping Rules Maintenance of Records on a Trade Date or Settlement Date Basis Current Posting of Records INTERPRETIVE NOTICE ON RECORDKEEPING July 29, 1977 The Municipal Securities Rulemaking Board (the “Board”) has received a number of inquiries concerning Board rules G-8 and G-9. These rules require municipal securities brokers and municipal securities dealers to make and keep current certain specified records concerning their municipal securities business and to preserve such records for specified periods of time. This interpretive notice addresses several of the more frequent inquiries received by the Board regarding these rules. General Purposes of Recordkeeping Rules The Board’s recordkeeping rules are designed to require organizations engaged in the municipal securities business to maintain appropriate records concerning their activities in such business. In writing the rules, the Board adopted the approach of specifying in some detail the information to be reflected in the various records. The Board believed that this approach would provide helpful guidance to municipal securities professionals as well as the regulatory agencies charged with the responsibility of 47 Rule
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 Unit System Method of Recordkeeping Rule G-8(a)(ii)—Account Records Rule G-8(a)(iii)—Securities Records Rules G-8(a)(vi) and (vii)—Records for Agency and Principal Transactions Rule G-8(a)(xi)—Customer Account Information Rule G-8(c)—Non-Clearing Municipal Securities Brokers and Municipal Securities Dealers Rule G-9(b)(viii)(C)—Preservation of Written Communications Election to Follow Board or Commission Recordkeeping Rules Rules G-8(f) and G-9(g) provide that municipal securities brokers and municipal securities dealers other than bank dealers, who are in compliance with the recordkeeping rules of the Securities and Exchange Commission (the “Commission”), will be deemed to be in compliance with Board rules G-8 and G-9, provided that the following additional records, not specified in the Commission’s rules, are maintained by such firms: records of uncompleted transactions involving customers (subparagraph (a)(iv)(D)); records relating to syndicate transactions (paragraph (a)(viii)); new account information (paragraph (a)(xi)); and information concerning customer complaints (paragraph (a)(xii)). Conversely, Commission rules 17a-3 and 17a-4 provide that securities firms engaged in the municipal securities business will satisfy all regulatory requirements concerning recordkeeping with respect to their municipal securities business if they are in compliance with the Board’s rules. Securities firms must determine to comply with either the Board or Commission rules, but are not required to file with either the Board or the commission a formal written notice of election. Satisfactory compliance with either set of rules will be subject to determination in the course of periodic compliance examinations conducted by the regulatory organizations charged with enforcement of Board and Commission rules. Maintenance of Records on a Trade Date or Settlement Date Basis Under rule G-8, records concerning purchases and sales of municipal securities may be maintained on either a trade date or settlement date basis, provided that all records relating to purchases and sales are maintained on a consistent basis. For example, if a municipal securities broker or municipal securities dealer maintains its records of original entry concerning purchases and sales (rule G-8(a)(i)) on a settlement date basis, the municipal securities broker or municipal securities dealer must also maintain its account records (rule G-8(a)(ii)) and securities records (rule G8(a)(iii)) on the same basis. The above records may not be maintained on a clearance date basis, that is, the date the securities are actually delivered or received. Records maintained on a clearance date basis would not accurately reflect obligations of a municipal securities broker or municipal securities dealer to deliver or accept delivery of securities. Of course, the date of clearance should be noted in the re- Rule
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 cords of original entry, account records and securities records, regardless of whether these records are kept on a trade date or settlement date basis. Current Posting of Records Rule G-8 provides that every municipal securities broker or municipal securities dealer must make and keep current the records specified in the rule. The Board has received inquiries as to the time within which records must be posted to satisfy the currency requirement. Blotters or other records of original entry showing purchases and sales of municipal securities should be prepared no later than the end of the business day following the trade date. Transactions involving the purchase and sale of securities should be posted to the account records no later than settlement date and to the securities records no later than the end of the business day following the settlement date. Records relating to securities movements and cash receipts and disbursements should reflect such events on the date they occur and should be posted to the appropriate records no later than the end of the following business day. Commission rule 17a-11 requires municipal securities dealers, other than bank dealers, to give immediate notice to the Commission and their designated examining authorities of any failure to make and keep current the required records, and to take corrective action within forty-eight hours after the transmittal of such notice. Unit System Method of Recordkeeping Under rule G-8, records may be maintained in a variety of ways, including a unit system of recordkeeping. In such a system, records are kept in the form of a group of documents or related groups of documents. For example, customer account records may consist of copies of confirmations and other related source documents, if necessary, arranged by customer. A unit system of recordkeeping is an acceptable system for purposes of rule G-8 if the information required to be shown is clearly and accurately reflected and there is an adequate basis for audit. This would require in most instances that each record in a unit system be arranged in appropriate sequence, whether chronological or numerical, and fully integrated into the overall recordkeeping system for purposes of posting to general ledger accounts. Rules G-8(a)(ii)—Account Records Rule G-8(a)(ii) requires every municipal securities broker and municipal securities dealer to maintain account records for each customer account and the account of the municipal securities broker and municipal securities dealer, showing all purchases and sales, all receipts and deliveries of securities, all receipts and disbursements of cash, and all other debits and credits to such account. The account records may be kept in several different formats. Ledger entries organized separately for each customer and for the municipal securities broker or municipal securities dealer, showing the requisite information, would clearly satisfy the requirements of rule G-8(a)(ii). 48

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 The requirements of rule G-8(a)(ii) can also be satisfied by a unit system of recordkeeping. See discussion above. Under such a system, a municipal securities professional might maintain files, organized by customer, containing copies of confirmations and other pertinent documents, if necessary, which reflect all the information required by rule G-8(a)(ii). The question has also been raised whether the account records requirement of rule G-8(a)(ii) can be satisfied by an electronic data processing system which can produce account records by tracing through separate transactions. The Board is of the view that such a system is acceptable if the account records should be obtainable without delay, although the records need not be maintained by customer prior to being produced. The account records so produced must also reflect clearly and accurately all the required information, provide an adequate basis for audit and be fully integrated into the overall recordkeeping system. Under rule G-27, on supervision, a municipal securities principal is required to supervise the activities of municipal securities representatives with respect to customer accounts and other matters. In this connection, it may be appropriate to obtain printouts of customer accounts on a periodic basis. The Board believes that it is important to maintain account records in the fashion described above in view of several of the Board’s fair practice rules, such as the rules on suitability and churning. Account records will be important both as a tool for management to detect violations of these rules and for enforcement of these rules by the regulatory agencies conducting compliance examinations or responding to complaints. The requirement to maintain account records does not apply to a firm which effects transactions exclusively with other municipal securities professionals and has no customers, as defined in paragraph (e) of rule G-8. certain securities firms exempted from the rule, to examine and count securities at least once in each quarter. The requirement to maintain securities records under rule G8 does not apply to a firm which effects municipal securities transactions exclusively with other municipal securities professionals and has no customers, as defined in paragraph (e) of rule G-8, provided the firm does not carry positions for its own account and records or fails to deliver, fails to receive and bank loans are reflected in other records of the firm. Rules G-8(a)(vi) and (vii)—Records for Agency and Principal Transactions Rules G-8(a)(vi) and (vii) require municipal securities brokers and municipal securities dealers to make and keep records for each agency order and each transaction effected by the municipal securities broker or municipal securities dealer as principal. The records may be in the form of trading tickets or similar documents. In each case, the records must contain certain specified information, including “to the extent feasible, the time of execution.” The phrase “to the extent feasible” is intended to require municipal securities professionals to note the time of execution for each agency and principal transaction except in extraordinary circumstances when it is impossible to determine the exact time of execution. In such cases, the municipal securities professional should note the approximate time of execution and indicate that it is an approximation. Rule G-8(a)(xi)—Customer Account Information Rule G-8(a)(xi) requires a municipal securities broker or municipal securities dealer to obtain certain information for each customer. Several distinct questions have been raised with respect to this provision. The requirement to obtain the requisite information may be satisfied in a number of ways. Some municipal securities brokers and municipal securities dealers have prepared questionnaires which they have had their customers complete and return. Others have instructed their salesmen to obtain the information from customers over the telephone at the time orders are placed. It is not necessary to obtain a written statement from a customer to be in compliance with the provision. Except for the tax identification or social security number of a customer, the customer account information required by this provision must be obtained prior to the settlement of a transaction. The Board believes that such a requirement is reasonable since the information is basic and important. The requirement in subparagraph (C) of rule G-8(a)(xi) to obtain the tax identification or social security number of a customer tracks the requirement in section 103.35, Part 103 of Title 31 of the Code of Federal Regulations, which was adopted by the Treasury Department and became effective in June 1972. Under this section, every broker, dealer and bank must obtain the tax identification or social security number of customers. If a broker, dealer or bank is unable to secure such information after reasonable effort, it must maintain a record identifying all such accounts. The Board interprets subparagraph (C) of rule G-8(a)(xi) in a Rule G-8(a)(iii)—Securities Records Rule G-8(a)(iii) requires that records be kept showing separately for each municipal security all long and short positions carried by a municipal securities broker or municipal securities dealer for its account or for the account of a customer, the location of all such securities long and the offsetting position to all such securities short, and the name or other designation of the account in which each position is carried. The securities records should reflect not only purchases and sales, but also any movement of securities, such as whether securities have been sent out for validation or transfer. If there is no activity with respect to a particular security, it is not necessary to make daily entries for the security in the securities records. The last entry will be deemed to be carried forward until there is further activity involving the security. Rule G-8(a)(iii) requires that the securities records show all long security count differences and short count differences classified by the date of physical count and verification on which they were discovered. The Board currently has no rule requiring municipal securities professionals to make periodic securities counts. However, if such counts are made, all count differences must be noted as provided in this section. Commission rule 17a-13 requires municipal securities dealers, other than bank dealers and 49 Rule
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 similar fashion to require municipal securities professionals to make a reasonable effort to obtain a customer’s tax identification or social security number and, if they are unable to do so, to keep a record of that fact. Several inquiries have focused on the scope of subparagraph (G) of rule G-8(a)(xi) which requires that a record be made and kept of the name and address of the beneficial owner or owners of such account if other than the customer and transactions are to be confirmed to such owner or owners. This provision applies to the situation in which securities are confirmed to an account which has not directly placed the order for the securities. This frequently occurs in connection with investment advisory accounts, where the investment advisor places an order for a client and directs the executing firm to confirm the transaction directly to the investment advisor’s client. Under rule G-8, the only information which must be obtained in such circumstances for the account to which the transaction is confirmed is the name and address of the account, information which would have to be obtained in any event in order to transmit the confirmation. Since the investment advisor itself is the customer, the other items of customer account information set forth in rule G-8(a)(xi) need not be obtained for the investment advisor’s client. The customer account information applicable to institutional accounts, however, must be obtained with respect to the investment advisor. Also, the account records required by rule G-8(a)(ii) would not be required to be maintained for the investment advisor’s client, although such records would have to be maintained with respect to the account of the investment advisor. A municipal securities professional is not required to ascertain the name and address of the beneficial owner or owners of an account if such information is not voluntarily furnished. Subparagraph G-8(a)(xi)(G) applies only when an order is entered on behalf of another person and the transaction is to be confirmed directly to the other person. A recent court decision, Rolf v. Blyth Eastman Dillon & Co. Inc., et al. issued on January 17, 1977, in the United States District Court, Southern District of New York, may have important implications with respect to the obligations generally of securities professionals to beneficial owners of accounts, especially to clients of investment advisors. We commend your attention to this decision, which has been appealed. Rule G-8(c)—Non-Clearing Municipal Securities Brokers and Municipal Securities Dealers Rule G-8(c) provides that a non-clearing municipal securities broker or municipal securities dealer is not required to make and keep the books and records prescribed by rule G-8 if they are made and kept by a clearing broker, dealer, bank or clearing agency. Accordingly, to the extent that records required by rule G8 are maintained for a municipal securities broker or municipal securities dealer by a clearing agent, the municipal securities broker or municipal securities dealer does not have to maintain such records. A non-clearing municipal securities broker or municipal securities dealer is still responsible for the accurate maintenance and preservation of the records if they are maintained by a clearing agent other than a clearing broker or dealer, and should assure Rule
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 itself that the records are being maintained by the clearing agent in accordance with applicable recordkeeping requirements of the Board. In the case of a bank dealer, clearing arrangements must be approved by the appropriate regulatory agency for the bank dealer. The bank regulatory agencies are each considering the adoption of procedures to approve clearing arrangements. It is contemplated that these procedures will require the inclusion of certain provisions in clearing agreements, such as an undertaking by the clearing agent to maintain the bank dealer’s records in compliance with rules G-8 and G-9, and will specify the mechanics for having such arrangements considered and approved. The bank regulatory agencies indicate that they will advise bank dealers subject to their respective jurisdictions on this matter in the near future. In the case of a securities firm, Commission approval is required for all clearing arrangements with entities other than a broker, dealer or bank. The Commission has recently proposed an amendment to its rule 17a-4 which would eliminate the need to obtain Commission approval of clearing arrangements with such other entities, provided that certain specified conditions are met. If the proposed rule is adopted, the Board would make a corresponding change in rule G-8. If an agent clears transactions, but transmits copies of all records to the municipal securities broker or municipal securities dealer, and these records are preserved by the municipal securities broker or municipal securities dealer in accordance with rule G-9, the clearing arrangement is not subject to the rule G-8(c). Rule G-9(b)(viii)(C)—Preservation of Written Communications Subparagraph (C) of rule G-9(b)(viii) requires municipal securities brokers and municipal securities dealers to preserve for three years all written communications received or sent, including inter-office memoranda, relating to the conduct of the activities of such municipal securities broker or municipal securities dealer with respect to municipal securities. The communications required to be preserved by this provision relate to the conduct of a firm’s activities with respect to municipal securities. Accordingly, such documents as internal memoranda regarding offerings or bids, letters to or from customers and other municipal securities professionals regarding municipal securities, and research reports must be preserved. Documents pertaining purely to administrative matters, such as vacation policy and the like, would not have to be preserved for purposes of the rule. NOTICE OF INTERPRETATION CONCERNING RECORDS OF CERTIFICATE NUMBERS OF SECURITIES CLEARED BY CLEARING AGENTS October 10, 1986 Rule G-8(a)(i) requires that dealers maintain records of original entry that include certificate numbers of all securities received or delivered. The Board has received inquiries whether a dealer must maintain in its records of original entry the certificate 50

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 numbers of securities that are received or delivered by a clearing agent on behalf of the dealer or whether it is permissible for the clearing agent to maintain records of the certificate numbers for the dealer. The Board has concluded that, for transactions in which physical securities are cleared by a clearing agent, records of the certificate numbers of the securities required by rule G-8(a)(i) may be maintained by the agent on behalf of the dealer if the dealer obtains an agreement in writing from the agent in which the following conditions are specified: (i) a complete and current record of certificate numbers of physical securities cleared by the agent will be maintained on behalf of the dealer by the agent; (ii) the agent will preserve such record, and will provide such record to the dealer promptly upon request, in a manner allowing the dealer to comply with Board rule G-9 on maintenance and preservation of records. The Board emphasizes that a dealer allowing a clearing agent to maintain records of certificate numbers on its behalf continues to be responsible for the accurate maintenance and preservation of such records in conformance with the Board’s recordkeeping rules. See
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 Rule G-17 Interpretation – Notice Concerning Application of Board Rules to Put Option Bonds, September 30, 1985. Rule G-27 Interpretation – Supervisory Procedures for the Review of Correspondence with the Public, March 24, 2000. Rule G-32 Interpretations – Notice Regarding the Disclosure Obligations of Brokers, Dealers and Municipal Securities Dealers in Connection with New Issue Municipal Securities Under Rule G-32, November 19, 1998. - Notice Regarding Electronic Delivery and Receipt of Information by Brokers, Dealers and Municipal Securities Dealers, November 20, 1998.     INTERPRETIVE LETTERS  Syndicate records: sole underwriter. This is in response to your letter regarding rule G-8 on recordkeeping. You note that rule G-8(a)(viii) requires the managing underwriter of a syndicate to maintain certain records pertaining to syndicate transactions. You ask if this rule applies to an underwriter in a sole underwriting. Rule G-11(a)(viii) defines a syndicate as an account formed by two or more persons for the purpose of purchasing, directly or indirectly, all or any part of a new issue of municipal securities from the issuer, and making a distribution thereof. Since a sole underwriting does not involve a syndicate, rule G-8(a)(viii) does not apply to sole underwritings. Of course, the sole underwriter must maintain other required records for transactions in the new issue. MSRB interpretation of May 12, 1989. You inquire whether this provision necessitates the designation of an actual percentage or decimal participation, or, alternatively, whether a listing of the ... dollar participation [of each member] ... along with [the] aggregate par value of the syndicate meets the requirement ... of the Rule. The rule should not be construed to require in all cases an indication of a numerical percentage for each member's participation, if other information from which a numerical percentage can easily be determined is set forth. The method you propose, showing the par value amount of the member's participation, is certainly acceptable for purposes of compliance with this provision of the rule. MSRB interpretation of December 8, 1981. Syndicate records: participations. This will acknowledge receipt of your letter of November 24, 1981 concerning certain of the requirements of Board rule G8(a)(viii) regarding syndicate records to be maintained by managers of underwritings of new issues of municipal securities. You note that this provision requires, in pertinent part, that, [w]ith respect to each syndicate..., records shall be maintained ... showing ... the name and percentage of participation of each member of the syndicate or account... Recordkeeping by introducing brokers. Your letter of September 16, 1982, has been referred to me for response. In your letter you indicate that your firm functions as an “introducing broker”, and, in such capacity, effects an occasional transaction in municipal securities. You inquire as to the recordkeeping requirements applying to a firm acting in this capacity, and you also inquire as to the possibility of an exemption from the Board's rules, in view of the extremely limited nature of your municipal securities business. As you recognize, the provision Board rule G-8 on recordkeeping with 51 particular relevance to introducing brokers is section (d), which provides as follows: A municipal securities broker or municipal securities dealer which, as an introducing municipal securities broker or municipal securities dealer, clears all transactions with and for customers on a fully disclosed basis with a clearing broker, dealer or municipal securities dealer, and which promptly transmits all customer funds and securities to the clearing broker, dealer or municipal securities dealer which carries all of the accounts of such customers, shall not be required to make and keep such books and records prescribed in this rule as are customarily made and kept by a clearing broker, dealer or municipal securities dealer and which are so made and kept; and such clearing broker, dealer or municipal securities dealer shall be responsible for the accurate maintenance and preservation of such books and records. (emphasis supplied) As you can see, this provision states that the introducing broker need not make and keep those records which are “customarily made and kept by” the clearing dealer, as long as the clearing dealer does, in fact, make and keep those records. The introducing broker is still required, however, to make and keep those records which are not “customarily made and kept by” the clearing firm. Rule
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 The majority of the specific records you name in your letter fall into the latter category of records which are not customarily made and kept by the clearing firm and therefore remain the responsibility of the introducing broker. Your firm would, therefore, be required to make the records of customer account information required under rule G-8(a)(xi), with all of the itemized details of information recorded on such records. Your firm would also be required to maintain the records of agency and principal transactions (“order tickets”) required under rules G-8(a)(vi) and (vii) respectively. In both cases, however, if, for some reason, the clearing firm does make and keep these records, your firm would not be required to make and keep duplicates. In the case of the requirement to keep confirmation copies, it is my understanding that the clearing firm generally maintains such records. If the clearing firm to which you introduce transactions follows this practice and maintain copies of the confirmations of such transactions, you would not be required to maintain the same record. In adopting each of these recordkeeping requirements the Board concluded that the information required to be recorded was the minimum basic data necessary to ensure proper handling and recordation of the transaction and customer protection. I note also that these requirements parallel in most respects those of Commission rule 17a-3, to which you are already subject by virtue of your registration as a broker/dealer. With respect to your inquiry regarding an exemption from the Board's requirements, I must advise that the Board does not have the authority to grant such exemptions. The Securities and Exchange Commission does have the authority to grant such an exemption in unusual circumstances. Any letter regarding such an exemption should be directed to the Commission's Division of Market Regulation. MSRB interpretation of September 21, 1982. Securities record. In your letter, you question the application of Board rule G8(a)(iii) and, in particular, the requirement that “such [securities] records shall consist of a single record system,” to a situation in Rule
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 which a securities firm maintains such records organized by ownership of the securities. It is my understanding that the firm in question maintains records showing securities in the firm's trading account, and offsetting positions long and short, and separate records showing securities owned by customers and the offsetting location for those securities. Rule G-8(a)(iii) requires, in part [r]ecords showing separately for each municipal security all positions ... carried by such municipal securities broker or municipal securities dealer for its account or for the account of a customer... Therefore, securities records should be maintained by security, although this can be accomplished by separate sheets showing positions in that security held for trading or investment purposes and positions owned by customers. A record organized by customer, showing several securities and offsetting positions held by that customer, is not acceptable for purposes of rule G-8(a)(iii). With respect to your question regarding the multiple maturity provision of rule G-8(a)(iii), the relevant position of the rule states multiple maturities of the same issue of municipal securities, as well as multiple coupons of the same maturity, may be shown on the same record, provided that adequate secondary records exist to identify separately such maturities and coupons. Therefore, the securities to be shown on a single securities record must be identical as to issue date or maturity date. Securities which are identical as to issuer may be shown on a single securities record only if the securities have either the same issue date or the same maturity date, and if adequate secondary records exist to identify separately the securities grouped on the record. MSRB interpretation of April 8, 1978. Maintenance of securities record. I refer to your letter of April 9, 1979 concerning rule G-8(a)(iii), which requires the maintenance of a securities record. This letter is intended to address your questions concerning that provision. 52 Rule G-8(a)(iii) requires every municipal securities dealer to make and keep records showing separately for each municipal security all positions (including, in the case of a municipal securities dealer other than a bank dealer, securities in safekeeping) carried by such municipal securities dealer for its own account or for the account of a customer (with all “short” trading positions so designated), the location of all such securities long and the offsetting position to all such securities short, and the name or other designation of the account in which each position is carried. Rule G-8(a)(iii) further provides that “[s]uch records shall consist of a single record system...,” and that “...a bank dealer shall maintain records of the location of securities in its own trading account.” The purpose of the requirement to maintain a “securities record” is to provide a means of securities control, ensuring that all securities owned by the dealer or with respect to which the dealer has outstanding contractual commitments are accounted for in the dealer's records. To achieve this purpose, the record is commonly constructed in “trial balance” format, with information as to the “ownership” of securities reflected on the “long,” or debit side, and information as to the location on the “short,” or credit side of the record. The record therefore serves a different function from the subsidiary records, such as the “fail” records, required to be maintained under other provisions of the rule. The subsidiary records reflect the details of particular securities transactions; the securities record assures that a municipal securities dealer's over-all position is in balance. In your letter you inquire specifically whether this record can be constructed through the use of duplicate copies of subsidiary records. The rule requires a system of records organized by security, showing all positions in such security. Record systems organized by position or locations, showing all securities held in such position or location, cannot serve the same balancing and control function. The securities record, however, does not have to be maintained on a single sheet or ledger card per security. Although this is

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 the most common means of maintaining a securities record, certain municipal securities dealers prepare segments of the record in different physical locations, bringing the segments together at the close of the business day to compose the securities record. This practice is permissible under the rule. Finally, you have inquired regarding the possibility of maintaining the securities record on a unit system basis. Records in such a system are kept in the form of a group of documents or related groups of documents, most often files of duplicate confirmations. The maintenance of the securities record on such a basis would be acceptable provided that the required information is clearly and accurately reflected and there is an adequate basis for audit. I would note, however, that utilization of a unit system would probably only be feasible for a municipal securities dealer with very limited activity. I hope this letter is helpful to you in responding to inquiries from your members. If you or any of your members have any further questions regarding this matter, please do not hesitate to contact us. MSRB interpretation of April 16, 1979. Securities control. Your letter dated February 24, 1978, has been referred to me for response. In addition, I understand that you have had several subsequent telephone conversations about your question. In these conversations, you describe the procedures for securities control followed by your bank's dealer department. Briefly, as we understand your procedures, the dealer department records all certificate numbers of municipal securities received or delivered by the department. This information is recorded in a manner which relates the physical receipt and delivery of specific certificates to specific transactions. Once in safekeeping, the certificates are kept in a vault, and filed by issue, rather than filed separately by account, chronologically, or by transaction. In your letter, you inquired whether this system of filing in the vault raises problems of compliance with Board rule G-8. Since your bank records in records of original entry the certificate numbers upon receipt and delivery of municipal securities by your dealer department, it appears that your system satisfies the requirement under rule G-8(a)(i) that such information be recorded on the “record of original entry.” The safekeeping procedures used by the bank are specifically excluded from the scope of the rule under the provisions of paragraph G-8(a)(iii), which requires [r]ecords showing...all positions (including, in the case of a municipal securities broker or municipal securities dealer other than a bank dealer, securities in safekeeping)... Therefore, based on the information you have provided, we believe that your system is in compliance with the applicable provisions of rule G-8. MSRB interpretation of April 10, 1978. Customer account information. I am writing in response to your letter of May 25, 1982 concerning the maintenance of customer account information records in connection with certain orders placed with you by a correspondent bank. In your letter you indicate that a correspondent bank periodically purchases securities from your dealer department for the accounts of specified customers. The confirmations of these transactions are sent to the correspondent bank, with a statement on each confirmation designating, by customer name, the account for which the transaction was effected. No confirmations or copies of confirmations are sent to the customers identified by the correspondent bank. You inquire whether customer account information records designating these customers as the “beneficial owners” of these accounts need be maintained by your dealer department. As you know, rule G-8(a)(xi) requires a municipal securities dealer to record certain information about each customer for which it maintains an account. Subparagraph (G) of such paragraph requires that this record identify the name and address of beneficial owner or owners of such account if other than the customer and transactions are to be confirmed to such owner or owners...(emphasis added) If the transactions are not to be confirmed to the customers identified as the owners of the accounts for which the transactions are effected, then such information need not be recorded. 53 In the situation you cite, therefore, the names of the customers need not be recorded on the customer account information record. MSRB interpretation of June 1, 1982. Use of electronic signatures. This is in response to your letter and a number of subsequent telephone conversations regarding your dealer department's proposed use of a bond trading system. The system is an online, real-time system that integrates all front and back office functions. The system features screen input of customer account and trading information which would allow the dealer department to eliminate the paper documents currently in use. The signature of the representative introducing a customer account, required to be recorded with customer account information by rule G-8, and the signature of the principal signifying approval of each municipal securities transaction, required by rule G-27, would be performed electronically, i.e., by input in a restricted data field. The signature of the principal approving the opening of the account, required by rule G-8, will continue to be performed manually on a printout of the customer information.1 Rule G-8(a)(vi) and (vii) require dealers to make and keep records for each agency and principal transaction. The records may be in the form of trading tickets or similar documents. In addition, rule G8(a)(xi), on recordkeeping of customer account information, requires, among other things, the signature of the representative introducing the account and the principal indicating acceptance of the account to be included on the customer account record. Rule G-27(c)(ii)[*] requires, among other things, the prompt review and written approval of each transaction in municipal securities. In addition, the rule requires the regular and frequent examination of customer accounts in which municipal securities transactions are effected in order to detect and prevent irregularities and abuses. The approvals and review must be made by the designated municipal securities principal or the municipal securities sales principal. Rule G-9(e), on preservation of records, allows records to be retained electronically provided that the dealer has adequate facilities for ready retrieval and in- Rule
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 spection of any such record and for production of easily readable facsimile copies. The Board recognizes that efficiencies would be obtained by the replacement of paper files with electronic data bases and filing systems and generally allows records to be retained in that form.2 Moreover, as dealers increasingly automate, there will be more interest in deleting most physical records. Electronic trading tickets and automated customer account information satisfy the recordkeeping requirements of rule G-8 as long as such information is maintained in compliance with rule G-9(e). The Board and your enforcement agency are concerned, however, that it may be difficult to verify a representative's signature on opening the account or a principal's signature approving municipal securities transactions or periodically reviewing customer accounts if the signatures are noted only electronically. Your enforcement agency has advised us of its discussions with you. Apparently, it is satisfied that appropriate security and audit procedures can be developed to permit the use of electronic signatures of representatives and principals and ensure that such signatures are verifiable. Thus, the Board has determined that rules G-8 and G-27 permit the use of electronic signatures when security and audit procedures are agreed upon by the dealer and its appropriate enforcement agency. Whatever procedures are agreed upon must be memorialized in the dealer's written supervisory procedures required by rule G-27. MSRB Interpretation of February 27, 1989. 1 In addition, you noted in a telephone conversation that the periodic review of customer accounts re[*] quired by rule G-27(c)(ii) also will be handled electronically using the principal's electronic signature to signify approval. 2 See rule G-9(e). [*] [Currently codified at Rule G-27(c)(i)(G)(2)] Records of original entry. Your letter dated October 13, 1978, has been referred to me for response. In your letter you inquire whether a certain method of keeping “records of original entry” is satisfactory for purposes of the requirement to maintain “current” books and records. In particular, you suggest that such records could be maintained by means of a “unit” or “ticket” system during the period from Rule
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 trade date to settlement date, and then recorded on a blotter as of the settlement date. As indicated to you, such a method of preserving these records is acceptable, provided that all information required to be shown is clearly and accurately reflected in both forms of the record, and both forms provide adequate audit controls. MSRB interpretation of October 26, 1978. Records of original entry. This will acknowledge receipt of your letter of June 13, 1979, concerning the requirement under Board rule G-8 for records of original entry. In your letter you discuss a “Bond Register” used by your firm, which is organized by security, and presents on separate cards all transactions in particular securities arranged in chronological order. You inquire whether this is satisfactory for purposes of the Board's recordkeeping rule. The “record of original entry” required under rule G-8(a)(i) is intended to reflect all transactions effected by a municipal securities dealer on a particular day, all transactions cleared on such day, and all receipts and disbursements of cash on such day. The record is intended to provide a complete review of the dealer's activity for the day in question. It is therefore necessary that the record be organized by date. A record organized by security would not serve the purposes of a record of original entry as envisioned in the Board's rule.MSRB interpretation of August 9, 1979. Records of original entry: unit system. This will acknowledge receipt of your letter of November 20, 1981 concerning compliance with certain of the provisions of Board rule G-8 through the use of a “unit system” method of recordkeeping. In your letter you indicate that the bank wishes to maintain the record of original entry required under rule G-8(a)(i) in the form of a collection of duplicate copies of confirmations filed in transaction settlement date order; in addition, you enclose a copy of the confirmation form used by the bank. You inquire whether maintaining the record in this manner would be satisfactory for purposes of the rule. In a July 29, 1977 interpretive notice on rule G-8 the Board stated: Under rule G-8, records may be maintained in a variety of ways, in54 cluding a unit system of recordkeeping. In such a system, records are kept in the form of a group of documents or related groups of documents.... A unit system of recordkeeping is an acceptable system for purposes of rule G-8 if the information required to be shown is clearly and accurately reflected and there is an adequate basis for audit. This would require in most instances that each record in a unit system be arranged in appropriate sequence, whether chronological or numerical, and fully integrated into the over-all recordkeeping system for purposes of posting to general ledger accounts. Therefore, the type of recordkeeping system you propose may be used for purposes of compliance with rule G-8 if (1) the records show, in a clear and accurate fashion, all of the information that is required to be shown, and (2) the records are maintained in a form that provides an adequate basis for audit by bank employees or examiners. It is my understanding that recordkeeping systems similar to that which you propose have been inspected by banking regulatory authorities during examinations of other bank municipal securities dealer departments, and have been found to meet these two criteria. In your letter you indicate that the confirmation form used by your bank “contains all the information needed” to meet the recordkeeping requirement. Our review of your form indicates that this is not the case. The rule requires the record of original entry to contain an itemized daily record of all purchases and sales of municipal securities, all receipts and deliveries of municipal securities (including bond or note numbers and, if the securities are in registered form, an indication to such effect), all receipts and disbursements of cash with respect to transactions in municipal securities, [and] all other debits and credits pertaining to transactions in municipal securities ... The records of original entry shall show the name or other designation of the account for which each such transaction was effected (whether effected for the account of

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 such municipal securities broker or municipal securities dealer, the account of a customer, or otherwise), the description of the securities, the aggregate par value of the securities, the dollar price or yield and aggregate purchase or sale price of the securities, accrued interest, the trade date, and the name or other designation of the person from whom purchased or received or to whom sold or delivered. The confirmation form you enclosed does not appear to provide a space for notation of “the name or other designation of the account for which [the] transaction was effected.” This information is distinct from “the name or other designation of the person from whom purchased ... or to whom sold ...” (which would appear in the “name and address” portion of your form) and requires an indication of the account, whether it be the bank's trading inventory or portfolio, or the contra-principal on an agency transaction, in which the securities were held prior to a sale or will be held subsequent to a purchase. For example, if the bank sells $100,000 par value securities from its trading account to “Mr. Smith”, the record of original entry would reflect that this transaction was effected for the account of the [bank's] trading account. A subsequent sale of these securities effected as agent for the customer would be reflected on the record of original entry as for the account of “Mr. Smith.” I note also that, in addition to a record of purchase and sale transactions (which could easily be maintained in the form of duplicate copies of confirmations), the record of original entry must contain information about transactions cleared on the date of the record as well as cash disbursements and receipts. Your letter does not indicate how your bank would comply with these latter requirements. As you may be aware, other banks using unit recordkeeping systems use additional copies of the confirmation as “clearance” records, with information on receipts and deliveries of securities and movements of cash noted on these copies. These “clearance” records are then aggregated with the purchase and sale records to form a complete record of original entry. In summary, the method of maintaining a record of original entry which your bank proposes can be used to comply with the requirements of the rule. Certain aspects of the information required by the rule are not contained on the document you propose to use, however, and provision would have to be made for inclusion of these items in the records before the system you propose would be satisfactory for compliance with the rule's requirements. MSRB interpretation of November 24, 1981. Records of original entry; accessibility of records. As I indicated to you in my previous letter of February 1, 1982, your inquiry of January 21, 1982 was referred to the committee of the Board charged with responsibility for interpreting the requirements of Board rules G-8 and G-9 on books and records. That committee has authorized my sending you this response. In your letter you indicate that during the course of an examination of your bank's municipal securities dealer department by the Office of the Comptroller of the Currency certain criticisms were made by the examiners regarding the recordkeeping system used by your bank. In particular, the examiners noted that the “record of original entry” maintained by the bank did not contain seven specified items of information,1 and expressed the view that customer account records more than one year old were not “maintained and preserved in an easily accessible place” within the meaning of rule G-9. You disagree with the examiner's interpretation of “easily accessible.” Further, while conceding that the specified items of information are not contained on the record, you indicate that this information is readily available upon specific inquiry to the bank's system data base, and express the view that this should be sufficient for purposes of compliance with Board rule G-8. You request the Board's views on these subjects. As a general matter we would hesitate to disagree with the opinion expressed by an on-site examiner concerning the auditability of records maintained by a municipal securities dealer. The examiner is, of course, in direct contact with the matter in question, and has access to the full details of the situation, rather than an ab55 straction or summary of the particulars. Accordingly, we are unable to express a view that the examiner's criticisms are incorrect in the specific circumstances you describe. With respect to the particular questions which you raise, we note that rule G8 does require that all of the specified information appear on the record or system of records designated as the dealer's “record of original entry.” It is not sufficient that the dealer has the capability of researching specific items, or constructing a record upon request from information maintained in other formats. The record of original entry is intended to provide a journal of all of the basic details of a dealer's activity on a given day. A record that can only be put together on request, or that is missing basic details of information, is not sufficient for this purpose. We note also that, in reviewing the attachments to your letter, it appears that the absence of several of the specified items of information would be easy to rectify--institution of controls to prevent duplication of customer and security abbreviations would appear to resolve the problems with these details, and a system of grouping transaction input could be devised so that trades for different trade dates are not shown on the same blotter. Similarly, bond or note numbers could be designated on transaction tickets maintained as an augmentation of the computerized records; the attachments indicate that you already maintain such tickets as part of an existing unit system. With respect to the question of accessibility, we note that this is generally construed by the examining authorities to mean accessibility within 24 or 48 hours. If a system could be devised whereby requests from the dealer department for aged customer account records could be given priority and processed on an expedited basis, this might rectify the problem you describe. MSRB interpretation of April 27, 1982. 1 Dollar price or yield, trade date, name of contra party (due to use of abbreviations), security identification (due to use of abbreviations), designation of account for which transaction was effected, bond or note numbers, and designation if securities were registered. Rule
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 Time of receipt and execution of orders. This is in response to your March 3, 1987 letter regarding the application of rule G-8, on recordkeeping, to [name deleted]'s (the “Bank”) procedure on time stamping of municipal securities order tickets. You note that it is the Bank's policy to indicate on order tickets the date and time of receipt of the order and the date and time of execution of the order. You note, however, that when the order and execution occur simultaneously, it is your procedure to time stamp the order ticket once. You ask for Board approval of this policy. Rule G-8(a)(vi) provides in pertinent part for a “memorandum of each agency order . . . showing the date and time of receipt of the order . . . and the date of execution and to the extent feasible, the time of execution . . .” Rule G-8(a)(vii) includes a similar requirement for principal transactions with customers. As noted in a Board interpretive notice on recordkeeping, the phrase “to the extent feasible” is intended to require municipal securities professionals to note the time of execution of each transaction except in extraordinary circumstances when it might be impossible to determine the exact time of execution. However, even in those unusual situations, the rule requires that at least the approximate time be noted.1 This rule parallels SEC rule 17a-3(a)(6) and (7) on recordkeeping. Thus, rule G-8(a)(vi) and (vii) required agency and principal orders to be time stamped upon receipt and upon execution. The requirement is designed to Rule
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 allow the dealer and the appropriate examining authority to determine whether the dealer has complied with rule G-18, on execution of transactions, and rule G-30, on pricing. Rule G-18 states that when a dealer is “executing a transaction in municipal securities for or on behalf of a customer as an agent, it shall make a reasonable effort to obtain a price for the customer that is fair and reasonable in relation to prevailing market conditions.” Rule G30(a) states that a dealer shall not effect a principal transaction with a customer except at a fair and reasonable price, taking into consideration all relevant factors including the fair market value of the securities at the time of the transaction. It is impossible to determine what the prevailing market conditions were at the time of the execution of the order if the date and time of execution are not recorded. In addition, it is important to time stamp the receipt and execution of an order so that a record can be maintained of when the order is executed. Thus, even when the order and execution occur simultaneously, rule G-8 requires that two time stamps be included on order tickets. MSRB interpretation of April 20, 1987. 1 See [Rule G-8 Interpretation –] Interpretive Notice on Recordkeeping (July 29, 1977) [reprinted in MSRB Rule Book]. Contract sheets. This will respond to your letter of May 28, 1987, and confirm our telephone conversation of the same date concerning recordkeeping of “contract sheets.” You ask whether dealers are required by 56 Board rules G-8 and G-9 to maintain records of “contract sheets” of municipal securities transactions. Rule G-8(a)(ix) requires dealers to maintain records of all confirmations of purchases and sales of municipal securities, including inter-dealer transactions. Rule G12(f), in certain instances, requires interdealer transactions to be compared through an automated comparison system operated by a clearing agency registered with the Securities and Exchange Commission, rather than by physical confirmations.1 These automated comparison systems generate “contract sheets” to each party of a trade, which confirm the existence and the terms of the transaction. This will confirm my advice to you that such contract sheets are deemed to be confirmations of transactions for purposes of rule G-8(a)(ix). Thus, dealers are required to include contract sheets in their records of confirmations and, under rule G9(b)(v), are required to maintain these records for no less than three years.2 MSRB interpretation of June 25, 1987. 1 Rule G-12(c) governs the content of and procedures for sending physical confirmations. 2 You also ask about the interpretation of rules 17a-3 and 17a-4 under the Securities Exchange Act. The Board is not authorized to interpret these Securities and Exchange Commission rules. You may wish to contact the SEC for guidance on this matter. See
also: Rule G-36 Interpretive Letter – Multiple underwriters, MSRB interpretation of January 30, 1998.

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G‐9:
Preservation
of
Records

 (a) Records to be Preserved for Six Years. Every broker, dealer and municipal securities dealer shall preserve the following records for a period of not less than six years: (i) the records of original entry described in rule G-8(a)(i); (ii) the account records described in rule G-8(a)(ii); (iii) the securities records described in rule G-8(a)(iii); (iv) the records of syndicate transactions described in rule G-8(a)(viii), provided, however, that (1) such records need not be preserved for a syndicate or similar account which is not successful in purchasing an issue of municipal securities, and (2) information concerning orders received by a syndicate or similar account to which securities were not allocated by such syndicate or account need not be preserved after the date of final settlement of the syndicate or account; (v) the customer complaint records described in rule G-8(a)(xii); (vi) if such broker, dealer or municipal securities dealer is subject to rule 15c3-1 under the Act, the general ledgers described in paragraph (a)(2) of rule 17a-3 under the Act; (vii) the record, described in rule G-27(b)(ii), of each person designated as responsible for supervision of the municipal securities activities of the broker, dealer, or municipal securities dealer and the designated principal’s supervisory responsibilities, provided that such record shall be preserved for the period of designation of each person designated and for at least six years following any change in such designation; (viii) the records to be maintained pursuant to rule G-8(a)(xvi); provided, however, that copies of Forms G-37x shall be preserved for the period during which such Forms G-37x are effective and for at least six years following the end of such effectiveness; (ix) the records regarding information on gifts and gratuities and employment agreements required to be maintained pursuant to rule G-8(a)(xvii); and (x) the records required to be maintained pursuant to rule G-8(a)(xviii). (b) Records to be Preserved for Three Years. Every broker, dealer and municipal securities dealer shall preserve the following records for a period of not less than three years: (i) the subsidiary records described in rule G-8(a)(iv); (ii) the records of put options and repurchase agreements described in rule G-8(a)(v); (iii) the records relating to agency transactions described in rule G-8(a)(vi); (iv) the records of transactions as principal described in rule G-8(a)(vii); (v) the copies of confirmations and other notices described in rule G-8(a)(ix); (vi) the customer account information described in rule G-8(a)(xi), provided that records showing the terms and conditions relating to the opening and maintenance of an account shall be preserved for a period of at least six years following the closing of such account; (vii) if such broker, dealer or municipal securities dealer is subject to rule 15c3-1 under the Act, the records described in subparagraphs (a)(4)(iv) and (vi) and (a)(11) of rule 17a-3 and subparagraphs (b)(5) and (b)(8) of rule 17a-4 under the Act; (viii) the following records, to the extent made or received by such broker, dealer or municipal securities dealer in connection with its business as such broker, dealer or municipal securities dealer and not otherwise described in this rule: (A) check books, bank statements, canceled checks, cash reconciliations and wire transfers; (B) bills receivable or payable; (C) all written and electronic communications received and sent, including inter-office memoranda, relating to the conduct of the activities of such municipal securities broker or municipal securities dealer with respect to municipal securities; (D) all written agreements entered into by such broker, dealer or municipal securities dealer, including agreements with respect to any account; and (E) all powers of attorney and other evidence of the granting of any authority to act on behalf of any account, and copies of resolutions empowering an agent to act on behalf of a corporation. (ix) all records relating to fingerprinting which are required pursuant to paragraph (e) of rule 17f-2 under the Act; (x) all records of deliveries of rule G-32 disclosures and, if applicable, a record evidencing compliance with section (a)(i)(C) of rule G-32 required to be retained as described in rule G-8(a)(xiii); 57 Rule
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 (xi) the records to be maintained pursuant to rule G-8(a)(xv); (xii) the authorization required by rule G-8(a)(xix)(B); however, this provision shall not require maintenance of copies of negotiable instruments signed by customers; (xiii) each advertisement from the date of each use; (xiv) the records required to be maintained pursuant to rule G-8(a)(xx); (xv) the records to be maintained pursuant to rule G-8(a)(xxi); (xvi) the records to be maintained pursuant to rule G-8(a)(xxii); and (xvii) the records to be maintained pursuant to Rule G-8(a)(xxiii). (c) Records to be Preserved for Life of Enterprise. Every broker, dealer and municipal securities dealer other than a bank dealer shall preserve during the life of such broker, dealer or municipal securities dealer and of any successor broker, dealer or municipal securities dealer all partnership articles or, in the case of a corporation, all articles of incorporation or charter, minute books and stock certificate books. (d) Accessibility and Availability of Records. All books and records required to be preserved pursuant to this rule shall be available for ready inspection by each regulatory authority having jurisdiction under the Act to inspect such records, shall be maintained and preserved in an easily accessible place for a period of at least two years and thereafter shall be maintained and preserved in such manner as to be accessible to each such regulatory authority within a reasonable period of time, taking into consideration the nature of the record and the amount of time expired since the record was made. (e) Method of Record Retention. Whenever a record is required to be preserved by this rule, such record may be retained either as an original or as a copy or other reproduction thereof, or on microfilm, electronic or magnetic tape, or by the other similar medium of record retention, provided that such broker, dealer or municipal securities dealer shall have available adequate facilities for ready retrieval and inspection of any such record and for production of easily readable facsimile copies thereof and, in the case of records retained on microfilm, electronic or magnetic tape, or other similar medium of record retention, duplicates of such records shall be stored separately from each other for the periods of time required by this rule. (f) Effect of Lapse of Registration. The requirements of this rule shall continue to apply, for the periods of time specified, to any broker, dealer or municipal securities dealer which ceases to be registered with the Commission, except in the event a successor registrant shall undertake to maintain and preserve the books and records described herein for the required periods of time. (g) Compliance with Rules 17a-3 and 17a-4. Brokers, dealers and municipal securities dealers other than bank dealers which are in compliance with rules 17a-3 and 17a-4 under the Act will be deemed to be in compliance with the requirements of this rule, provided that the records enumerated in section (f) of rule G-8 of the Board shall in any event be preserved for the applicable time periods specified in this rule. MSRB INTERPRETATIONS  INTERPRETATION ON THE APPLICATION OF RULES G-8 AND G-9 TO ELECTRONIC RECORDKEEPING March 26, 2001 The Municipal Securities Rulemaking Board (the “MSRB”) has received requests for interpretive guidance regarding the maintenance in electronic form of records under rule G-8, on books and records, and rule G-9, on preservation of records. As the MSRB has previously noted, rules G-8 and G-9 provide significant flexibility to brokers, dealers and municipal securities dealers (“dealers”) concerning the manner in which their records are to be maintained, recognizing that various recordkeeping systems could provide a complete and accurate record of a dealer’s municipal securities activities.1 Part of the reason for providing this flexibility was that a variety of enforcement agencies, including the Securities and Exchange Commission, NASD Regulation, Inc. and the banking regulatory agencies, all may inspect dealer records. Rule G-8(b) does not specify that a dealer is required to maintain its books and records in a specific manner so long as the information required to be shown by the rule is clearly and accu- Rule
G‐9
 rately reflected and provides an adequate basis for the audit of such information. Further, rule G-9(e) allows records to be retained electronically provided that the dealer has adequate facilities for ready retrieval and inspection of any such record and for production of easily readable facsimile copies. The MSRB previously has recognized that efficiencies would be obtained by the replacement of paper files with electronic data bases and filing systems and stated that it generally allows records to be retained in that form.2 In noting that increased automation would likely lead to elimination of most physical records, the MSRB has stated that electronic trading tickets and automated customer account information satisfy the recordkeeping requirements of rule G-8 so long as such information is maintained in compliance with rule G-9(e). The MSRB believes that this position also applies with respect to the other recordkeeping requirements of rule G-8 so long as such information is maintained in compliance with rule G-9(e) and the appropriate enforcement agency is satisfied that such manner of record creation and retention provides an adequate basis for the audit of the information to be maintained. In particular, the MSRB believes that a dealer that meets the requirements of rule 17a-4(f) under the 58

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 Securities Exchange Act of 1934 with respect to maintenance and preservation of required books and records in the formats described therein would presumptively meet the requirements of rule G-9(e). 1 2 See
also:
 Rule G-8 Interpretations – Interpretive Notice on Recordkeeping, July 29, 1977 - Notice of Interpretation Concerning Records of Certificate Numbers of Securities Cleared by Clearing Agents, October 10, 1986 See Rule G-8 Interpretation – Interpretive Notice on Recordkeeping, July 29, 1977, reprinted in MSRB Rule Book (January 1, 2001) at 42. Rule G-27 Interpretation – Supervisory Procedures for the Review of Correspondence with the Public, March 24, 2000 See Rule G-8 Interpretive Letters – Use of electronic signatures, MSRB interpretation of February 27, 1989, reprinted in MSRB Rule Book (January 1, 2001) at 47. 
 INTERPRETIVE LETTERS  Syndicate records. I am writing in response to your letters of October 2 and October 19, 1981 concerning a particular recordkeeping arrangement used by an NASD-member firm in connection with its underwriting activities. In your letters you indicate that the firm conducts its underwriting activities from its main office and four regional branch office “commitment centers,” with the committing branch offices authorized to commit to underwriting new issues on the firm's behalf. You inquire whether the firm is in compliance with the Board's recordkeeping and record retention rules if it maintains only part of the records on its underwritings in the main office. Correspondence from a field examiner attached to your letters indicates that the committing branch office originating a particular underwriting maintains all of the records with respect to such underwriting. The majority of these records are the original copies; the copies of confirmations, good faith checks, and syndicate settlement checks maintained at the committing branch office are duplicates of original records maintained at the firm's main office. Rule G-9(d) requires that books and records shall be maintained and preserved in an easily accessible place for two years and shall be available for ready inspection by the proper regulatory authorities. The fact that the member firm does not maintain all records with respect to all of its underwriting activities in a single location does not contravene these provisions of Board rule G-9. Rule G-9 would permit the arrangement described in your letters, whereby a firm maintains copies of all of the records pertaining to a particular underwriting in the office responsible for that underwriting. MSRB interpretation of October 21, 1981. Microfilming of records. I am writing in response to your letter of May 20, 1983 regarding our previous conversations about the requirements of Board rules G-1 and G-9 as they would apply to the bank's retention of dealer department records on microfilm. In your letter and our previous conversations you indicated that the bank wishes to retain all of the records required to be maintained by its municipal securities dealer department on microfilm, with the hard copy of each record destroyed immediately after it has been microfilmed. You inquired as to the circumstances under which this method of record retention could be used. You also inquired about the extent to which municipal securities dealer department records could be commingled with records of other departments on the same strips of microfilm. As you are aware, Board rule G-9(e) provides that a record...required to be preserved by this rule...may be retained...on microfilm, electronic or magnetic tape, or by the other similar medium of record retention, provided that [the] municipal securities broker or municipal securities dealer shall have available adequate facilities for ready retrieval and inspection of any such record and for production of easily readable facsimile copies thereof and, in the case of records retained on microfilm, electronic or magnetic tape, or other similar medium of record retention, duplicates of such records shall be stored separately from each other for the periods of time required by this rule. Therefore, the following three conditions must be met, if records are to be retained on microfilm: 59 (1) facilities for ready retrieval and inspection of the records (such as a microfilm reader or other similar piece of equipment) must be available; (2) facilities for the reproduction of a hard copy facsimile of a particular record must also be available; and (3) duplicate copies of the microfilm must be made and stored separately for the necessary time periods. If these conditions are met, the retention of records by means of microfilm is satisfactory for purposes of the Board's rules, and hard copy records need not be retained after the microfilming is completed. With respect to the establishment of a separately identifiable municipal securities dealer department of a bank, Board rule G1 provides that all of the records relating to the municipal securities activities of such department must be separately maintained in or separately extractable from such [department's] own facilities or the facilities of the bank...[and must be] so maintained or otherwise accessible as to permit independent examination thereof and enforcement of applicable provisions of the Act, the rules and regulations thereunder and the rules of the Board. These requirements would not preclude you from maintaining the required records on microfilm which also contained other bank records, as long as the required records were “separately extractable.” The course of action you propose, maintaining all municipal securities dealer department records together as the first items on a roll Rule
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 of microfilm, would seem to be an appropriate way of complying with these requirements. MSRB interpretation of June 6, 1983. See
also:
 Rule G-8 Interpretive Letters – Contract sheets, MSRB interpretation of June 25, 1987 - Use of electronic signatures, MSRB interpretation of February 27, 1989 Rule
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 Rule
G‐10:
Delivery
of
Investor
Brochure

 (a) Each broker, dealer and municipal securities dealer shall deliver a copy of the investor brochure to a customer promptly upon receipt of a complaint by the customer. (b) For purposes of this rule, the following terms have the following meanings: (i) the term “investor brochure” shall mean the publication or publications so designated by the Board, and (ii) the term “complaint” is defined in rule G-8(a)(xii).   MSRB INTERPRETATION  See:
 Rule G-32 Interpretation – Notice Regarding Electronic Delivery and Receipt of Information by Brokers, Dealers and Municipal Securities Dealers, November 20, 1998 61 Rule
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G‐11:
New
Issue
Syndicate
Practices

 (a) Definitions. For purposes of this rule, the following terms have the following meanings: (i) The term “accumulation account” means an account established in connection with a municipal securities investment trust to hold securities pending their deposit in such trust. (ii) The term “date of sale” means, in the case of competitive sales, the date on which all bids for the purchase of securities must be submitted to an issuer, and, in the case of negotiated sales, the date on which the contract to purchase securities from an issuer is executed. (iii) The term “group order” means an order for securities held in syndicate, which order is for the account of all members of the syndicate on a pro rata basis in proportion to their respective participations in the syndicate. Any such order submitted directly to the senior syndicate manager will, for purposes of this rule, be deemed to be the submission of such order by such manager to the syndicate. (iv) The term “municipal securities investment trust” means a unit investment trust, as defined in the Investment Company Act of 1940, the portfolio of which consists in whole or in part of municipal securities. (v) The term “order period” means the period of time, if any, announced by a syndicate during which orders will be solicited for the purchase of securities held in syndicate. (vi) The term “priority provisions” means the provisions adopted by a syndicate governing the allocation of securities to different categories of orders. (vii) The term “related portfolio,” when used with respect to a broker, dealer or municipal securities dealer, means a municipal securities investment portfolio of such broker, dealer or municipal securities dealer or of any person directly or indirectly controlling, controlled by or under common control with such broker, dealer or municipal securities dealer. (viii) The term “syndicate” means an account formed by two or more persons for the purpose of purchasing, directly or indirectly, all or any part of a new issue of municipal securities from the issuer, and making a distribution thereof. (ix) The term “qualified note syndicate” means any syndicate formed for the purpose of purchasing and distributing a new issue of municipal securities that matures in less than two years where: (A) the new issue is to be purchased by the syndicate on other than an “all or none” basis; or (B) the syndicate has provided that: (1) there is to be no order period; (2) only group orders will be accepted; and, (3) the syndicate may purchase and sell the municipal securities for its own account. (b) Disclosure of Capacity. Every broker, dealer or municipal securities dealer which is a member of a syndicate that submits an order to a syndicate or to a member of a syndicate for the purchase of municipal securities held by the syndicate shall disclose at the time of submission of such order if the securities are being purchased for its dealer account, for the account of a related portfolio of such broker, dealer or municipal securities dealer, for a municipal securities investment trust sponsored by such broker, dealer or municipal securities dealer, or for an accumulation account established in connection with such a municipal securities investment trust. (c) Confirmations of Sale. Sales of securities held by a syndicate to a related portfolio, municipal securities investment trust or accumulation account referred to in section (b) above shall be confirmed by the syndicate manager directly to such related portfolio, municipal securities investment trust or accumulation account or for the account of such related portfolio, municipal securities investment trust or accumulation account to the broker, dealer or municipal securities dealer submitting the order. Nothing herein contained shall be construed to require that sales of municipal securities to a related portfolio, municipal securities investment trust or accumulation account be made for the benefit of the syndicate. (d) Disclosure of Group Orders. Every broker, dealer or municipal securities dealer that submits a group order to a syndicate or to a member of a syndicate shall disclose at the time of submission of such order the identity of the person for whom the order is submitted. This section shall not apply to a qualified note syndicate as defined in subsection (a)(ix) above. (e) Priority Provisions. Every syndicate shall establish priority provisions and, if such priority provisions may be changed, the procedure for making changes. For purposes of this rule, the requirement to establish priority provisions shall not be satisfied if a syndicate provides only that the syndicate manager or managers may determine in the manager's or managers' discretion the priority to be accorded different types of orders. Notwithstanding the preceding sentence, a syndicate may include a provision permitting the syndicate manager or managers on a case-by-case basis to allocate securities in a manner other than in accordance with the priority provisions, if the syndicate manager or managers determine in its or their discretion that it is in the best interests of the syndicate. In the event any such allocation is made, the syndicate manager or managers shall have the burden of justifying that such allocation was in the best interests of the syndicate. Rule
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 (f) Communications Relating to Issuer Syndicate Requirements, Priority Provisions and Order Period. Prior to the first offer of any securities by a syndicate, the senior syndicate manager shall furnish in writing to the other members of the syndicate (i) a written statement of all terms and conditions required by the issuer, (ii) the priority provisions, (iii) the procedure, if any, by which such priority provisions may be changed, (iv) if the senior syndicate manager or managers are to be permitted on a case-by-case basis to allocate securities in a manner other than in accordance with the priority provisions, the fact that they are to be permitted to do so, and (v) if there is to be an order period, whether orders may be confirmed prior to the end of the order period. Any change in the priority provisions shall be promptly furnished in writing by the senior syndicate manager to the other members of the syndicate. Syndicate members shall promptly furnish in writing the information described in this section to others, upon request. If the senior syndicate manager, rather than the issuer, prepares the written statement of all terms and conditions required by the issuer, such statement shall be provided to the issuer. (g) Designations and Allocations of Securities. The senior syndicate manager shall: (i) within 24 hours of the sending of the commitment wire, complete the allocation of securities; provided however, that, if at the time allocations are made the purchase contract in a negotiated sale is not yet signed or the award in a competitive sale is not yet made, such allocations shall be made subject to the signing of the purchase contract or the awarding of the securities, as appropriate, and the purchaser must be informed of this fact; (ii) within two business days following the date of sale, disclose to the other members of the syndicate, in writing, a summary, by priority category, of all allocations of securities which are accorded priority over members' take-down orders, indicating the aggregate par value, maturity date and price of each maturity so allocated, including any allocation to an order confirmed at a price other than the original list price. The summary shall include allocations of securities to orders submitted through the end of the order period or, if the syndicate does not have an order period, through the first business day following the date of sale; (iii) disclose, in writing, to each member of the syndicate all available information on designations paid to syndicate and non-syndicate members expressed in total dollar amounts within 10 business days following the date of sale and all information about designations paid to syndicate and non-syndicate members expressed in total dollar amounts with the sending of the designation checks pursuant to section (j) below; and (iv) disclose to the members of the syndicate, in writing, the amount of any portion of the take-down directed to each member by the issuer. Such disclosure is to be made by the later of 15 business days following the date of sale or three business days following receipt by the senior syndicate manager of notification of such set asides of the take-down. (h) Disclosure of Syndicate Expenses and Other Information. At or before the final settlement of a syndicate account, the senior syndicate manager shall furnish to the other members of the syndicate: (i) an itemized statement setting forth the nature and amounts of all actual expenses incurred on behalf of the syndicate. Notwithstanding the foregoing, any such statement may include an item for miscellaneous expenses, provided that the amount shown under such item is not disproportionately large in relation to other items of expense shown on the statement and includes only minor items of expense which cannot be easily categorized elsewhere in the statement. Discretionary fees for clearance costs to be imposed by a syndicate manager and management fees shall be disclosed to syndicate members prior to the submission of a bid, in the case of a competitive sale, or prior to the execution of a purchase contract with the issuer, in the case of a negotiated sale. For purposes of this section, the term “management fees” shall include, in addition to amounts categorized as management fees by the syndicate manager, any amount to be realized by a syndicate manager, and not shared with the other members of the syndicate, which is attributable to the difference in price to be paid to an issuer for the purchase of a new issue of municipal securities and the price at which such securities are to be delivered by the syndicate manager to the members of the syndicate; and (ii) a summary statement showing: (A) the identity of each related portfolio, municipal securities investment trust, or accumulation account referred to in section (b) above submitting an order to which securities have been allocated as well as the aggregate par value and maturity date of each maturity so allocated; (B) the identity of each person submitting a group order to which securities have been allocated as well as the aggregate par value and maturity date of each maturity so allocated except that this subparagraph shall not apply to the senior syndicate manager of a qualified note syndicate as defined in subsection (a)(ix) above; and (C) the aggregate par values and prices (expressed in terms of dollar prices or yields) of all securities sold from the syndicate account. This subparagraph shall not apply to a qualified note syndicate as defined in subsection (a)(ix) above. (i) Settlement of Syndicate or Similar Account. Final settlement of a syndicate or similar account formed for the purchase of securities shall be made within 60 calendar days following the date all securities have been delivered by the syndicate or account manager to the syndicate or account members. 63 Rule
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 (j) Payments of Designations. Any credit designated by a customer in connection with the purchase of securities as due to a member of a syndicate or similar account shall be distributed to such member by the broker, dealer or municipal securities dealer handling such order within 30 calendar days following the date the issuer delivers the securities to the syndicate. MSRB INTERPRETATIONS  SYNDICATE SETTLEMENT PRACTICE VIOLATIONS NOTED July 1981 The Board continues to be concerned about industry compliance with certain of the requirements of Board rules G-11, “Sales of New Issue Municipal Securities During the Underwriting Period,” and G-12, “Uniform Practice,” with respect to the settlement of syndicate accounts. Board rule G-11(g)[*] requires, among other matters, that syndicate managers provide to members at the time of settlement of a syndicate account a detailed statement of the expenses incurred by the syndicate.1 Rule G-12(j) requires that settlement of a syndicate account and distribution of any profit due to members be made within 60 days of delivery of the syndicate's securities. In addition, rule G-12(i) requires that good faith deposits be returned within two business days of settlement with an issuer, and rule G-12(k) requires that sales credits designated by a customer be distributed within 30 days following delivery of the securities [by the issuer to the syndicate]. The Board has from time to time received complaints from industry members concerning certain managers' non-compliance with these requirements. These persons allege that certain managers unduly delay the sending of syndicate settlement checks and other disbursements, and furnish settlement statements that provide little or no detail about the nature of the expenses incurred by the syndicate. These persons have also, on occasion, furnished to the Board copies of syndicate statements which illustrate clearly these managers' failure to provide the requisite information and to meet the time requirement for these disbursements. The Board has referred each of these complaints to the appropriate regulatory agency for investigation and appropriate action. The Board wishes to emphasize strongly the need for compliance with these provisions. The Board continues to be of the view that the time periods and other requirements of the rules, which were arrived at after considerable deliberation, are fair and reasonable. The Board believes that failure to comply with these provisions is inexcusable. The Board does not accept the rationale offered by some, that the difficulties in obtaining bills for syndicate expenses justify these undue delays; the Board believes that it is incumbent upon managers to assure that such bills are received and processed in timely fashion, to permit compliance with the rule. The Board strongly urges syndicate managers who have failed to comply with these requirements to bring their practices into compliance with the requirements of the rules. The Board also is communicating these views to the enforcement organizations and stressing its concern with respect to compliance with these provisions. It strongly urges all syndicate members to notify the appropriate enforcement organization of any violations by managers of these provisions. 
 Rule
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 1 [*] The rule contemplates that the statement will set forth a detailed breakdown of expenses into specified categories, such as advertising, printing, legal, computer services, packaging and handling, etc. The statement may include an item for miscellaneous expenses, provided that the amount shown under such an item is not disproportionately large in relation to other items of expense shown and includes only items of expense which cannot be easily categorized elsewhere in the statement. [Currently codified at rule G-11(h)] NOTE: Revised to reflect subsequent amendments. NOTICE CONCERNING SYNDICATE EXPENSES November 14, 1991 Board rule G-11, concerning syndicate practices, among other things, requires syndicates to establish priorities for different categories of orders and requires certain disclosures to syndicate members which are intended to assure that allocations are made in accordance with those priorities. Rule G-11(h)(i) requires that a senior syndicate manager, at or before final settlement of a syndicate account, furnish to syndicate members “an itemized statement setting forth the nature and amount of all actual expenses incurred on behalf of the syndicate.” One of the purposes of this section is to render managers accountable for their handling of syndicate funds. Over the years, the Board, pursuant to rule G-11 and rule G17, on fair dealing, has urged syndicate managers to provide members with a clear and accurate itemized statement of all actual expenses incurred in the underwriting of each issue. In a 1984 notice, the Board stated that expense items must be sufficiently described to make the expenditures readily understandable by syndicate members, and that generalized categories of expenses are not sufficient if they do not portray the specific nature of the expenses.1 In 1985, the Board issued a notice specifically warning managers to take care in determining actual syndicate expenses, and noting that managers may violate rule G-17 if the expenses charged to syndicate members bear no relation to, or otherwise overstate, the actual expenses incurred.2 And in 1987, in response to industry complaints concerning the amount of syndicate expenses charged by managers, the Board issued another notice reiterating that Board rules prohibit managers from overstating actual syndicate expenses.3 The Board wishes to reiterate its interpretation of rules G-11 and G-17 that syndicate expenses charged to members must be clearly identified and must be the actual expenses incurred on behalf of the syndicate.4 The Board continues to be concerned over the number of complaints about syndicate managers who may be charging expenses that are overstated or excessive, particularly with respect to clearance fees for designated sales and computer expenses. Board rules specifically prohibit managers from overstating actual syndicate expenses. The Board urges syndicate members to report possible overstatements of syndicate expenses and other problems in compli64

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 ance with rule G-11(h)(i). The Board will continue to monitor this situation, and will refer any complaints it receives in this area to the appropriate enforcement agencies. In addition, the NASD has alerted the Board that it will accept telephone complaints or information from syndicate members who do not wish to reveal their identities. 1 2 3 4 clearance costs and management fees may be expressed as a perbond charge. These expenses, however, must be disclosed to members prior to the submission of a bid or prior to the execution of a purchase contract with the issuer; for example, in the Agreement Among Underwriters. The itemized statement setting forth a detailed breakdown of actual expenses incurred on behalf of the syndicate, such as advertising, printing, legal, computer services, etc., must be disclosed to syndicate members at or before final settlement of the syndicate account. With respect to these fees, the Board has previously noted that managers who assess a per-bond charge for designated sales may be acting in violation of rule G17 if the expenses charged to members bear no relation to or otherwise overstate the actual expenses incurred on behalf of the syndicate.2 The Board believes a per-bond fee creates the appearance that it is not an actual expense related to and incurred on behalf of the syndicate. The Board is concerned about the charging of syndicate expenses and compliance with rule G-11. Managers should exercise care in accounting for syndicate funds, and any charge that has not been disclosed to members prior to the submission of a bid or prior to the execution of a purchase contract may be charged to syndicate members only if it is an actual expense incurred on behalf of the syndicate. The Board will continue to monitor syndicate practices and will notify the appropriate enforcement agency of any complaints it receives in this area. Syndicate members are encouraged to notify directly the appropriate enforcement agency of any violations of these provisions. 
 Notice Concerning Disclosure of Syndicate Expenses (January 12, 1984), [reprinted in MSRB Reports, Vol. 4, No. 1 (February 1984) at 9]. Notice Concerning Syndicate Managers Charging Excessive Fees for Designated Sales (July 29, 1985), [reprinted in MSRB Reports, Vol. 5, No. 5 (Aug.ust1985) at 17]. Notice Concerning Syndicate Expenses that Appear Excessive (March 3, 1987), [reprinted in MSRB Reports, Vol. 7, No. 2 (March 1987) at 5]. See MSRB Reports, Vol. 5, No. 6 (November 1985) [at 5], and Vol. 5, No. 5 (August 1985) [at 5]. SYNDICATE EXPENSES: PER BOND FEE FOR BOOKRUNNING EXPENSES June 14, 1995 Board rule G-11, concerning syndicate practices, among other things, requires syndicates to establish priorities for different categories of orders and requires certain disclosures to syndicate members which are intended to assure that allocations are made in accordance with those priorities. In addition, the rule requires that the manager provide certain accounting information to syndicate members. In particular, rule G-11(h)(i) provides that: “Discretionary fees for clearance costs to be imposed by a syndicate manager and management fees shall be disclosed to syndicate members prior to the submission of a bid, in the case of a competitive sale, or prior to the execution of a purchase contract with the issuer, in the case of a negotiated sale.”1 The purpose of this provision is to provide information useful to syndicate members in determining whether to participate in a syndicate account. The rule also requires that the senior syndicate manager, at or before final settlement of a syndicate account, furnish to the syndicate members “an itemized statement setting for the nature and amount of all actual expenses incurred on behalf of the syndicate.” One of the purposes of this section is to render managers accountable for their handling of syndicate funds. The Board has received inquiries regarding the appropriateness of a per-bond fee for the bookrunning expenses or management fees of the senior syndicate manager. Discretionary fees for 1 2 
 The rule defines management fees to include, “in addition to amounts categorized as management fees by the syndicate manager, any amount to be realized by a syndicate manager, and not shared with the other members of the syndicate, which is attributable to the difference in price to be paid to an issuer for the purchase of a new issue of municipal securities and the price at which such securities are to be delivered by the syndicate manager to the members of the syndicate.” Syndicate Managers Charging Excessive Fees for Designated Sales (July 29, 1985), [reprinted in MSRB Reports, Vol. 7, No. 2 (March 1987) at 5]. See
also: Rule G-17 Interpretation – Notice of Interpretation Concerning Priority of Orders for New Issue Securities: Rule G-17, December 22, 1987. Rule G-32 Interpretation – Notice Regarding Electronic Delivery and Receipt of Information by Brokers, Dealers and Municipal Securities Dealers, November 20, 1998. INTERPRETIVE LETTERS  Communication of information. I refer to your letter dated October 23, 1978 in which you request advice concerning the application of certain provisions of rule G11. In your letter, you state that it is your understanding that the requirement in the rule for a syndicate manager to communicate information regarding the priority to be accorded to different orders could be satisfied if an agreement among underwrit- ers provides for the managing underwriters, in their discretion, to establish the priorities to be accorded to different types of orders for the purchase of bonds from the syndicate so long as information as to the priorities so established is furnished to the members of the syndicate prior to the beginning of the order period. 65 Rule G-11 would permit the inclusion of a provision delegating to the managing underwriters the authority to establish the priority provisions under which the syndicate would operate. However, under section (f) of rule G-11, such information must be provided by the senior syndicate manager in writing to other members of a syndicate “prior to the first offer of any securities by a syndicate.” Accordingly, if Rule
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 there is a presale period, the required disclosure must be made prior to the commencement of such period, and not prior to “the beginning of the order period.” The procedures outlined in your letter would be permissible under the rule only if no securities are offered by a syndicate prior to the order period. MSRB interpretation of November 9, 1978. Fixed-price offerings. This responds to your letter of February 17, 1984, requesting our view on the applicability of the Board's rules to the following situation: [Name deleted] the (“Dealer”) is an underwriter of industrial revenue bonds. It underwrites on average three or four issues per month and sells them almost entirely on a retail basis to individual investors. The coupon rates are fixed at current market levels. The bonds are then offered to the public at par. Official statements are provided to investors, fully disclosing all pertinent information and making clear note of the fact that the initial offering price of par may be changed without prior notice. Recently, interest rates dropped significantly during the two or three-week time period needed for the Dealer to sell out a bond issue. This caused the offering price of the fixed rate municipal bonds to rise above the initial offering price stated in the official statement. All of this occurred before the closing of the syndicate account. You ask specifically whether, under the Board's rules, it is permissible to raise the offering price of municipal bonds which are part of a new issue above the initial Rule
G‐11
 price before the close of the underwriting period. Board rule G-11 generally requires syndicates to establish priorities for different categories of orders and requires that certain disclosures be made to syndicate members which are intended to assure that allocations are made in accordance with those priorities. The rule also requires that the manager provide account information to syndicate members in writing. The Board has described rule G-11 as a “disclosure rule” designed to provide information to new issue participants so that they can understand and evaluate syndicate practices. The rule does not, however, dictate what those practices must be. Thus, rule G11 does not require that the offering price of new issue municipal securities remain fixed through the underwriting period. The Board considered the issue of fixed-price offerings when it formulated rule G-11 and again when the Public Securities Association, in 1981, asked the Board to consider the adoption of rules governing the granting of concessions in new issues of municipal securities. Since the kind of fixedprice offering system developed for corporate securities has not been the primary means of distributing municipal securities and in light of industry concerns that any such proposed regulations could unnecessarily restrict prices and increase the borrowing costs for municipal issues, the Board determined not to adopt any rules addressing the issue.1 Finally, we know of no laws or regulations which purport to require fixed-price 66 offerings for new issue municipal securities, and the NASD's rules in this area do not apply to transactions in municipal securities.2 Of course, Board rule G-30, on prices and commissions, prohibits a dealer from buying municipal securities for its own account from a customer or selling municipal securities for its own account to a customer at an aggregate price unless that price is reasonable taking into consideration all relevant factors. MSRB interpretation of March 16, 1984. 1 2 
 For a fuller explanation of the Board's review of G-11 in this area, See Notice Concerning Board Determination Not to Adopt Concession Rules , [MSRB Reports , Vol. 2, No. 5 (July 1982) at 7]. See NASD Rules of Fair Practice, Article II, Section 1, subsection (m) [currently codified as NASD Rule 114]. Concessions and discounts. This is in response to your October 13, 1986 letter asking if the Board's rules prohibit a dealer from granting a price concession on a new issue security to a customer. The Board's rules do not address the granting of concessions or price discounts to customers on new issue offerings; however, the terms of the applicable syndicate agreement may address this issue. MSRB interpretation of October 22, 1986. See
also: Rule G-8 Interpretive Letter – Syndicate records: sole underwriter, MSRB interpretation of May 12, 1989.

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 Rule
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Uniform
Practice

 (a) Scope and Notice. (i) All transactions in municipal securities between any broker, dealer or municipal securities dealer and any other broker, dealer or municipal securities dealer shall be subject to the provisions of this rule, provided, however, that a transaction submitted to a registered clearing agency for comparison shall be exempt from the provisions of section (c) and, to the extent such transaction is compared by the clearing agency, section (d) of this rule, and a transaction which is settled or cleared through the facilities of a registered clearing agency shall be exempt from the provisions of section (e) of this rule. (ii) Failure to deliver securities sold or to pay for securities as delivered, on or after the settlement date does not effect a cancellation of a transaction which is subject to the provisions of this rule, unless otherwise provided in this rule or agreed upon by the parties. (iii) Unless otherwise specifically indicated, any “immediate” notice required by this rule or any notice required to be given “immediately” shall be given by telephone, telegraph or other means of communication having same day receipt capability and confirmed in writing within one business day. (b) Settlement Dates. (i) Definitions. For purposes of this rule, the following terms shall have the following meanings: (A) Settlement Date. The term “settlement date” shall mean the day used in price and interest computations, which shall also be the day delivery is due unless otherwise agreed by the parties. (B) Business Day. The term “business day” shall mean a day recognized by the National Association of Securities Dealers, Inc. as a day on which securities transactions may be settled. (ii) Settlement Dates. Settlement dates shall be as follows: (A) for “cash” transactions, the trade date; (B) for “regular way” transactions, the third business day following the trade date; (C) for “when, as and if issued” transactions, a date agreed upon by both parties, which date: (1) with respect to transactions required to be compared in an automated comparison system under rule G-12(f)(i), shall not be earlier than two business days after notification of initial settlement date for the issue is provided to the registered clearing agency by the managing underwriter for the issue as required by rule G-34(a)(ii)(D)(2); and (2) with respect to transactions not eligible for automated comparison, shall not be earlier than the third business day following the date that the confirmation indicating the final settlement date is sent; and (D) for all other transactions, a date agreed upon by both parties, provided, however, that a broker, dealer or municipal securities dealer shall not effect or enter into a transaction for the purchase or sale of a municipal security (other than a “when, as and if issued” transaction) that provides for payment of funds and delivery of securities later than the third business day after the date of the transaction unless expressly agreed to by the parties, at the time of the transaction. (c) Dealer Confirmations. All municipal securities transactions that are ineligible for automated comparison in a system operated by a registered clearing agency shall be subject to the provisions of this section (c). (i) Except as otherwise indicated in this section (c), each party to a transaction shall send a confirmation of the transaction to the other party on the trade date. (ii) Confirmations of cash transactions shall be exchanged by telephone on the trade date, with written confirmation sent within one business day following the trade date. (iii) For transactions effected on a “when, as and if issued” basis, initial confirmations shall be sent within one business day following the trade date. Confirmations from a syndicate or account manager to the members of the syndicate or account may be in the form of a letter, covering all maturities of the issue, setting forth the information hereafter specified in this section (c). Confirmations indicating the final settlement date shall be sent by the seller at least three business days prior to the settlement date. (iv) **Reserved for future use.** (v) Each confirmation shall contain the following information: (A) confirming party’s name, address and telephone number; (B) “contra party” identification; (C) designation of purchase from or sale to; (D) par value of the securities; 67 Rule
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 (E) description of the securities, including at a minimum the name of the issuer, interest rate, maturity date, and if the securities are limited tax, subject to redemption prior to maturity (callable), or revenue bonds, an indication to such effect, including in the case of revenue bonds the type of revenue, if necessary for a materially complete description of the securities and in the case of any securities, if necessary for a materially complete description of the securities, the name of any company or other person in addition to the issuer obligated, directly or indirectly, with respect to debt service or, if there is more than one such obligor, the statement “multiple obligors” may be shown; (F) (CUSIP number, if any, assigned to the securities; (G) trade date; (H) settlement date; (I) yield at which transaction was effected and resulting dollar price, except in the case of securities which are traded on the basis of dollar price or securities sold at par, in which event only dollar price need be shown (in cases in which securities are priced to call or to par option, this must be stated and the call or option date and price used in the calculation must be shown, and where a transaction is effected on a yield basis, the dollar price shall be calculated to the lowest of price to call, price to par option, or price to maturity); (J) amount of concession, if any, per $1000 par value unless stated to be an aggregate figure, provided, however, that for a transaction in securities maturing in two or more years and, at the time of the transaction, paying investment return solely through capital appreciation, the concession, if any, shall be expressed as a percentage of the price of these securities; (K) amount of accrued interest; (L) extended principal amount; (M) total dollar amount of transaction; and (N) instructions, if available, regarding receipt or delivery of securities, and form of payment if other than as usual and customary between the parties. The confirmation for a transaction in securities traded on a discounted basis (other than discounted securities traded on a yield-equivalent basis) shall not be required to show the pricing information specified in subparagraph (I) nor the accrued interest specified in subparagraph (K). Such information shall, however, contain the rate of discount and resulting dollar price. Such confirmation may, in lieu of the resulting dollar price and the extended principal amount specified in subparagraph (L), show the total dollar amount of the discount. The confirmation for a transaction in securities maturing in more than two years and paying investment return solely at redemption shall not show the par value of the securities specified in subparagraph (D) and shall not be required to show the amount of accrued interest specified in subparagraph (K). Such confirmation shall, however, show the maturity value of the securities and specify that the interest rate on the securities is “0%.” The initial confirmation for a “when, as and if issued” transaction shall not be required to contain the information specified in subparagraphs (H), (K), (L), and (M) of this paragraph or the resulting dollar price as specified in subparagraph (I). (vi) In addition to the information required by paragraph (v) above, each confirmation shall contain the following information, if applicable: (A) dated date if it affects the price or interest calculation, and first interest payment date, if other than semiannual; (B) if the securities are available only in book-entry form, a designation to such effect; (C) if the securities are identified by the issuer or sold by the underwriter as subject to federal taxation, a designation to that effect; (D) if the interest on the securities is identified by the issuer or the underwriter as subject to the alternative minimum tax, a designation to that effect; (E) if the securities are “called” or “pre-refunded,” a designation to such effect, the date of maturity which has been fixed by the call notice, and the amount of the call price; (F) denominations of securities other than bonds, and, in the case of bonds, denominations other than those specified in paragraph (e)(v) hereof; (G) if the securities pay periodic interest and are sold by the underwriter as original issue discount securities, a designation that they are “original issue discount” securities; (H) any special instructions or qualifications, or factors affecting payment of principal or interest, such as (1) “ex legal,” or (2) if the securities are traded without interest, “flat,” or (3) if the securities are in default as to the Rule
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 payment of interest or principal, “in default,” or (4) with respect to securities with periodic interest payments, if such securities pay interest on other than a semi-annual basis, a statement of the basis on which interest is paid; and (I) such other information as may be necessary to ensure that the parties agree to the details of the transaction. (d) Comparison and Verification of Confirmations; Unrecognized Transactions. (i) Upon receipt of a confirmation, each party to a transaction shall compare and verify such confirmation to ascertain whether any discrepancies exist. If any discrepancies exist in the information as set forth in two compared confirmations, the party discovering such discrepancies shall promptly communicate such discrepancies to the contra party and both parties shall promptly attempt to resolve the discrepancies. In the event the parties are able to resolve the discrepancies, the party in error shall within one business day following such resolution, send a corrected confirmation to the contra party. Such confirmation shall indicate that it is a correction and the date of the corrected confirmation. In the event the parties are unable to resolve the discrepancies, each party shall promptly send to the contra party a written notice, return receipt requested, indicating nonrecognition of the transaction. (ii) In the event a party receives a confirmation for a transaction which it does not recognize, it shall promptly seek to ascertain whether a trade occurred and the terms of the trade. In the event it determines that a trade occurred and the confirmation it received was correct, such party shall immediately notify the confirming party by telephone and, within one business day thereafter, send a written confirmation of the transaction to the confirming party. In the event a party cannot confirm the trade, such party shall immediately notify the confirming party by telephone and, within one business day, thereafter send a written notice, return receipt requested, to the confirming party, indicating nonrecognition of the transaction. Promptly upon receipt of such notice, the confirming party shall verify its records and, if it agrees with the non-confirming party, promptly send a notice of cancellation of the transaction, return receipt requested, to the nonconfirming party. (iii) In the event a party has sent a confirmation of a transaction, but fails to receive a confirmation from the contra party or a notice indicating nonrecognition of the transaction, the confirming party shall, not earlier than the fourth business day following the trade date (the sixth business day following the trade date, in the case of an initial confirmation of a transaction effected on a “when, as and if issued” basis) nor later than the eighth business day following the trade date, seek to ascertain whether a trade occurred. If, after such verification, such party believes that a trade occurred, it shall immediately notify the non-confirming party by telephone to such effect and send within one business day thereafter, a written notice, return receipt requested, to the non-confirming party, indicating failure to confirm. Promptly following receipt of telephone notice from the confirming party, the non-confirming party shall seek to ascertain whether a trade occurred and the terms of the trade. In the event the non-confirming party determines that a trade occurred, it shall immediately notify the confirming party by telephone to such effect and, within one business day thereafter, send a written confirmation of the transaction to the confirming party. In the event a party cannot confirm the trade, such party shall promptly send a written notice, return receipt requested, to the confirming party, indicating nonrecognition of the transaction. (iv) If procedures are initiated pursuant to paragraph (ii) of this section, the procedures required by paragraph (iii) need not be followed; and conversely, if procedures are initiated pursuant to paragraph (iii) of this section, the procedures required by paragraph (ii) need not be followed. (v) In the event any material discrepancies or differences, basic to the transaction, remain unresolved by the close of the business day following receipt by a party of a written notice indicating nonrecognition or by the close of the business day following the date the confirming party gives telephone notice of the transaction to the non-confirming party pursuant to paragraph (iii) above, whichever first occurs, the transaction may be cancelled by the confirming party or, in the event there exists disagreement concerning the terms of the transaction, by either confirming party. Nothing herein contained shall be construed to affect whatever rights the confirming party or parties may otherwise have with respect to a transaction which is cancelled pursuant to this paragraph. (vi) Nothing herein contained shall be construed to prevent the settlement of a transaction prior to completion of the procedures prescribed in this section (d); provided that each party to the transaction shall be responsible for sending to the other party, within one business day of such settlement, a confirmation evidencing the terms of the transaction. (vii) The notices referred to in this section indicating nonrecognition of a transaction or failure to confirm a transaction shall contain sufficient information to identify the confirmation to which the notice relates including, at a minimum, the information set forth in subparagraphs (A) through (E), (G) and (H) of paragraph (c)(v), as well as the confirmation number. In addition, such notice shall identify the firm and person providing such notice and the date thereof. The requirements of this paragraph may be satisfied by providing a copy of the confirmation of an unrecognized transaction, marked “don't know,” together with the name of the firm and person providing such notice and the date thereof. (e) Delivery of Securities. The following provisions shall, unless otherwise agreed by the parties, govern the delivery of securities: 69 Rule
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 (i) Place and Time of Delivery. Delivery shall be made at the office of the purchaser, or its designated agent, between the hours established by rule or practice in the community in which such office is located. If the parties so agree, book entry or other delivery through the facilities of a registered clearing agency will constitute good delivery for purposes of this rule. (ii) Securities Delivered. (A) All securities delivered on a transaction shall be identical as to the information set forth in subparagraph (E) of paragraph (c)(v) and, to the extent applicable, the information set forth in subparagraphs (A) and (E) of paragraph (c)(vi). All securities delivered shall also be identical as to the call provisions and the dated date of such securities. (B) CUSIP Numbers. (1) The securities delivered on a transaction shall have the same CUSIP number as that set forth on the confirmation of such transaction pursuant to the requirements of subparagraph (c)(v)(F) of this rule; provided, however, that, for purposes of this item (1), a security shall be deemed to have the same CUSIP number as that specified on the confirmation (a) if the number assigned to the security and the number specified on the confirmation differ only as a result of a transposition or other transcription error, or (b) if the number specified on the confirmation has been assigned as a substitute or alternative number for the number reflected on the security. (2) A new issue security delivered by an underwriter who is subject to the provisions of rule G-34 shall have the CUSIP number assigned to the security imprinted on or otherwise affixed to the security. (iii) Delivery Ticket. A delivery ticket shall accompany the delivery of securities. Such ticket shall contain the information set forth in subparagraphs (A), (B), (D) (except in the case of transactions in zero coupon, compound interest and multiplier securities, in which case the maturity value shall be shown), (E) through (H), (M) and (N) of paragraph (c)(v) and, to the extent applicable, the information set forth in subparagraphs (A) through (I) of paragraph (c)(vi) and shall have attached to it an extra copy of the ticket which may be used to acknowledge receipt of the securities. (iv) Partial Delivery. The purchaser shall not be required to accept a partial delivery with respect to a single trade in a single security. For purposes of this paragraph, a “single security” shall mean a security of the same issuer having the same maturity date, coupon rate and price. The provisions of this paragraph shall not apply to deliveries made pursuant to balance orders or other similar instructions issued by a registered clearing agency. (v) Units of Delivery. Delivery of bonds shall be made in the following denominations: (A) for bearer bonds, in denominations of $1,000 or $5,000 par value; and (B) for registered bonds, in denominations which are multiples of $1,000 par value, up to $100,000 par value. Delivery of other municipal securities shall be made in the denominations specified on the confirmation as required pursuant to paragraph (c)(vi) of this rule except that deliveries of notes may be made in denominations smaller than those specified if the notes delivered can be aggregated to constitute the denominations specified. (vi) Form of Securities. (A) Bearer and Registered Form. Delivery of securities which are issuable in both bearer and registered form may be in bearer form unless otherwise agreed by the parties; provided, however, that delivery of securities which are required to be in registered form in order for interest thereon to be exempt from Federal income taxation shall be in registered form. (B) Book-Entry Form. Notwithstanding the other provisions of this section (e), with respect to a security which may be transferred only by bookkeeping entry, without the physical delivery of securities certificates, on books maintained for this purpose by a person who is not a registered clearing agent, a delivery of such security shall be made only by a book-entry transfer of the ownership of the security to the purchasing dealer or a person designated by the purchasing dealer. (vii) Mutilated Certificates. Delivery of a certificate which is damaged to the extent that any of the following is not ascertainable: (A) name of issuer; (B) par value; (C) signature; (D) coupon rate; (E) maturity date; (F) seal of the issuer; or (G) certificate number Rule
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 shall not constitute good delivery unless validated by the trustee, registrar, transfer agent, paying agent or issuer of the securities or by an authorized agent or official of the issuer. (viii) Coupon Securities. (A) Coupon securities shall have securely attached to the certificate in the correct sequence all appropriate coupons, including supplemental coupons if specified at the time of trade, which in the case of securities upon which interest is in default shall include all unpaid or partially paid coupons. All coupons attached to the certificates must have the same serial number as the certificate. (B) Anything herein to the contrary notwithstanding, if securities are traded “and interest” and the settlement date is on or after the interest payment date, such securities shall be delivered without the coupon payable on such interest payment date. (C) If delivery of securities is made on or after the thirtieth calendar day prior to an interest payment date, the seller may deliver to the purchaser a draft or bank check of the seller or its agent, payable not later than the interest payment date or the delivery date, whichever is later, in an amount equal to the interest due in lieu of the coupon. (ix) Mutilated or Cancelled Coupons. Delivery of a certificate which bears a coupon which is damaged to the extent that any one of the following cannot be ascertained from the coupon: (A) title of the issuer; (B) certificate number; (C) coupon number or payment date (if either the coupon number or the payment date is ascertainable from the coupon, the coupon will not be considered mutilated); or (D) the fact that there is a signature; or which coupon has been cancelled, shall not constitute good delivery unless the coupon is endorsed or guaranteed. In the case of damaged coupons, such endorsement or guarantee must be by the issuer or by a commercial bank. In the case of cancelled coupons, such endorsement or guarantee must be by the issuer or an authorized agent or official of the issuer, or by the trustee or paying agent. (x) Delivery of Certificates Called for Redemption. (A) A certificate for which a notice of call applicable to less than the entire issue of securities has been published on or prior to the delivery date shall not constitute good delivery unless the securities are identified as “called” at the time of trade. (B) A certificate for which a notice of call applicable to the entire issue of securities has been published on or prior to the trade date shall not constitute good delivery unless the securities are identified as “called” at the time of trade. (C) For purposes of this paragraph (x) and Items (D)(2) and (D)(3) of paragraph G-12(g)(iii), the term “entire issue of securities” shall mean securities of the same issuer having the same date of issue, maturity date and interest rate. (xi) Delivery Without Legal Opinions or Other Documents. Delivery of certificates without legal opinions or other documents legally required to accompany the certificates shall not constitute good delivery unless identified as “ex legal” at the time of trade. (xii) Insured Securities. Delivery of certificates for securities traded as insured securities shall be accompanied by evidence of such insurance, either on the face of the certificate or in a document attached to the certificate. (xiii) Endorsements for Banking or Insurance Requirements. A security bearing an endorsement indicating that it was deposited in accordance with legal requirements applicable to banking institutions or insurance companies shall not constitute good delivery unless it bears a release acknowledged before an officer authorized to take such acknowledgments and was designated as a released endorsed security at the time of trade. (xiv) Delivery of Registered Securities (A) Assignments. Delivery of a certificate in registered form must be accompanied by an assignment on the certificate or on a separate bond power for such certificate, containing a signature or signatures which corresponds in every particular with the name or names written upon the certificate, except that the following shall be interchangeable: “and” or “&”; “Company” or “Co.”; “Incorporated” or “Inc.”; and “Limited” or “Ltd.” (B) Detached Assignment Requirements. A detached assignment shall provide for the irrevocable appointment of an attorney, with power of substitution, a full description of the security, including the name of the issuer, the maturity date and interest date, the bond or note number, and the par value (expressed in words and numerals). 71 Rule
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 (C) Power of Substitution. When the name of an individual or firm has been inserted in an assignment as attorney, a power of substitution shall be executed in blank by such individual or firm. When the name of an individual or firm has been inserted in a power of substitution as a substitute attorney, a new power of substitution shall be executed in blank by such substitute attorney. (D) Guarantee. Each assignment, endorsement, alteration and erasure shall bear a guarantee acceptable to the transfer agent or registrar. (E) Form of Registration. Delivery of a certificate accompanied by the documentation required in this paragraph (xiv) shall constitute good delivery if the certificate is registered in the name of: (1) an individual or individuals; (2) a nominee; (3) a member of a national securities exchange whose specimen signature is on file with the transfer agent or any other broker, dealer or municipal securities dealer who has filed specimen signatures with the transfer agent and places a statement to this effect on the assignment; or (4) an individual or individuals acting in a fiduciary capacity. (F) Certificate in Legal Form. Good transfer of a security in legal form shall be determined only by the transfer agent for the security. Delivery of a certificate in legal form shall not constitute good delivery unless the certificate is identified as being in such form at the time of trade. A certificate shall be considered to be in legal form if documentation in addition to that specified in this paragraph (xiv) is required to complete a transfer of the securities. (G) Payment of Interest. If a registered security is traded “and interest” a delivery of such security made on a date after the record date for the determination of registered holders for the payment of interest shall be accompanied by a draft or bank check of the seller or its agent, payable not later than the interest payment date or the delivery date, whichever is later, for the amount of the interest. (H) Registered Securities in Default. If a registered security is in default (i.e., is in default in the payment of principal or interest) and a date for payment of interest due has been established, a delivery of such security made on a date after the date established as the record date for the determination of registered holders for the payment of interest shall be accompanied by a draft or bank check of the seller or its agent, payable not later than the interest payment date or the delivery date, whichever is later, for the amount of the payment to be made by the issuer, unless the security is traded “ex-interest.” (xv) Expenses of Shipment. Expenses of shipment of securities, including insurance, postage, draft, and collection charges, shall be paid by the seller. (xvi) Money Differences. The following money differences shall not be sufficient to cause rejection of delivery: Par Value Maximum Differences Per Transaction $1,000 to $24,999 $10 $25,000 to $99,999 $25 $100,000 to $249,999 $60 $250,000 to $999,999 $250 $1,000,000 and over $500 The calculations of the seller shall be utilized in determining the maximum permissible differences and amount of payment to be made upon delivery. The parties shall seek to reconcile any such money differences within ten business days following settlement. (f) Use of Automated Comparison, Clearance, and Settlement Systems. (i) Notwithstanding the provisions of sections (c) and (d) of this rule, an Inter-Dealer Transaction Eligible for Comparison by a Clearing Agency Registered with the Commission (registered clearing agency) shall be compared through a registered clearing agency. Each party to such a transaction shall submit or cause to be submitted to a registered clearing agency all information and instructions required from the party by the registered clearing agency for automated comparison of the transaction to occur. Each transaction effected during the RTRS Business Day shall be submitted for comparison within 15 minutes of the Time of Trade, unless the transaction is subject to an exception specified in the Rule G-14 RTRS Procedures paragraph (a)(ii), in which case it shall be submitted for comparison in the time frame specified in the Rule G-14 RTRS Procedures paragraph (a)(ii). Transactions effected outside the hours of an RTRS Business Day shall Rule
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 be submitted no later than 15 minutes after the beginning of the next RTRS Business Day. In the event that a transaction submitted to a registered clearing agency for comparison in accordance with the requirements of this paragraph (i) shall fail to compare, the party submitting such transaction shall, as soon as possible, use the procedures provided by the registered clearing agency in connection with such transaction until such time as the transaction is compared or final notification of a failure to compare the transaction is received from the contra-party. A broker, dealer or municipal securities dealer (“dealer”) that effects inter-dealer transactions eligible for comparison by a clearing agency registered with the Commission shall ensure that submissions made against it in the comparison system are monitored for the purpose of ensuring that correct trade information alleged against it is acknowledged promptly and that erroneous information alleged concerning its side of a trade (or its side of a purported trade) is corrected promptly through the procedures of the registered securities clearing agency or the MSRB. (ii) Notwithstanding the provisions of section (e) of this rule, a transaction eligible for book-entry settlement at a securities depository registered with the Securities and Exchange Commission (depository) shall be settled by book-entry through the facilities of a depository or through the interface between two depositories. Each party to such a transaction shall submit or cause to be submitted to a depository all information and instructions required from the party by the depository for book-entry settlement of the transaction to occur; provided that, if a party to a transaction has made arrangements, through its clearing agent or otherwise, to use one or more depositories exclusively, a transaction by that party shall not be subject to the requirements of this paragraph (ii) if the transaction is ineligible for book-entry settlement at all such depositories with which such arrangements have been made. (iii) For purposes of paragraph (i) of this section (f) a broker, dealer or municipal securities dealer who clears a transaction through an agent who is a member of a registered clearing agency shall be deemed to be a member of such registered clearing agency with respect to such transaction. (iv) Definitions. (A) “Inter-Dealer Transaction Eligible for Comparison by a Clearing Agency Registered with the Commission” means a contract for purchase and sale between one dealer and another dealer, resulting in a contractual obligation for one such dealer to transfer municipal securities to the other dealer involved in the transaction, and which contract is eligible for comparison under the procedures of an automated comparison system operated by a registered clearing agency. (B) “Time of Trade” is defined in Rule G-14 Transaction Reporting Procedures. (C) The “RTRS Business Day” is defined in Rule G-14 RTRS Transaction Reporting Procedures. (g) Rejections and Reclamations. (i) Definitions. For purposes of this section, the terms “rejection” and “reclamation” shall have the following meanings: (A) “Rejection” shall mean refusal to accept securities which have been presented for delivery. (B) “Reclamation” shall mean return by the receiving party of securities previously accepted for delivery. (ii) Basis for Rejection. Securities presented for delivery may be rejected if the contra party fails to make a good delivery. (iii) Basis for Reclamation and Time Limits. A reclamation may be made by the receiving party or a demand for reclamation may be made by the delivering party if, subsequent to delivery, information is discovered which, if known at the time of the delivery, would have caused the delivery not to constitute good delivery, provided such reclamation or demand for reclamation is made within the following time limits: (A) Reclamation or demand for reclamation by reason of the following shall be made within one business day following the date of delivery: (1) not good delivery because a coupon, or an interest check in lieu thereof, required by this rule to accompany delivery was missing; or (2) not good delivery because a certificate or coupon was mutilated in a manner inconsistent with the provisions of paragraphs (e)(vii) or (ix) hereof; or (3) not good delivery because a legal opinion or other documents referred to in paragraph (e)(xi) hereof were missing. (B) Reclamation or demand for reclamation because an interest check accompanying delivery was not honored shall be made within three business days following receipt by the purchaser of the notice of dishonor. (C) reclamation or demand for reclamation by reason of the following shall be made within 18 months following the date of delivery: 73 Rule
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 (1) irregularity in delivery, including, but not limited to, delivery of the wrong issue (i.e., issuer, coupon rate or maturity date), duplicate delivery, delivery to the wrong party or location, or over delivery; or (2) refusal to transfer or deregister by the transfer agent due to presentation of documentation in connection with the transfer or deregistration which the transfer agent deems inadequate; or (3) information pertaining to the description of the securities was inaccurate for either of the following reasons: (i) information required by subparagraph (c)(v)(E) of this rule was omitted or erroneously noted on a confirmation, or (ii) (information material to the transaction but not required by subparagraph (c)(v)(E) of this rule was erroneously noted on a confirmation. (D) Reclamation or demand for reclamation by reason of the following may be made without any time limitation: (1) the security delivered is reported missing, stolen, fraudulent or counterfeit; (2) the security delivered is the subject of a notice of call applicable to less than the entire issue of securities that was published on or prior to the delivery date and the security was not identified as “called” at the time of trade; or (3) the security delivered is the subject of a notice of call applicable to the entire issue of securities that was published on or prior to trade date and the security was not identified as “called” at the time of trade. The running of any of the time periods specified in this paragraph shall not be deemed to foreclose a party's right to pursue its claim via other means, including arbitration. (iv) Procedure for Rejection or Reclamation. (A) If a party elects to reject or reclaim securities, rejection or reclamation shall be effected by returning the securities to the party who had previously delivered them. In the case of a reclamation, the reclaiming party may reclaim all (or, in the case of a reclamation of securities reported to be missing, stolen, fraudulent or counterfeit, any part) of the securities which were not in “good delivery” form on the delivery date in lieu of reclaiming all of the securities delivered. In the case of a reclamation of securities reported missing, stolen, fraudulent or counterfeit, in the event that the securities have been seized by the issuer, an agent of the issuer, or a law enforcement official, reclamation by means of a presentation of a receipt for such securities executed by such person will meet the requirements of this subparagraph (A). (B) The rejecting or reclaiming party shall also provide a written notice which contains sufficient information to identify the delivery to which the notice relates. The notice shall have attached to it a copy of the original delivery ticket or other proof of delivery, and shall state, to the extent not set forth on the attached document, the following: (1) the name of the party delivering the securities; (2) the name of the party receiving the securities; (3) a description of the securities; (4) the date the securities were delivered; (5) the date of rejection or reclamation; (6) the par value of the securities which are being rejected or reclaimed; (7) in the case of a reclamation, the amount of money the securities are reclaimed for; (8) the reason for rejection or reclamation; and (9) the name and telephone number of the person to contact concerning the rejection or reclamation. (C) A party demanding reclamation of securities shall send to the contra-party a notice demanding reclamation of the securities. Such notice shall have attached to it a copy of the original delivery ticket or other proof of delivery, and shall state, to the extent not set forth on the attached document, the information specified in items (1) through (9) of subparagraph (B) above. (D) In the event of a reclamation or a demand for reclamation of a security reported missing, stolen, fraudulent or counterfeit, the reclaiming party or the party demanding reclamation shall also provide a document or documents made available by the issuer, an agent of the issuer, or other authorized person evidencing the report and, in the cause of securities reported missing or stolen, evidencing that the loss or theft that is the subject of the report had occurred on or prior to the original delivery date. Rule
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 (v) Manner of Settlement of Reclamation. Upon reclamation properly made pursuant to this rule, the party receiving the reclamation shall immediately give the party making the reclamation either the correct securities in proper form for delivery in exchange for the securities originally delivered, or the money amount (or the appropriate portion of the money amount) of the original transaction. A party receiving a notice of demand for reclamation shall reclaim the securities which are the subject of such notice as promptly as possible. (vi) Effect of Rejection or Reclamation. Rejection or reclamation of securities shall not constitute a cancellation of the transaction. In the event of a reclamation of securities, unless otherwise agreed, the party to whom the securities have been reclaimed shall be deemed to be failing to deliver the securities, as of the original transaction settlement date, until such time as a proper delivery is made or the transaction is closed out in accordance with section (h) of this rule. (h) Close-Out. Transactions which have been confirmed or otherwise agreed upon by both parties but which have not been completed may be closed out in accordance with this section, or as otherwise agreed by the parties. (i) Close-Out by Purchaser. With respect to a transaction which has not been completed by the seller according to its terms and the requirements of this rule, the purchaser may close out the transaction in accordance with the following procedures: (A) Notice of Close-Out. If the purchaser elects to close out a transaction in accordance with this paragraph (i), the purchaser shall, not earlier than the fifth business day following the settlement date, notify the seller by telephone of the purchaser's intention to close out the transaction. The purchaser shall state that unless the transaction is completed by a specified date and time, which shall not be earlier than the close of the tenth business day following the date the telephonic notice is given (the fifth business day, in the case of a second or subsequent notice), the transaction may be closed out in accordance with this section at any time during the period of time, which shall not be more than five business days, specified by the purchaser for such purpose. The purchaser shall immediately thereafter send, return receipt requested, a written notice of close-out to the seller. Such notice shall contain the information specified in item (1) of subparagraph (C) below. (B) Retransmittal. Any party receiving a notice of close-out may retransmit the notice to another party from whom the securities are due. The retransmitting party shall, not later than the first business day following its receipt of the telephone notice of close-out, notify the party to whom it is retransmitting by telephone of its intention to retransmit such notice, specifying the name of the originator and the applicable dates for delivery and effectiveness of the notice. The retransmitting party shall immediately thereafter send, return receipt requested, a written notice of retransmittal which shall contain the information specified in item (2) of subparagraph (C) below. The first such retransmittal shall extend the dates for close-out by five business days, and the first retransmitting party shall specify the extended dates on its notice of retransmittal. The first retransmitting party shall, on the date telephone notice of the retransmittal is given, notify the purchaser originating the notice by telephone of the extended dates and immediately thereafter send, return receipt requested, a notice of extension of dates which shall contain the information specified in item (3) of subparagraph (C) below. Any party subsequently retransmitting such notice shall, on the date telephonic notice of the retransmittal is given, notify the purchaser originating the notice by telephone of such retransmittal, and immediately thereafter send a copy of the retransmittal notice to such originating purchaser. (C) Contents of Notices. Written notices sent in accordance with the requirements of subparagraphs (A) or (B) above shall contain the following information: (1) The notice of close-out required under subparagraph (A) above shall set forth: (a) the name and address of the broker, dealer or municipal securities dealer originating the notice; (b) the name and address of the broker, dealer or municipal securities dealer to whom the notice is being sent; (c) the name of the person to whom the originator provided the required telephonic notice; (d) the date of such telephonic notice; (e) the par value and description of the securities involved in the transaction with respect to which the close-out notice is given; (f) the trade date and settlement date of the transaction; (g) the price and total dollar amount of the transaction; (h) the date by which the securities must be received by the originating dealer; (i) the date or dates during which the notice of close-out may be executed; and (j) the name and telephone number of the person to contact concerning the close-out. (2) The notice of retransmittal required under subparagraph (B) above shall set forth: 75 Rule
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 (a) the name and address of the broker, dealer or municipal securities dealer retransmitting the no- tice; (b) the name and address of the broker, dealer or municipal securities dealer to whom the notice is being retransmitted; (c) the name of the broker, dealer or municipal securities dealer originating the notice; (d) the name of the person to whom the retransmitting party provided the required telephonic notice; (e) the date of such telephonic notice; (f) the par value and description of the securities involved in the transaction with respect to which the retransmittal notice is given; (g) the trade date and settlement date of the transaction; (h) the price and total dollar amount of the transaction; (i) the date by which the securities must be received by the dealer originating the notice (as extended due to the retransmittal); (j) the date or dates during which the notice of close-out may be executed (as extended due to the retransmittal); and (k) the name and telephone number of the person to contact concerning the retransmittal. (3) The notice of extension of dates required under subparagraph (B) above shall set forth: (a) the name and address of the broker, dealer or municipal securities dealer originating the notice of close-out; (b) the name and address of the broker, dealer or municipal securities dealer retransmitting the notice; (c) the name of the broker, dealer or municipal securities dealer to whom the notice is being retransmitted; (d) the name of the person to whom the retransmitting party provided the required telephonic notice of the extension of dates; (e) the date of such telephonic notice; (f) the par value and description of the securities involved in the transaction with respect to which the notice is given; (g) the date specified by the originating dealer as the date by which delivery of such securities must be made; (h) the date by which such delivery must be made, as extended due to the retransmittal; (i) the effective date or dates for the notice of close-out, as extended due to the retransmittal; and (j) the name and telephone number of the person to contact concerning the close-out. (D) Purchaser’s Options. If the securities described in the notice of close-out are not delivered to the originating purchaser by the date specified in the original notice, or the extended date resulting from a retransmittal, such purchaser may close out the transaction in accordance with the terms of the notice. To close out a transaction as provided herein the purchaser may, at its option, take one of the following actions: (1) purchase (“buy-in”) at the current market all or any part of the securities necessary to complete the transaction, for the account and liability of the seller; (2) accept from the seller in satisfaction of the seller’s obligation under the original contract (which shall be concurrently cancelled) the delivery of municipal securities which are comparable to those originally bought in quantity, quality, yield or price, and maturity, with any additional expenses or any additional cost of acquiring such substituted securities being borne by the seller; or (3) require the seller to repurchase the securities on terms which provide that the seller pay an amount which includes accrued interest and bear the burden of any change in market price or yield. A purchaser executing a close-out shall, upon execution, notify the selling dealer for whose account and liability the transaction was closed out by telephone, stating the means of close-out utilized. The purchaser shall immediately thereafter confirm such notice in writing, sent return receipt requested, and forward a copy of the confirmation of the executed transaction. A retransmitting party shall give immediate notice of the execution of the close-out, in accor- Rule
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 dance with the procedure set forth herein, to the party to whom it retransmitted the notice. A close-out will operate to close out all transactions covered under retransmitted notices. Any moneys due on the transaction, or on the close-out of the transaction, shall be forwarded to the appropriate party within ten business days of the date of execution of the close-out notice. A buy-in may be executed from a long position in customers’ accounts maintained with the party executing the buy-in or, with the agreement of the seller, from the purchaser's contra-party. In all cases, the purchaser must be prepared to defend the price at which the close-out is executed relative to market conditions at the time of the execution. (E) Close-Out Not Completed. If a close-out pursuant to a notice of close-out is not completed in accordance with the terms of the notice and the provisions of this rule, the notice shall expire. Additional close-out notices may be issued, provided that a close-out procedure with respect to a transaction may not be initiated later than the ninetieth business day following the settlement date of such transaction, regardless of the number of close-out notices issued. Notwithstanding the foregoing, in the case of a transaction on which a delivery of securities has been reclaimed pursuant to the provisions of subparagraphs (g)(iii)(C) or (g)(iii)(D) of this rule and which remains uncompleted, the purchaser may initiate one or more close-out procedures with respect to such transaction at any time during a period of fifteen business days following the date of reclamation. The first such procedure shall be considered an initial procedure for purposes of subparagraph (A) above. (F) Completion of Transaction. If, at any time prior to the execution of a close-out pursuant to this paragraph (i), the seller, or any subsequent selling party to whom a notice has been retransmitted, can complete the transaction within two business days, such party shall give immediate notice to the purchaser originating the notice of close-out that the securities will be delivered within such time period. If the originating purchaser receives such notice, it shall not execute the close-out for two business days following the date of such notice; the period specified for the execution of the close-out shall be extended by two business days or, in the event that the notice is given on the last day specified for execution of the close-out, by three business days. Delivery of the securities in accordance with such notice shall cancel the close-out notice outstanding with respect to the transaction. (G) “Cash” Transactions. The purchaser may close out transactions made for “cash” or made for or amended to include guaranteed delivery at the close of business on the day delivery is due. (ii) Close-Out by Seller. If a seller makes good delivery according to the terms of the transaction and the requirements of this rule and the purchaser rejects delivery, the seller may close out the transaction in accordance with the following procedures: (A) Notice of Close-Out. If the seller elects to close out a transaction in accordance with this paragraph (ii), the seller shall at any time not later than the close of business on the fifth business day following receipt by the seller of notice of the rejection, notify the purchaser by telephone of the seller's intention to close out the transaction. The seller shall state that unless the transaction is completed by a specified date and time, which shall not be earlier than the close of the business day following the date the telephonic notice is given, the transaction may be closed out in accordance with this section. The seller shall immediately thereafter send, return receipt requested, a written notice of close-out to the purchaser. Such notice shall contain the information specified in subparagraph (B) below, and shall be accompanied by a copy of the purchaser's confirmation of the transaction to be closed out or other written evidence of the contract between the parties. (B) Content of Notice. The written notice sent in accordance with the requirements of subparagraph (A) above shall set forth: (1) the name and address of the broker, dealer or municipal securities dealer originating the notice; (2) the name and address of the broker, dealer or municipal securities dealer to whom the notice is being sent; (3) the name of the person to whom the originator provided the required telephonic notice; (4) the date of such telephonic notice; (5) the par value and description of the securities involved in the transaction with respect to which the close-out notice is given; (6) the trade date and settlement date of the transaction; (7) the price and total dollar amount of the transaction; (8) the date of improper rejection of the delivery; (9) the date by which the delivery of the securities must be accepted; and (10) the name and telephone number of the person to contact regarding the close-out. 77 Rule
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 (C) Execution of Close-Out. Not earlier than the close of the business day following the date telephonic notice of close-out is given to the purchaser, the seller may sell out the transaction at the current market for the account and liability of the purchaser. A seller executing a close-out shall, upon execution, notify the purchaser for whose account and liability the transaction was closed out by telephone. The seller shall immediately thereafter confirm such notice in writing, sent return receipt requested, and forward a copy of the confirmation of the executed transaction. Any moneys due on the close-out of the transaction shall be forwarded to the appropriate party within ten business days of the date of execution of the close-out notice. (D) Acceptance of Delivery. In the event the transaction is completed by the date and time specified in the notice of close-out, the seller shall be entitled, upon written demand made to the purchaser, to recover from the purchaser all actual and necessary expenses incurred by the seller by reason of the purchaser’s rejection of delivery. (iii) Close-Out Under Special Rulings. Nothing herein contained shall be construed to prevent brokers, dealers or municipal securities dealers from closing out transactions as directed by a ruling of a national securities exchange, a registered securities association or an appropriate regulatory agency issued in connection with the liquidation of a broker, dealer or municipal securities dealer. (iv) Procedures Optional. Nothing herein contained shall be construed to require the parties to follow the close-out procedures herein specified if they otherwise agree. (i) Settlement of Joint or Similar Account. Final settlement of a joint or similar account formed for the purchase of securities shall be made within 60 days following the date all securities have been delivered by the syndicate or account manager to the syndicate or account members. (j) Interest Payment Claims. A broker, dealer or municipal securities dealer seeking to claim an interest payment on a municipal security from another broker, dealer or municipal securities dealer may claim such interest payment in accordance with this section. A broker, dealer or municipal securities dealer receiving a claim made under this section shall send to the claimant a draft or bank check for the amount of the interest payment or a statement of its basis for denying the claim no later than 10 business days after the date of receipt of the written notice of the claim or 20 business days in the case of a claim involving an interest payment scheduled to be made more than 60 days prior to the date of the claim. (i) Determining Party to Receive Claim. A claimant making an interest payment claim under this section shall direct such claim to the party described in this paragraph (i). (A) Previously Delivered Registered Securities. An interest payment claim made with respect to a registered security previously delivered to the claimant which is registered in the name of a broker, dealer or municipal securities dealer at the time of delivery shall be directed to such broker, dealer, or municipal securities dealer. A claim made with respect to a previously delivered registered security not registered in the name of a broker, dealer or municipal securities dealer guaranteeing the signature of the registered owner or, if neither the registered owner nor its signature guarantor is a broker, dealer or municipal securities dealer, to the broker, dealer or municipal securities dealer that first placed a signature guarantee on any assignment or power of substitution accompanying the security. (B) Previously Delivered Bearer Securities. An interest payment claim made with respect to a bearer security previously delivered to the claimant shall be directed to the broker, dealer or municipal securities dealer that previously delivered the security. (C) Securities Delivered by Claimant. An interest payment claim made with respect to a security previously delivered by the claimant shall be directed to the broker, dealer or municipal securities dealer that received the securities. (D) Deliveries by Book-Entry. An interest payment claim arising out of a transaction with a contractual settlement date before, and settled by book-entry on or after, the interest payment date of the security shall be directed to the broker, dealer or municipal securities dealer that made the delivery. (ii) Content of Claim Notice. A claimant seeking to claim an interest payment under this section shall send to the broker, dealer or municipal securities dealer against which the claim is made a written notice of claim including, at minimum: (A) the name and address of the broker, dealer or municipal securities dealer making the claim; (B) the name of the broker, dealer or municipal securities dealer against which the claim is made; (C) the amount of the interest payment which is the subject of the claim; (D) the date on which such interest payment was scheduled to be made (and, in the case of an interest payment on securities which are in default, the original interest payment date); (E) a description of the security (including any CUSIP number assigned) on which such interest payment was made; Rule
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 (F) a statement of the basis of the claim for the interest payment; (G) if the claim is based on the delivery of a registered security, the certificate numbers of each security on which the claim is based and a photocopy of the certificate(s) on which the claim is based or (in lieu of such a photocopy) a written statement from the paying agent identifying the party that received the interest payment which is the subject of the claim; and, (H) if the claim is made against the broker, dealer or municipal securities dealer that previously delivered the security on which the claim is based, or the broker, dealer or municipal securities dealer that received such security, the delivery date or settlement date of the transaction. BACKGROUND  The rule covers the following matters: (1) establishment of uniform settlement dates for transactions in municipal securities; (2) exchange and comparison of dealer confirmations; (3) procedures for resolving discrepancies in confirmations which result in unrecognized transactions; (4) establishment of uniform requirements for good delivery of municipal securities; (5) procedures for rejection and reclamation of municipal securities; (6) close-out procedures for transactions in municipal securities; and (7) the time periods within which good faith deposits must be returned, syndicate accounts settled, and credits from designated orders distributed. Except for the provisions relating to dealer confirmations, the return of good faith deposits, the settlement of syndicate accounts, and the distribution of credits from designated orders, the requirements of rule G-12 may be altered by agreement between the parties. Several provisions of rule G-12 are designed to facilitate transactions in municipal securities and to make clear that procedures which may result in increased efficiency in processing municipal securities transactions are encouraged by the Board. In this regard, the rule requires municipal securities brokers and municipal securities dealers to include CUSIP numbers, if assigned, on inter-dealer confirmations and delivery tickets, as a means of uniform identification of the securities involved. In order to minimize the impact of this requirement on municipal securities dealers who process transactions on a manual basis, the Board has delayed the requirement to use CUSIP numbers until January 1, 1979. The Board also is considering making available to members of the municipal securities industry a service by which such members can readily obtain without charge information with regard to specific CUSIP numbers upon request to the Board’s office. Rule G-12 specifies the content of certain notices used in connection with the processing and clearance of municipal securities transactions but the rule does not require the use of specific forms. However, uniform forms currently in general use in the securities industry may be used to comply with the rule. Although the Board believes it may be burdensome to many municipal securities professionals for the Board to mandate the use of specific forms, the Board encourages the use of uniform forms to promote efficiencies in processing municipal securities transactions. NOTE: A Manual on Close-Out Procedures, explaining the close–out procedures of rule G-12(h) in detail, and including suggested forms for the various close–out notices, is available from the Board’s office, telephone (703) 797-6600. MSRB INTERPRETATIONS  The calendar set forth below is divided into the following sections: I. CONFIRMATIONS, COMPARISON AND VERIFICATION (rule G-12(d)) II. RECLAMATIONS (rule G-12(g)) III. CLOSE-OUT BY PURCHASING DEALERS (rule G12(h)) The following abbreviations are used in the calendar: “D” means delivery date. “R” means receipt of confirmation or other notice. “S” means settlement date. “T” means trade date. Numerical references are to number of business days. NOTICE CONCERNING CALENDAR OF PROCEDURES UNDER RULE G-12 ON UNIFORM PRACTICE Revised: October 1981 For the convenience of municipal securities brokers and municipal securities dealers, this notice sets forth a calendar for certain procedures under Board rule G-12 on uniform practice. Rule G-12 covers such matters as uniform settlement dates, interdealer confirmations, procedures for resolving unrecognized transactions, procedures for reclamations, close-out procedures, and the time periods within which good faith deposits must be returned and syndicate accounts settled. Rule G-12 applies only to transactions between brokers, dealers and municipal securities dealers, and not to transactions with customers. Confirmation of transactions with customers is the subject of Board rule G-15. 79 Rule
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 I. CONFIRMATIONS, COMPARISON AND VERIFICATION Date by Which Action Must be Taken Action to be Taken by Purchasing Dealer1 Action to be Taken by Selling Dealer1 T+1 Send dealer confirmation. Send dealer confirmation. R Compare confirmation from selling dealer to determine whether discrepancies in trade information exist. If discrepancies discovered, communicate promptly with selling dealer and seek to resolve. Compare confirmation from purchasing dealer to determine whether discrepancies in trade information exist. If discrepancies discovered, communicate promptly with selling dealer and seek to resolve. Resolution of discrepancies + 1 Send corrected confirmation, if purchasing dealer is party in error. Send corrected confirmation, if selling dealer is party in error. S If no discrepancies, transaction settles. May accept delivery even though discrepancies not resolved. If no discrepancies, transactions settles. S+1 If delivery has been accepted even though discrepancies not resolved, send corrected confirmation. If delivery has been accepted even though discrepancies not resolved, send corrected confirmation . The following procedures (A and B) apply in the event one of the parties to a trade does not send a confirmation, or discrepancies in trade information cannot be resolved.2 Procedure
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G‐12(d)(ii))  Date by Which Action Must be Taken T+1 Action to be Taken by Confirming Dealer Action to be Taken by Non-Confirming Dealer Send dealer confirmation. R (receipt of confirmation) Promptly attempt to determine whether trade occurred. Immediately notify confirming dealer by telephone of results of determination. R+1 Send confirmation or nonrecognition (DK) notice. R (receipt of non-recognition (DK) notice) Promptly upon receipt of nonrecognition (DK) notice, attempt to verify whether trade occurred. If trade did not occur, send cancellation notice. R+2 If after verification, confirming dealer believes that trade did occur, but material differences with non-confirming dealer cannot be resolved, confirming dealer may send cancellation notice on or after this date. Procedure
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G–12(d)(iii)) Date by Which Action Must be Taken Action to be Taken by Confirming Dealer Action to be Taken by Non-Confirming Dealer T+4 In event of failure to receive confirmation or nonrecognition (DK) notice, promptly verify whether trade occurred and immediately notify non-confirming dealer by telephone. Promptly upon receipt of telephone notice from confirming dealer, seek to determine whether trade occurred. Immediately notify confirming dealer by telephone of results of determination. Such notification may be made on T+5 if determination cannot be made before then. T+5 Send written notice of failure to confirm. Send written confirmation or nonrecognition (DK) notice. T+6 If material differences with non-confirming dealer cannot be resolved, or non-confirming dealer does not respond to telephone notice of failure to confirm, confirming dealer may send cancellation notice on or after this date. Rule
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 II. RECLAMATIONS Date by Which Action Must be Taken D+1 Reasons for Action — Improper coupon or interest check in lieu of coupon missing — Certificate or coupon mutilated — Legal opinion or other legal documentation missing R (receipt of notice of dishonor) + 3 — Interest check not honored D + 18 months — Irregularity in delivery (e.g., wrong securities delivered, duplicate delivery, etc.) — Refusal to transfer or deregister because of lack of required documentation — Misdescription of securities (misstatement of information, omission of required information) No time limit — Missing, stolen, fraudulent or counterfeit securities — Called certificate delivered, but not specified at time of trade III. CLOSE-OUT BY PURCHASING DEALER Date by Which Action Must be Taken Action to be Taken by Purchasing Dealer S+5 May give close-out notice on or after this date. Notice must be by telephone and confirmed in writing within one business day. Notice must specify delivery deadline date, execution date(s). Deliver deadline cannot be earlier than tenth business day following date notice was give (S + 15). Telephone notice + 1 Action to be Taken by Selling Dealer If selling dealer intends to retransmit to a dealer failing to deliver to it the securities which are the subject of the close-out, the selling dealer must do so by telephone on this date. If the selling dealer does retransmit, this extends the delivery deadline and execution date(s) by five business days. Selling dealer must send written notice of retransmittal, and written notice of the extension of dates, within one business day. Telephone notice + 10 Earliest day which can be specified as delivery deadline (if no retransmittals). Telephone notice + 11-15 Earliest day(s) which can be specified as execution date(s) (if no retransmittals). S + 90 Last day on which purchasing dealer can initiate a close-out. NOTE: A Manual on Close-Out Procedures, explaining the close-out procedures of rule G-12(h) in detail, and including suggested forms for the various close-out notices, is available from the Board’s office, telephone (703) 797-6600.   1 For ease of reference, the term “dealer” refers to brokers, dealers and municipal securities dealers. 2 The procedures set forth in (B) need not be followed if the procedures in (A) have been used. Similarly, the procedures in (A) need not be followed, if the procedures in (B) have been used. 81 Rule
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 NOTICE CONCERNING “IMMEDIATE” CLOSE-OUTS August 19, 1981 The Municipal Securities Rulemaking Board has recently received inquiries concerning the provisions of rule G-12(h)(iii) regarding close-out procedures in the event of a firm’s liquidation. The Board has been advised that a SIPC trustee has been appointed in connection with the liquidation of a general securities firm with which certain municipal securities brokers and dealers have uncompleted transactions in municipal securities, and that the New York Stock Exchange and the National Association of Securities Dealers, Inc., have notified their respective members that they may institute “immediate” close-out procedures on open transactions with the firm in liquidation. In accordance with a previous understanding between the Board and the NASD, the NASD has also advised municipal securities brokers and dealers that, pursuant to rule G-12(h)(iii), they may execute “immediate” close-outs on open transactions in municipal securities. Rule G-12(h)(iii) provides: Nothing herein contained shall be construed to prevent brokers, dealers or municipal securities dealers from closing out transactions as directed by a ruling of a national securities exchange, a registered securities by a ruling of a national securities exchange, a registered securities association or an appropriate regulatory agency issued in connection with the liquidation of a broker, dealer or municipal securities dealer. Therefore, in the event that a national securities exchange or registered securities association makes a ruling that close-outs may be effected “immediately” on transactions with a firm in liquidation, municipal securities brokers and dealers may take such action. In these circumstances, a purchasing dealer seeking to execute such a close-out need not follow the procedures for initiation of a closeout procedure, nor is the dealer required to wait the prescribed time periods prior to executing the close-out notice. Similarly, a selling dealer need not attempt delivery prior to using the procedure for close-outs by sellers. In both cases dealers may proceed to execute the close-out immediately—that is, the purchasing dealer may immediately “buy in” the securities in question for the account and liability of the firm in liquidation (or utilize one of the other options available for execution of the close-out), and a selling dealer may immediately “sell out” the subject securities. Notification of the execution of the close-out should be provided in accordance with the normal procedure. Dealers executing close-outs in these circumstances should advise the trustee of the firm in liquidation of their actions in closing out these transactions. If proceeds from the close-out execution are due to the firm in liquidation, they should be remitted to the trustee. Requests for payment of amounts due on close-out executions should also be sent to the trustee; the trustee will resolve these claims in the course of the liquidation. The Board also notes that dealers having open transactions with a firm in liquidation may, but are not required to, execute “immediate” close-outs in these circumstances. If individual dealers wish to attempt some other means of completing these transac- Rule
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 tions, such as seeking to complete a transaction with the liquidated firm’s other contra-side, they may do so. APPLICATION OF THE BOARD’S RULES TO TRADES IN MISDESCRIBED OR NON-EXISTENT SECURITIES January 12, 1984 From time to time, industry members have asked the Board for guidance in situations in which municipal securities dealers have traded securities which either are different from those described (“misdescribed”) or do not exist as described (“nonexistent”) and the parties involved were unaware of this fact at the time of trade. A sale of a misdescribed security may occur, for example, when a minor characteristic of the issue is misstated. A sale of a non-existent security may result, for example, from the sale of a “when, as and if issued” security which is never authorized or issued. The Board has responded to these inquiries by advising that its rules do not address the resolution of any underlying contractual dispute arising from trades in such misdescribed or nonexistent securities, and that the parties involved in the trade should work out an appropriate resolution. Board rule G-12(g) does permit reclamation of an inter-dealer delivery in certain instances in which information required to be included on a confirmation by rule G-12(c)(v)(E)1 is omitted or erroneously noted on the confirmation or where other material information is erroneously noted on the confirmation. Rule G-12(g)(v) and (vi), however, make clear that a reclamation only reverses the act of delivery and reinstates the open contract on the terms and conditions of the original contract, requiring the parties to work out an appropriate resolution of the transaction. The Board wishes to emphasize that general principles of fair dealing would seem to require that a seller of non-existent or misdescribed securities make particular effort to reach an agreement on some disposition of the open trade with the purchaser. The Board believes that this obligation arises since it is usually the seller’s responsibility to determine the status of the municipal securities it is offering for sale. The extent to which the seller bears this responsibility, of course, may vary, depending on the facts of a trade. The Board notes that the status of the underlying contract claim for trades in non-existent or misdescribed securities ultimately is a matter of state law, and each fact situation must be dealt with under applicable state law, and each fact situation must be dealt with under applicable contract principles. The Board believes that the position set forth above is consistent with general contract principles, which commonly hold that a seller is responsible to the purchaser in most instances for failing to deliver goods as identified in the contract, or for negligently contracting for goods which do not exist if the purchaser relied in good faith on the seller’s representation that the goods existed. Parties to trades in misdescribed or non-existent securities should attempt to work out an appropriate resolution of the contractual agreement. If no agreement is reached, the Board’s closeout and arbitration procedures may be available. 82

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 1 failure to provide this information may result in, at minimum, a refusal on the part of the receiving party to honor the reclamation. 
 Rule G-12(c)(v)(E) requires that confirmations contain a description of the securities, including at a minimum the name of the issuer, interest rate, maturity date, and if the securities are limited tax, subject to redemption prior to maturity (callable), or revenue bonds, an indication to such effect, including in the case of revenue bonds the type of revenue, if necessary for a materially complete description of the securities and in the case of any securities, if necessary for a materially complete description of the securities, the name of any company or other person in addition to the issuer obligated, directly or indirectly, with respect to debt service or, if there is more than one such obligor, the statement “multiple obligors” may be shown. NOTICE OF INTERPRETATION OF RULES G-12(E) AND G-15(C) ON DELIVERIES OF CALLED SECURITIES— DEFINITION OF “PUBLICATION DATE” October 20, 1986 Rules G-12(e)(x) and G-15(c)(viii) on deliveries of called securities provide that a certificate for which a notice of partial call has been published does not constitute good delivery unless it was identified as called at the time of trade. The rules also provide that, if a notice of call affecting an entire issue has been published on or prior to the trade date, called securities do not constitute good delivery unless identified as such at the time of trade.1 Thus, a dealer, in some instances, must determine the date that a notice of call is published (the “publication date”) to determine whether delivery of a called certificate constitutes good delivery for a particular transaction. The Board has adopted the following interpretation of rules G-12(e)(x) and G-15(e)(viii) to assist the industry in determining the publication date of a notice of a call. The Board understands this interpretation to be consistent with the procedure currently being used by certain depositories in allocating the results of partial calls. In general, the publication date of a notice of call is the date of the edition of the publication in which the issuer, the issuer’s agent or the trustee publishes the notice. To qualify as a notice of call under the rules, a notice must contain the date of the early redemption, and, for partial calls, must contain information that specifically identifies the certificates being called. If a notice of call is published on more than one date, the earliest date of publication constitutes the publication date for purposes of the rules. If a notice of call for a registered security is not published, but is sent to registered owners, the publication date is the date shown on the notice. If no date is shown on the notice, the issuer, the trustee or the appropriate agent of the issuer should be contacted to determine the date of the notice of call. If a notice of call of a registered security is published and also is sent directly to registered owners, the publication date is the earlier of the actual publication date or the date shown on the notice sent to registered owners. For bearer securities, the first date of publication always constitutes the publication date, even if another date is shown on the notice. NOTICE CONCERNING DOCUMENTATION ON REJECTION AND RECLAMATION OF DELIVERIES March 5, 1982 The Municipal Securities Rulemaking Board has recently received complaints from certain municipal securities brokers and municipal securities dealers concerning problems with the documentation provided on rejections or reclamations of deliveries on municipal securities transactions. These brokers and dealers have alleged that other organizations, when rejecting or reclaiming deliveries, have failed to provide the requisite information regarding the return of the securities, thereby making it very difficult to accomplish prompt resolution of any delivery problems. In particular, these dealers indicate, notices of rejection or reclamation have often failed to state a reason for the rejection or reclamation, or to name a person who can be contacted regarding the delivery problem. Rule G-12(g)(iv) requires that a dealer rejecting or reclaiming a delivery of securities must provide a notice or other document with the rejected or reclaimed securities, which notice shall include the following information: (A) the name of the party rejecting or reclaiming the securities; (B) the name of the party to whom the securities are being rejected or reclaimed; (C) a description of the securities; (D) the date the securities were delivered; (E) the date of rejection or reclamation; (F) the par value of the securities which are being rejected or reclaimed; (G) in the case of a reclamation, the amount of money the securities are reclaimed for; (H) the reason for rejection or reclamation; and (I) the name and telephone number of the person to contact concerning the rejection or reclamation. The Uniform Reclamation Form may be used for this purpose. The Board believes that the required information is the minimum necessary to permit prompt resolution of the problem, and does not view the requirement to provide this information as burdensome. The Board is concerned that failure to provide this information may contribute to inefficiencies in the clearance process, and strongly urges municipal securities brokers and dealers to take steps to ensure that the requirements of the rule are complied with. The Board notes that, in the case of reclaimed securities, 1 
 An inter-dealer delivery that does not meet these requirements may be rejected or reclaimed under rule G-12(g). NOTICE ON DETERMINING WHETHER TRANSACTIONS ARE INTER-DEALER OR CUSTOMER TRANSACTIONS: RULES G-12 AND G-15 May 1988 In December 1984, the Board published a notice providing guidance to dealers in determining whether certain transactions are inter-dealer or customer transactions for purposes of Board rules. Since the publication of this notice, the Board has continued to receive reports that inter-dealer transactions sometimes are 83 Rule
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 erroneously submitted to automated confirmation/affirmation systems for customer transactions. This practice reduces the efficiencies of automated clearance since these transactions fail to compare in the initial comparison cycle. The Board is republishing the notice to remind dealers of the need to submit interdealer and customer transactions to the correct automated clearance systems. The Board recently has been advised that some members of the municipal securities industry are experiencing difficulties in determining the proper classification of a contra-party as a dealer or customer for purposes of automated comparison and confirmation. In particular, questions have arisen about the status of banks purchasing for their trust departments and dealers buying securities to be deposited in accumulation accounts for unit investment trusts. Because a misclassification of a contra-party can cause significant difficulty to persons seeking to comply with the automated clearance requirements of rules G-12, and G-15, the Board believes that guidance concerning the appropriate classification of contra-parties in certain transactions would be helpful to the municipal securities industry. Background Rule G-12(f)(i) requires dealers to submit an inter-dealer transaction for automated comparison if the transaction is eligible for automated comparison …. Rule G-15(d)(ii) requires dealers to use an automated confirmation/affirmation service for delivery versus payment or receipt versus payment (DVP/RVP) customer transactions if the [transactions are eligible for automated confirmation and acknowledgement]. The systems available for the automated comparison of inter-dealer transactions and automated confirmation/affirmation of customer transactions are separate and distinct. As a result, misclassification of a contra-party may frustrate efficient use of the systems. For example, a selling dealer in an inter-dealer transaction may misclassify the contra-party as a customer, and submit the trade for confirmation/affirmation through the automated system for customer transactions while the purchaser (correctly considering itself to be a dealer) seeks to compare the transaction through the inter-dealer comparison system. Since, the automated systems for inter-dealer and customer transactions are entirely separate, the transaction will not be successfully compared or acknowledged through either automated system. Transactions Effected by Banks The Board has received certain questions about the proper classification of contra-parties in the context of transactions effected by banks. A bank may be the purchaser or seller of municipal securities either as a dealer or as a customer. For example, a dealer may sell municipal securities to a bank’s trust department for various trust accounts. Such purchases by a bank in a fiduciary capacity would not constitute “municipal securities dealer activities” under the Board’s rules1 and are properly classified and confirmed as customer transactions. A second type of transaction by a bank is the purchase or sale of securities for the dealer trading account of a dealer bank. The bank in this instance clearly is acting in its capacity as a municipal securities dealer and the transaction should be compared as an inter-dealer transaction. Rule
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 A dealer effecting a transaction with a dealer bank may not know whether the bank is acting in its capacity as a dealer or as a customer. The Board is of the view that, in such a case, the dealer should ascertain the appropriate classification of the bank at the time of trade to ensure that the transaction can be compared or confirmed appropriately. The Board anticipates that dealer banks will assist in this process by informing contra-parties whether the bank is acting as a dealer or customer in transactions in which the bank’s role may be unclear to the contra-party. Transactions by Dealer Purchasing Municipal Securities for UIT Accumulation Accounts The Board has also received several inquiries concerning the appropriate classification of a dealer who purchases municipal securities to be deposited into an accumulation account for ultimate transfer to a unit investment trust (UIT). The dealer buying securities for a UIT accumulation account may purchase and hold the securities over a period of several days before depositing them with the trustee of the UIT in exchange for all of the units of the trust; during this time the dealer is exposed to potential market risk on these securities positions. The subsequent deposit of the securities with the trustee of the UIT in exchange for the units of the trust may be viewed as a separate, customer transaction between the dealer buying the accumulation account and the trust. The original purchase of the securities by the dealer for the account then must be considered an inter-dealer transaction since the dealer is purchasing for its own account ultimately to execute a customer transaction. The Board notes that the SEC has taken this approach in applying its net capital and customer protection rules to such transactions. The Board is of the view that, for purposes of its automated comparison requirements, transactions involving dealers purchasing for UIT accumulation accounts should be considered interdealer transactions. The Board also notes the distinction between this situation, in which a dealer purchases for ultimate transfer to a trust or fund, and situations where purchases or sales of municipal securities are made directly by the fund, as is the case with purchases or sales by some open-end mutual funds. These latter transactions should be considered as customer transactions and confirmed accordingly. Other Inter-Dealer Transactions In addition to questions on the status of a dealer bank and dealers purchasing for accumulation accounts, the Board has received information that a few large firms are sometimes subtracting trades with regional securities dealers into the customer confirmation system. The Board is aware that these firms may classify transactions with regional dealers or bank dealers as “customer” transactions for purposes of internal accounting and compensation systems. The Board reminds industry members that transactions with other municipal securities dealers will always be inter-dealer transactions and should be compared in the interdealer automated comparison system without regard to how the transactions are classified internally within a dealer’s accounting systems. The Board believes it is incumbent upon those firms who misclassify transactions in this fashion to promptly make the necessary alterations to their internal systems to ensure that this practice of misclassifying transactions is corrected. 84

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 1 sage was received. This acknowledgment is equivalent, under the rule, to signing for a letter received “return receipt requested.” If a deficient notice or a notice on an unrecognized transaction is received through the system, the receiving dealer must acknowledge the notice and call the sending dealer to resolve the problem.5 This should be an infrequent occurrence, since the written notices merely confirm previously made telephone calls. 
 Section 3(a)(30) of the Securities Exchange Act of 1934 defines a bank to be a municipal securities dealers if it “is engaged in the business of buying and selling municipal securities for its own account other than in a fiduciary capacity.” For purposes of the Board's rule G-1, defining a separately identifiable department or division of a bank dealer, the purchase and sale of municipal securities by a trust department would not be considered to be “municipal securities dealer activities.” NOTE: Revised to reflect subsequent amendments. NOTICE CONCERNING USE OF PEX SYSTEM FOR CLOSE-OUTS: RULE G-12 1 March 31, 1993 The Depository Trust Company (DTC) recently announced that, as of April 19, 1993, it will offer the use of its Participant Terminal System (PTS) for the transmittal of municipal securities close-out messages through the Participant Exchange Service (PEX) system. The Board has determined to permit dealers to use this system to send the written close-out notices, required under the Board’s close-out procedures, to dealers who are participating in the system. Under rule G-12(h), a dealer taking action in a close-out must provide telephonic notice to the appropriate party, followed no later than the next business day with a written notice.1 The rule, generally requires written notices to be sent “return receipt requested.”2 The Board previously has interpreted this provision to allow the use of certified mail, registered mail and messenger services that obtain acknowledgements of delivery from the recipient and make those acknowledgements accessible to the sender.3 The Board has concluded that the PEX system also will meet the purposes of the rule by providing efficient transmission of written close-out notices and acknowledgements of receipt to the senders. Based on a review of the preformatted PEX message screens for municipal securities close-out notices, the Board believes that, if completed correctly, these screens would meet the information requirements of rule G-12(h).4 DTC will publish a list of PEX participants in its “Eligible Municipal Securities” directory. A listed PEX participant (at its own option) may use the PEX system to send a written close-out notice in lieu of sending the notice by “return receipt requested” mail. A dealer listed as a PEX participant is required to accept a notice sent through the system and may not demand a notice in paper form. A dealer that transmits a written notice to a recipient via the PEX system thereafter must use the PEX system for all written notices required to be sent to that recipient on that closeout. These steps will help to ensure that close-out messages sent through the PEX system are properly monitored and acknowledged by dealers participating in the program. The Board emphasizes that rule G-12(h) will continue to govern all aspects of the municipal securities close-outs on which the PEX system is used. In particular, the Board reminds dealers that the telephonic notices required under rule G-12(h) must continue to be used and that any questions about a closeout should be resolved at that time and not delayed until the sending of the written notice. A dealer receiving a municipal securities close-out notice via the PEX system must acknowledge it through the system, providing the sending dealer with confirmation that the mes- 2 3 4 5 
 Telephone and written notices are required when dealers (i) originate a close-out; (ii) retransmit a close-out; (iii) extend delivery dates; and (iv) execute a close-out. The Board’s Manual on Close-Out Procedures contains a detailed explanation of the procedures required by rule G-12(h). There is one exception to the general rule requiring notices to be sent “return receipt requested.” After a notice of close-out has been retransmitted once, copies of second and subsequent retransmittals of the notice must be sent to the originator. Rule G-12(h) does not require these to be sent “return receipt requested.” MSRB Manual on Close-Out Procedures, Question and Answer 16, on page 8. The PEX screens for municipal securities close-outs do not require dealers to include the addresses of the parties to the close-out, as does rule G-12(h). The Board has concluded that this information is not necessary on PEX notices because the system will be limited to DTC members, who will use DTC identification numbers. This is identical to the procedure used for receipt of a written notice by “return receipt requested” mail. Under rule G-12(h), a dealer may not refuse to accept a written notice of close-out. MSRB Manual on Close-Out Procedures, Question and Answer 25, on page 11. The failure of a dealer to acknowledge a close-out notice actually received through the PEX system would be tantamount to a refusal to accept a notice. USE OF FACSIMILE TRANSMISSIONS FOR CLOSE-OUTS: RULE G-12(h) December 20, 1996 Rule G-12(h) on close-outs requires that a dealer taking action in a close-out must provide telephonic notice to the appropriate party, followed no later than the next business day with a written notice.1 The rule further requires that written notices be sent “return receipt requested.” The Board previously has interpreted this provision to allow the use of certified mail, registered mail, messenger mail, messenger services, and Depository Trust Company’s Participant Exchange Service (PEX) system. Use of these procedures allows the sender to obtain acknowledgement of delivery of the notice from the recipient. Dealers have asked whether the use of a facsimile transmission would satisfy the requirement in the rule that written notices be sent “return receipt requested.” The Board has determined that the requirements of the rule would be satisfied by the facsimile transmission of written notices as long as the facsimile transmission provides the sender with an acknowledgment of successful delivery of the notice. The Board emphasizes that, prior to the sending of written notices, dealers are required to notify the appropriate parties by telephone of their intention to take action under Board rule G-12(h) on close-outs. 1 85 
 Telephone and written notices are required when dealers (i) originate a close-out; (ii) retransmit a close-out; (iii) extend delivery dates; and (iv) execute a close-out. The Board’s Manual on Close-Out Procedures contains a detailed explanation of the procedures required by rule G-12(h). Rule
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 LOCKED-IN TRANSACTIONS March 1, 2001 The Securities and Exchange Commission has approved the National Securities Clearing Corporation’s (“NSCC”) proposed rule change (SR-NSCC-00-13) regarding the submission of trade data for comparison of fixed income inter-dealer transactions.1 NSCC proposes to offer its members the ability to submit their fixed income transaction information “locked-in” through Qualified Special Representatives (“QSR”) for trades executed via an Alternative Trading System (“ATS”). Locked-in QSR trade data submission currently is only available for transactions in equity securities. The Municipal Securities Rulemaking Board (“MSRB”) is publishing this notice to clarify the requirements of MSRB rules G-12(f) and G-14 as they pertain to the submission of locked-in transactions. To accomplish a locked-in QSR submission, NSCC members on each side of a trade must have executed, or clear for a firm that executed, their trade through an ATS and previously authorized a specific NSCC-authorized QSR to submit locked-in trades to NSCC on their behalf. The locked-in transaction records are not compared in the traditional manner through the two-sided NSCC comparison process. Instead, the QSR itself takes responsibility to ensure that the trade data is correct and the parties have agreed to the trade according to the stated terms. Once NSCC receives a locked-in trade, it treats it as compared so that the transaction can proceed to netting or other automated settlement procedures. MSRB rule G-12(f) on inter-dealer comparison and rule G14 on Transaction Reporting Procedures each refer to the NSCC comparison process for inter-dealer transactions in municipal securities. These rules require dealers to submit their inter-dealer trade data to NSCC for purposes of comparison and for forwarding to the MSRB for trade-reporting purposes. Questions may arise as to whether the submission of trade data already locked-in by a QSR complies with these rules. NSCC’s proposal requires that a QSR must obtain authorization to submit locked-in transactions both from NSCC as well as from the NSCC members who wish to use the QSR for lockedin trade submission. Given this fact, and the fact that both rules G-12(f) and G-14 specifically contemplate the use of intermediaries in submitting data to NSCC and to the MSRB, locked-in trades submitted under NSCC’s program will comply both with rule G-12(f) and rule G-14. 1 
 See Securities Exchange Act Release No. 43949 (Feb. 9, 2001), 66 FR 10765 (Feb. 16, 2001) INTERPRETATION ON THE APPLICATION OF RULES G-8, G12 AND G-14 TO SPECIFIC ELECTRONIC TRADING SYSTEMS March 26, 2001 The Municipal Securities Rulemaking Board (the “MSRB”) understands that, over time, the advent of new trading systems will present novel situations in applying MSRB uniform practice rules. The MSRB is prepared to provide interpretative guidance in these situations as they arise, and, if necessary, implement formal Rule
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 rule interpretations or rule changes to provide clarity or prevent unintended results in novel situations. The MSRB has been asked to provide guidance on the application of certain of its rules to transactions effected on a proposed electronic trading system with features similar to those described below. Description of System The system is an electronic trading system offering a variety of trading services and operated by an entity registered as a dealer under the Securities Exchange Act of 1934. The system is qualified as an alternative trading system under Regulation ATS. Trading in the system is limited to brokers, dealers and municipal securities dealers (“dealers”). Purchase and sale contracts are created in the system through various types of electronic communications via the system, including acceptance of priced offers, a bid-wanted process, and through negotiation by system participants with each other. System rules govern how the bid/offer process is conducted and otherwise govern how contracts are formed between buyers and sellers. Participants are, or may be, anonymous during the bid/offer/negotiation process. After a sales contract is formed, the system immediately sends an electronic communication to the buyer and seller, noting the transaction details as well as the identity of the contra-party. The transaction is then sent by the buyer and seller to a registered securities clearing agency for comparison and is settled without involvement of the system operator. The system operator does not take a position in the securities traded on the system, even for clearance purposes. Dealers trading on the system are required by system rules to clear and settle transactions directly with each other even though the parties do not know each other at the time the sale contract is formed. If a dealer using the system does not wish to do business with another specific contra-party using the system, it may direct the system operator to adjust the system so that contracts with that contraparty cannot be formed through the system. Application of Certain Uniform Practice Rules to System It appears to the MSRB that the dealer operating the system is effecting agency transactions for dealer clients.1 The system operator does not have a role in clearing the transactions and is not taking principal positions in the securities being traded. However, the system operator is participating in the transactions at key points by providing anonymity to buyers and sellers during the formation of contracts and by setting system rules for the formation of contracts. Consequently, all MSRB rules generally applicable to inter-dealer transactions would apply except to the extent that such rules explicitly, or by context, are limited to principal transactions. Automated Comparison One issue raised by the description of the system above is the planned method of clearance and settlement. Rule G12(f)(i) requires that inter-dealer transactions be compared in an automated comparison system operated by a clearing corporation registered with the Securities and Exchange Commission. The purpose of rule G-12(f)(i) is to facilitate clearance and settlement of inter-dealer transactions. In this case, the system operator: (i) electronically communicates the 86

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 transaction details to the buyer and seller; (ii) requires the buyer and seller to compare the transaction directly with each other in a registered securities clearing corporation; and (iii) is not otherwise involved in clearing or settling the transaction. The MSRB believes that under these circumstances, it is unnecessary for the system operator to obtain a separate comparison of its agency transactions with the buyer and seller. Although automated comparison is not required between the system operator and the buyer and seller, the transaction details sent to each party by the system must conform to the information requirements for inter-dealer confirmations contained in rule G-12(c). Since system participants implicitly agree to receive this information in electronic form by participating in the system, a paper confirmation is not necessary. Also, the system operator may have an agreement with its participants that participants are not required to confirm the transactions back to the system operator, which normally would be required by rule G-12(c). The system operator, which is subject to Regulation ATS, will be governed by the recordkeeping requirements of Regulation ATS for purposes of transaction records, including municipal securities transactions. However, the system operator also must comply with any applicable recordkeeping requirements in rule G-8(f), which relate to records specific to effecting municipal securities transactions. With respect to recordkeeping by dealers using the system, the specific procedures associated with this system require that transactions be recorded as principal transactions directly between buyer and seller, with notations of the fact that the transactions were effected through the system. Transaction Reporting Rule G-14 requires inter-dealer transactions to be reported to the MSRB for the purposes of price transparency, market surveillance and fee assessment. The mechanism for reporting inter-dealer transactions is through National Securities Clearing Corporation (“NSCC”). In the system described above, the buyer and seller clear and settle transactions directly as principals with each other, and without the involvement of the dealer operating the system. The buyer and seller therefore will report transactions directly to NSCC. No transaction or pricing information will be lost if the system operator does not report the transaction. Consequently, it is not necessary for the system operator separately to report the transactions to the MSRB. 1 NOTICE ON REPORTING AND COMPARISON OF CERTAIN TRANSACTIONS EFFECTED BY INVESTMENT ADVISORS: RULES G-12(f) AND G-14 May 23, 2003 In recent months, the MSRB has received a number of questions relating to certain kinds of transactions in which independent investment advisors instruct selling dealers to make deliveries to other dealers. This notice addresses questions that have been raised relating to Rule G-12(f)(i), on automated comparison, and Rule G-14, on transaction reporting. It describes existing requirements that follow from the language of the rules and does not set forth any new policies or procedures. An independent investment advisor purchasing securities from one dealer sometimes instructs that dealer to make delivery of the securities to other dealers where the investment advisor's clients have accounts. The identities of individual account holders typically are not given.1 The dealers receiving the deliveries in these cases generally are providing “wrap fee” or similar types of accounts that allow investors to use independent investment advisors to manage their municipal securities portfolios. In these kinds of arrangements, the investment advisor chosen by the account holder may be picked from a list of advisors approved by the dealer; however, dealers offering these accounts have indicated that the investment advisor acts independently in effecting transactions for the client's municipal securities portfolio. The following example illustrates the situation. An Investment Advisor purchases a $1 million block of municipal bonds from the Selling Dealer and instructs the Selling Dealer to deliver $300,000 of the bonds to Dealer X and $700,000 to Dealer Y. The Investment Advisor does not give the Selling Dealer the individual client accounts at Dealer X and Dealer Y to which the bonds will be allocated and there is no contact between the Selling Dealer and Dealers X and Y at the time of trade. The Investment Advisor, however, later informs Dealer X and Dealer Y to expect the delivery from the Selling Dealer, and gives the identity and quantity of securities that will be delivered, the final monies, and the individual account allocations. For example, the Investment Advisor may instruct Dealer X to allocate its $300,000 delivery by placing $100,000 in John Doe's account and $200,000 in Mary Smith's account. With respect to transaction reporting requirements in this situation, the Selling Dealer should report a $1 million sale to a customer. No other dealer should report a transaction. The comparison system should not be used for the inter-dealer transfers between the Selling Dealer and Dealers X and Y because this would cause them to be reported as inter-dealer trades. Frequently Asked Questions One frequently asked question in the context of the above example is whether the transfers of the $300,000 and $700,000 blocks by the Selling Dealer to Dealer X and Dealer Y should be reported as inter-dealer transactions. Another question is whether these transfers may be accomplished by submitting them to the automated comparison system for inter-dealer transactions. Based on the information that has been provided to the MSRB, these transfers do not appear to represent inter-dealer trades and thus This situation can be contrasted with the typical broker’s broker operation in which the broker’s broker effects riskless principal transactions for dealer clients. The nature of the transactions as either agency or principal is governed for purposes of MSRB rules by whether a principal position is taken with respect to the security. “Riskless principal” transactions in this context are considered to be principal transactions in which a dealer has a firm order on one side at the time it executes a matching transaction on the contraside. For purposes of the uniform practice rules, the MSRB considers broker’s broker transactions to be riskless principal transactions even though the broker’s broker may be acting for one party and may have agency or fiduciary obligations toward that party. 87 Rule
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 should not be reported under Rule G-14 or compared under Rule G-12(f)(i) using the current central comparison system. One reason for the conclusion that no inter-dealer trade exists is that municipal securities professionals for firms in the roles of Dealer X and Y have stated that the Investment Advisor is acting independently and is not acting as their agent when effecting the trade with the Selling Dealer. In support of this assertion, they note that they often are not informed of the transaction or the deliveries that they should expect until well after the trade has been effected by the Investment Advisor. They also note that the actions of the Investment Advisor are not subject to their control or supervision. Thus, the $300,000 and $700,000 inter-dealer transfers in the above example appear to be simply deliveries made in accordance with a contract made by, and the instructions given by, the Investment Advisor. The inter-dealer transfers thus do not constitute inter-dealer transactions. Because Rule G-14 transaction reporting of inter-dealer trades is accomplished through the central comparison system, any dealer submitting the $300,000 and $700,000 inter-dealer transfers to the comparison system is in effect reporting interdealer transactions that did not occur. In addition, this practice tends to drive down comparison rates and the overall performance of dealers in the automated comparison system. As noted above, the trading desks of Dealer X and Dealer Y generally do not know about the Investment Advisor's transaction at the time of trade. They consequently cannot submit comparison information to the system unless the Investment Advisor provides them with the trade details in a timely, accurate and complete manner. Since the Investment Advisor is acting independently and is not supervised by municipal securities professionals at Dealer X and Dealer Y, there is no means for the municipal securities professionals at Dealer X and Dealer Y to ensure that this happens. Questions also have been received on whether the individual allocations to investor accounts (e.g., the $100,000 and $200,000 allocations to the accounts of John Doe and Mary Smith in the example above) should be reported under Rule G-14 as customer transactions. Even though the dealer housing these accounts obviously has important obligations to the investor with respect to receiving deliveries, paying the Selling Dealer for the securities, and processing the allocations under the instructions of the Investment Advisor, it does not appear that the dealer entered into a purchase or sale contract with the investor and thus nothing is reportable under Rule G-14. This conclusion again is based upon statements by dealers providing the “wrap fee” and similar accounts, who indicate that the investment advisor acts independently and not as the dealer's agent when it effects the original block transaction and when it makes allocation decisions. For purposes of price transparency, the only transaction to be reported in the above example is a single $1 million sale to a customer. This is appropriate because the only market price to be reported is the one set between the Selling Dealer and the Investment Advisor for the $1 million block of securities. It is appropriate that the $300,000 and $700,000 inter-dealer transfers, and the $100,000 or $200,000 investor allocations are not disseminated as transactions since they would have to be reported using the price for the $1 million block. This could be misleading in that market Rule
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 prices for $1 million round lots are often different than market prices for smaller transaction sizes. 
 1 It should be noted that in this situation, the investment advisor itself is the customer and must be treated as such for recordkeeping and other regulatory purposes. For discussion of a similar situation, see “Interpretive Notice on Recordkeeping” dated July 29, 1977. TRANSACTION REPORTING OF MULTIPLE TRANSACTIONS BETWEEN DEALERS IN THE SAME ISSUE: RULES G-12 (f) AND G-14 November 24, 2003 The MSRB has become aware of problems in transaction reporting as a result of dealers “bunching” certain inter-dealer transactions in the comparison system. Recently, some dealers have reported the sum of two trades as one transaction in instances when two dealers effected two trades with each other in the same issue and at the same price. When two transactions are effected, two transactions should be reflected in each dealer's books and records and two transactions are required to be reported to the MSRB. The time of trade for each transaction also must accurately reflect the time at which a contractual commitment was formed for each quantity of securities. For example, if Dealer A purchases $50,000 of a municipal issue at a price of par from Dealer B at 11:00 am and then purchases an additional $50,000 at par from Dealer B at 2:00 pm, two transactions are required to be reflected on each dealers' books and records and two transactions are required to be reported to the MSRB. Since the same inter-dealer trade record submitted for automated comparison under Rule G-12(f) also is used to satisfy the requirements of Rule G-14, on transaction reporting, each interdealer transaction should be submitted for automated comparison separately in order to comply with Rule G-14's requirement to report all transactions. Failure to do so causes erroneous information concerning transaction size and time of trade to appear in the transparency reports published by the MSRB as well as in the audit trail used by regulators and enforcement agencies. To the extent that dealers use the records generated by the comparison system for purposes of complying with MSRB Rule G-8, on recordkeeping, it may also create erroneous information as to the size of transactions effected or time of trade execution. NOTICE ON CERTAIN INTER-DEALER TRANSFERS OF MUNICIPAL SECURITIES: RULES G-12(f)AND G-14 June 4, 2004 The MSRB has received questions about whether certain transfers of municipal securities between dealers to move securities between safekeeping locations are required to be reported to the MSRB Transaction Reporting System under Rule G-14, on transaction reporting. When a transfer of municipal securities does not represent a purchase-sale transaction and is not required to be recorded on a dealer's books and records under MSRB Rule G-8 or SEC Rule 17a-3, such transfers should not be reported under Rule G-14 and a transaction report must not be sent to the MSRB. 88

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 One scenario that has been brought to the MSRB's attention is when a dealer (“Dealer A”) that self-clears inter-dealer transactions contracts with another dealer (“Dealer B”) for the safekeeping and maintenance of customer accounts. As part of this process, Dealer A transfers securities sold to customers to Dealer B for safekeeping. The transfer of securities from Dealer A to Dealer B in this example is not an inter-dealer purchase-sale transaction and must not be reported to the MSRB as such. However, Dealer A and Dealer B may wish to utilize the comparison and netting facilities of a registered clearing agency to effect the delivery of securities. In March 2004, the MSRB published a notice addressing the processing of certain inter-dealer transfers of securities that do not represent inter-dealer purchase-sale transactions through the automated comparison facilities of National Securities Clearing Corporation (NSCC).1 Since data sent to NSCC for comparison of an inter-dealer purchase-sale transaction also is sent to the MSRB for transaction reporting purposes, the March 2004 notice described use of the “B” indicator for identifying such data submissions relating to transfers of securities so that they are not confused with transaction reports between dealers that represent trades made through the comparison system. Dealers should refer to the March 2004 notice if they chose to use the facilities of NSCC for such transfers to ensure that erroneous inter-dealer transaction reports are not sent to the MSRB Transaction Reporting System.2 1 2 group members, NSCC procedures call for the use of a special “syndicate” submission, which does not require a submission by the contra-side for comparison to occur.1 Transactions between syndicate managers and dealers that are not members of the syndicate or selling group are not “syndicate transactions” under NSCC's rules and procedures and both the selling and purchasing dealers are required to report its side to the transaction for automated comparison. Various problems arise in the comparison process if the parties to a trade do not follow the correct procedures for comparison of the trade. Moreover, since the trade report submitted for comparison also serves as the transaction report to the MSRB, identifying a transaction as a “syndicate transaction” in trade reports, when such transaction is not a syndicate transaction under NSCC's rules and procedures, represents a violation of a dealer's obligation to accurately report transactions to the MSRB under Rule G-14. 1 
 See “Municipal Bond Selling Group Trades,” NSCC Important Notice # 2971 dated April 8, 1988. See
also:
 Rule G-11 Interpretation – Syndicate Settlement Practice Violations Noted, July 1981. Rule G-15 Interpretations – Interpretive Notice on Rule G-12 on Uniform Practice and Rule G-15 on Customer Confirmations, November 28, 1977. 
 - Interpretive Notice on Confirmation Requirements, March 25, 1980. - Interpretive Notice Concerning Confirmation Disclosure Requirements Applicable to Variable-Rate Municipal Securities, December 10, 1980. - Notice Concerning “Zero Coupon” and “Stepped Coupon” Securities, April 27, 1982. - Notice Concerning Pricing to Call, December 10, 1980. - Notice Concerning Confirmation Disclosure Requirements for Callable Municipal Securities, February 10, 1986. - Notice Concerning Confirmation, Delivery and Reclamation of Interchangeable Securities, August 10, 1988. - Notice Concerning Stripped Coupon Municipal Securities, March 13, 1989. Rule G-17 Interpretations – Notice Concerning the Application of Board Rules to Put Option Bonds, September 30, 1985. See MSRB Notice 2004-9, “Notice on Deliveries of Step Out Transactions Through the Automated Comparison System,” March 3, 2004, on www.msrb.org. Note, however, that a different procedure will be used to effect inter-dealer transfers of securities, using the NSCC comparison system, and without reporting the transfer to the MSRB as a transaction when MSRB's Real-Time Transaction Reporting System goes into operation, currently planned for January 2005. NOTICE ON AUTOMATED COMPARISON AND TRANSACTION REPORTING OF CERTAIN INTER-DEALER TRANSACTIONS IN WHEN-ISSUED MUNICIPAL SECURITIES: RULES G-12(f) AND G-14 September 28, 2004 The MSRB has received reports of problems with automated comparison and transaction reporting of certain inter-dealer transactions involving syndicate managers. These reports indicate that some dealers may have incorrectly identified some of their when, as and if issued (“when-issued”) transactions in new issue municipal securities as “syndicate transactions.” The MSRB reminds dealers that erroneous coding of comparison reports is a violation of Rule G-14, on transaction reporting, and that transactions with dealers that are not members of the syndicate or selling group for a new issue, by definition, cannot be considered “syndicate transactions” for purposes of comparison procedures. MSRB Rule G-12(f), on automated comparison of interdealer transactions, requires dealers to submit for automated comparison all transactions eligible for comparison under National Securities Clearing Corporation's (NSCC) rules and procedures. For transactions by a syndicate manager with syndicate or selling - Notice of Interpretation on Escrowed-to-Maturity Securities: Rules G-17, G-12 and G-15, September 21, 1987. Rule G-32 Interpretation – Notice Regarding Electronic Delivery and Receipt of Information by Brokers, Dealers and Municipal Securities Dealers, November 20, 1998. 89 Rule
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 INTERPRETIVE LETTERS  Delivery requirements: partials. I am writing to confirm the substance of our telephone conversation concerning the provision of rule G-12(e)(iv) on partial deliveries. In our discussion, you posed a specific example of a single purchase of securities in which half are of one maturity and half of another maturity and inquired whether or not delivery of only one of the maturities would constitute a “partial” under the terms of the rule. As I stated to you, if the transaction is effected on an “all or none” basis, and your confirmation is marked “all or none” or “AON,” this would suffice to indicate that the purchase of both maturities constitutes a single transaction, and that both maturities must be delivered to effect good delivery. MSRB interpretation of February 23, 1978. Delivery requirements: coupons and coupon checks. This letter is to confirm the substance of conversations you had with the Board’s staff concerning the application of certain provisions of rule G12, the uniform practice rule, to deliveries of securities bearing past-due coupons. You inquire whether, in the case where a transaction is effected for a settlement date prior to the coupon payment date, a delivery of securities with this past-due coupon attached constitutes “good delivery” for purposes of the rule. Rule G-12(e)(vii)(C) provides that a seller may, but is not required to, deliver a check in lieu of coupons if delivery is made within thirty calendar days prior to an interest payment date. Thus, in the circumstances you set forth, the seller would have the option to detach the coupons and provide a check, but is under no obligation to do so. A delivery with these coupons still attached would constitute “good delivery,” and a rejection of the delivery for this reason would be an improper rejection. MSRB interpretation of March 9, 1978. Delivery requirements: mutilated coupons. I am writing in response to your recent letter concerning the provisions of Board rule G-12(e) with respect to interdealer deliveries of securities with mutilated coupons attached. You indicate that your firm recently became involved in a dispute with another firm’s clearing agent Rule
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 concerning whether certain coupons attached to securities your firm had delivered to the agent were mutilated. You request guidance as to the standards set forth in rule G-12(e) for the identification of mutilated coupons. As you are aware, rule G-12(e)(ix) indicates that a coupon will be considered to be mutilated if the coupon is damaged to the extent that any one of the following cannot be ascertained from the coupon: (A) title of the issuer; (B) certificate number; (C) coupon number or payment date...; or (D) the fact that there is a signature... (emphasis added) The standard set forth in the rule (that the information “cannot be ascertained”) was deliberately chosen to make clear that minimal damage to a coupon is not sufficient to cause that coupon to be considered mutilated. For example, if the certificate number imprinted on a coupon is partially torn, but a sufficient portion of the coupon remains to permit identification of the number, the coupon would not be considered to be mutilated under the standard set forth in the rule, and a rejection of the delivery due to the damage to the coupon would not be permitted. In the case of the damaged coupon shown on the sample certificate enclosed with your letter, it seems clear that the certificate number can be identified, and confusion with another number would not be possible; therefore, this coupon would not be considered to be mutilated under the rule, and a rejection of a delivery due to the damage to this coupon would not be in accordance with the rule's provisions. Your letter also inquires as to the means by which dealers can obtain redress in the event that a delivery is rejected due to damaged coupons which are not, in their view, mutilated under the standard set forth in the rule. I note that rule G-12(h)(ii) sets forth a procedure for a close-out by a selling dealer in the event that a delivery is improperly rejected by the purchaser; this procedure could be used in the circumstances you describe to obtain redress in 90 this situation. Further, the arbitration procedure under Board rule G-35 could also be used in the event that the dealer incurs additional costs as a result of such an improper rejection of a delivery. MSRB interpretation of January 4, 1984. Delivery requirements: put option bonds. In a previous telephone conversation [name omitted] of your office had inquired whether any or all of the following deliveries of securities which are subject to a put option could be rejected: (1) Certain securities are the subject of a “one time only” put option, exercisable by delivery of the securities to a designated trustee on or before a stated expiration date. An interdealer transaction in the securities— described as “puttable” securities—is effected for settlement prior to the expiration date. Delivery on the transaction is not made, however, until after the expiration date, and the recipient is accordingly unable to exercise the option, since it cannot deliver the securities to the trustee by the expiration date. (2) Certain securities are the subject of a “one time only” put option, exercisable by delivery of the securities to a designated trustee on or before a stated expiration date. An interdealer transaction in the securities— described as “puttable” securities—is effected for settlement prior to the expiration date. Delivery on the transaction is made prior to the expiration date, but too late to permit the recipient to satisfy the conditions under which it can exercise the option (e.g., the trustee is located too far away for the recipient to be able to present the physical securities by the expiration date). (3) Certain securities are the subject of a put option exercisable on a stated periodic basis (e.g., annually). An inter-dealer transaction in the securities—described as “puttable” securities—is effected for settlement shortly before the annual exercise date on the option. Delivery on the transaction, however, is not made until after the annual exercise date, so

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 that the recipient is unable to exercise the option at the time it anticipated being able to do so. I am writing to confirm my previous advice to him regarding the Board’s consideration of his inquiry. As I informed him, his inquiry was referred to a Committee of the Board which has responsibility for interpreting the “delivery” provisions of the Board’s rules; that Committee has authorized my sending this response. In considering the inquiry, the Committee took note of the provisions of Board rule G-12(g), under which an inter-dealer delivery may be reclaimed for a period of eighteen months following the delivery date in the event that information pertaining to the description of the securities was inaccurate for either of the following reasons: (i) information required by subparagraph (c)(v)(E) of this rule was omitted or erroneously noted on a confirmation, or (ii) information material to the transaction but not required by subparagraph (c)(v)(E) of this rule was erroneously noted on a confirmation. Under this provision, therefore, a delivery of securities described on the confirmation as being “puttable” securities could be reclaimed if the securities delivered are not, in fact, “puttable” securities. The Committee is of the view that, in the first of the situations which he cited, the delivery could be rejected or reclaimed pursuant to the provisions of rule G-12(g). In this instance the securities were traded and described as being “puttable” securities; the securities delivered, however, are no longer “puttable” securities, since the put option has expired by the delivery date. Accordingly, the rule would permit rejection or reclamation of the delivery. In the third case he put forth, however, this provision would not be applicable, since the securities delivered are as described. Accordingly, there would not be a basis under the rules to reject or reclaim this delivery, and a purchasing dealer who believed that it had incurred some loss as a result of the delivery would have to seek redress in an arbitration proceeding or in the courts. This may also be the result in the second case he cited, depending on the facts and circumstances of the delivery. MSRB interpretation of February 27, 1985. Confirmation disclosure: put option bonds. This will acknowledge receipt of your letter of March 17, 1981, with respect to “put option” or “tender option” features on certain new issues of municipal securities. In your letter you note that an increasing number of issues with “put option” features are being brought to market, and you inquire concerning the application of the Board’s rules to these securities. The issues of this type with which we are familiar have a “put option” or “tender option” feature permitting the holder of securities of an issue to sell the securities back to the trustee of the issue at par. The “put” or “tender option” privilege normally becomes available a stated number of years (e.g., six years) after issuance, and is available on stated dates thereafter (e.g., once annually, on an interest payment date). The holder of the securities must usually give several months prior notice to the trustee of his intention to exercise the “put option.” Most Board rules will, of course, apply to “put option” issues as they would to any other municipal security. As you recognize in your letter, the only requirements raising interpretive questions appear to be the requirements of rules G-12 and G-15 concerning confirmations. These present two interpretive issues: (1) does the existence of the “put option” have to be disclosed and if so, how, and (2) should the “put option” be used in the computation of yield and dollar price. Both rules require confirmations to set forth a description of the securities, including ... if the securities are ... subject to redemption prior to maturity ..., an indication to such effect Confirmations of transactions in “put option” securities would therefore have to indicate the existence of the “put option,” much as confirmations concerning callable securities must indicate the existence of the call feature. The confirmation need not set forth the specific details of the “put option” feature. The requirements of the rules differ with respect to disclosure of yields and dollar prices. Rule G-12, which governs 91 inter-dealer confirmations, requires such confirmations to set forth the yield at which transaction was effected and resulting dollar price, except in the case of securities which are traded on the basis of dollar price or securities sold at par, in which event only dollar price need be shown (in cases in which securities are priced to premium call or to par option, this must be stated and the call or option date and price used in the calculation must be shown, and where a transaction is effected on a yield basis, the dollar price shall be calculated to the lowest of price to premium call, price to par option, or price to maturity) Rule G-15 requires customer confirmations to contain yield and dollar price as follows: (A) for transactions effected on a yield basis, the yield at which transaction was effected and the resulting dollar price shall be shown. Such dollar price shall be calculated to the lowest of price to premium call, price to par option, or price to maturity. In cases in which the dollar price is calculated to premium call or par option, this must be stated, and the call or option date and price used in the calculation must be shown. (B) for transactions effected on the basis of dollar price, the dollar price at which transaction was effected, and the lowest of the resulting yield to premium call, yield to par option, or yield to maturity shall be shown; provided, however, that yield information for transactions in callable securities effected at a dollar price in excess of par, other than transactions in securities which have been called or prerefunded, is not required to be shown until October 1, 1981. (C) for transactions at par, the dollar price shall be shown[.] Therefore, with respect to transactions in “put option” securities effected on the basis of dollar price, rule G-12 requires that confirmations simply set forth the dollar price. Rule G-15 requires that confirmations of such transactions set forth the dollar price and the yield to maturity resulting from such dollar price. With respect to transactions effected on the basis of yield, both Rule
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 rules require that the confirmations set forth the yield at which the transaction was effected and the resulting dollar price. Unless the parties otherwise agree, the yield should be computed to the maturity date when deriving the dollar price. If the parties explicitly agree that the transaction is effected at a yield to the “put option” date, then such yield may be shown on the confirmation, together with a statement that it is a “yield to the [date] put option,” and an indication of the date the option first becomes available to the holder. Since the exercise of the “put option” is at the discretion of the holder of the securities, and not, as in the case of a call feature, at the discretion of someone other than the holder, the Board concludes that the presentation of a yield to maturity on the confirmation, and the computation of yield prices to the maturity date, is appropriate, and accords with the goal of advising the purchaser of the minimum assured yield on the transaction. The Board further believes that the ability of the two parties to a transaction to agree to price the transaction to the “put option” date, should they so desire, provides sufficient additional flexibility in applying the rules to transactions in “put option” securities. MSRB interpretation of April 24, 1981. Confirmation disclosure: put option bonds. This will acknowledge receipt of your letter of May 6, 1981, requesting further clarification of the application of Board rules to municipal securities with “put option” or “tender option” features. In your letter you note that I had previously indicated that, in some circumstances, Board rules would require inter-dealer and customer confirmations to set forth a yield to the “put option” date, designated as such. You suggest that presentation of this information on confirmations would require reprogramming of many computerized confirmation-processing systems, and you inquire whether the Board intends that dealers should possess the capability to “price to the put” and [to] indicate the appropriate yield in their confirmation systems[.] In my previous letter of April 24, 1981 I advised that Board rules G-12(c), on interdealer confirmations, and G-15, on customer confirmations, would require the Rule
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 following with respect to transactions in securities with “put option” features: (1) If the transaction is effected on the basis of a yield price, the confirmation must state the yield at which the transaction was effected and the resulting dollar price. The dollar price must be computed to the maturity date, since, in most instances, these securities will not have call features. If the securities do have a refunding call feature, the requirement for pricing to the lowest of the premium call, par option, or maturity would obtain. (2) If the transaction is effected on the basis of a dollar price, the confirmation must state the dollar price, and, in the case of a customer confirmation, the resulting yield to maturity. If the securities have a call feature, the customer confirmation would state the yield to premium call or the yield to par option in lieu of the yield to maturity, if either is lower than the yield to maturity. In neither case does the rule require the presentation of a yield or a dollar price computed to the “put option” date as a part of the standard confirmation processing. Further, the Board does not at this time plan to adopt any requirement for a calculation of yield or dollar price to the lower of the put option or maturity dates, comparable to the calculation requirement involving call features. I would therefore have to respond to your inquiry by stating that the Board does not at this time intend to require, as an aspect of standard confirmation processing, that dealers have the capability to “price to the put.” In your May 6 letter you quote a paragraph from my previous correspondence, which stated the following: If the parties explicitly agree that the transaction is effected at a yield to the “put option” date, then such yield may be shown on the confirmation, together with a statement that it is a yield to the (date) put option, and an indication of the date the option first becomes available to the holder. As this paragraph indicates, in some circumstances the parties to a particular transaction may agree between themselves that the transaction is effected on the basis 92 of a yield to the “put option” date, and that the dollar price will be computed in that fashion. In such circumstances, the yield to the “put option” date is the “yield at which [the] transaction was effected” and must be disclosed as such; it must also be identified in order to evidence the agreement of the parties that the transaction is priced in this fashion. However, since the sale of securities on the basis of a yield to the “put option” is at the discretion of the parties to the transaction, and is a special circumstance requiring a mutual agreement of such parties, I suggest that the reprogramming you mention would be necessary only if your bank elects to treat securities with “put option” features in this special fashion. Further, given the fact that these would be exceptional transactions, and would require special handling at the time of trade itself (viz., the conclusion of the mutual agreement concerning the pricing), I suggest that manual processing of these transactions on an “exception” basis appears to be a viable alternative to the reprogramming. MSRB interpretation of May 11, 1981. Confirmation disclosure: advance refunded securities. I am writing in response to your recent letter concerning the confirmation description requirements of Board rules applicable to transactions in securities which have been advance refunded. In particular, you note that certain issues of securities have been advance refunded by specific certificate number, with securities of certain designated certificate numbers refunded to one redemption date and price and other securities of the same issue refunded to a different redemption date and price. You inquire whether a confirmation of a transaction in such securities should identify the securities as being advance refunded by certificate number. Rules G-12(c)(vi)(C)[*] and G15(a)(iii)(C)[†] require that confirmations include if the securities [involved in the transaction] are “called” or “prerefunded,” a designation to such effect, the date of maturity which has been fixed by the call notice, and the amount of the call price. .. The rules therefore require, with respect to a transaction in securities which have been advance refunded by certificate number, that the confirmation state that the

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 securities have been advance refunded, and the refunding redemption date and price. The rules do not require that the fact that only certain specific certificate numbers of the issue were advance refunded to that redemption date and price be stated on the confirmation. MSRB Interpretation of January 4, 1984. [*] [Currently codified at rule G-12(c)(vi)(E)] [†] [Currently codified at rule G-15(a)(i)(C)(3)(a)] Confirmation disclosures: tender option bonds with adjustable tender fees. This is in response to your inquiry concerning the application of the Board’s rules to certain tender option bonds with adjustable tender fees issued as part of a recent [name of bond deleted] issue. Apparently, there is some uncertainty as to the interest rate which should be shown on the confirmation, and the appropriate yield disclosure required by rule G-15 with respect to customer confirmations in transactions involving these securities. The securities in question are tender option bonds with a 2005 maturity which may be tendered during an annual tender period for purchase on an annual purchase date each year until the 2005 maturity date. To retain this tender option for the first year after issuance, the option bond owner must pay a tender fee of $27.50 per $1,000 in principal amount of the bonds. Beginning in the second year, however, the tender fee may vary each year and will be in an amount determined by the company granting the option (the “Company”), in its discretion, and approved by the bank which issued a letter of credit securing the obligations of the Company. The tender fee must, however, be in an amount which, in the judgment of the Company based upon consultation with not less than five institutional buyers of short term securities, would under normal market conditions permit the bonds to be remarketed at not less than par. If at any time these fees are not paid, the trustee will pay the fee to the Company on behalf of the owner and deduct that amount from the next interest payment sent to the owner unless the owner tenders the bonds prior to the fee payment date. While a system has been set up to receive payment of these tender fees, we understand that the trustee of the issue is assuming that most of the tender fees will be paid through a deduction from the interest payment. You have advised us that confirmations of the original syndicate transactions in these securities stated the interest rate on the securities as 7-1/8%, which is the current effective rate on the bonds taking into account the tender fees during the first year after issuance (i.e., the 9-7/8% rate less the 2-6/8% fee) and which, because of the yearly tender fee adjustment, is fixed only for one year. The interest rate shown on the bond certificates, however, is the 9-7/8% total rate, and no reference is made to the 7-1.8% effective rate. In addition, the bonds are traded on a dollar price basis as fixed-rate securities and are sold as one year tender option bonds (although the 2005 maturity date is disclosed). The yield to the one year tender date is the only yield customer confirmations. You inquire whether it is proper that the confirmation show the interest rate on these securities as 7-1/8% and whether the yield disclosure requirements of rule G-15 are met with the disclosure of the yield to the one year tender date. Your inquiry was referred to the Committee of the Board which has responsibility for interpreting the Board's confirmation rules. The Committee has authorized this reply. Rules G-12(c)(v)(E) and G15(a)(i)(E)[*] require that dealer and customer confirmations contain a description of the securities including, among, other things, the interest rate on the bonds. The Committee believes that the stated interest rate on these bonds of 9-7/8% should be shown as the interest rate in the securities description on confirmations to reduce the confusion that may arise when the bond certificates are delivered and to ensure that an outdated effective rate is not utilized. In order to fully describe the rate of return on these bonds, however, the Committee believes that immediately after the notation of the 9-7/8% rate on the confirmations, the following phrase must be added—”less fee for put.” Thus, it will be the responsibility of the selling dealer to determine the current effective rate applicable to these bonds and to disclose this to purchasing dealers and customers at the time of trade.1 In regard to yield disclosure, rule G15(a)(i)(I)[†] requires that the yield to maturity be disclosed because these securities are 93 traded on the basis of a dollar price.2 The Board has determined that, for purposes of making this computation, only “in whole” calls should be used. Thus, for these tender option bonds, the yield to maturity is required to be disclosed. It appears, however, that an accurate yield to maturity cannot be calculated for these securities. While it is possible to calculate a yield to maturity using the stated 9-7/8% interest rate, this figure might be misleading since the adjustable tender fees would not be taken into account. Similarly, a yield calculated from the current effective rate of return would not be meaningful since it would not reflect subsequent changes in the amounts of the tender fees deducted. In view of these difficulties, the Committee believes that confirmations of these securities need not disclose a “yield to maturity.” The Committee is also of the view, however, that dealers must include the yield to the one year tender date on the confirmations as an alternative form of yield disclosure. MSRB interpretation of October 3, 1984. 1 We understand that these tender option bonds are the first of a series of similar issues and on subsequent issues of this nature the phrase “Bond subject to the payment of tender fee” will be printed on the bond certificates next to the interest rate. This additional description on the bond certificates, although helpful, is not a substitute for complete confirmation disclosure and this interpretation applies to these subsequent issues as well. 2 Rule G-15(a)(i)(I)[†] requires that on customer confirmations for transactions effected on the basis of a dollar price…the lowest of the resulting yield to call, yield to par option, or yield to maturity shall be shown. [*] [Currently codified at rule G-15(a)(i)(B)(4)(c)] [†] [Currently codified at rule G-15(a)(i)(A)(5)(b)] Confirmation disclosures: tender option bonds with adjustable tender fees. This is in response to your letter requesting a one year delay in the effective date of an October 3, 1984, interpretation of Board rules G-12 and G-15 concerning confirmation disclosure of tender option bonds with adjustable tender fees. In that interpretation, the Board stated that the interest rate shown on the confirmation for these bonds should be the interest rate noted on the bond certificate (the “stated interest rate”) but that the confirmation also must include the phrase “less fee for put.” The Board also stated that it is the respon- Rule
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 sibility of the selling dealer to determine the current effective interest rate applicable to these bonds taking into account the tender fee (the “net interest rate”) and to disclose this to purchasers at the time of trade. In addition, the Board took the position that the yield to maturity disclosure requirement does not apply to these bonds since an accurate yield to maturity cannot be calculated for these securities because of the annual adjustments to the tender fee. Dealers must, however, include the yield to the tender option date as an alternative form of yield disclosure. While you agree with the interpretation, you state that the automated systems currently in place are not capable of complying with the interpretation and thus you request a one year delay in the effective date of this interpretation in order for the industry to effect necessary system modifications. Your request was referred to the Committee of the Board which has responsibility for interpreting the Board’s confirmation rules. The Committee has authorized this reply. Apparently, a problem arises when dealers include the stated interest rate in the interest rate field on the confirmation. In computing the yield on the transaction, most computer systems automatically pick up the rate in that field as the interest rate. Thus, an overstated yield based on the stated interest rate, instead of a yield based on the net interest rate, is printed on confirmations. We have been informed that certain dealers have solved this problem by including the net interest rate in the interest rate field. In this way, the computer automatically picks up the correct interest rate needed to determine the accurate yield to the tender option date. In order to solve the interest rate disclosure problem, these dealers include elsewhere in the description field of the confirmation the stated interest rate with the phrase “less fee for put.” The Board believes that this method of disclosure is consistent with the Board’s confirmation disclosure requirements. Since the Board believes that most dealers will be able to comply either with the original interpretation or this clarification utilizing their present computer systems, it has decided not to approve any delay in the effective date of this interpretation for system modifications. We note, Rule
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 however, that any dealer that believes its system cannot comply with this interpretation might consider requesting a no-action letter from the SEC until its system modifications are in place. MSRB interpretation of March 5, 1985. Confirmation requirements for partially refunded securities. This will respond to your letter of May 16, 1989. The Board reviewed your letter at its August 1989 meeting and authorized this response. You ask what is the correct method of computing price from yield on certain types of “partially prerefunded” issues having a mandatory sinking fund redemption. The escrow agreement for the issues provides for a stated portion of the issue to be redeemed at a premium price on an optional, “in-whole,” call date for the issue. The remainder of the issue is subject to a sinking fund redemption at par.1 Unlike some issues that are prerefunded by certificate number, the certificates that will be called at a premium price on the optional call date are not identified and published in advance. Instead, they are selected by lottery 30 to 60 days before the redemption date for the premium call. Prior to this time, it is not known which certificates will be called at a premium price on the optional call date. In the particular issues you have described, the operation of the sinking fund redemption will retire the entire issue prior to the stated maturity date for the issue. As you know, rules G-12(c) and G15(a) govern inter-dealer and customer confirmations, respectively. Rules G12(c)(v)(1) and G-15(a)(i)(1)[*] require the dollar price computed from yield and shown on the confirmation to be computed to the lower of call date or maturity. For purposes of computing price to call, only “in-whole” calls, of the type which may be exercised in the event of a refunding, are used.2 Accordingly, the Board previously has concluded that the sinking fund redemption in the type of issue you have described should be ignored and the dollar price should be calculated to the lowest of the “in-whole” call date for the issue (i.e., the redemption date of the prerefunding) or maturity. In addition, the stated maturity date must be used for the calculation of price to maturity rather than any “effective” 94 maturity which results from the operation of the sinking fund redemption. Identical rules apply when calculating yield from dollar price. Of course, the parties to a transaction may agree to calculate price or yield to a specific date, e.g., a date which takes into account a sinking fund redemption. If this is done, it should be noted on the confirmation.3 In our telephone conversations, you also asked what is the appropriate securities description for securities that are advance refunded in this manner. Rules G12(c)(v)(E) and G-15(a)(i)(E)[†] require that confirmations of securities that are “prerefunded” include a notation of this fact along with the date of “maturity” that has been fixed by the advance refunding and the redemption price. The rules also state that securities that are redeemable prior to maturity must be described as “callable.”4 In addition, rules G-12(c)(vi)(I) and G15(a)(iii)(J)[‡] state that confirmations must include information not specifically required by the rules if the information is necessary to ensure that the parties agree to the details of the transaction. Since, in this case, only a portion of the issue will be chosen by lot and redeemed at a premium price under the prerefunding, this fact must be noted on the confirmation. As an example, the issue could be described as “partially prerefunded to [redemption date] at [premium price] to be chosen by lotcallable.” The notation of this fact must be included within the securities description shown on the front of the confirmation. MSRB Interpretation of August 15, 1989. 1 In some issues, a sinking fund redemption operates prior to the optional call date, while, in others, the sinking fund redemption does not begin until on or after that date. 2 See [Rule G-15 Interpretation –] Notice of December 10, 1980, Concerning Pricing to Call, MSRB Manual, paragraph 3571. 3 These rules on pricing partially prerefunded securities with sinking funds are set forth in [Rule G-15 Interpretive Letter – Disclosure of pricing: calculating the dollar price of partially prerefunded bonds,] MSRB interpretation of May 15, 1986, MSRB Manual, paragraph 3571.26. 4 The Board has published an interpretive notice providing specific guidance on the confirmation of advanced refunded securities that are callable pursuant to an optional call. See Application of Rules G-12(c) and G-15(a) on Confirmation Disclosure of Escrowed-to-Maturity Securities [in Rule G-17 Interpretation – Notice of Inter-

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 pretation on Escrowed-to-Maturity Securities: Rules G-17, G-12 and G-15], MSRB Manual, paragraph 3581. [*] [Currently codified at rule G-15(a)(i)(A)(5) (c)(i)] [†] [Currently codified at rule G-15(a)(i)(C)(3)(a)] [‡] [Currently codified at rule G-15(a)(i)(A)(8)] Close-out procedures: mandatory repurchase. You recently inquired concerning the use of the “mandatory repurchase” option provided under Board rule G-12(h)(i)(D) for execution of a close-out notice. In the situation you presented, a municipal securities dealer executing a notice was requiring, under the provisions of this option, a repurchase at the original contract price. Since the transaction was originally effected on the basis of a yield price, you inquired whether the repurchase should be effected at this yield price (with the dollar price computed to the settlement date of the repurchase transaction), or at the dollar price computed from this yield price at the time of the original transaction. At the time of your telephone call I responded that, while the Board would have to consider this inquiry, the Board’s response to somewhat similar inquiries in the past suggested that the dollar price of the original contract should be used. I am writing to advise you that the Board did not adopt this position. With respect to the specific circumstances presented in your inquiry, the Board has concluded that the purchasing dealer does have the right, in the appropriate circumstances, to execute a close-out by requiring the seller to repurchase the securities at the yield price of the original contract, with the resulting dollar price computed to the settlement date of the repurchase transaction. The Board notes that, in these circumstances, the selling dealer has failed to fulfill its contractual obligations, and believes that permitting the use of the yield price of the original contract, with the resulting dollar price computed to the settlement date of the repurchase transaction, will in the majority of cases most fairly compensate the purchaser for the time value of the investment for the period from the original execution to the mandatory repurchase.1 The Board also is generally of the view that purchasers executing mandatory repurchase transactions may require a mandatory repurchase at the yield basis of the original transaction, with the resulting dollar price computed to the settlement date of the repurchase transaction, except in the case where both parties to the transaction agree that the original transaction was, and the repurchase transaction should be, effected on the basis of a dollar price, or where the terms of the transaction and/or the trading characteristics of the security (e.g., issues with an active sinking fund or tender program) suggest that dollar price rather than yield was the dominant consideration in the original transaction. MSRB interpretation of March 4, 1982. 1 The Board notes, for example, that, in the case of a security purchased at a discount, the purchaser and the purchaser’s customer would realize the accretion of the discount for the period the security was owned. In the case of a security purchased at a premium, the premium would be amortized for the period the purchaser owned the security. Close-out procedures: timing of payments on retransmittals. I am writing in response to your letter of August 23, 1983 concerning certain problems in the settlement of money amounts due on closeout executions. You note in your letter that rule G-12(h)(i)(D) provides that the purchaser must be prepared to defend the price at which the close-out is executed relative to market conditions at the time of the execution...[,] and also that [a]ny moneys due on the transaction, or on the close-out of the transaction, shall be forwarded to the appropriate party within ten business days of the date of execution of the close-out notice. You inquire as to the relationship between these two provisions in the case of a closeout procedure involving several retransmittals. You also suggest a method of handling of moneys in situations where a dispute as to the fairness of the execution price occurs. *** In the type of situation which is the subject of your inquiry, a municipal securities dealer (“dealer A”) may issue a closeout notice to a second dealer (“dealer B”) who is failing to deliver to him certain municipal securities. If dealer B has an offsetting fail-to-receive of such securities from a third dealer (“dealer C”), dealer B will retransmit the close-out notice (in accor95 dance with the requirements of the rule) to dealer C. Similarly, dealer C may retransmit the notice to a fourth dealer (“dealer D”) owing him the securities.1 In the event of such retransmittals, the ultimate recipient of the retransmitted close-out (in this case, dealer D) is the party for whose account and liability any close-out would be executed, and who, therefore, would absorb any loss in the event of an adverse market movement. As a consequence, the ultimate recipient of the notice (dealer D) is most often the person who would require the purchaser originating the notice (dealer A, in our example) to defend the fairness of the close-out execution price. When a close-out notice which has been retransmitted is executed, the money settlement is most frequently made by each party sending to the immediately preceding party (i.e., in the event of a loss, dealer B sends to A, C sends to B, D sends to C) the differential between the close-out execution price and the original contract price. In your letter you inquire as to the responsibility of the intermediate dealers in the retransmittal sequence (dealer B and C, in our example) to send such payments of money amounts due in the event that the ultimate recipient of the notice (dealer D) challenges the execution price and refuses to make payment until the dispute is resolved. Your question was referred to the Board for its consideration. The Board has authorized me to advise you that, in its view, the close-out rules would not require the intermediate dealers to forward full payment of the money amount due in the event that the ultimate recipient of the close-out notice and execution, for whose account and liability the close-out has been executed, disputes the fairness of the execution price and refuses to make payment until the dispute is resolved. In terms of the example, if dealer D disputes the execution price, dealers B and C would not be obliged to make full payment of the money amount due until the dispute is resolved; upon resolution of the dispute, of course, all parties must make the necessary payments promptly. The Board believes that this result is the most equitable to all parties, since otherwise one of the intermediate dealers would be obliged to defend the fairness of the execution price, rather than Rule
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 the dealer who originated and executed the close-out notice. *** In your letter you also suggest that, in the event of a dispute as to the fairness of a close-out execution price, the parties involved in the close-out should make appropriate payments of the undisputed portion of the money amount due, with the disputed portion remaining unpaid until the dispute is resolved by mutual agreement or arbitration. The Board agrees that your proposal might be a desirable method of dealing with disputes regarding close-out execution prices. The Board notes, however, that the acceptance of a partial payment of the amount due might, in certain circumstances, be viewed as a waiver of any claim for the additional balance; further, this approach would seem to complicate the bookkeeping involved in accounting for the results of a close-out execution. If the parties to a particular close-out execution are satisfied that these problems are not significant, your suggested approach might be an appropriate procedure in the event a dispute as to the fairness of the execution price arises. MSRB interpretation of September 23, 1983. 1 The retransmittal process can, of course, continue, if additional municipal securities dealers are involved in the particular transaction sequence. Close-out procedures: transactions involving introducing broker. I am writing in response to your recent letter concerning the use of the close-out provisions under Board rule G-12(h) with respect to a transaction in which one of the two parties “introduces” all transactions to a third, “clearing” dealer such as [name of clearing dealer deleted]. You indicate that [the clearing dealer] was recently involved in a situation in which a close-out notice was issued directly to a securities firm which uses [the clearing dealer] as its clearing dealer, introducing all of its transactions to [the clearing dealer]. Due to this firm’s failure to notify [the clearing dealer] of the issuance of the close-out notice in a timely fashion [the clearing dealer] was unable to retransmit the notice to the dealer owing it the securities, and consequently was exposed to liability on the close-out. You express the view that [the clearing dealer’s] inability to retransmit the notice was attrib- Rule
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 utable to the fact that the notice was improperly directed to the introducing broker, rather than to [the clearing dealer]. You suggest that the Board’s close-out rules should be amended to require that, in circumstances in which one party to an interdealer transaction introduces all trades to a clearing dealer, all communications with respect to a close-out of the transaction should be sent to the clearing dealer. I note that others have proposed that, in situations of this type, the clearing dealer should also have the authority to issue close-out notices on the transaction on behalf of the introducing broker. The Board does not agree with your suggestion that a dealer purchasing securities from an introducing broker should be required to send all communications related to a close-out procedure to such broker's clearing dealer. In general, the Board has declined to include in the close-out rules requirements that certain specific persons or types of persons be contacted to handle aspects of the procedure; the Board believes that such requirements would inappropriately restrict dealers' flexibility in determining how best to handle close-out notices, and in establishing their own procedures for processing such notices.1 In the specific case where the selling party in the transaction is an introducing broker, the Board is of the view that the adoption of your suggestion (which would have the effect of prohibiting the purchasing dealer from issuing a close-out notice directly to the introducing broker) inappropriately places on the purchasing dealer the burden of ensuring that a close-out notice is directed properly. Further, this approach improperly makes the purchasing dealer responsible for knowing the nature of the introducing broker’s clearing arrangements (i.e., that there is an “introducing” relationship, rather than simply a use of clearing services) and determining the proper way to proceed in light of those arrangements. The responsibility for ensuring that a close-out notice is directed properly clearly rests and should rest with the introducing broker. In the situation you described the improper handling of the notice and the consequent exposure to [the clearing dealer] was the result of the introducing broker’s failure to understand the significance of the notice and to respond appropriately. The Board continues to believe 96 that it is incumbent upon municipal securities brokers and dealers, including introducing brokers, to ensure that their personnel understand the importance of prompt handling of close-out notices and know the procedure established by the dealer to accomplish this. With respect to the issuance of a close-out notice by a clearing dealer acting on behalf of an introducing broker, the Board is of the view that (1) if the clearing dealer confirms inter-dealer transactions on behalf of the introducing broker, with the confirmation identifying both entities, (2) if all communications related to the close-out issued by the clearing dealer indicate that the clearing dealer is acting on behalf of the introducing broker, and (3) if the clearing dealer takes all responsibility for the issuance of notices, with the introducing broker not involving itself in the close-out procedure at any time, then the clearing dealer may issue close-out notices on the introducing broker’s behalf. I note that the ability of the clearing dealer to issue notices on the introducing broker's behalf is also contingent upon the existence of the “introducing” relationship; a party acting solely as a dealer’s clearing agent, without the presence of an “introducing” relationship, would not be able to issue close-out notices on transactions effected by the dealer. MSRB interpretation of March 5, 1984. 1 See, for example, the discussion in Question 6 of the Board’s Manual on Close-Out Procedures: Q: When you say “call the seller,” what does that mean? Whom should I call? A: Every dealer has its own procedures to handle close-outs, so the Board doesn’t require that a specific person, or a specific type of person, be contacted… A number of dealers have the trader who made the trade contact the person from whom he or she bought the bonds… While we’re on this subject, remember that sometimes you will be the recipient of a closeout notice. People in your office should know who handles close-outs for you and that they’re responsible for referring calls and notices on close-outs to these people. If a close-out is mishandled in your office and, due to this error, you inadvertently fail to meet certain requirements (for instance, not retransmitting the notice to another dealer on time), you will be exposed to some risk on the close-out. Settlement of syndicate accounts. Your letter dated September 25, 1978, regarding rule G-12 has been referred to me for reply. In your letter, you inquire as

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 to whether the requirement in section (j) of rule G-12 to settle syndicate accounts within 60 days following the date all securities are delivered to syndicate members, applies in all circumstances. Specifically, you ask whether the time for settlement may be extended under the rule in the event that the syndicate has not received all expense bills prior to the expiration of that period. There is no provision in rule G-12 for extending the 60-day period in the circumstances which you described. In adopting this requirement, the Board sought to achieve an equitable balance between the interests of syndicate members and syndicate managers in settling syndicate accounts. The Board believes that the 60-day period provides sufficient time to enable syndicate managers to settle on syndicate accounts and represents a reasonable time within which such accounts should be settled. It is therefore incumbent upon a syndicate manager to encourage persons to submit bills to the syndicate on a timely basis. The syndicate manager will otherwise have to settle the account within the prescribed time period and make adjustments subsequently when late bills are finally received. MSRB interpretation of November 1, 1978. Settlement of syndicate accounts. This is in response to your letter of July 28, 1981, suggesting that requirements analogous to those placed on syndicate managers in rule G-12(j) be imposed on syndicate members who must remit their share of syndicate losses to their syndicate managers. You state that syndicate members frequently do not remit their losses to the manager in a timely fashion and that such a requirement would establish an “equitable balance between the interests of syndicate members and syndicate managers.” Rule G-12(j) provides: Final settlement of a syndicate or similar account formed for the purchase of securities shall be made within 60 days following the date all securities have been delivered by the syndicate or account manager to the syndicate or account members. The rule is not expressly limited to money payments by syndicate managers, but broadly requires that final settlement shall be made within 60 days following the date the manager delivers the securities to the syndicate members. Thus, the rule requires syndicate members to remit their share of syndicate losses to the syndicate manager within the 60-day period set forth in the rule. Since a syndicate member cannot remit his share of losses until he is apprised by the syndicate manager of the amount of his share, a member should remit his share of the losses to the manager within a reasonable period of time after receiving the syndicate accounting required by rule G11(h). MSRB interpretation of September 28, 1981. Confirmation: Mailing of WAII confirmation. I am writing to confirm my recent telephone conversation with you regarding the requirements for mailing “when, as and if issued” confirmations of transactions in new issue municipal securities. Our recent conversation concerned your previous inquiry as to the time limit by which a municipal securities dealer must send out such confirmations in connection with allocations of securities to “pre-sale” orders, and the propriety of a dealer’s sending out such confirmations prior to the award of the new issue. As we discussed, rule G-12(c)(iii) requires that, [f] or transactions effected on a “when, as and if issued” basis, initial confirmations shall be sent within two business days following the trade date. For purposes of this requirement the designation “trade date” should be understood to refer to, in the case of a competitive new issue, a date no earlier than the date of award of the new issue of municipal securities, and, in the case of a negotiated new issue, a date no earlier than the date of signing of the bond purchase agreement. Therefore, the rule would require that initial “when, as and if issued” confirmations reflecting the allocation of new issue securities to “pre-sale” orders be sent within [one] business day after the date of award or of signing of the bond purchase agreement. For example, if the bond purchase agreement on a negotiated new issue is signed on Monday, April 26, the initial “when, as and if issued” confirmations must be sent out not later than the close of business on [Tuesday], April [27], [one] business day later. 97 Further, the Board is of the view that its rules prohibit a municipal securities dealer from sending out initial “when, as and if issued” confirmations prior to the trade date. In reaching this conclusion the Board does not intend to call into question the validity of a “pre-sale” order received for a syndicate’s securities or the practice of soliciting such orders. The Board recognizes that such orders are expressions of the purchasers’ firm intent to buy the new issue securities in accordance with the stated terms, and that such orders may be filled and confirmed immediately upon the award of the issue or the execution of a bond purchase agreement. The Board is of the view, however, that such orders cannot be deemed to be executed until the time of the award of the new issue, or the execution of a bond purchase agreement on the new issue. Mailing of confirmations on such orders prior to this time, therefore, is a representation that the orders have been filled before this actually occurs, and, as such, may be deceptive or misleading to the purchasers. MSRB interpretation of April 30, 1982. NOTE: Revised to reflect subsequent amendments. Confirmation: Mailing of WAII, “all or none” confirmation. I understand that certain ... firms ... have raised questions concerning the application of a recent Board interpretive letter to certain types of municipal securities underwritings. I am writing to advise that these questions were recently reviewed by the Board which has authorized my sending you the following response. The letter in question, reprinted in the Commerce Clearing House Municipal Securities Rulemaking Board Manual at ¶ 3556.55[*], discusses the timing of the mailing of initial “when, as and if issued” confirmations on “pre-sale” orders to which new issue municipal securities have been allocated. Among other matters, the letter states that such confirmations may not be sent out prior to the date of award of the new issue, in the case of an issue purchased at competitive bid, or the date of execution of a bond purchase agreement on the new issue, in the case of a negotiated issue. [Certain] ... firms have questioned whether this interpretation ... is intended to apply to “all or none” underwritings, in which confirmations have been, at timves, sent out Rule
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 prior to the execution of a formal purchase agreement. As the Board understands it, an “all or none” underwriting of a new issue of municipal securities is an underwriting in which the municipal securities dealer agrees to accept liability for the issue at a given price only under a stated contingency, usually that the entire issue is sold within a stated period. The dealer typically “presettles” with the purchasers of the securities, with the customers receiving confirmations and paying for the securities while the underwriting is taking place. Pursuant to SEC rule 15c2-4 all customer funds must be held in a special escrow account for the issue until such time as the contingency is met (e.g., the entire issue is sold) and the funds are released to the issuer; if the contingency is not met, the funds are returned to the purchasers and the securities are not issued.1 The Board is of the view that an initial “when, as and if issued” confirmation of a transaction in a security which is the subject of an “all or none” underwriting may be sent out prior to the time a formal bond purchase agreement is executed. This would be permissible, however, only if two conditions are met: (1) that such confirmations clearly indicate the contingent nature of the transaction, through a statement that the securities are the subject of an “all or none” underwriting or otherwise; and (2) that the dealer has established, or has arranged to have established, the escrow account for the issue as required pursuant to rule 15c2-4. MSRB interpretation of October 7, 1982. 1 [*] I note also that SEC rule 10b-9 sets forth certain conditions which must be met before a dealer is permitted to represent an underwiritng as an “all or none” underwriting. [See Rule G-12 Interpretive Letter – Confirmation: mailing of WAII confirmation, MSRB interpretation of April 30, 1982.] Automated clearance: use of comparison systems. I am writing to confirm the substance of our conversations with you at our meeting on October 3 to discuss certain of the issues that have arisen since the August 1 effective date of the requirements of rule G-12(f) for the use of automated comparison services on certain interdealer transactions in municipal securities. In our meeting you explained certain prob- Rule
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 lems that have become apparent since the implementation of these requirements, and you inquired as to our views concerning the application of Board rules to these difficulties or appropriate procedures to remedy them. The essential points of our responses are summarized below. In particular, you indicated that the use of the “as of” (or “demand as of”) feature of the automated comparison system has, in some cases, caused inappropriate rejections of deliveries of securities. This occurs, you explained, because the comparison system is currently programmed to display an alternative settlement date of two business days following the date of successful comparison of the transaction, if such comparison is accomplished through use of the “as of” or “demand as of” feature.1 As a result, in certain cases involving transactions compared on an “as of” basis dealers have attempted to make delivery on the transaction on the contractual settlement date, and have had those deliveries rejected, since the receiving party recognizes only the later “alternative settlement date” assigned to the transaction by the comparison system. You inquire whether such rejections of deliveries are in accordance with Board rules. I note that this “alternative settlement date” has significance for clearance purposes only, and does not result in a recomputation of the dollar price or accrued interest on the transaction. As we advised in our conversation, the receiving dealer clearly cannot reject a good delivery of securities made on or after the contractual settlement date on the basis that the delivery is made prior to the “alternative settlement date” displayed by the comparison system. Both dealers have a contract involving the purchase of securities as of a specified settlement date, and a delivery tendered on or after that date in “good delivery” form must be accepted. A dealer rejecting such a delivery on the basis that it has been made prior to the “alternative settlement date” would be subject to the procedures for a “close-out by seller” due to the improper rejection of a delivery, as set forth in Board rule G-12(h)(ii).2 *** You also advised that some dealers who are using the automated comparison system are using their own delivery tickets, 98 rather than the delivery tickets generated by the system, at the time they make delivery on the transaction. As a result, you indicated, there have been rejections of these deliveries, since the receiving dealer is unable to correlate these deliveries with its records of transactions compared through the system. You suggested that the inclusion of the “control numbers” generated by the comparison system on these selfgenerated delivery tickets would help to eliminate these unnecessary rejections and facilitate the correlation of receipts and deliveries with records of transactions compared through the system. As I indicated in our conversation, the Board concurs with your suggestion. The Board strongly encourages dealers who choose to use their own delivery tickets for transactions compared through the automated system to display on those tickets the control number or other number identifying the transaction in the system.3 This would ensure that the receiving dealer can verify that it knows the transaction being delivered and that it was successfully compared through the system. *** You also noted that many municipal securities dealers have continued the practice of sending physical confirmations of transactions, in addition to submitting such transactions for comparison through the automated system. You advised that this is causing significant problems for certain dealers, since they are required to maintain a duplicate system in order to provide for the review of these physical confirmations. The Board is aware that certain municipal securities dealers chose to maintain parallel confirmation systems following implementation of the automated comparison requirements on August 1 in order to ensure that they maintained adequate control over their activities, and recognizes that for many such dealers this was an appropriate and prudent court of action.4 However, the Board wishes to emphasize that its rules do not require the sending of a physical confirmation on any transaction which has been submitted for comparison through the system. On the contrary, the continued use of unnecessary physical comparisons increases the risk of the duplication of trades and deliveries and substantially decreases the efficiencies and cost

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 savings available from the use of the automated comparison system. The Board believes that all system participants must understand that the use of the automated comparison system is of primary importance. Accordingly, the Board strongly suggests that the mailing of unnecessary physical confirmations should be discontinued once a dealer is satisfied that it has adequate control over its comparison activities through the system. You and others have suggested that it would be helpful if dealers which are unable to discontinue the mailing of physical confirmations would identify those transactions which have also been submitted for comparison through the system through some legend or stamp placed on the physical confirmation sent on the transaction. The Board concurs with your suggestion, and recommends that, during the short remaining interim when dealers are continuing to use duplicate physical confirmations, they include on physical confirmations of transactions submitted to the automated comparison system a stamp or legend in a prominent location which clearly indicates that the transaction has been submitted for automated comparison. MSRB interpretation of January 2, 1985. 1 2 For example, a transaction of trade date October 19 for settlement October 25 fails to compare through the normal comparison cycle. Due to this failure to compare, the transaction is dropped from the comparison system on October 23; however, due to a resolution of the dispute, both parties resubmit the trade on an “as of” basis on October 24, and it is successfully compared on that date. Due to the delay in the comparison of the transaction, the system will display an “alternative settlement date” on this transaction of October 26 on the system-generated delivery tickets. I understand that [Registered Clearing Agency] is taking steps to have the contractual settlement date reflected on delivery tickets produced with respect to transactions compared on an “as of” or “demand as of” basis. We believe that this will be most helpful in clarifying and receiving dealer’s contractual obligation to accept a proper delivery made on or after the date. 3 4 I understand that proper utilization of the comparison system control number is a reliable method for identifying and referring to transactions. The Board is also aware that on certain transactions dealers will need to send physical confirmations to document the terms of a specific agreement concluded as the time of trade (e.g., a specification of a rating). In such circumstances the Board anticipates that physical confirmations will continue to be sent. Automated settlement involving multidepository participants. This will respond to your letter concerning the requirements of rule G-12(f)(ii) applicable to transactions involving firms that are members of more than one registered securities depository. Your inquiry concerns situations in which a dealer that is a member of more than one depository executes a transaction with another dealer that is a member of one or more depositories. Your question is whether such dealers may specify the depository through which delivery must be made, either as a term of an individual transaction or with standing delivery instructions. Your inquiry was referred to the Committee of the Board with the responsibility for interpreting the Board’s automated clearance and settlement rules, which has authorized my sending this response. The rule does not specify which depository shall be used for settlement if the transaction is eligible for settlement at more than one depository. The Board is of the view that, under rule G-12(f), parties to a transaction are free to agree, on a trade-by-trade basis or with standing delivery agreements, on the depository to be used for making book- 99 entry deliveries. Absent such an agreement, a seller may effect good delivery under rule G-12(f) by delivering at any depository of which the receiving dealer is a member. MSRB interpretation of November 18, 1985. NOTE: Revised amendments. to reflect subsequent See
also:
 Rule G-15 Interpretive Letters – Callable securities: “catastrophe” calls, MSRB interpretation of November 7, 1977. - Callable securities: disclosure, MSRB interpretation of August 23, 1982. -- Original issue discount, zero coupon securities: disclosure of, pricing to call feature, MSRB interpretation of June 30, 1982. - Callable securities: pricing to call, MSRB interpretation of June 8, 1978. - Callable securities: pricing to call, MSRB interpretation of March 9, 1979. - Callable securities: pricing transactions on construction loan notes, MSRB interpretation of March 5, 1984. - Calculation of price and yield on continuously callable securities, MSRB interpretation of August 15, 1989. - Disclosure of pricing: calculating the dollar price of partially prerefunded bonds, MSRB interpretation of May 15, 1986. - Securities description: revenue securities, MSRB interpretation of December 1, 1982. - Securities description: securities backed by letters of credit, MSRB interpretation of December 2, 1982. - Securities description: prerefunded securities, MSRB interpretation of February 17, 1998. Rule G-17 Interpretive Letter – Put option bonds: safekeeping, pricing, MSRB interpretation of February 18, 1983. Rule
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 Rule
G‐13:
Quotations
Relating
to
Municipal
Securities (a) General. The provisions of this rule shall apply to all quotations relating to municipal securities which are distributed or published, or caused to be distributed or published, by any broker, dealer or municipal securities dealer or any person associated with and acting on behalf of a broker, dealer or municipal securities dealer. For purposes of this rule, the term “quotation” shall mean any bid for, or offer of, municipal securities, or any request for bids for or offers of municipal securities, including indications of “bid wanted” or “offer wanted.” The terms “distributed” or “published” shall mean the dissemination of quotations by any means of communication. Reference in this rule to a broker, dealer or municipal securities dealer shall be deemed to include reference to any person associated with a broker, dealer or municipal securities dealer. (b) Bona Fide Quotations. (i) Except as provided below, no broker, dealer or municipal securities dealer shall distribute or publish, or cause to be distributed or published, any quotation relating to municipal securities, unless the quotation represents a bona fide bid for, or offer of, municipal securities by such broker, dealer or municipal securities dealer, provided, however, that all quotations, unless otherwise indicated at the time made, shall be subject to prior purchase or sale and to subsequent change in price. If such broker, dealer or municipal securities dealer is distributing or publishing the quotation on behalf of another broker, dealer, or municipal securities dealer, such broker, dealer or municipal securities dealer shall have no reason to believe that such quotation does not represent a bona fide bid for, or offer of, municipal securities. Nothing in this paragraph shall be construed to prohibit requests for bids or offers, including indications of “bid wanted” or “offer wanted,” or shall be construed to prohibit nominal quotations, if such quotations are, at the time made, clearly stated or indicated to be such. For purposes of this paragraph, a “nominal quotation” shall mean an indication of the price given solely for informational purposes. (ii) No broker, dealer or municipal securities dealer shall distribute or publish, or cause to be distributed or published, any quotation relating to municipal securities, unless the price stated in the quotation is based on the best judgment of such broker, dealer or municipal securities dealer of the fair market value of the securities which are the subject of the quotation at the time the quotation is made. If a broker, dealer or municipal securities dealer is distributing or publishing a quotation on behalf of another broker, dealer, or municipal securities dealer, such broker, dealer or municipal securities dealer shall have no reason to believe that the price stated in the quotation is not based on the best judgment of the fair market value of the securities of the broker, dealer or municipal securities dealer on whose behalf such broker, dealer or municipal securities dealer is distributing or publishing the quotation. (iii) For purposes of subparagraph (i), a quotation shall be deemed to represent a “bona fide bid for, or offer of, municipal securities” if the broker, dealer or municipal securities dealer making the quotation is prepared to purchase or sell the security which is the subject of the quotation at the price stated in the quotation and under such conditions, if any, as are specified at the time the quotation is made. (iv) No broker, dealer or municipal securities dealer shall knowingly misrepresent a quotation relating to municipal securities made by any other broker, dealer, or municipal securities dealer. (c) Multiple Markets in the Same Securities. No broker, dealer or municipal securities dealer participating in a joint account shall, together with one or more other participants in such account, distribute or publish, or cause to be distributed or published, quotations relating to the municipal securities which are the subject of such account if such quotations indicate more than one market for the same securities. BACKGROUND  On March 9, 1977, the Securities and Exchange Commission (the "Commission") approved the Municipal Securities Rulemaking Board’s proposed rules on quotations and reports of sales or purchases of municipal securities, rule G-13 applies to all quotations with respect to municipal securities transactions, including transactions between professionals. Rule G-13 prohibits the dissemination of a quotation relating to municipal securities unless the quotation represents a bona fide bid for, or offer of, securities. The term "quotation" is defined to mean any bid for, or offer of, municipal securities. A quotation is deemed to be "bona fide" if the firm on whose behalf the quotation is made is prepared to purchase or sell the municipal securities at the price stated in the quotation and under the conditions, if any, specified at the time the quotation is made. The rule does not prohibit requests for bids or offers or giving indications of price solely for informational purposes as long as clearly indicated to be for such purposes. Rule G-13 also prohibits a firm from entering a quotation on behalf of another broker, dealer, or municipal securities dealer if the firm entering the quotation has any reason to believe that the quotation does not represent a bona fide bid for, or offer of, municipal securities. In addition, participants in a joint account are prohibited from entering quotations relating to municipal securities which are the subject of the joint account, if such quotations indicate more than one market for the same securities. Rule
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 BACKGROUND â€ continued  Under rule G-13, the price stated in a quotation for municipal securities has to be based on the best judgment of the person making the quotation as to the fair market value of such securities at the time the quotation is made. The rule does not require that the price stated in a quotation represent only the fair market value of the securities for which the quotation is made, but rather that the price stated have a reasonable relationship to the fair market value of the securities, taking into account all relevant circumstances, such as a firm’s current inventory position, overall and in respect of a particular security, and a firm’s anticipation of the direction of the movement of the market for the securities. In a letter to the Commission staff, the Board presented the following three examples of how this provision would operate: (1) Assume that a dealer submits a bid for bonds, knowing that they have been called by the issuer. The bonds are not general market bonds and the fact that they have been called is not widely known. While called bonds ordinarily trade at a premium, the dealer’s bid is based on the value of the bonds as though they had not been called and is accepted by the dealer on the other side of the trade who is unaware of the called status of the bonds. In these circumstances, the bid clearly would not have been based upon the best judgment of the dealer making it as to the fair market value of the bonds. (2) The provision would also apply to the situation in which a dealer submits a bid for bonds based on valuations obtained from independent sources, which in turn are based on mistaken assumptions concerning the nature of the securities in question. The circumstances indicate that the dealer submitting the bid knows that the securities have a substantially greater market value than the price bid, but the fact that independent valuations were obtained, albeit based on mistaken facts, clouds the dealer’s culpability. The best judgment standard of rule G-13 would apply in this situation. (3) The provision would also apply in the situation in which a dealer makes a bid for or offer of a security without any knowledge as to the value of the security or the value of comparable securities. While the Board does not intend that the best judgment of a dealer as to the fair market value of a security be second-guessed for purposes of the rule, the Board does intend that the dealer be required to act responsibly and to exercise some judgment in submitting a quotation. In other words, a quotation which has been "pulled out of the air" is not based on the best judgment of the dealer and, in the interests of promoting free and open markets in municipal securities, should not be encouraged. Under rule G-13, any quotation, unless otherwise indicated at the time the quotation is made, is subject to prior purchase or sale and to change in price. MSRB INTERPRETATIONS  of the securities, and may take into account relevant factors such as the dealer’s current inventory position, overall and in respect to a particular security, and the dealer’s anticipation of the direction of the market price for the securities. Rule G-13 also prohibits a dealer from entering a quotation on behalf of another dealer if the dealer entering the quotation has any reason to believe that the quotation does not represent a bona fide bid for, or offer of, municipal securities. In addition, participants in a joint account are prohibited from entering quotations relating to municipal securities which are the subject of the joint account, if such quotations indicate more than one market for the same securities. Rule G-13 does not prohibit giving “nominal” bids or offers or giving indications of price solely for informational purposes as long as an indication of the price given is clearly shown to be for such purposes. A dealer that publishes a quote in a daily or other listing must stand ready to purchase or sell the securities at the stated price and amount until the securities are sold or the dealer subsequently changes its price. If either of these events occur, the dealer must withdraw or update its published quotation in the next publication. Stale or invalid quotations violate rule G-13. Rule G-13 does permit a dealer to publish a quotation for a security it does not own if the dealer is prepared to sell the security at the price NOTICE OF INTERPRETATION OF RULE G-13 ON PUBLISHED QUOTATIONS April 21, 1988 The Board has received complaints regarding published quotations, such as those appearing in The Blue List. The complaints, which have been referred to the appropriate enforcement agency, state that municipal securities offerings published by dealers often do not reflect prices and amounts of securities that currently are being offered by the quoting dealer. Board rule G-13, on quotations, prohibits the dissemination of a quotation relating to municipal securities unless the quotation represents a bona fide bid for, or offer of, municipal securities. The term quotation is defined to mean any bid for, or offer of, municipal securities. A quotation is deemed to be bona fide if the dealer on whose behalf the quotation is made is prepared to purchase or sell the municipal securities at the price stated and in the amount specified at the time the quotation is made. Under rule G-13, the price stated in a quotation for municipal securities must be based on the best judgment of the dealer making the quotation as to the fair market value of such securities at the time the quotation is made. The Board has stated that the price must have a reasonable relationship to the fair market value 101 Rule
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 stated in the quotation. If the dealer knows that the security is not available in the market or is not prepared to sell the security at the stated price, the quotation would violate rule G-13. - Interpretive Notice Regarding the Application of MSRB Rules to Transactions with Sophisticated Municipal Market Professionals, April 30, 2002. See
also:
 Rule G-17 Interpretations – Application of Board Rules to Transactions in Municipal Securities Subject to Secondary Market Insurance or Other Credit Enhancement Features, March 6, 1984. Rule
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 Rule
G‐14:
Reports
of
Sales
or
Purchases

 (a) General. No broker, dealer or municipal securities dealer or person associated with a broker, dealer or municipal securities dealer shall distribute or publish, or cause to be distributed or published, any report of a purchase or sale of municipal securities, unless such broker, dealer or municipal securities dealer or associated person knows or has reason to believe that the purchase or sale was actually effected and has no reason to believe that the reported transaction is fictitious or in furtherance of any fraudulent, deceptive or manipulative purpose. For purposes of this rule, the terms “distributed” or “published” shall mean the dissemination of a report by any means of communication. (b) Transaction Reporting Requirements. (i) Each broker, dealer or municipal securities dealer (“dealer”) shall report to the Board or its designee information about each purchase and sale transaction effected in municipal securities to the Real-time Transaction Reporting System (“RTRS”) in the manner prescribed by Rule G-14 RTRS Procedures and the RTRS Users Manual. Transaction information collected by the Board under this rule will be used to make public reports of market activity and prices and to assess transaction fees. The transaction information will be made available by the Board to the Commission, securities associations registered under Section 15A of the Act and other appropriate regulatory agencies defined in Section 3(a)(34)(A) of the Act to assist in the inspection for compliance with and the enforcement of Board rules. (ii) The information specified in the Rule G-14 RTRS Procedures is critical to public reporting of prices for transparency purposes and to the compilation of an audit trail for regulatory purposes. All dealers have an ongoing obligation to report this information promptly, accurately and completely. The dealer may employ an agent for the purpose of submitting transaction information; however the primary responsibility for the timely and accurate submission remains with the dealer that effected the transaction. A dealer that acts as a submitter for another dealer has specific responsibility to ensure that transaction reporting requirements are met with respect to those aspects of the reporting process that are under the Submitter's control. A dealer that submits inter-dealer municipal securities transactions for comparison, either for itself or on behalf of another dealer, has specific responsibility to ensure that transaction reporting requirements are met with respect to those aspects of the comparison process that are under the Submitter's control. (iii) To identify its transactions for reporting purposes, each dealer shall obtain a unique broker symbol from the National Association of Securities Dealers, Inc. (iv) Each dealer shall provide to the Board on Form RTRS information necessary to ensure that its trade reports can be processed correctly. Such information includes the manner in which transactions will be reported, the broker symbol used by the dealer, the identity of and information on any intermediary to be used as a Submitter, information on personnel that can be contacted if there are problems in RTRS submissions, and information necessary for systems testing with RTRS. Information provided on Form RTRS shall be kept current by notifying the MSRB when contact information or other information provided on the form changes. (v) Testing Requirements. (A) Prior to submitting transaction data under RTRS Procedures, a dealer must successfully test its ability to interface with RTRS as described in the RTRS Users Manual. (B) Testing During RTRS Start-Up (1) Testing facilities will be made available at least six months prior to the announced effective date of these transaction reporting procedures (“Announced RTRS Start-Up Date”). Except as provided in the subparagraph below, each dealer shall be prepared for testing no later than three months prior to the Announced RTRS Start-Up Date and shall either have successfully tested its RTRS capabilities or have scheduled a testing date with the MSRB by that time. (2) A dealer electing to use only the Web-based trade input method of transaction reporting and that has averaged submissions of five or fewer trades during a one-year period beginning in July 2003 shall be required to test its RTRS capabilities no later than one month prior to the Announced RTRS Start-Up Date. (vi) The following transactions shall not be reported under Rule G-14: (A) Transactions in securities without assigned CUSIP numbers; (B) Transactions in Municipal Fund Securities; and (C) Inter-dealer transactions for principal movement of securities between dealers that are not inter-dealer transactions eligible for comparison in a clearing agency registered with the Commission. 103 Rule
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G‐14
RTRS
Procedures
 (a) General Procedures. (i) The Board has designated three RTRS Portals for dealers to use in the submission of transaction information. Transaction data submissions must conform to the formats specified for the RTRS Portal used for the trade submission. The RTRS Portals may be used as follows: (A) The message-based trade input RTRS Portal operated by National Securities Clearing Corporation (NSCC) (“Message Portal”) may be used for any trade record submission or trade record modification. (B) The RTRS Web-based trade input method (“RTRS Web Portal” or “RTRS Web”) operated by the MSRB may be used for low volume transaction submissions and for modifications of trade records, but cannot be used for submitting or amending inter-dealer transaction data that is used in the comparison process. Comparison data instead must be entered into the comparison system using a method authorized by the registered clearing agency. (C) The NSCC Real-Time Trade Matching (“RTTM”) Web-based trade input method (“RTTM Web Portal” or “RTTM Web”) may be used only for submitting or modifying data with respect to Inter-Dealer Transactions Eligible for Comparison. (ii) Transactions effected with a Time of Trade during the hours of the RTRS Business Day shall be reported within 15 minutes of Time of Trade to an RTRS Portal except in the following situations: (A) A “List Offering Price/Takedown Transaction,” as defined in paragraph (d)(vii) of Rule G-14 RTRS Procedures, shall be reported by the end of the day on which the trade is executed. (B) A dealer effecting trades in short-term instruments under nine months in effective maturity, including variable rate instruments, auction rate products, and commercial paper shall report such trades by the end of the RTRS Business Day on which the trades were executed. (C) A dealer shall report a trade within three hours of the Time of Trade if all the following conditions apply: (1) the CUSIP number and indicative data of the issue traded are not in the securities master file used by the dealer to process trades for confirmations, clearance and settlement; (2) the dealer has not traded the issue in the previous year; and (3) the dealer is not a syndicate manager or syndicate member for the issue. If fewer than three hours of the RTRS Business Day remain after the Time of Trade, the trade shall be reported no later than 15 minutes after the beginning of the next RTRS Business Day. This provision (C) will cease to be effective on June 30, 2008 for when, as and if issued transactions and December 29, 2006 for all other transactions. (D) A dealer reporting an “away from market” trade as described in Section 4.3.2 of the Specifications for Real-Time Reporting of Municipal Securities Transactions shall report such trade by the end of the day on which the trade is executed. (E) A dealer reporting an inter-dealer “VRDO ineligible on trade date” as described in Section 4.3.2 of the Specifications for Real-Time Reporting of Municipal Securities Transactions shall report such trade by the end of the day on which the trade becomes eligible for automated comparison by a clearing agency registered with the Commission. (F) A dealer reporting an inter-dealer “resubmission of an RTTM cancel” as described in Section 4.3.2 of the Specifications for Real-Time Reporting of Municipal Securities Transactions shall resubmit identical information about the trade cancelled by the end of the RTRS Business Day following the day the trade was cancelled. (iii) Transactions effected with a Time of Trade outside the hours of the RTRS Business Day shall be reported no later than 15 minutes after the beginning of the next RTRS Business Day. (iv) Transaction data that is not submitted in a timely and accurate manner in accordance with these Procedures shall be submitted or corrected as soon as possible. (v) Information on the status of trade reports in RTRS is available through the Message Portal, through the RTRS Web Portal, or via electronic mail. Trade status information from RTRS indicating a problem or potential problem with reported trade data must be reviewed and addressed promptly to ensure that the information being disseminated by RTRS is as accurate and timely as possible. (vi) RTRS Portals will be open for transmission of transaction data and status of trade reports beginning 30 minutes prior to the beginning of the RTRS Business Day and ending 90 minutes after the end of the RTRS Business Day. (b) Reporting Requirements for Specific Types of Transactions. (i) Inter-Dealer Transactions Eligible for Comparison by a Clearing Agency Registered with the Commission. (A) Bilateral Submissions: Inter-Dealer Transactions Eligible for Trade Comparison at a Clearing Agency Registered with the Commission (registered clearing agency) shall be reported by each dealer submitting, or causing Rule
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 to be submitted, such transaction records required by the registered clearing agency to achieve comparison of the transaction. The transaction records also shall include the additional trade information for such trades listed in the Specifications for Real-Time Reporting of Municipal Securities Transactions contained in the RTRS Users Manual. (B) Unilateral Submissions: For transactions that, under the rules of the registered clearing agency, are deemed compared upon submission by one side of the transaction (unilateral submissions), a submission is not required by the contra-side of the transaction. The contra-side, however, must monitor such submissions to ensure that data representing its side of the trade is correct and use procedures of the registered clearing agency to correct the trade data if it is not. (ii) Customer Transactions. Reports of transactions with customers shall include the specific items of information listed for such transactions in the Specifications for Real-Time Reporting of Municipal Securities Transactions. (iii) Agency Transactions With Customers Effected By An Introducing Broker Against Principal Account of its Clearing Broker. Reports of agency transactions effected by an introducing broker for a customer against the principal account of its clearing broker shall include the specific items of information listed in the Specifications for Real-Time Reporting of Municipal Securities Transactions for “Inter-Dealer Regulatory-Only” trades. (iv) Transactions with Special Conditions. Reports of transactions affected by the special conditions described in the RTRS Users Manual in Section 4.3.2 of the Specifications for Real-Time Reporting of Municipal Securities Transactions shall be reported with the “special condition indicators” shown and in the manner specified. Special condition indicators designated as “optional” in these Specifications are required for the Submitter to obtain an extended reporting deadline under paragraphs (a)(ii)(B)-(C) of Rule G-14 RTRS Procedures, but may be omitted if a deadline extension is not claimed. All other special condition indicators are mandatory, including the List Offering Price/Takedown Transaction indicator for transactions identified in paragraph (a)(ii)(A) of Rule G-14 RTRS Procedures. (c) RTRS Users Manual. The RTRS Users Manual is comprised of the Specifications for Real-Time Reporting of Municipal Securities Transactions, the Users Guide for RTRS Web, Testing Procedures, guidance on how to report specific types of transactions and other information relevant to transaction reporting under Rule G-14. The RTRS Users Manual is located at www.msrb.org and may be updated from time to time with additional guidance or revisions to existing documents. (d) Definitions. (i) “RTRS” or “Real-Time Transaction Reporting System” is a facility operated by the MSRB. RTRS receives municipal securities transaction reports submitted by dealers pursuant to Rule G-14, disseminates price and volume information in real time for transparency purposes, and otherwise processes information pursuant to Rule G-14. (ii) The “RTRS Business Day” is 7:30 a.m. to 6:30 p.m., Eastern Time, Monday through Friday, on each business day as defined in Rule G- 12(b)(i)(B). (iii) “Time of Trade” is the time at which a contract is formed for a sale or purchase of municipal securities at a set quantity and set price. (iv) “Submitter” means a dealer, or service bureau acting on behalf of a dealer, that has been authorized to interface with RTRS for the purposes of entering transaction data into the system. (v) “Inter-Dealer Transaction Eligible for Automated Comparison by a Clearing Agency Registered with the Commission” is defined in MSRB Rule G-12(f)(iv). (vi) “Municipal Fund Securities” is defined in Rule D-12. (vii) “List Offering Price/Takedown Transaction” means a primary market sale transaction executed on the first day of trading of a new issue: (A) by a sole underwriter, syndicate manager, syndicate member or selling group member at the published list offering price for the security (“List Offering Price Transaction”); or (B) by a sole underwriter or syndicate manager to a syndicate or selling group member at a discount from the published list offering price for the security (“RTRS Takedown Transaction”). 
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 BACKGROUND  Rule G-14 requires a dealer which distributes or publishes a report of a sale or purchase of municipal securities to know or have reason to believe that the purchase or sale was actually effected and no reason to believe that the transaction is fictitious or in furtherance of any fraudulent, misleading or deceptive purpose. A report of a short sale is not prohibited by the rule. Further, Rule G-14 requires each dealer to report every municipal security transaction to the Board or its designee. Such information collected by the Board will be used to make public reports of market activity and prices, and also will be made available to the Commission and the agencies charged with inspection for compliance with, and enforcement of, Board rules. The associated Transaction Reporting Procedures define certain details of inter-dealer transaction reporting. Further information and specifications are contained in the User's Manual and in various notices, all of which are on the MSRB's web site (www.msrb.org)   MSRB INTERPRETATIONS  NOTICE CONCERNING EXECUTING BROKER SYMBOLS: RULE G-14 December 16, 1996 MSRB Rule G-14 on Transaction Reporting requires that every dealer obtain an executing broker symbol, if one has not already been assigned, from National Association of Securities Dealers Automated Quotations (NASDAQ). NASDAQ will assign executing broker symbols to all dealers including bank dealers. NASDAQ Subscriber Services can be reached at 212231-5180, option 3. When calling NASDAQ Subscriber Services for an executing broker symbol, dealers should state that they need the symbol for use in reporting transactions in municipal securities to the MSRB. If dealers experience difficulties in obtaining executing broker symbols, then they can send an e-mail to subscriber@NASDAQ.com. NOTE: This notice was revised to reflect updated information. RULE G-14 TRANSACTION REPORTING PROCEDURES— TIME OF TRADE REPORTING August 1, 1996 1. Q: When is the inter-dealer time of trade reporting requirement effective? A: The amendment to the rule G-14 transaction reporting procedures requiring the submission of time of trade execution for inter-dealer transactions became effective on July 1, 1996. 2. Q: What is the purpose of submitting the time of trade to the Board? A: The Board’s Transaction Reporting Program has two functions – public dissemination of price and volume information about frequently traded securities and the maintenance of a surveillance database to assist regulators in inspection for compliance with, and enforcement of, Board rules and securities laws. The surveillance database includes, among other things, the price and volume of each reported transaction, the trade date, the identification of the security traded, and the parties to the trade. The addition of the time of trade execution will enable the enforcement agencies to construct audit trails of inter-dealer transactions. When customer transactions are added to the system in 1998, these transaction Rule
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 records also will include time of trade. Time of trade will not be made public. 3. Q: How is time of trade reported? A: Under rule G-14, inter-dealer transaction information is reported to the Municipal Securities Rulemaking Board using the same system used for automated comparison of inter-dealer transactions, operated by National Securities Clearing Corporation. Rule G-14 requires that the transaction information be submitted in the format specified by NSCC, and within such timeframe as required by NSCC to produce a compared trade for the transaction in the initial comparison cycle on the night of trade date. A broker, dealer or municipal securities dealer may employ an agent that is a member of NSCC or a registered clearing agency for the purpose of submitting transaction information. For example, the clearing broker generally reports transactions to the MSRB through NSCC when there is an introducing/clearing broker arrangement. Under the new amendment to rule G-14, the transaction information submitted in accordance with the rule G-14 procedures must include the time of trade execution. NSCC has provided a space designated for this purpose in the standard format used for submitting trade data into the automated comparison system. 4. Q: Which dealer in an inter-dealer transaction reports the time of trade? A: Under NSCC’s automated comparison procedures, both sides of a transaction generally are required to submit transaction information. Therefore, time of trade will be reported by each side of the transaction in most cases. For “syndicate take-down” transactions, which are reported by only the seller, the time of trade is reported only by the seller. 5. Q: If the time of trade that I submit does not agree with the time of trade that the contra party submits, will this cause the trade not to compare? A: No. The time of trade is not a match item in the automated comparison system. 6. Q: Why do both sides to the transaction have to submit the time of trade? 106

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 A: In some cases, even though both sides of a transaction are supposed to submit transaction information, the Board receives transaction information from only one party to a transaction. This may occur, for example, when a dealer “stamps an advisory” to create a compared trade. It therefore is necessary for each side of a transaction to report the time of trade to ensure that the surveillance data base has at least one report of the time of trade. 7. Q: Does the time of trade reporting requirement apply only to secondary market transactions? A: No. The time of trade is required for all inter-dealer transactions including those in the primary market. 8. Q: How does a dealer determine the time of trade for transactions? A: In general, this is the same time as the “time of execution,” as currently required for recordkeeping purposes under rule G8(a)(vi) and (vii). 9. Q: What is the time of trade for syndicate allocations on new issues? A: First it should be noted that the “initial trade date” for an issue of municipal securities cannot precede the date of award (for competitive issues) or the date that the bond purchase agreement is signed (for negotiated issues). See rule G-34(a)(ii)(C)(2) and MSRB Interpretations of April 30, 1982, MSRB Manual and October 7, 1982, MSRB Manual. Similarly, the time of trade may not precede the time of award (for competitive issues) or the time that the bond purchase agreement is signed (for negotiated issues). In the typical case involving a competitive issue in which allocations are made after the date of award, the time of trade execution is the time that the allocation is made. If allocations have been “preassigned,” prior to a competitive award, or prior to the signing of a bond purchase agreement, the time of award or signing of the bond purchase agreement should be entered as the “time of trade.” Dealers can monitor their municipal transaction reporting compliance in several ways. For customer and inter-dealer transaction reporting, the MSRB Dealer Feedback System (“DFS”) provides monthly statistical information on transactions reported by a dealer to the MSRB and information about individual transactions reported by a dealer to the MSRB. For daily feedback on customer trades reported, the MSRB provides dealers a “customer report edit register” on the day after trades were submitted. This product indicates trades successfully submitted and those that contained errors or possible errors.3 For inter-dealer transactions, National Securities Clearing Corporation (“NSCC”) provides to its members daily files, sometimes called “contract sheets,” that can be used to check the content and status of the transactions the member has submitted. Inter-Dealer Transactions Even before Rule G-14 imposed requirements for transaction reporting, MSRB Rule G-12(f), on use of automated comparison, clearance and settlement systems, required dealers to submit data on their inter-dealer transactions in municipal securities to a registered clearing agency for automated comparison on trade date (“T”). NSCC provides the automated comparison services for transactions in municipal securities. The same inter-dealer trade record dealers submit to NSCC for comparison also is used to satisfy the requirements of MSRB Rule G-14 to report interdealer transactions to the MSRB. NSCC forwards the transaction data it receives from dealers to the MSRB so that dealers do not have to send a separate record to the MSRB. However, satisfying the requirements for successful trade comparison under Rule G12(f) does not, by itself, necessarily satisfy a dealer's Rule G-14 transaction reporting requirements. In addition to the trade information necessary for a successful trade comparison, Rule G-14 requires dealers to submit accrued interest, time of trade (in military format) and the effecting brokers' (both buy and sell side) four-letter identifiers, also known as executing broker symbols (“EBS”). Failure to include accrued interest, time of trade and EBS when submitting transaction information to NSCC's automated comparison system is a violation of MSRB Rule G-14 on transaction reporting even though the trade may compare on T. As noted above, the MSRB provides dealers with statistical measures of compliance with some important aspects of MSRB Rules G-12 and G-14 through its Dealer Feedback System.4 The statistics available for inter-dealer trades include: ï‚— Late or Stamped – The frequency with which a dealer causes an inter-dealer trade not to compare on trade date is reflected in the “late or stamped” statistic. Trades that do not compare on trade date are ineligible for the Daily Report. The statistic is an indication of how often a dealer submits a trade late or stamps its contra-party's advisory, and is expressed as a percentage of the dealer's total compared trades. Because this statistic includes both “when, as and if issued” and regular-way trades, it provides a comprehensive analysis of the timeliness with which a dealer reports its trades. ï‚— Invalid Time of Trade – This statistic reflects the total number of trade records submitted by a dealer in which the time of trade is null or not within the hours of 0600 to 2100. Accurate REMINDER REGARDING MSRB RULE G-14 TRANSACTION REPORTING REQUIREMENTS March 3, 2003 The Municipal Securities Rulemaking Board (“MSRB”) and NASD would like to remind brokers, dealers and municipal securities dealers (collectively “dealers”) about the requirements of MSRB Rule G-14, on transaction reporting. This document also describes services provided by the MSRB designed to assist dealers in complying with Rule G-14. Transactions reported to the MSRB under Rule G-14 are made available to the NASD and other regulators for their market surveillance and enforcement activities. The MSRB also makes public price information on municipal securities transactions using data reported by dealers. One product is the Daily Report of Frequently Traded Securities (“Daily Report”) that is made available to subscribers each morning by 7:00 am. Currently, it includes details of transactions in municipal securities issues that were “frequently traded” the previous business day.1 The Daily Report is one of the primary public sources of municipal securities price information and is used by a variety of industry participants to evaluate municipal securities. 2 107 Rule
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 times of trade are essential to regulatory surveillance because they provide an audit trail of trading activity. ï‚— Uncompared Input – A high percentage of uncompared trades may indicate that a dealer is submitting duplicative trade information, inaccurate information, or is erroneously submitting buy-side reports against syndicate takedowns.5 The uncompared input statistic reflects trade records that a dealer inputs for comparison that never compare and are expressed as a percentage of a dealer's total number of compared trades. It is a violation of Rule G-14 to submit trade reports that do not accurately represent trades. Moreover, Rule G-12(f) requires that dealers follow-up on inter-dealer trade submissions that do not compare in the initial trade cycle by using the post-original comparison procedures at NSCC. Trade reports made to MSRB and NSCC that never compare are a concern because they either represent inaccurate trade input or indicate that the dealer is not following-up on uncompared trades using the post-original comparison procedures provided by NSCC. ï‚— Compared but Deleted or Withheld – This statistic represents deleted or withheld trade records and is a percentage of all compared trade records. Compared trade records that are subsequently deleted or withheld are a concern because these trades may have previously appeared on the Daily Report. While it is sometimes necessary to correct erroneous trade submissions using delete or withhold procedures, this will be an infrequent occurrence if proper attention is paid to transaction reporting procedures. Dealers that have a high percentage of such trades should review their procedures to determine why transaction data is being entered inaccurately. ï‚— Executing Broker Symbol (EBS) Statistics – These statistics indicate the percentage of trade submissions for which the field identifying the dealer that effected the trade is either empty or contains an invalid entry. These statistics are compiled for every member of NSCC.6 It provides information on three types of EBS errors: 1) null EBS, where a dealer left the EBS field blank; 2) numeric EBS, where a dealer entered a number in the EBS field; and 3) unknown EBS, where a dealer populated the EBS field with a symbol that is not a valid NASD-assigned EBS. A large number of EBS errors may indicate that both clearing firm and correspondent dealer reporting procedures and/or software need to be reviewed to ensure that the EBS is entered correctly and does not “drop out” of the data during the submission process. The compatibility of correspondent dealer and clearing broker reporting systems also may need to be examined. Note on Stamped Advisories Firms often stamp advisories on T+1 after failing to submit accurate inter-dealer transaction information on trade date. A stamped advisory essentially is a message sent through the NSCC comparison system by the clearing firm on one side of a trade indicating that it agrees with the trade details submitted by the contra party. A significant percentage of stamped advisories is a concern for two reasons. First, trades compared via a stamped advisory cannot be published in the Daily Report because they do not compare on trade date. Second, unless the dealer stamping the advi- Rule
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 sory verifies every data element submitted by the contra party (including accrued interest, time of trade and EBS) stamping the advisory may effectively confirm erroneous data about the trade, which will be included in the surveillance data provided to market regulators. With particular respect to EBS, both the MSRB and the NASD have observed that dealers do not always include accurate contra parties' EBSs in transaction reports. As a result, when a firm “stamps” a contra party's submission, its own EBS may not be correctly included in the transaction report sent to the MSRB. In lieu of stamping an advisory, it is possible for a dealer to submit an “as of” trade record to match an advisory pending against it. This serves the same purpose as stamping an advisory but in addition allows the dealer to input its own EBS (and other data elements) and thus ensure the accuracy of the information about its side of the trade. While the trade will still be reported late, the data about the trade will be more likely to be correct. Note on Clearing Broker-Correspondent Issues While Rule G-14 notes that accurate and timely transaction reporting is primarily a responsibility of the firm that effected a trade, it also notes that a firm may use an agent or intermediary to submit trade information on its behalf. For inter-dealer trades, a direct member of NSCC must be used to input transaction data if the dealer effecting the transaction is not itself a direct member. This Rule G-14 requirement that a clearing broker and correspondent work together to submit transaction reporting data in a timely and accurate manner is the same as exists in Rule G-12(f) on inter-dealer comparison. Where there is a clearing-correspondent relationship between dealers, timely and accurate submission of trade data to NSCC generally requires specific action by both the direct member of NSCC (who clears the trade) as well as the correspondent firm. The MSRB has noted that the responsibility for proper trade submission is shared between the correspondent and its clearing broker.7 Clearing brokers, their correspondents and their contraparties all have a responsibility to work together to resolve inaccurate or untimely information on transactions in municipal securities. A clearing firm's use of a large number of stamped advisories may indicate systemic problems with the clearing broker's procedures, the correspondents' procedures, or both.8 Customer Transactions Dealers that engage in municipal securities transactions with customers also are required to submit accurate and complete trade information to the MSRB by midnight of trade date under Rule G-14. MSRB customer transaction reporting requirements include the reporting of time of trade and the dealer's EBS for each trade. Dealers have flexibility in the way they report customer transactions to the MSRB Transaction Reporting System. The three options available allow dealers to: 1) transmit customer transaction data directly to NSCC, which, using its communications line with MSRB, forwards trade data to the MSRB the evening on which it is received; 2) send the data via an intermediary, such as a clearing broker or service bureau, to NSCC, which forwards the data to the MSRB; or 3) submit the data directly to the MSRB using a PC dial-up connection and software provided by the MSRB. 108

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 The MSRB Dealer Feedback System also provides dealers with performance statistics for customer trade reporting. These statistics include: ï‚— Ineligible – This statistic reflects the percentage of a dealer's initial customer trade records that were ineligible for the Daily Report, because either the trade reports were submitted after trade date or they contained some other dealer error that caused it to be rejected by the MSRB Transaction Reporting System. ï‚— Late – Initial customer trade records that were submitted after trade date are indicated in this statistic and are a subset of ineligible trades. This percentage is reported separately because late reporting is the most common reason for trade records to be ineligible for the Daily Report. ï‚— Cancelled – This is the percentage of a dealer's initial customer trade records that were cancelled by the dealer after initial submission. Cancelled trades are a cause for concern because the data in the trade record submitted prior to cancellation may have already been included in the Daily Report. ï‚— Amended – This is the percentage of a dealer's initial customer trade records that were amended by the dealer after initial submission. Amended trades are a cause for concern because the data in the trade record may have already been included in the Daily Report. While it is important that customer trades be immediately amended if any of the required information was incorrectly reported, dealers sometimes amend customer trade records unnecessarily. If trade details solely for internal dealer recordkeeping or delivery are changed, the dealer should ensure that its processing systems do not automatically send MSRB an “amend” record. For example, if a transaction is reported correctly to the MSRB on trade date, the dealer should not amend the transaction (or cancel and resubmit another transaction record to the MSRB) simply because customer account numbers or allocation and delivery information is added or changed in the dealer's own records.9 Amendments to change settlement dates for when-issued transaction also are generally unnecessary. Since MSRB monitors settlement dates for new issues through other sources, dealers should not send amended trade records merely because the settlement date becomes known. Dealers may find that their automated systems are sending amended trade records to the MSRB in these cases, even though amendments are unneeded. Attention to these areas could greatly reduce the number of amendments sent to MSRB by some dealers. ï‚— Invalid Time of Trade – This statistic reflects the total number of trade records submitted by a dealer in which the time of trade is null or not within the hours of 0600 to 2100. Accurate times of trade are essential to regulatory surveillance as they provide an audit trail of trading activity. Questions / Further Information Questions about this notice may be directed to staff at either MSRB or NASD. For more information on transaction reporting, including questions and answers and the customer transaction reporting system user guide, or to sign up for the Dealer Feedback System, we encourage dealers to visit the MSRB Web site at www.msrb.org, particularly the Municipal Price Reporting / Transaction Reporting System section. 1 2 3 4 5 6 7 8 9 
 The Daily Report is available by subscription at no cost. Currently, “frequently traded” securities are those that traded two or more times during a trading day. As noted below, inter-dealer transactions must be compared on trade date to be eligible for this report. The MSRB also publishes a “Daily Comprehensive Report,” providing details of all municipal securities transactions that were effected during the trading day one week earlier. The Daily Comprehensive Report is available by subscription for $2,000 per year. Along with trades in issues that are not “frequently traded,” this report includes transactions reported to the MSRB late, inter-dealer trades compared after trade date, and transaction data corrected by dealers after trade date. A dealer may call the MSRB at (703) 797-6600 and ask to speak with a Transaction Reporting Assistant who can check to see if its firm is signed up for this free service. A complete description of the service is available at www.msrb.org in the Municipal Price Reporting / Transaction Reporting System section. NASD also has informed dealers of this service in “Municipal Transaction Reporting Compliance Information,” Regulatory and Compliance Alert (Summer 2002). Under NSCC procedures, no buy-side trade report should be submitted for comparison against a syndicate “takedown” trade submitted by the syndicate manager. Syndicate transactions are “one-sided submissions” and compare automatically after being submitted by the syndicate manager. Paragraph (a) (ii) of Rule G-14 procedures thus requires that only the syndicate manager submit the trade. The EBS statistics reflect the aggregate number of such errors found in transaction data submitted by a particular NSCC member firm for itself and/or for its correspondents. This statistic cannot be generated individually for each correspondent because the EBS needed to identify the correspondent is itself missing or invalid. EBS statistics only measure the validity of the input the submitter provides to identify its own side of the trade and do not measure the accuracy with which a dealer uses EBSs to identify its contra-parties. In 1994, the MSRB stated that, “introducing brokers share the responsibility for complying with [Rule G-12(f)] with their clearing brokers. Introducing brokers who fail to submit transaction information in a timely and accurate manner could subject either or both parties to enforcement action for violating [Rule G-12(f)].” See “Enforcement Initiative,” MSRB Reports, Vol. 14, No. 3 (June 1994) at 35. NASD has since reiterated this policy; see the following articles in Regulatory and Compliance Alert: “Introducing Firm Responsibility When Reporting Municipal Trades Through Service Bureaus and Clearing Firms” (Winter 2000) and “Municipal Securities Transaction Reporting Compliance Information” (Spring 2001). As explained above, one of the problems often associated with stamped advisories is that the EBS on transaction records may be missing or inaccurate. Since a clearing broker may have many correspondents, stamping an advisory can make it impossible for market regulators to know which correspondent actually effected the trade. Of course, if the initial information reported to the MSRB, such as total par value, is changed, the trade record must be amended to make it correct. REPORTING OF TRANSACTIONS ARISING FROM REPURCHASE AGREEMENTS: RULE G-14 June 18, 2004 The MSRB has received inquiries from dealers as to whether they must report purchase and sale transactions that arise from repurchase agreements as “transactions” under Rule G-14, on transaction reporting. Typically, a bona fide, properly documented repurchase agreement (“repo”) is an agreement consisting of two transactions whereby one party purchases securities from a second party, and the second party agrees to repurchase the securities on a certain future date at a price that will produce an agreed-upon rate of return. The parties may be dealers, investors, or others. There is a repo program known to the MSRB in which one party to the repo transaction is a dealer and the other party is a 109 Rule
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 customer, so this type of repo results in a sequence of two customer transactions. The Transaction Reporting Program, which disseminates prices of municipal securities trades reported to the Board by dealers under Rule G-14, has an objective to provide price transparency about the current market. Repos, however, are not the type of transactions that were intended for reporting under Rule G-14. This is because the paired transactions of a repo function as a financing agreement and the underlying transactions, while technically purchase-sale agreements, are not necessarily effected at market prices. Since there is no way in today's batch Transaction Reporting System to suppress customer transaction reports from being portrayed as market prices, dealers should not report repos to the current Transaction Reporting Program. This approach is consistent with the practice for reporting of corporate bond transactions to the NASD's TRACE system, in that NASD advises dealers not to report corporate bond repo transactions.1 In January 2005, the MSRB plans to begin operation of the Real-Time Transaction Reporting System (RTRS) and to require reporting of transactions in real-time under a proposed change to Rule G-14.2 In RTRS there is an indicator by which a dealer can report that a trade was done under special conditions, including trades done at other than the market price.3 The MSRB plans to amend the RTRS specifications to add a value to this indicator by which a dealer would report that a transaction was done at a price away from the market because it was a customer transaction and was part of a repo. Such reporting will support the creation of a complete “audit trail” for market surveillance purposes. The indicator in this case will cause the trade to be suppressed from publication to avoid misleading transparency reports. When the RTRS Specification is amended to add the value for “repo not at market price,” an effective date will be stated for required reporting of such repos. Between January 2005 and the effective date of the amended Specification, dealers have the option to report such repos, or not, depending upon the configuration of their trade reporting systems. Before the effective date, if a dealer reports a repo that is a customer transaction away from the market, the report should include the value “R004” in the SPXR field, to indicate that it is a non-market price with “reason not listed” among currently used values. 1 2 3 
 See, e.g., “TRACE Frequently Asked Questions www.nasd.com/mkt_sys/trace_faqs_reporting.asp. (Reporting)” on The proposed amendment was filed with the Commission on June 1, 2004. See “Real-Time Transaction Reporting: Notice of Filing of Proposed Rule Change to Rules G-14 and 12(f),” Notice 2004-13, on www.msrb.org. See Specifications for Real-time Reporting of Municipal Securities Transactions, Version 1.2, section 4.3.2, field “SPXR.” REMINDER NOTICE ON “LIST OFFERING PRICE” AND THREE-HOUR EXCEPTION FOR REAL-TIME TRANSACTION REPORTING: RULE G-14 porting Procedures. As used in this context, the term means the publicly announced “initial offering price” at which a new issue of municipal securities is to be offered to the public. Real-time transaction reporting requires dealers to report most transactions within fifteen minutes of the time of trade execution.1 Transactions effected at the “list offering price” by syndicate or selling group members2 on the first day of trading in a new issue are eligible for an exception found in Rule G-14 RTRS Procedures section (a)(ii)(A). Such transactions instead are required to be reported by the end of the day. Note that syndicate and selling group members are not required to wait to report such transactions at the end of the day and may choose to report prior to the end of the day. The exception from fifteen-minute transaction reporting for list-price syndicate trades is based on operational difficulties that otherwise might be presented for dealers when large numbers of transactions at the initial offering price must be reported by a dealer at one time. The MSRB viewed these operational considerations as sufficiently important to allow trades to be reported at the end of the day given that the price of such trades (the “list offering price”) is public. Note that transactions by syndicate or selling group members at prices other than the “list offering price” on the first day of trading in a new issue are required to be reported within fifteen minutes of the time of trade execution. For example, transactions between the syndicate manager and syndicate members (“takedown” transactions) that are at prices other than the “list offering price” must be reported within fifteen minutes of the time of execution. Similarly, transactions done at offering prices that have not been publicly announced, e.g. “not reoffered” prices, also must be reported within fifteen minutes of the time of execution since these prices are not public. Questions also have been asked about the availability of the three-hour trade reporting exception found in Rule G-14 RTRS Procedures section (a)(ii)(C). When a dealer effects a trade in an issue it has not traded in the past year and does not have CUSIP numbers and indicative data for the issue in its securities master file used to process trades for confirmations, clearance and settlement, it is allowed three hours to report.3 This exception is designed to allow a dealer time to set-up a security it has not traded and is available for transactions on the first day of trading in a new issue. Note this exception is not available for syndicate and selling group members. 1 2 3 
 Rule changes to MSRB Rules G-14, on transaction reporting, and G-12(f), on automated comparison of inter-dealer transactions, that will require dealers to report transactions in real-time become effective January 31, 2005. See MSRB Notice 2004-36 (November 17, 2004) on www.msrb.org. References to “syndicate and selling group members” in this context are meant to include managers of syndicates as well as sole underwriters or placement agents in non-syndicated offerings. The three-hour exception sunsets one year after real-time transaction reporting is implemented. December 10, 2004 The MSRB has received questions concerning the meaning of “list offering price” in Rule G-14 Real-Time Transaction Re- Rule
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 REMINDER NOTICE ON USE OF “LIST OFFERING PRICE/TAKEDOWN” INDICATOR: RULE G-14 NOTICE ON COMPARISON OF INTER-DEALER DELIVERIES THAT DO NOT REPRESENT INTER-DEALER TRANSACTIONS—”STEP OUT” DELIVERIES: RULES G-12(f) AND G-14 January 19, 2007 On January 8, 2007, certain amendments to Rule G-14 concerning the “List Offering Price/Takedown” indicator became effective. These amendments require the use of the “List Offering Price/Takedown” indicator on primary market sale transactions executed on the first day of trading of a new issue: • by a sole underwriter, syndicate manager, syndicate member or selling group member at the published list offering price for the security (“List Offering Price Transaction”); or • by a sole underwriter or syndicate manager to a syndicate or selling group member at a discount from the published list offering price for the security (“RTRS Takedown Transaction”).1 Since implementation of the revised “List Offering Price/Takedown” indicator, the MSRB has received several questions concerning the use of the indicator on certain transactions executed by sole underwriters, syndicate managers, syndicate members, or selling group members on the first day of trading in a new issue. These questions relate to whether inter-dealer transactions at a price equal to the “list offering price” are included in the definition of “List Offering Price Transactions.” The MSRB wishes to clarify that inter-dealer transactions are not included in the definition of “List Offering Price Transactions.”2 The MSRB has previously clarified that the published list offering price is defined as the “publicly announced ‘initial offering price’ at which a new issue of municipal securities is to be offered to the public.”3 A large number of sales to investors at the published list price are expected on the first day of trading of a new issue, and these transactions offer relatively little value to real-time transparency. Consequently, the “List Offering Price” exception provides these transactions with an end-of-day exception to the 15-minute deadline. An inter-dealer sale transaction at a price equal to the list offering price, however, does provide useful current market information, since it can be presumed that the security is destined to be redistributed to investors at a price above the published list offering price. Inter-dealer transactions at the list offering price, therefore, are not included in the definition of “List Offering Price Transactions,” and identifying such transactions with the “List Offering Price/Takedown” indicator would violate MSRB Rule G-14. 1 2 3 April 1, 2005 The MSRB reminds dealers of trade reporting procedures with respect to “step outs” and other inter-dealer deliveries that are not the result of inter-dealer transactions. Rule G-14 requires that inter-dealer purchase-sale transactions eligible for comparison through the National Securities Clearing Corporation (NSCC) automated comparison system (RTTM) be reported to the MSRB Transaction Reporting System. For these inter-dealer transactions, trade reporting to the MSRB is accomplished by both the purchasing and selling dealers submitting the trade for comparison following NSCC’s procedures, and ensuring that the trade record includes certain additional data required by Rule G-14. NSCC then forwards each dealer’s trade submission to the MSRB. In effect, the comparison submission to NSCC doubles as the trade report to the MSRB. In certain situations, deliveries of securities occur between two dealers even though the two dealers did not effect a purchasesale transaction with each other. Dealers using the comparison system to facilitate these deliveries must be careful not to report the deliveries as inter-dealer transactions. A frequent example of this situation occurs when an independent investment advisor effects a transaction with a dealer (the “executing dealer”) and instructs the executing dealer to deliver securities to another dealer (the “custody dealer”) for unnamed clients of the investment advisor. The resulting delivery between the executing dealer and the custody dealer may be handled through NSCC by submitting the delivery to RTTM for comparison, even though there was no purchase-sale transaction between the two dealers. However, in these cases, the executing dealer and the custody dealer each must indicate that the submissions are for RTTM Matching Only (Destination 01, see below) to ensure that the submissions do not also constitute trade reports under Rule G-14. Failure to do so by either party will result in a violation of Rule G-14.1 NSCC has published procedures for identifying comparison submissions as step outs, meaning comparison submissions that do not represent reportable inter-dealer transactions.2 Although the full procedures are not repeated here, they basically require dealers using interactive messaging to submit data to NSCC with “DEST 01” (and no other “DEST”) in the destination indicator message field and dealers using RTTM Web to select the “RTTM” trade reporting indicator.3 To avoid violations of Rule G-14, dealers also should be careful to use NSCC’s step out procedures only when applicable (i.e., when there is an inter-dealer delivery being compared, but there was no purchase-sale transaction between the dealers).4 It is worth noting that comparison submissions will compare against each other in RTTM regardless of whether their step out indicators match. When two dealers submit “mismatched” destination indicators and a comparison occurs, NSCC forwards data about both submissions to the MSRB, but the MSRB is unable to determine which dealer was correct as to whether the See Rule G-14 RTRS Procedures (d)(vii). A transaction reported with the “List Offering Price/Takedown” indicator receives an end-of-day exception to the 15minute reporting deadline. An inter-dealer transaction may meet the definition of an “RTRS Takedown Transaction” when a sole underwriter or syndicate manager executes a transaction with a syndicate or selling group member at a discount from the published list offering price for the security. See “Reminder Notice on ‘List Offering Price’ and Three-Hour Exception for Real-Time Transaction Reporting: Rule G-14,” MSRB Notice 2004-40 (December 10, 2004). If the price is not publicly disseminated (e.g., if the security is a “not reoffered” maturity within a serial issue), the transaction is not considered a “List Offering Price Transaction.” 111 Rule
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 comparison represents a transaction or a step out. However, it is clear in such a case that at least one of the dealers has violated Rule G-14, either by reporting a true inter-dealer trade as a step out or by reporting an inter-dealer transaction that did not occur. The MSRB is developing a report that will identify such “mismatched” inter-dealer trade comparisons as an aid to dealers and enforcement personnel. The MSRB will publish a notice when the report is available. However, dealers should at this time review their comparison and trade reporting procedures to ensure that their comparison submissions correctly use the step out indicator and use it only when appropriate. Questions about the procedure for processing step out deliveries should be directed to NSCC. Questions about whether a particular type of delivery is reportable as an inter-dealer purchase-sale transaction may be directed to MSRB staff. 1 2 3 4 In this example, the executing dealer has an additional duty to report its execution of the investment advisor’s order to the MSRB as a dealer sale to a customer; the submission of the “step out” delivery to NSCC does not substitute for this customer trade report. See MSRB Notice 2003-20, “Notice on Reporting and Comparison of Certain Transactions Effected by Investment Advisors: Rules G-12(f) and G-14,” May 23, 2003. For NSCC’s complete procedure on comparing step out deliveries, see e.g., NSCC Important Notice A5943/P&S5513, “Changes to Municipal Bond ‘Step Out’ Processing,” December 2, 2004, on www.nscc.com. To further distinguish step out submissions, dealers also should include “STEP” in the Trader ID contra party field. Another example of a transfer of securities between dealers that is not the result of a purchase-sale transaction was described in MSRB Notice 200414, “Notice on Certain Inter-Dealer Transfers of Municipal Securities: Rules G-12(f) and G-14,” June 4, 2004. REMINDER REGARDING MODIFICATION AND CANCELLATION OF TRANSACTION REPORTS: RULE G-14 March 2, 2005 Executive Summary The Municipal Securities Rulemaking Board (“MSRB”) reminds brokers, dealers and municipal securities dealers (collectively “dealers”) of the need to report municipal securities transactions accurately and to minimize the submission of modifications and cancellations to the Real-Time Transaction Reporting System (“RTRS”). Each transaction initially should be reported correctly to RTRS. Thereafter, only changes necessary to achieve accurate and complete transaction reporting should be submitted to RTRS. Changes should be rare since properly reported transactions should not need to be corrected. *** Under Rule G-14, dealers are required to report all transactions to the MSRB and to report accurately and completely the information specified in the Rule G-14 RTRS Procedures (“Procedures”). Trades that are reported with errors affect the accuracy of the information published in price transparency reports as well as the audit trail information retained in the surveillance database.1 The MSRB has published notices to dealers reminding them of their obligation to report transactions correctly and to monitor error reports the MSRB sends them.2 Each trade should Rule
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 be reported correctly in the dealer’s initial submission of trade data to RTRS and, for inter-dealer trades, to the Real-time Trade Matching (“RTTM”) system as well. Changes should be rare since properly reported transactions should not need to be corrected. If, however, a transaction is reported with incorrect or missing attributes (such as price or capacity), the Procedures require the dealer to correct the report as soon as possible.3 When RTRS sends certain error messages to a dealer, the dealer is required to correct the trade report.4 Dealers can make those corrections, or other necessary corrections in reported data, by modifying the trade report or by cancelling the report and submitting a correct replacement.5 If it is necessary to modify a report, modification is preferred over cancellation and resubmission.6 Dealers should not change trade reports when the transaction attribute that changes is not required to be reported by MSRB or NSCC. For example, if only the account representative associated with a transaction changes, the report to the MSRB should not be changed, as this information is not required to be reported to the MSRB under Rule G-14. Dealers should take care that, if a modification or cancellation is submitted that is not responding to an RTRS error message, the dealer is correcting or cancelling an erroneous report.7 RTRS counts the number of modifications and cancellations submitted by each dealer. The MSRB provides statistics to the NASD and other enforcement agencies that measure dealer performance in modifying and cancelling transactions, as well as error rates of original submissions. Dealers that excessively modify or cancel trade reports will have above-average rates in these statistical reports. Dealers therefore should change trade reports only when appropriate to attain accurate and complete reporting under Rule G-14 and the Procedures. Dealers can monitor their reporting of transactions in compliance with Rule G-14 in several ways. The MSRB currently provides information to dealers about their reporting performance. Any error detected by RTRS is reported back to the submitter by electronic message and is shown to the submitter and the executing dealer on the RTRS Web screen.8 RTRS also sends e-mail error messages to dealers on request. The RTRS Web screen lists all trades cancelled by the dealer, under its Advanced Search feature. In addition, beginning in March 2005, the MSRB plans to make available to dealers the same statistics provided to the enforcement agencies, in a report entitled “G-12(f)/G-14 Compliance Data from RTRS.” This will be available monthly on the first Monday after the 15th of the month. A dealer’s report will include its statistics for the most recent full month and for the previous month.9 It will also include summary statistics for the municipal securities industry so that the dealer can compare its performance to the industry’s. Further information about how a dealer can obtain its compliance statistics will be posted in March on the MSRB web site, www.msrb.org. 1 2 Transactions reported to the MSRB are made available to the NASD and other regulators for their market surveillance and enforcement activities See, e.g., “Reminder Regarding MSRB Rule G-14 Transaction Reporting Requirements” (March 3, 2003) on www.msrb.org. 112

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 3 4 5 6 7 8 9 Customer Repurchase Agreement Transactions Some dealers have programs allowing customers to finance municipal securities positions with repurchase agreements (“repos”). Typically, a bona fide repo consists of two transactions whereby a dealer will sell securities to a customer and agree to repurchase the securities on a future date at a pre-determined price that will produce an agreed-upon rate of return. Both the sale and purchase transactions resulting from a customer repo do not represent typical arms-length transactions negotiated in the secondary market and are therefore required to be reported with the M9c0 special condition indicator. UIT-Related Transactions Dealers sponsoring Unit Investment Trusts (“UIT”) or similar programs sometimes purchase securities through several transactions and deposit such securities into an “accumulation” account. After the accumulation account contains the necessary securities for the UIT, the dealer transfers the securities from the accumulation account into the UIT. Purchases of securities for an accumulation account are presumably done at market value and are required to be reported normally. The transfer of securities out of the accumulation account and into the UIT, however, does not represent a typical arms-length transaction negotiated in the secondary market. Dealers are required to report the subsequent transfer of securities from the accumulation account to the UIT with the M9c0 special condition indicator. TOB Program-Related Transactions Dealers sponsoring tender option bond programs (“TOB Programs”) for customers sometimes transfer securities previously sold to a customer into a derivative trust from which derivative products are created. If the customer sells the securities held in the derivative trust, the trust is liquidated and the securities are reconstituted from the derivative products and transferred back to the customer. The transfer of securities into the derivative trust and the transfer of securities back to the customer upon liquidation of the trust do not represent typical arms-length transactions negotiated in the secondary market. Such transactions are required to be reported using the M9c0 special condition indicator.3 INTER-DEALER TRANSACTIONS REPORTED “LATE” Inter-dealer transaction reporting is accomplished by both the purchasing and selling dealers submitting the trade to the Depository Trust and Clearing Corporation’s (DTCC) automated comparison system (RTTM) following DTCC’s procedures. RTTM forwards information about the transaction to RTRS. The inter-dealer trade processing situations described below are the subject of dealer questions and currently result in dealers being charged with “late” reporting or reporting of a trade date and time that differs from the date and time of trade execution. To allow dealers to report these types of transactions without receiving a late error and to allow enforcement agencies to identify these trades as reported under special circumstances, the MSRB has added two new special condition indicators.4 New special condition indicator Mc40 is used to identify certain inter-dealer transactions that are ineligible for comparison on trade date, and new special condition indicator Mc50 is used to identify resubmissions of certain uncompared inter-dealer transactions that have been See Rule G-14 RTRS Procedures paragraph (a)(iv) and “Reminder Regarding Accuracy of Information Submitted to the MSRB Transaction Reporting System: Rule G-14” (February 10, 2004) on www.msrb.org. Messages which indicate a trade report is “unsatisfactory” and which have an error code beginning with “U” require that the trade be modified or that it be cancelled and replaced. See “Specifications for Real-time Reporting of Municipal Securities Transactions,” especially the table and text after the table in section 2.9. This document is on www.msrb.org. Changes to inter-dealer trades are governed also by National Securities Clearing Corporation (“NSCC”) rules. See, e.g., “Interactive Messaging: NSCC Participant Specifications for Matching Input and Output” on www.nscc.com. Modification is preferred when changes are necessary because a modification is counted as a single change to a trade report. A cancellation and resubmission are counted as a change and (unless the resubmission is done within the original deadline for reporting the trade) also a late report of a trade. Methods for cancelling and modifying reports are described in Sections 1.3.3 and 2.9 of “Specifications for Real-time Reporting of Municipal Securities Transactions: Version 1.2” on www.msrb.org. Note that the MSRB does not require a dealer to report a change to the settlement date of a trade in when-issued securities, if that is the only change. See “Real-Time www.msrb.org. Transaction Reporting Web User Manual” on The first report, planned for March 21, 2005, will include statistics only for February, since RTRS went into operation on January 31, 2005. REPORTING OF TRANSACTIONS IN CERTAIN SPECIAL TRADING SITUATIONS: RULE G-14 January 2, 2008 The MSRB Real-Time Transaction Reporting System (RTRS) serves the dual purposes of price transparency and market surveillance. Because a comprehensive database of transactions is needed for the surveillance function of RTRS, MSRB Rule G-14, on transaction reporting, with limited exceptions, requires dealers to report all of their purchase-sale transactions to RTRS within fifteen minutes. All reported transactions are entered into the RTRS surveillance database used by market regulators and enforcement agencies. However, the special nature of some transactions effects their value for price transparency and the ability of dealers to meet the fifteen minute reporting deadline. To address these issues, RTRS was designed so that a dealer can code a specific transaction report with a “special condition indicator” to designate the transaction as being subject to a special condition.1 TRANSACTIONS EXECUTED WITH SPECIAL PRICING CONDITIONS Three trading scenarios recently have generated questions from dealers and users of the MSRB price transparency products. Each of the three trading scenarios described below represents situations where the transaction executed is not a typical armslength transaction negotiated in the secondary market and thus may be a misleading indicator of the market value of a security. To clarify transaction reporting requirements and to prevent publication of a potentially misleading price, dealers are required to report these transactions with the M9c0 special condition indicator.2 Transactions reported with this special condition indicator are entered into the surveillance database but suppressed from price dissemination to ensure that transparency products do not include prices that might be confusing or misleading. 113 Rule
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 cancelled by RTTM. Described below are the procedures for reporting transactions arising in three inter-dealer transaction reporting scenarios using the new special condition indicators. Inter-Dealer Ineligible on Trade Date Certain inter-dealer transactions are not able to be submitted to RTTM on trade date or with the accurate trade date either because all information necessary for comparison is not available or because the trade date is not a “valid” trade date in RTTM. The two inter-dealer trading scenarios described below are required to be reported using the new Mc40 special condition indicator. VRDO Ineligible on Trade Date On occasion, inter-dealer secondary market transactions are effected in variable rate demand obligations (VRDOs) in which the interest rate reset date occurs between trade date and the time of settlement. Since dealers in this scenario cannot calculate accrued interest or final money on trade date, they cannot process the trade through RTTM until the interest rate reset has occurred. To report such transactions, both dealers that are party to the transaction are required to report the transaction by the end of the day that the interest rate reset occurs, including the trade date and time that the original trade was executed. Both dealers are required to include the new Mc40 special condition indicator that causes RTRS not to score either dealer late. Transactions reported using this procedure are disseminated without a special condition indicator and the trade reports reflect the original trade date and time. Invalid RTTM Trade Dates Dealers sometimes execute inter-dealer transactions on weekends and on certain holidays that are not valid RTTM trade dates. Such trades cannot be reported to RTRS using the actual trade date if they occur on a weekend or holiday. To accomplish automated comparison and transaction reporting of such transactions, dealers are required to submit these inter-dealer transactions to RTTM no later than fifteen minutes after the start of the next RTRS Business Day and to include a trade date and time that represents the next earliest “valid” values that can be submitted.5 Dealers also are required to include the new Mc40 special condition indicator that allows RTRS to identify these transactions so that enforcement agencies can be alerted to the fact that the trade reports were made under special circumstances using a special trade date and time. RTRS disseminates these trade reports without a special condition indicator and the trade report includes the trade date and time reflecting the next earliest “valid” values that can be submitted.6 Resubmission of an RTTM Cancel A dealer may submit an inter-dealer trade to RTTM and find that the contra-party fails to report its side of the trade. Such “uncompared” trades are not disseminated by RTRS on price transparency products. After two days, RTTM removes the uncompared trade report from its system and the dealer originally submitting the trade must resubmit the transaction in a second attempt to obtain a comparison with its contra-party, which currently results in RTRS scoring the resubmitted trade report “late.” The dealer that originally submitted information to RTTM is required to resubmit identical information about the transaction Rule
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 in the second attempt to compare and report the trade by the end of the day after RTTM cancels the trade. The resubmitting dealer also is required to include the new Mc50 special condition indicator that causes RTRS to not score the resubmitting dealer late. The indicator may only be used by a dealer resubmitting the exact same trade information for the same trade.7 For example, the contra-party that failed to submit its side to the trade accurately, thus preventing comparison of the transaction, is not allowed to use the indicator. RTRS disseminates trade reports made under this procedure without a special condition indicator once RTTM compares the trade and the trade report reflects the original trade date and time. 1 2 3 4 5 6 7 
 See Specifications for Real-Time Reporting of Municipal Securities Transactions Section 4.3.2. In addition to the special trading situations identified in this notice, the M9c0 special condition indicator, “away from market – other reason,” is required to be included on a trade report if the transaction price differs substantially from the market price for multiple reasons or for a reason not covered by another special condition indicator. In some cases, the transfer of securities into the derivative trust and the transfer of securities back to the customer upon liquidation of the trust do not represent purchase-sale transactions due to the terms of the trust agreement. MSRB rules on transaction reporting do not require a dealer to report a transfer of securities to RTRS that is not a purchase-sale transaction in municipal securities. See MSRB Notice 2007-25 (August 13, 2007). The MSRB previously provided an example of a trade date and time that would be included on a trade report using this procedure. See “Reporting of Inter-Dealer Transactions That Occur Outside of RTRS Business Day Hours or on Invalid RTTM Trade Dates,” MSRB Notice 2007-12 (March 23, 2007). Using this procedure will result in transactions reported with a trade date and time that differs from what is recorded in a dealer’s books and records. Dealers are reminded that books and records are required to reflect the date and time of trade execution. The resubmitting dealer would not be required to resubmit the same reference number or preparation time on the resubmitted transaction; however, other information about the transaction, such as price, quantity, trade date and time, would be required to be identical to information included in the original trade submission. TRANSACTION REPORTING OF DEALER BUYBACKS OF AUCTION RATE SECURITIES: RULE G-14 September 2, 2008 As a result of the unprecedented number of “failed auctions”1 in municipal Auction Rate Securities (“ARS”) that have occurred this year, many dealers have announced plans to offer to purchase customer positions in municipal ARS at a stated price, typically par (“ARS Buybacks”). These ARS Buyback programs predominantly have occurred pursuant to settlement agreements with state attorneys general. The MSRB has received questions from dealers whether ARS Buybacks must be reported to the MSRB Real-Time Transaction Reporting System (RTRS) and, if so, whether the M9c0 “away from market - other reason” special condition indicator must be included on such trade reports. MSRB Rule G-14, on transaction reporting, requires all purchase-sale transactions in municipal securities to be reported to RTRS. Transactions in ARS must be reported to RTRS and trade reports of ARS Buybacks must be reported to RTRS without the M9c0 special condition indicator. The primary reason a trade 114

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 report would be required to include the M9c0 special condition indicator is that the trade report contains information that could be misleading to users of price transparency reports.2 The MSRB does not believe that trade reports of ARS Buybacks would provide misleading information relating to the market value of ARS because the price at which ARS Buybacks are executed has been publicly announced. Therefore, trade reports of ARS Buybacks as well as of other purchases of ARS from holders at current market prices must be reported without the M9c0 special condition indicator.3 identified three specific situations in which the M9c0 special condition indicator is required to be included on trade reports. See Notice of Interpretation of Rule G-14: “Reporting of Transactions in Certain Special Trading Situations: Rule G-14,” dated January 2, 2008. 3 Users of the MSRB’s price transparency reports produced from RTRS should be aware that ARS Buybacks may result in a higher than normal volume of trade reports in ARS and should not use this volume as an indication that the market for ARS has fully recovered from the unprecedented number of failed auctions that have occurred in 2008. Further, the prices at which ARS Buybacks are executed may not reflect the actual market value for the security. See
also:
 Rule G-12 Interpretations - Locked-In Transactions, March 1, 2001 1 2 - Notice on Reporting and Comparsion of Certian Transactions Effected by Investment Advisors, May 23, 2003 A “failed auction” is not an event of default by the issuer, it only relates to the auction process not being able to determine a clearing rate and not permitting investors attempting to sell their securities from being able to do so. - Transaction Reporting of Multiple Transactions Between Dealers in the Same Issue, November 24, 2003 RTRS serves the dual purposes of price transparency and market surveillance. Transactions reported with the M9c0 special condition indicator are entered into the surveillance database but suppressed from price dissemination. The MSRB has - Notice on Certain Inter-Dealer Transfers of Municipal Securities: Rules G-12(f) and G-14, June 4, 2004 115 Rule
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Confirmation,
Clearance,
Settlement
and
Other
Uniform
Practice
Requirements
with
Respect
to
 Transactions
with
Customers

 (a) Customer Confirmations. (i) At or before the completion of a transaction in municipal securities with or for the account of a customer, each broker, dealer or municipal securities dealer shall give or send to the customer a written confirmation that complies with the requirements of this paragraph (i): (A) Transaction information. The confirmation shall include information regarding the terms of the transaction as set forth in this subparagraph (A): (1) The parties, their capacities, and any remuneration from other parties. The following information regarding the parties to the transaction and their relationship shall be included: (a) name, address, and telephone number of the broker, dealer, or municipal securities dealer, provided, however, that the address and telephone number need not be stated on a confirmation sent through the automated confirmation facilities of a clearing agency registered with the Securities and Exchange Commission; (b) name of customer; (c) designation of whether the transaction was a purchase from or sale to the customer; (d) the capacity in which the broker, dealer or municipal securities dealer effected the transaction, whether acting: (i) as principal for its own account, (ii) as agent for the customer, (iii) as agent for a person other than the customer, or (iv) as agent for both the customer and another person; (e) if the broker, dealer or municipal securities dealer is effecting a transaction as agent for the customer or as agent for both the customer and another person, the confirmation shall include: (i) either (A) the name of the person from whom the securities were purchased or to whom the securities were sold for the customer, or (B) a statement that this information will be furnished upon the written request of the customer; and (ii) either (A) the source and amount of any remuneration received or to be received (shown in aggregate dollar amount) by the broker, dealer or municipal securities dealer in connection with the transaction from any person other than the customer, or (B) a statement indicating whether any such remuneration has been or will be received and that the source and amount of such other remuneration will be furnished upon written request of the customer. In applying the terms of this subparagraph (A)(1)(e), if a security is acquired at a discount (e.g., “net” price less concession) and is sold at a “net” price to a customer, the discount must be disclosed as remuneration received from the customer pursuant to subparagraph (A)(6)(f) of this paragraph rather than as remuneration received from “a person other than the customer.” (2) Trade date and time of execution. The trade date shall be shown. In addition, either (a) the time of execution, or (b) a statement that the time of execution will be furnished upon written request of the customer shall be shown. (3) Par value. The par value of the securities shall be shown, with special requirements for the following securities: (a) Zero coupon securities. For zero coupon securities, the maturity value of the securities must be shown if it differs from the par value. (b) Municipal fund securities. For municipal fund securities, in place of par value, the confirmation shall show (i) in the case of a purchase of a municipal fund security by a customer, the total purchase price paid by the customer, exclusive of any commission, and (ii) in the case of a sale or tender for redemption of a municipal fund security by a customer, the total sale price or redemption amount paid to the customer, exclusive of any commission or other charge imposed upon redemption or sale. (4) Settlement date. The settlement date as defined in section (b) of this rule shall be shown. (5) Yield and dollar price. Yields and dollar prices shall be computed and shown in the following manner, subject to the exceptions stated in subparagraph (A)(5)(d) of this paragraph: (a) For transactions that are effected on the basis of a yield to maturity, yield to a call date, or yield to a put date: Rule
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 (i) The yield at which the transaction was effected shall be shown and, if that yield is to a call date or to a put date, this shall be noted, along with the date and dollar price of the call or put. (ii) A dollar price shall be computed and shown in accordance with the rules in subparagraph (A)(5)(c) of this paragraph, and such dollar price shall be used in computations of extended principal and final monies shown on the confirmation. (b) For transactions that are effected on the basis of a dollar price: (i) The dollar price at which the transaction was effected shall be shown. (ii) A yield shall be computed and shown in accordance with subparagraph (A)(5)(c) of this paragraph, unless the transaction was effected at “par.” (c) In computing yield and dollar price, the following rules shall be observed: (i) The yield or dollar price computed and shown shall be computed to the lower of call or nominal maturity date, with the exceptions noted in this subparagraph (A)(5)(c). (ii) For purposes of computing yield to call or dollar price to call, only those call features that represent “in whole calls” of the type that may be used by the issuer without restriction in a refunding (“pricing calls”) shall be considered in computations made under this subparagraph (A)(5). (iii) Yield computations shall take into account dollar price concessions granted to the customer, commissions charged to the customer and adjustable tender fees applicable to puttable securities, but shall not take into account incidental transaction fees or miscellaneous charges, provided, however, that as specified in subparagraph (A)(6)(e) of this paragraph, such fees or charges must be indicated on the confirmation. (iv) With respect to the following specific situations, these additional rules shall be observed: (A) Declining premium calls. For those securities subject to a series of pricing calls at declining premiums, the call date resulting in the lowest yield or dollar price shall be considered the yield to call or dollar price to call. (B) Continuously callable securities. For those securities that, at the time of trade, are subject to a notice of a pricing call at any time, the yield to call or dollar price to call shall be computed based upon the assumption that a notice of call may be issued on the day after trade date or on any subsequent date. (C) Mandatory tender dates. For those securities subject to a mandatory tender date, the mandatory tender date and dollar price of redemption shall be used in computations in lieu of nominal maturity date and maturity value. (D) Securities sold on basis of yield to put. For those transactions effected on the basis of a yield to put date, the put date and dollar price of redemption shall be used in computations in lieu of maturity date and maturity value. (E) Prerefunded or called securities. For those securities that are prerefunded or called to a call date prior to maturity, the date and dollar price of redemption set by the prerefunding shall be used in computations in lieu of maturity date and maturity value. (v) Computations shall be made in accordance with the requirements of rule G-33. (vi) If the computed yield or dollar price shown on the confirmation is not based upon the nominal maturity date, then the date used in the computation shall be identified and stated. If the computed yield or dollar price is not based upon a redemption value of par, the dollar price used in the computation shall be shown (e.g., 5.00% yield to call on 1/1/99 at 103). (vii) If the computed yield required by this paragraph (5) is different than the yield at which the transaction was effected, the computed yield must be shown in addition to the yield at which the transaction was effected. (d) Notwithstanding the requirements noted in subparagraphs (A)(5)(a) through (c) of this paragraph above: (i) Securities that prepay principal. For securities that prepay principal periodically, a yield computation and display of yield is not required, provided, however, that if a yield is displayed, there shall be included a statement describing how the yield was computed. 117 Rule
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 (6) be shown: (ii) Municipal Collateralized Mortgage Obligations. For municipal collateralized mortgage obligations, a yield computation and display of yield is not required, provided however, that if a yield is displayed, there shall be included a statement describing how the yield was computed. (iii) Defaulted securities. For securities that have defaulted in the payment of interest or principal, a yield shall not be shown. (iv) Variable rate securities. For municipal securities with a variable interest rate, a yield shall not be shown unless the transaction was effected on the basis of yield to put. (v) Securities traded on a discounted basis. For securities traded on a discounted basis, a yield shall not be shown. (vi) Municipal fund securities. For municipal fund securities, neither yield nor dollar price shall be shown. Final Monies. The following information relating to the calculation and display of final monies shall (a) (b) total dollar amount of transaction; amount of accrued interest, with special requirements for the following securities: (i) Zero coupon securities. For zero coupon securities, no figure for accrued interest shall be shown; (ii) Securities traded on discounted basis. For securities traded on a discounted basis (other than discounted securities traded on a yield-equivalent basis), no figure for accrued interest shall be shown; (iii) Municipal fund securities. For municipal fund securities, no figure for accrued interest shall be shown; (c) if the securities pay interest on a current basis but are traded without interest, a notation of “flat;” (d) extended principal amount, with special requirements for the following securities: (i) Securities traded on discounted basis. For securities traded on a discounted basis (other than discounted securities sold on a yield-equivalent basis) total dollar amount of discount may be shown in lieu of the resulting dollar price and extended principal amount; (ii) Municipal fund securities. For municipal fund securities, no extended principal amount shall be shown; (e) the nature and amount of miscellaneous fees, such as special delivery arrangements or a “per transaction” fee, or if agreed to, any fees for converting registered certificates to or from bearer form; (f) if the broker, dealer or municipal securities dealer is effecting the transaction as agent for the customer or as agent for both the customer and another person, the amount of any remuneration received or to be received (shown in aggregate dollar amount) by the broker, dealer or municipal securities dealer from the customer in connection with the transaction unless remuneration paid by the customer is determined, pursuant to a written agreement with the customer, other than on a transaction basis; (g) the first interest payment date if other than semi-annual, but only if necessary for the calculation of final money; (h) for callable zero coupon securities, if applicable, the percentage of the purchase price at risk due to the lowest possible call, which shall be calculated based upon the ratio between (i) the difference between the price paid by the customer and the lowest possible call price, and (ii) the price paid by the customer. (7) Delivery of securities. The following information regarding the delivery of securities shall be shown: (a) Securities other than bonds or municipal fund securities. For securities other than bonds or municipal fund securities, denominations to be delivered; (b) Bond certificates delivered in non-standard denominations. For bonds, denominations of certificates to be delivered shall be stated if: (i) for bearer bonds, denominations are other than $1,000 or $5,000 in par value, and Rule
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 (ii) for registered bonds, denominations are other than multiples of $1,000 par value, or exceed $100,000 par value; (c) Municipal fund securities. For municipal fund securities, the purchase price, exclusive of commission, of each share or unit and the number of shares or units to be delivered; (d) Delivery instructions. Instructions, if available, regarding receipt or delivery of securities and form of payment, if other than as usual and customary between the parties. (8) Additional information about the transaction. In addition to the transaction information required above, such other information as may be necessary to ensure that the parties agree to details of the transaction also shall be shown. (B) Securities identification information. The confirmation shall include a securities identification which includes, at a minimum: (1) the name of the issuer, with special requirements for the following securities: (a) For stripped coupon securities, the trade name and series designation assigned to the stripped coupon municipal security by the broker, dealer or municipal securities dealer sponsoring the program must be shown; (b) Municipal fund securities. For municipal fund securities, the name used by the issuer to identify such securities and, to the extent necessary to differentiate the securities from other municipal fund securities of the issuer, any separate program series, portfolio or fund designation for such securities must be shown; (2) CUSIP number, if any, assigned to the securities; (3) maturity date, if any, with special requirements for the following securities: (a) Stripped coupon securities. For stripped coupon securities, the maturity date of the instrument must be shown in lieu of the maturity date of the underlying securities; (b) Municipal fund securities. For municipal fund securities, no maturity date shall be shown; (4) interest rate, if any, with special requirements for the following securities: (a) Zero coupon securities. For zero coupon securities, the interest rate must be shown as 0%; (b) Variable rate securities. For securities with a variable or floating interest rate, the interest rate must be shown as “variable;” provided however if the yield is computed to put date or to mandatory tender date, the interest rate used in that calculation shall be shown. (c) Securities with adjustable tender fees. If the net interest rate paid on a tender option security is affected by an adjustable “tender fee,” the stated interest rate must be shown as that of the underlying security with the phrase “less fee for put;” (d) Stepped coupon securities. For stepped coupon securities, the interest rate currently being paid must be shown; (e) Stripped coupon securities. For stripped coupon securities, the interest rate actually paid on the instrument must be shown in lieu of interest rate on underlying security; (f) Municipal fund securities. For municipal fund securities, no interest rate shall be shown; (5) the dated date if it affects the price or interest calculation, with special requirements for the following securities: (a) Stripped coupon securities. For stripped coupon securities, the date that interest begins accruing to the custodian for payment to the beneficial owner shall be shown in lieu of the dated date of the underlying securities. This date, along with the first date that interest will be paid to the owner, must be stated on the confirmation whenever it is necessary for calculation of price or accrued interest. (C) Securities descriptive information. The confirmation shall include descriptive information about the securities which includes, at a minimum: (1) Credit backing. The following information, if applicable, regarding the credit backing of the security: (a) Revenue securities. For revenue securities, a notation of that fact, and a notation of the primary source of revenue (e.g., project name). This subparagraph will be satisfied if these designations appear on the confirmation in the formal title of the security or elsewhere in the securities description. (b) Securities with additional credit backing. The name of any company or other person in addition to the issuer obligated, directly or indirectly, with respect to debt service or, if there is more than one such 119 Rule
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 obligor, the statement “multiple obligors” may be shown and, if a letter of credit is used, the identity of the bank issuing the letter of credit must be noted. (2) Features of the securities. The following information, if applicable, regarding features of the securities: (a) Callable securities. If the securities are subject to call prior to maturity through any means, a notation of “callable” shall be included. This shall not be required if the only call feature applicable to the securities is a “catastrophe” or “calamity” call feature, such as one relating to an event such as an act of God or eminent domain, and which event is beyond the control of the issuer of the securities. The date and price of the next pricing call shall be included and so designated. Other specific call features are not required to be listed unless required by subparagraph (A)(5)(c)(ii) of this paragraph on computation and display of price and yield. If any specific call feature is listed even though not required by this rule, it shall be identified. If there are any call features in addition to the next pricing call, disclosure must be made on the confirmation that “additional call features exist that may affect yield; complete information will be provided upon request;” (b) Puttable securities. If the securities are puttable by the customer, a designation to that effect; (c) Stepped coupon securities. If stepped coupon securities, a designation to that effect; (d) Book-entry only securities. If the securities are available only in book entry form, a designation to that effect; (e) Periodic interest payment. With respect to securities that pay interest on other than a semiannual basis, a statement of the basis on which interest is paid; (3) Information on status of securities. The following information, as applicable, regarding the status of the security shall be included: (a) Prerefunded and called securities. If the securities are called or “prerefunded,” a designation to such effect, the date of maturity which has been fixed by the call notice, and the amount of the call price. (b) Escrowed to maturity securities. If the securities are advance refunded to maturity date and no call feature (with the exception of a sinking fund call) is explicitly reserved by the issuer, the securities must be described as “escrowed to maturity” and, if a sinking fund call is operable with respect to the securities, additionally described as “callable.” (c) Advanced refunded/callable securities. If advanced refunded securities have an explicitly reserved call feature other than a sinking fund call, the securities shall be described as “escrowed to [redemption date]—callable.” (d) Advanced refunded/stripped coupon securities. If the municipal securities underlying stripped coupon securities are advance-refunded, the stripped coupon securities shall be described as “escrowed-tomaturity,” or “pre-refunded” as applicable. (e) Securities in default. If the securities are in default as to the payment of interest or principal, they shall be described as “in default;” (f) Unrated securities. If the security is unrated by a nationally recognized statistical rating organization, a disclosure to such effect. (4) Tax information. The following information that may be related to the tax treatment of the security: (a) Taxable securities. If the securities are identified by the issuer or sold by the underwriter as subject to federal taxation, a designation to that effect. (b) Alternative minimum tax securities. If interest on the securities is identified by the issuer or underwriter as subject to the alternative minimum tax, a designation to that effect. (c) Original issue discount securities. If the securities pay periodic interest and are sold by the underwriter as original issue discount securities, a designation that they are “original issue discount” securities and a statement of the initial public offering price of the securities, expressed as a dollar price. (5) Municipal fund securities. For municipal fund securities, the information described in clauses (1) through (4) of this subparagraph (C) is not required to be shown. (D) Disclosure statements: (1) The confirmation for zero coupon securities shall include a statement to the effect that “No periodic payments,” and, if applicable, “callable below maturity value,” and, if callable and available in bearer form, “callable without notice by mail to holder unless registered.” Rule
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 (2) The confirmation for municipal collateralized mortgage obligations shall include a statement indicating that the actual yield of such security may vary according to the rate at which the underlying receivables or other financial assets are prepaid and a statement that information concerning the factors that affect yield (including at a minimum estimated yield, weighted average life, and the prepayment assumptions underlying yield) will be furnished upon written request. (3) The confirmation for securities for which a deferred commission or other charge is imposed upon redemption or as a condition for payment of principal or interest thereon shall include a statement that the customer may be required to make a payment of such deferred commission or other charge upon redemption of such securities or as a condition for payment of principal or interest thereon, as appropriate, and that information concerning such deferred commission or other charge will be furnished upon written request. (E) Confirmation format. All requirements must be clearly and specifically indicated on the front of the confirmation, except that the following statements may be on the reverse side of the confirmation: (1) The disclosure statements required in subparagraph (D)(1), (D)(2) or (D)(3) of this paragraph, provided that their specific applicability is noted on the front of the confirmation. (2) The statement concerning the person from whom the securities were purchased or to whom the securities were sold that can be provided in satisfaction of subparagraph (A)(1)(e)(i) of this paragraph. (3) The statement concerning time of execution that can be provided in satisfaction of subparagraph (A)(2) of this paragraph. (ii) Separate confirmation for each transaction. Each broker, dealer or municipal securities dealer for each transaction in municipal securities shall give or send to the customer a separate written confirmation in accordance with the requirements of (i) above. Multiple confirmations may be printed on one page, provided that each transaction is clearly segregated and the information provided for each transaction complies with the requirements of (i) above; provided, however, that if multiple confirmations are printed in a continuous manner within a single document, it is permissible for the name and address of the broker, dealer or municipal securities dealer and the customer to appear once at the beginning of the document, rather than being included in the confirmation information for each transaction. (iii) “When, as and if issued” transactions. A confirmation meeting the requirements of this rule shall be sent in all “when, as and if issued” transactions. In addition, a broker, dealer or municipal securities dealer may send a confirmation for a “when, as and if issued” transaction executed prior to determination of settlement date and may be required to do so for delivery vs. payment and receipt vs. payment (“DVP/RVP”) accounts under paragraph (d)(i)(C) of this rule. If such a confirmation is sent, it shall include all information required by this section with the exception of settlement date, dollar price for transactions executed on a yield basis, yield for transactions executed on a dollar price, total monies, accrued interest, extended principal and delivery instructions. (iv) Confirmation to customers who tender put option bonds or municipal fund securities. A broker, dealer, or municipal securities dealer that has an interest in put option bonds (including acting as remarketing agent) and accepts for tender put option bonds from a customer, or that has an interest in municipal fund securities (including acting as agent for the issuer thereof) and accepts for redemption municipal fund securities tendered by a customer, is engaging in a transaction in such municipal securities and shall send a confirmation under paragraph (i) of this section. (v) Timing for providing information. Information requested by a customer pursuant to statements required on the confirmation shall be given or sent to the customer within five business days following the date of receipt of a request for such information; provided however, that in the case of information relating to a transaction executed more than 30 calendar days prior to the date of receipt of a request, the information shall be given or sent to the customer within 15 business days following the date of receipt of the request. (vi) Definitions. For purposes of this rule, the following terms shall have the following meanings: (A) Execution of a transaction. The term “the time of execution of a transaction” shall be the time of execution reflected in the records of the broker, dealer or municipal securities dealer pursuant to rule G-8 or Rule 17a-3 under the Act. (B) Completion of transaction. The term “completion of transaction” shall have the same meaning as provided in Rule 15c1-1 under the Act. (C) Stepped coupon securities. The term “stepped coupon securities” shall mean securities with the interest rate periodically changing on a pre-established schedule. (D) Zero coupon securities. The term “zero coupon securities” shall mean securities maturing in more than two years and paying investment return solely at redemption. 121 Rule
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 (E) Stripped coupon securities. The term “stripped coupon securities” shall have the same meaning as in SEC staff letter dated January 19, 1989 (Stripped Coupon Municipal Securities, SEC No-Action Letter, Fed. Sec. L. Rep. (CCH) ¶ 78,949 (Jan. 19, 1989)), reprinted in MSRB Reports, Vol. 9, No. 1 (March 1989) at 6-7. (F) The term “pricing call” shall mean a call feature that represents “an in whole call” of the type that may be used by the issuer without restriction in a refunding. (G) The term “periodic municipal fund security plan” shall mean any written authorization or arrangement for a broker, dealer or municipal securities dealer, acting as agent, to purchase, sell or redeem for a customer or group of customers one or more specific municipal fund securities, in specific amounts (calculated in security units or dollars), at specific time intervals and setting forth the commissions or charges to be paid by the customer in connection therewith (or the manner of calculating them). (H) The term “non-periodic municipal fund security program” shall mean any written authorization or arrangement for a broker, dealer or municipal securities dealer, acting as agent, to purchase, sell or redeem for a customer or group of customers one or more specific municipal fund securities, setting forth the commissions or charges to be paid by the customer in connection therewith (or the manner of calculating them) and either (1) providing for the purchase, sale or redemption of such municipal fund securities at the direction of the customer or customers or (2) providing for the purchase, sale or redemption of such municipal fund securities at the direction of the customer or customers as well as authorizing the purchase, sale or redemption of such municipal fund securities in specific amounts (calculated in security units or dollars) at specific time intervals. (vii) Price substituted for par value of municipal fund securities. For purposes of this rule, each reference to the term “par value,” when applied to a municipal fund security, shall be substituted with (i) in the case of a purchase of a municipal fund security by a customer, the purchase price paid by the customer, exclusive of any commission, and (ii) in the case of a sale or tender for redemption of a municipal fund security by a customer, the sale price or redemption amount paid to the customer, exclusive of any commission or other charge imposed upon redemption or sale. (viii) Alternative periodic reporting for certain transactions in municipal fund securities. Notwithstanding any other provision of this section (a), a broker, dealer or municipal securities dealer may effect transactions in municipal fund securities with customers without giving or sending to such customer the written confirmation required by paragraph (i) of this section (a) at or before completion of each such transaction if: (A) such transactions are effected pursuant to a periodic municipal fund security plan or a non-periodic municipal fund security program; and (B) such broker, dealer or municipal securities dealer gives or sends to such customer within five business days after the end of each quarterly period, in the case of a customer participating in a periodic municipal fund security plan, or each monthly period, in the case of a customer participating in a non-periodic municipal fund security program, a written statement disclosing, for each purchase, sale or redemption effected for or with, and each payment of investment earnings credited to or reinvested for, the account of such customer during the reporting period, the information required to be disclosed to customers pursuant to subparagraphs (A) through (D) of paragraph (i) of this section (a), with the information regarding each transaction clearly segregated; provided that it is permissible: (1) for the name and address of the broker, dealer or municipal securities dealer and the customer to appear once at the beginning of the periodic statement; and (2) for information required to be included pursuant to subparagraph (A)(1)(d), (A)(2)(a) or (D)(3) of paragraph (i) of this section (a) to: (a) appear once in the periodic statement if such information is identical for all transactions disclosed in such statement; or (b) be omitted from the periodic statement, but only if such information previously has been delivered to the customer in writing and the periodic statement includes a statement indicating that such information has been provided to the customer and identifying the document in which such information appears; and (C) in the case of a periodic municipal fund security plan that consists of an arrangement involving a group of two or more customers and contemplating periodic purchases of municipal fund securities by each customer through a person designated by the group, such broker, dealer or municipal securities dealer: (1) gives or sends to the designated person, at or before the completion of the transaction for the purchase of such municipal fund securities, a written notification of the receipt of the total amount paid by the group; Rule
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 (2) sends to anyone in the group who was a customer in the prior quarter and on whose behalf payment has not been received in the current quarter a quarterly written statement reflecting that a payment was not received on such customer’s behalf; and (3) advises each customer in the group if a payment is not received from the designated person on behalf of the group within 10 days of a date certain specified in the arrangement for delivery of that payment by the designated person and either (a) thereafter sends to each customer the written confirmation described in paragraph (i) of this section (a) for the next three succeeding payments, or (b) includes in the quarterly statement referred to in subparagraph (B) of this paragraph (viii) each date certain specified in the arrangement for delivery of a payment by the designated person and each date on which a payment received from the designated person is applied to the purchase of municipal fund securities; and (D) such customer is provided with prior notification in writing disclosing the intention to send the written information referred to in subparagraph (B) of this paragraph (viii) on a periodic basis in lieu of an immediate confirmation for each transaction; and (E) such customer has consented in writing to receipt of the written information referred to in subparagraph (B) of this paragraph (viii) on a periodic basis in lieu of an immediate confirmation for each transaction; provided, however, that such customer consent shall not be required if: (1) the customer is not a natural person; (2) the customer is a natural person who participates in a periodic municipal fund security plan described in subparagraph (C) of this paragraph (viii); or (3) the customer is a natural person who participates in a periodic municipal fund security plan (other than a plan described in subparagraph (C) of this paragraph (viii)) or a non-periodic municipal fund security program and the issuer has consented in writing to the use by the broker, dealer or municipal securities dealer of the periodic written information referred to in subparagraph (B) of this paragraph (viii) in lieu of an immediate confirmation for each transaction with each customer participating in such plan or program. (b) Settlement Dates. (i) Definitions. For purposes of this rule, the following terms shall have the following meanings: (A) Settlement Date. The term “settlement date” shall mean the day used in price and interest computations, which shall also be the day delivery is due unless otherwise agreed by the parties. (B) Business Day. The term “business day” shall mean a day recognized by the National Association of Securities Dealers, Inc. as a day on which securities transactions may be settled. (ii) Settlement Dates. Settlement dates shall be as follows: (A) for “cash” transactions, the trade date; (B) for “regular way” transactions, the third business day following the trade date; (C) for all other transactions, a date agreed upon by both parties; provided, however, that a broker, dealer or municipal securities dealer shall not effect or enter into a transaction for the purchase or sale of a municipal security (other than a “when, as and if issued” transaction) that provides for payment of funds and delivery of securities later than the third business day after the date of the transaction unless expressly agreed to by the parties, at the time of the transaction. (c) Deliveries to Customers. Except as provided in section (d) below, a delivery of securities by a broker, dealer, or municipal securities dealer to a customer or to another person acting as agent for the customer shall, unless otherwise agreed by the parties or otherwise specified by the customer, be made in accordance with the following provisions: (i) Securities Delivered. (A) All securities delivered on a transaction shall be identical as to the applicable information set forth in section (a) of this rule. All securities delivered shall also be identical as to the call provisions and the dated date of such securities. (B) CUSIP Numbers. (1) The securities delivered on a transaction shall have the same CUSIP number as that set forth on the confirmation of such transaction pursuant to the requirements of section (a) of this rule; provided, however, that for purposes of this item (1), a security shall be deemed to have the same CUSIP number as that specified on the confirmation (a) if the number assigned to the security and the number specified on the confirmation differ only as a result of a transposition or other transcription error, or (b) if the number specified on the confirmation has been assigned as a substitute or alternative number for the number reflected on the security. 123 Rule
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 (2) A new issue security delivered by an underwriter who is subject to the provisions of rule G-34 shall have the CUSIP number assigned to the security imprinted on or otherwise affixed to the security. (ii) Delivery Ticket. A delivery ticket shall accompany the delivery of securities. Such ticket shall contain the information set forth in section (a) of this rule. (iii) Units of Delivery. Delivery of bonds shall be made in the following denominations: (A) for bearer bonds, in denominations of $1,000 or $5,000 par value; and (B) for registered bonds, in denominations which are multiples of $1,000 par value, up to $100,000 par value. Delivery of other municipal securities shall be made in the denominations specified on the confirmation as required pursuant to section (a) of this rule. (iv) Form of Securities. (A) Bearer and Registered Form. Delivery of securities which are issuable in both bearer and registered form may be in bearer form unless otherwise agreed by the parties; provided, however, that delivery of securities which are required to be in registered form in order for interest thereon to be exempted from Federal income taxation shall be in registered form. (B) Book-Entry Form. Notwithstanding the other provisions of this section (c), a delivery of a book-entry form security shall be made only by a book-entry transfer of the ownership of the security to the purchasing customer or a person designated by the purchasing customer. For purposes of this subparagraph a “book-entry form” security shall mean a security which may be transferred only by bookkeeping entry, without the issuance or physical delivery of securities certificates, on books maintained for this purpose by a registered clearing agency or by the issuer or a person acting on behalf of the issuer. (v) Mutilated Certificates. Delivery of a certificate which is damaged to the extent that any of the following is not ascertainable: (A) name of issuer; (B) par value; (C) signature; (D) coupon rate; (E) maturity date; (F) seal of the issuer; or (G) certificate number shall not constitute good delivery unless validated by the trustee, registrar, transfer agent, paying agent or issuer of the securities or by an authorized agent or official of the issuer. (vi) Coupon Securities. (A) Coupon securities shall have securely attached to the certificate in the correct sequence all appropriate coupons, including supplemental coupons if specified at the time of trade, which in the case of securities upon which interest is in default shall include all unpaid or partially paid coupons. All coupons attached to the certificates must have the same serial number as the certificate. (B) Anything herein to the contrary notwithstanding, if securities are traded “and interest” and the settlement date is on or after the interest payment date, such securities shall be delivered without the coupon payable on such interest payment date. (C) If delivery of securities is made on or after the thirtieth calendar day prior to an interest payment date, the seller may deliver to the purchaser a draft or bank check of the seller or its agent, payable not later than the interest payment date or the delivery date, whichever is later, in an amount equal to the interest due, in lieu of the coupon. (vii) Mutilated or Cancelled Coupons. Delivery of a certificate which bears a coupon which is damaged to the extent that any one of the following cannot be ascertained from the coupon: (A) title of the issuer; (B) certificate number; (C) coupon number or payment date (if either the coupon number or the payment date is ascertainable from the coupon, the coupon will not be considered mutilated); or (D) the fact that there is a signature; (E) or which coupon has been cancelled, Rule
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 shall not constitute good delivery unless the coupon is endorsed or guaranteed. In the case of damaged coupons, such endorsement or guarantee must be by the issuer or by a commercial bank. In the case of cancelled coupons, such endorsement or guarantee must be by the issuer or an authorized agent or official of the issuer, or by the trustee or paying agent. (viii) Delivery of Certificates Called for Redemption. (A) A certificate for which a notice of call applicable to less than the entire issue of securities has been published on or prior to the delivery date shall not constitute good delivery unless the securities are identified as “called” at the time of trade. (B) A certificate for which a notice of call applicable to the entire issue of securities has been published on or prior to the trade date shall not constitute good delivery unless the securities are identified as “called” at the time of trade. (C) For purposes of this paragraph (viii) the term “entire issue of securities” shall mean securities of the same issuer having the same date of issue, maturity date and interest rate. (ix) Delivery Without Legal Opinions or Other Documents. Delivery of certificates without legal opinions or other documents legally required to accompany the certificates shall not constitute good delivery unless identified as “ex legal” at the time of trade. (x) Insured Securities. Delivery of certificates for securities traded as insured securities shall be accompanied by evidence of such insurance, either on the face of the certificate or in a document attached to the certificate. (xi) Endorsements for Banking or Insurance Requirements. A security bearing an endorsement indicating that it was deposited in accordance with legal requirements applicable to banking institutions or insurance companies shall not constitute good delivery unless it bears a release acknowledged before an officer authorized to take such acknowledgments and was designated as a released endorsed security at the time of trade. (xii) Delivery of Registered Securities. (A) Delivery to the Customer. Registered securities delivered directly to a customer shall be registered in the customer’s name or in such name as the customer shall direct. (B) Delivery to an Agent of the Customer. Registered securities delivered to an agent of a customer may be registered in the customer’s name or as otherwise directed by the customer. If such securities are not so registered, such securities shall be delivered in accordance with the following provisions: (1) Assignments. Delivery of a certificate in registered form must be accompanied by an assignment on the certificate or on a separate bond power for such certificate, containing a signature or signatures which correspond in every particular with the name or names written upon the certificate, except that the following shall be interchangeable: “and” or “&”; “Company” or “Co.”; “Incorporated” or “Inc.”; and “Limited” or “Ltd.” (2) Detached Assignment Requirements. A detached assignment shall provide for the irrevocable appointment of an attorney, with power of substitution, a full description of the security, including the name of the issuer, the maturity date and interest date, the bond or note number, and the par value (expressed in words and numerals). (3) Power of Substitution. When the name of an individual or firm has been inserted in an assignment as attorney, a power of substitution shall be executed in blank by such individual or firm. When the name of an individual or firm has been inserted in a power of substitution as a substitute attorney, a new power of substitution shall be executed in blank by such substitute attorney. (4) Guarantee. Each assignment, endorsement, alteration and erasure shall bear a guarantee acceptable to the transfer agent or registrar. (5) Form of Registration. Delivery of a certificate accompanied by the documentation required in this subparagraph (B) shall constitute good delivery if the certificate is registered in the name of: (a) an individual or individuals; (b) a nominee; (c) a member of a national securities exchange whose specimen signature is on file with the transfer agent or any other broker, dealer or municipal securities dealer who has filed specimen signatures with the transfer agent and places a statement to this effect on the assignment; or (d) an individual or individuals acting in a fiduciary capacity. (6) Certificate in Legal Form. Good transfer of a security in legal form shall be determined only by the transfer agent for the security. Delivery of a certificate in legal form shall not constitute good delivery unless the certificate is identified as being in such form at the time of trade. A certificate shall be considered to be in 125 Rule
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 legal form if documentation in addition to that specified in this subparagraph (B) is required to complete a transfer of the securities. (C) Payment of Interest. If a registered security is traded “and interest” and transfer of record ownership cannot be or has not been accomplished on or before the record date for the determination of registered holders for the payment of interest, delivery shall be accompanied by a draft or bank check of the seller or its agent, payable not later than the interest payment date or the delivery date, whichever is later, for the amount of the interest. (D) Registered Securities In Default. If a registered security is in default (i.e., is in default in the payment of principal or interest) and transfer of record ownership cannot be or has not been accomplished on or before the record date for the determination of registered holders for the payment of interest, an interest payment date having been established on or after the trade date, delivery shall be accompanied by a draft or bank check of the seller or its agent, payable not later than the interest payment date or the delivery date, whichever is later, for the amount of the payment to be made by the issuer, unless the security is traded “ex-interest.” (d) Delivery/Receipt vs. Payment Transactions. (i) No broker, dealer or municipal securities dealer shall execute a transaction with a customer pursuant to an arrangement whereby payment for securities received (RVP) or delivery against payment of securities sold (DVP) is to be made to or by an agent of the customer unless all of the following procedures are followed: (A) the broker, dealer or municipal securities dealer shall have received from the customer prior to or at the time of accepting such order, the name and address of the agent and the name and account number of the customer on file with the agent; (B) the memorandum of such order made in accordance with the requirements of paragraph (a)(vi) or (a)(vii) of rule G-8 shall include a designation of the fact that it is a delivery vs. payment (DVP) or receipt vs. payment (RVP) transaction; (C) the broker, dealer or municipal securities dealer shall give or send to the customer a confirmation in accordance with the requirements of section (a) of this rule with respect to the execution of the order not later than the day of such execution; and (D) the broker, dealer or municipal securities dealer shall have obtained a representation from the customer (1) that the customer will furnish the agent instructions with respect to the receipt or delivery of the securities involved in the transaction promptly and in a manner to assure that settlement will occur on settlement date, and (2) that, with respect to a transaction subject to the provisions of paragraph (ii) below, the customer will furnish the agent such instructions in accordance with the rules of the registered clearing agency through whose facilities the transaction has been or will be confirmed. (ii) Requirement for Confirmation/Acknowledgment. (A) Use of Registered Clearing Agency or Qualified Vendor. Except as provided in this paragraph (ii) of rule G-15(d), no broker, dealer or municipal securities dealer shall effect a customer transaction for settlement on a delivery vs. payment or receipt vs. payment (DVP/RVP) basis unless the facilities of a Clearing Agency or Qualified Vendor are used for automated confirmation and acknowledgment of the transaction. Each broker, dealer and municipal securities dealer executing a customer transaction on a DVP/RVP basis shall: (1) ensure that the customer has the capability, either directly or through its clearing agent, to acknowledge transactions in an automated confirmation/acknowledgment system operated by a Clearing Agency or Qualified Vendor; (2) submit or cause to be submitted to a Clearing Agency or Qualified Vendor all information and instructions required by the Clearing Agency or Qualified Vendor for the production of a confirmation that can be acknowledged by the customer or the customer’s clearing agent; and (3) submit such transaction information to the automated confirmation/acknowledgment system on the date of execution of such transaction; provided that a transaction that is not eligible for automated confirmation and acknowledgment through the facilities of a Clearing Agency shall not be subject to this paragraph (ii). (B) Definitions for Rule G-15(d)(ii). (1) “Clearing Agency” shall mean a clearing agency as defined in Section 3(a)(23) of the Act that is registered with the Commission pursuant to Section 17A(b)(2) of the Act or has obtained from the Commission an exemption from registration granted specifically to allow the clearing agency to provide confirmation/acknowledgment services. (2) “Qualified Vendor” shall mean a vendor of electronic confirmation and acknowledgment services that: Rule
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 (a) for each transaction subject to this rule: (i) delivers a trade record to a Clearing Agency in the Clearing Agency’s format; (ii) obtains a control number for the trade record from the Clearing Agency; (iii) cross-references the control number to the confirmation and subsequent acknowledgment of the trade; and (iv) electronically delivers any acknowledgment received on the trade to the Clearing Agency and includes the control number when delivering the acknowledgment of the trade to the Clearing Agency; (b) certifies to its customers: (i) with respect to its electronic trade confirmation/acknowledgment system, that it has a capacity requirements evaluation and monitoring process that allows the vendor to formulate current and anticipated estimated capacity requirements; (ii) that its electronic trade confirmation/acknowledgment system has sufficient capacity to process the volume of data that it reasonably anticipates to be entered into its electronic trade confirmation/acknowledgment service during the upcoming year; (iii) that its electronic trade confirmation/acknowledgment system has formal contingency procedures, that the entity has followed a formal process for reviewing the likelihood of contingency occurrences, and that the contingency protocols are reviewed, tested, and updated on a regular basis; (iv) that its electronic confirmation/acknowledgment system has a process for preventing, detecting, and controlling any potential or actual systems or computer operations failures, including any failure to interface with a Clearing Agency as described in rule G-15(d)(ii)(B)(2)(a), above, and that its procedures designed to protect against security breaches are followed; and (v) that its current assets exceed its current liabilities by at least five hundred thousand dollars; (c) when it begins providing such services, and annually thereafter, submits an Auditor’s Report to the Commission staff which is not deemed unacceptable by the Commission staff. (An Auditor’s Report will be deemed unacceptable if it contains any findings of material weakness.); (d) notifies the Commission staff immediately in writing of any material change to its confirmation/affirmation systems. (For purposes of this subparagraph (d) “material change” means any changes to the vendor’s systems that significantly affect or have the potential to significantly affect its electronic trade confirmation/acknowledgment systems, including: changes that: (i) affect or potentially affect the capacity or security of its electronic trade confirmation/acknowledgment system; (ii) rely on new or substantially different technology; (iii) provide a new service as part of the Qualified Vendor’s electronic trade confirmation/acknowledgment system; or (iv) affect or have the potential to adversely affect the vendor’s confirmation/acknowledgment system’s interface with a Clearing Agency.); (e) notifies the Commission staff in writing if it intends to cease providing services; (f) provides the Board with copies of any submissions to the Commission staff made pursuant to subparagraphs (c), (d), and (e) of this rule G-15(d)(ii)(B)(2) within ten business days; and (g) promptly supplies supplemental information regarding its confirmation / acknowledgment system when requested by the Commission staff or the Board. (3) “Auditor’s Report” shall mean a written report which is prepared by competent, independent, external audit personnel in accordance with the standards of the American Institute of Certified Public Accountants and the Information Systems Audit and Control Association and which: (a) verifies the certifications described in subparagraph (d)(ii)(B)(2)(b) of this rule G-15; (b) contains a risk analysis of all aspects of the entity’s information technology systems including, computer operations, telecommunications, data security, systems development, capacity planning and testing, and contingency planning and testing; and 127 Rule
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 (c) contains the written response of the entity’s management to the information provided pursuant to (a) and (b) of this subparagraph (d)(ii)(B)(3) of rule G-15. (C) Disqualification of Vendor. A broker, dealer or municipal securities dealer using a Qualified Vendor that ceases to be qualified under the definition in rule G-15(d)(ii)(B)(2) shall not be deemed in violation of this rule G15(d)(ii) if it ceases using such vendor promptly upon receiving notice that the vendor is no longer qualified. (iii) Notwithstanding the provisions of section (c) of this rule, no broker, dealer or municipal securities dealer shall effect a delivery vs. payment or receipt vs. payment (DVP/RVP) customer transaction that is eligible for book-entry settlement in a depository registered with the Securities and Exchange Commission (depository) unless the transaction is settled through the facilities of a depository or through the interface between the two depositories. Each broker, dealer and municipal securities dealer settling such a customer transaction on a DVP/RVP basis shall: (A) ensure that the customer has the capability, either directly or through its clearing agent, to settle transactions in a depository; and (B) submit or cause to be submitted to a depository all information and instructions required from the broker, dealer or municipal securities dealer by the depository for book-entry settlement of the transaction to occur; provided that, if a party to a DVP/RVP customer transaction has made arrangements, through its clearing agent or otherwise, to use one or more depositories exclusively, a transaction by that party shall not be subject to the requirements of this paragraph (iii) if the transaction is ineligible for settlement at all such depositories with which such arrangements have been made; and further provided that purchases made by trustees or issuers to retire securities shall not be subject to this paragraph (iii). (e) Interest Payment Claims. A broker, dealer or municipal securities dealer that receives from a customer a claim for the payment of interest due the customer on securities previously delivered to (or by) the customer shall respond to the claim no later than 10 business days following the date of the receipt of the claim or 20 business days in the case of a claim involving an interest payment scheduled to be made more than 60 days prior to the date of the claim. (f) Minimum Denominations. (i) Except as provided in this section (f), a broker, dealer or municipal securities dealer shall not effect a customer transaction in municipal securities issued after June 1, 2002 in an amount lower than the minimum denomination of the issue. (ii) The prohibition in subsection (f)(i) of this rule shall not apply to the purchase of securities from a customer in an amount below the minimum denomination if the broker, dealer or municipal securities dealer determines that the customer’s position in the issue already is below the minimum denomination and that the entire position would be liquidated by the transaction. In determining whether this is the case, a broker, dealer or municipal securities dealer may rely either upon customer account information in its possession or upon a written statement by the customer as to its position in an issue. (iii) The prohibition in subsection (f)(i) of this rule shall not apply to the sale of securities to a customer in an amount below the minimum denomination if the broker, dealer or municipal securities dealer determines that the securities position being sold is the result of a customer liquidating a position below the minimum denomination, as described in subsection (f)(ii) of this rule. In determining whether this is the case, a broker, dealer or municipal securities dealer may rely upon customer account records in its possession or upon a written statement provided by the party from which the securities are purchased. A broker, dealer or municipal securities dealer effecting a sale to a customer under this subsection (iii) shall at or before the completion of the transaction, give or send to the customer a written statement informing the customer that the quantity of securities being sold is below the minimum denomination for the issue and that this may adversely affect the liquidity of the position unless the customer has other securities from the issue that can be combined to reach the minimum denomination. Such written statement may be included on the customer’s confirmation or may be provided on a document separate from the confirmation. (g) Forwarding Official Communications. (i) If a broker, dealer or municipal securities dealer receives an official communication to beneficial owners applicable to an issue of municipal securities that the broker, dealer or municipal securities dealer has in safekeeping along with a request to forward such official communication to the applicable beneficial owners, the broker, dealer or municipal securities dealer shall use reasonable efforts to promptly retransmit the official communication to the parties for whom it is safekeeping the issue. (ii) In determining whether reasonable efforts have been made to retransmit official communications, the following considerations are relevant: Rule
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 (A) CUSIP Numbers. If CUSIP numbers are included on or with the official communication to beneficial owners, the broker, dealer or municipal securities dealer shall use such CUSIP numbers in determining the issue(s) to which the official communication applies. If CUSIP numbers are not included on or with the official communication, the broker, dealer or municipal securities dealer shall use reasonable efforts to determine the issue(s) to which the official communication applies; provided however, that it shall not be a violation of this rule if, after reasonable efforts are made, the issue(s) to which the official communication applies are not correctly identified by the broker, dealer or municipal securities dealer. (B) Compensation. A broker, dealer or municipal securities dealer shall not be required by this rule to retransmit official communications without an offer of adequate compensation. If compensation is explicitly offered in or with the official communication, the broker, dealer or municipal securities dealer shall effect the retransmission and seek compensation concurrently; provided, however, that if total compensation would be more than $500.00, the broker, dealer or municipal securities dealer may, in lieu of this procedure, promptly contact the party offering compensation, inform it of the amount of compensation required, obtain specific agreement on the amount of compensation and wait for receipt of such compensation prior to proceeding with the retransmission. In determining whether compensation is adequate, the broker, dealer or municipal securities dealer shall make reference to the suggested rates for similar document transmission services found in “Suggested Rates of Reimbursement” for expenses incurred in forwarding proxy material, annual reports, information statements and other material referenced in NASD Conduct Rule 2260(g), taking into account revisions or amendments to such suggested rates as may be made from time to time. (C) Sufficient Copies of Official Communications. A broker, dealer or municipal securities dealer is not required to provide duplication services for official communications but may elect to do so. If sufficient copies of official communications are not received, and the broker, dealer or municipal securities dealer elects not to offer duplication services, the broker, dealer or municipal securities dealer shall promptly request from the party requesting the forwarding of the official communication the correct number of copies of the official communication. (D) Non-Objecting Beneficial Owners. In lieu of retransmitting official communications to beneficial owners who have indicated in writing that they do not object to the disclosure of their names and security positions, a broker, dealer or municipal securities dealer may instead promptly provide a list of such non-objecting beneficial owners and their addresses. (E) Beneficial Owners Residing Outside of the United States. A broker, dealer or municipal securities dealer shall not be required to send official communications to persons outside of the United States of America, although brokers, dealers and municipal securities dealers may voluntarily do so. (F) Investment Advisors. A broker, dealer or municipal securities dealer shall send official communications to the investment advisor for a beneficial owner, rather than to the beneficial owner, when the broker, dealer or municipal securities dealer has on file a written authorization for such documents to be sent to the investment advisor in lieu of the beneficial owner. (iii) Definitions (A) The terms “official communication to beneficial owners” and “official communication,” as used in this section (g), mean any document or collection of documents pertaining to a specific issue or issues of municipal securities that both: (1) is addressed to beneficial owners and was prepared or authorized by: (a) an issuer of municipal securities; (b) a trustee for an issue of municipal securities in its capacity as trustee; (c) a state or federal tax authority; or (d) a custody agent for a stripped coupon municipal securities program in its capacity as custody agent; and (2) contains official information about such issue or issues including, but not limited to, notices concerning monetary or technical defaults, financial reports, material event notices, information statements, or status or review of status as to taxability. BACKGROUND  Rule G-15 requires that a customer be sent a written confirmation containing information concerning the identity of the parties to the transaction, a description of the securities, the trade date, the settlement date, yield to maturity or dollar price, the capacity in which the firm or bank is acting, and other specified information. The rule requires that information on the time of execution and contra party identity in agency transactions be furnished within specified time periods upon written request of the customer (in lieu of being included on the confirmation). 129 Rule
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 MSRB INTERPRETATIONS
 INTERPRETIVE NOTICE ON RULE G-12 ON UNIFORM PRACTICE AND RULE G-15 ON CUSTOMER CONFIRMATIONS November 28, 1977 This notice addresses several questions that have arisen concerning Board rules G-12 and G-15. Board rule G-12 establishes uniform industry procedures for the processing, clearance, and settlement of transactions in municipal securities... Board rule G15 requires municipal securities professionals to send written confirmations of transactions to customers, and specifies the information required to be set forth on the confirmation. Settlement Dates In order to establish uniform settlement dates for “regular way” transactions in municipal securities, rule G-12(b)(i)(B) defines the term “business day” as “a day recognized by the National Association of Securities Dealers, Inc. [the “NASD”] as a day on which securities transactions may be settled.” The practice of the NASD has been to exclude from the category of “business day,” any day widely designated as a legal bank holiday, and to notify the NASD membership accordingly. Such notices set forth the NASD’s trade and settlement date schedules for periods which include a legal holiday. “Catastrophe” Call Features Rules G-12 and G-15 require that confirmations of transactions set forth a “description of the securities, including at a minimum… if the securities are subject to redemption prior to maturity (callable)… an indication to such effect…” (paragraphs G12(c)(v)(E) and G-15(a)(v)[*]). Both rules also require that in transactions in callable securities effected on a yield basis, dollar price must be shown and “the calculation of dollar price shall be to the lower of price to call or price to maturity” (paragraphs G12(c)(v)(I) and G-15(a)(viii)[†]). The references to “callable” securities and pricing to call in rules G-12 and G-15 do not refer to “catastrophe” call features, such as those relating to acts of God or eminent domain, which are beyond the control of the issuer of the securities. [*] [†] 
 [Currently codified at rule G-15(a)(i)(C)(2)(a)] [Currently codified at rule G-15(a)(i)(A)(5)] INTERPRETIVE NOTICE ON CONFIRMATION REQUIREMENTS March 25, 1980 Rule G-12(c)(v)(E) requires a municipal securities dealer to set forth on an inter-dealer confirmation a description of the securities which are the subject of the transaction, including “…in the case of revenue bonds the type of revenue, if necessary for a materially complete description of the securities….” Rule G-15(a)(v) [*] imposes the identical requirement with respect to customer confirmations. The Board has recently received an inquiry regarding whether these provisions require con- Rule
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 firmations of transactions in Los Angeles Department of Water and Power bonds to distinguish between bonds secured by revenues of the electric power system and bonds secured by revenues of the waterworks system. The Board is of the view that, if securities of a particular issuer are secured by separate sources of revenue, the source of revenue of the securities involved in a transaction is a material element of the description of the securities which should be set forth on customer and inter-dealer confirmations. Confirmations of transactions in Los Angeles Department of Water and Power bonds must therefore indicate whether the securities are “electric revenue” or “water revenue” bonds. [*] 
 [Currently codified at rule G-15 (a)(i)(C)(1)(a)] INTERPRETIVE NOTICE CONCERNING CONFIRMATION DISCLOSURE REQUIREMENTS APPLICABLE TO VARIABLERATE MUNICIPAL SECURITIES December 10, 1980 The Municipal Securities Rulemaking Board has recently received inquiries concerning the application of the Board’s confirmation disclosure requirements, which are contained in Board rules G-12 and G-15, to municipal securities with variable or “floating” interest rates. Rule G-12(c)(v)(E)[*] requires a municipal securities dealer to set forth on an inter-dealer confirmation a description of the securities which are the subject of the transaction, including the interest rate. Rule G-15(a)(i)(E)[*] imposes the same requirement with respect to customer confirmations. The Board is of the view that these provisions require that the security description appearing on customer and inter-dealer confirmations for securities with variable interest rates include a clear indication that the interest rates are variable or “floating.” The Board also notes that due to the variability of the interest rates on these securities, it is not possible to derive a yield to a future call or maturity date. Therefore, the Board has concluded that the provision of rule G-15 which requires that customer confirmations for transactions effected at a dollar price set forth the yield resulting from such dollar price is not applicable to transactions in variable-rate municipal securities. [*]   [Currently codified at rule G-15(a)(1)(B)(4)] NOTICE CONCERNING “ZERO COUPON” AND “STEPPED COUPON” SECURITIES April 27, 1982 The Municipal Securities Rulemaking Board has recently received inquiries concerning the application of the confirmation disclosure requirements of Board rules G-12 and G-15 to transactions in municipal securities with “zero coupons” or “stepped coupons.” Certain recent new issues of municipal securities have had several maturities paying 0% interest; securities of these 130

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 [†] maturities are sold at deep discounts, with the investor’s return received in the form of an accretion of this discount to par. Other issues have been sold which have “stepped coupons;” that is, all outstanding bonds pay the same interest rate each year, with the interest rate periodically rising, on a pre-established schedule, on all securities yet to be redeemed. Interested persons have inquired concerning how the description requirements of the rules apply to such securities, and whether the yield disclosure requirements of rule G-15 apply to confirmations of transactions in such securities for the accounts of customers. Rule G-12(c)(v)(E) requires a municipal securities dealer to set forth on an inter-dealer confirmation a description of the securities which are the subject of the transaction, including the interest rate. Rule G-15(a)(i)(E)* imposes the same requirement with respect to customer confirmations. Further, rule G-15(a)(i)(I)(2)† requires that customer confirmations of transactions effected at dollar prices (except for transactions at par) state the lowest of the resulting yield to call, yield to par option, or yield to maturity. A confirmation of a transaction in a “zero coupon” security must state that the interest rate on the security is “0%.” A customer confirmation of such a transaction must state the lowest of the yield to call or yield to maturity resulting from the dollar price of the transaction.1 The Board believes that the disclosure of the resulting yield is particularly important on such transactions, since it provides the only indication to the investor of the return he or she can expect from the investment. A confirmation of a transaction in a “stepped coupon” security must state the interest rate currently being paid on the securities, and must identify the securities as “stepped coupon” securities. A customer confirmation of such a transaction must also state the lowest of the yield to call, yield to par option, or yield to maturity resulting from the dollar price of the transaction.2 In view of the wide variation in the coupon interest rates that will be received over the life of a “stepped coupon” security, the Board believes that the disclosure of yield will assist customers in determining the actual return to be received on the investment. In addition to the specific confirmation disclosure requirements of Board rules G-12 and G-15 discussed above, the Board is of the view that persons selling such securities to the public have an obligation to adequately disclose the special characteristics of such securities so as to comply with the Board’s fair practice rules. For example, although the details of the increases to the interest rates on “stepped coupon” securities need not be provided on confirmations, such information is, of course, material information regarding the securities, and municipal securities dealers would be obliged to inform customers about this feature of the securities at or before the time of trade. 1 2 NOTICE CONCERNING PRICING TO CALL December 10, 1980 Board rules G-12 on uniform practice and G-15 on customer confirmations set forth certain requirements concerning the computations of yields and dollar prices to premium call or par option features. Both rules currently require that, in the case of a transaction in callable securities effected on the basis of a yield price, the dollar price should be calculated to the lowest of the price to premium call, price to par option, or price to maturity. Further, confirmations of transactions on which the dollar price has been computed to a call or option feature must state the call date and price used in the computation. Amendments to rule G-15 which will become effective on October 1, 1981, generally require that confirmations of transactions in callable securities effected at a dollar price in excess of par must set forth the lowest of the yield to premium call, yield to par option, or yield to maturity resulting from such dollar price.1 Since the December 1977 effective dates of rule G-12 and G-15, the Board has received numerous inquiries concerning these provisions and their application to different issues of municipal securities. In view of the general interest in this subject, the Board is issuing this notice to provide guidance with respect to the general criteria to be used in selecting the appropriate call feature for yield or dollar price computations. The requirement for the computation of dollar price to the lowest of price to premium call, par option, or maturity reflects the long-established practice of the industry in pricing transactions. This practice assures a customer that he or she will realize, at a minimum, the stated yield, even in the event that a call provision is exercised. The pending amendment to rule G-15, which requires the presentation of information concerning the lowest yield on confirmations of dollar price transactions, will provide investors with the equivalent information on these types of transactions. In view of the variety of call provisions applicable to different kinds of municipal securities, there is often uncertainty concerning the selection of the appropriate call feature for use in the computation of yield or dollar price. Issues of municipal securities often have several different call features, ranging from calls associated with mandatory sinking fund requirements to optional calls from the proceeds of a refunding or funds in excess of debt service requirements. Certain issues have additional call provisions in the event that funds designated for specific purposes are not expended or obligations securing the issue are prepaid.2 Most of the inquiries which the Board has received concerning the provisions of rules G-12 and G-15 focus on this question of selection of the call provisions to be used for computation purposes. The Board is of the view that a distinction should be drawn between “in whole” call provisions, (i.e., those under which all outstanding securities of a particular issue may be called) and “in part” call provisions (i.e., those under which part of an issue, usually selected by lot or in inverse maturity or numerical order, may be called for redemption). The Board is of the view that for com- 
 The Board notes that, upon the effectiveness of Board rule G-33, such yield must be computed on a basis that presumes semi-annual compounding. In the case of both “zero coupon” and “stepped coupon” securities, if the transaction is effected in a yield basis, the confirmation must show the yield price and the resulting dollar price, computed to the lowest of price to premium call, price to par option, or price to maturity. [*] [Currently codified at rule G-15 (a)(i)(A)(5)] [Currently codified at rule G-15(a)(i)(B)(4)] 131 Rule
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 putation purposes only “in whole” calls should be used; sinking fund calls and other “in part” calls should not be used in making the computations required by rules G-12 and G-15. Several inquiries have raised the question of which “in whole” call should be used in the case of issues which have more than one such call. The earlier call features of such issues are often subject to restrictions on the proceeds which may be used to redeem securities (e.g., a restriction that only unexpended funds from the original issue may be used for redemption purposes). Since such call features operate as a practical matter as “in part” calls, the Board is of the view that the “in whole” call feature which would be exercised in the event of a refunding is the call feature which should generally be used for purposes of the computation of yields and dollar prices. Other concerned persons have inquired regarding the application of the “pricing to call” requirements in the case of an issue with a sequence of call dates at gradually declining premiums. The Board believes that, as a general matter, a trial computation to the first date on which a security is callable “in whole” at a premium will be sufficient to determine whether the price to the premium call is the lowest dollar price. However, in the rare instance where the price to an intermediate premium call (i.e., a call in the “middle” of a sequence of calls at declining premiums) is the lowest dollar price, such price should be used. The Board notes that, in such cases, the structure of the call schedule is sufficiently unusual (e.g., with sharp declines in the premium amount over a very short period of time) that dealers should be alerted to the need to take the intermediate calls into consideration. 1 2   Effective December 1, 1980, customer confirmations of transactions in callable securities effected at a dollar price less than par must set forth the yield to maturity resulting from such dollar price. Confirmations of dollar-price transactions in noncallable securities, or securities which have been called or prerefunded, must set forth the resulting yield to maturity (or to the date for redemption of the securities, in the case of called or prerefunded securities). Other issues are also callable in the event that the financed project is damaged or destroyed, or the tax exempt status of the issue is revoked. Since the possibility of such a call being exercised is extremely remote, and beyond the control of the issuer of the securities, the Board does not believe that these “catastrophe” calls need be considered for computation purposes. INTERPRETIVE NOTICE CONCERNING YIELD DISCLOSURE REQUIREMENTS FOR PURCHASES FROM CUSTOMERS September 1, 1981 Certain amendments to Board rule G-15 on customer confirmations became effective on December 1, 1980. Among other matters, these amendments require that customer confirmations of transactions effected on the basis of dollar price, including confirmations of purchases from customers, set forth certain yield information concerning the transaction. Confirmations of dollar price transactions in non-callable securities, or in callable securities traded at prices below par, must set forth the yield to maturity resulting from the dollar price. Confirmations of dollar price transactions in securities which have been called or prerefunded must show the yield to the maturity date established by the call or prerefunding. Confirmations of transactions in callable securities traded at dollar prices in excess of par are exempt from yield dis- Rule
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 closure requirements until October 1, 1981; after that date such confirmations must show the lowest of the yield to premium call, yield to par option, or yield to maturity resulting from such dollar price.1 Since the effective date of these amendments, the Board has received several inquiries as to whether all confirmations of purchases from customers, including purchases effected at a price derived from a yield price less a spread or concession, must show the yield resulting from the actual unit dollar price of the transaction. The Board is of the view that all confirmations of purchasers from customers (except for purchases at par) must set forth the net or effective yield resulting from the actual unit dollar price of the transaction. The yield disclosure on confirmations of purchases from customers is intended to provide customers with a means of assessing the merits of alternative investment strategies (such as different possible reinvestment transactions) and the merits of the particular transaction being confirmed. The Board believes that the disclosure of the net or effective yield (i.e., that derived from the actual unit dollar price of the transaction) best serves these purposes. 1   Confirmations of transactions effected at a dollar price of par (“100”) continue to be exempt from any yield disclosure requirements. SENDING CONFIRMATIONS TO CUSTOMERS WHO UTILIZE DEALERS TO TENDER PUT OPTION BONDS September 30, 1985 The Board has received inquiries whether a municipal securities dealer must send a confirmation to a customer when the customer utilizes the dealer to tender bonds pursuant to a put option. Board rule G-15(a)(i) requires dealers to send confirmations to customers at or before the completion of a transaction in municipal securities. The Board believes that whether a dealer that accepts for tender put bonds from a customer is engaging in “transactions in municipal securities” depends on whether the dealer has some interest in the put option bond. In the situation in which a customer puts back a bond through a municipal securities dealer either because he purchased the bond from the dealer or he has an account with the dealer, and the dealer does not have an interest in the put option and has not been designated as the remarketing agent for the issue, there seems to be no “transaction in municipal securities” between the dealer and the tendering bondholder and no confirmation needs to be sent. The Board suggests, however, that it would be good industry practice to obtain written approval of the tender from the customer, give the customer a receipt for his bonds and promptly credit the customer’s account. Of course, if the dealer actually purchases the security and places it in its trading account, even for an instant, prior to tendering the bond, a confirmation of this sale transaction should be sent.1 If a dealer has some interest in a put option bond which its customer has delivered to it for tendering, a confirmation must be sent to the customer. A dealer that is the issuer of a secondary market put option on a bond has an interest in the security and is 132

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 deemed to be engaging in a municipal securities transaction if the bond is put back to it. In addition, a remarketing agent, (i.e., a dealer which, pursuant to an agreement with an issuer, is obligated to use its best efforts to resell bonds tendered by their owners pursuant to put options) who accepts put option bonds tendered by customers also is deemed to be engaging in a “transaction in municipal securities” with the customer for purposes of sending a confirmation to the customer because of the remarketing agent’s interest in the bonds.2 The Board’s position on remarketing agents is based upon its understanding that remarketing agents sell the bonds that their customers submit for tendering, as well as other bonds tendered directly to the trustee or tender agent, pursuant to the put option. The customers and other bondholders, pursuant to the terms of the issue, usually are paid from the proceeds of the remarketing agents' sales activities.3 1 2 3 confirmations that include specific call information not required to be included under the Board’s confirmation rules also must include a notation that other call features exist and must provide clarifying information about the noted call, e.g. “first in-whole call.” These disclosures should be sufficient to ensure that purchasing dealers and customers will be alerted to the need to obtain additional information. The Board cautions dealers to ensure that confirmations of municipal securities with call features clearly describe the securities as “callable.” If this information is erroneously noted on the confirmation, purchasing dealers have the right to reclaim the securities under rule G-12(g)(iii)(C)(3). 1 
 This would apply equally in circumstances in which the dealer has an interest in the put option bond.   In addition, rule G-15(a)(iii)(D)[currently codified at rule G-15(a)(i)(C)(2)(a)] requires a legend to be placed on customer confirmations of transactions in callable securities which notes that “[additional] call features ... exist... [that may] affect yield; complete information will be provided upon request.” [Note: Revised to reflect subsequent amendments] NOTICE CONCERNING CONFIRMATION, DELIVERY AND RECLAMATION OF INTERCHANGEABLE SECURITIES Of course, remarketing agents also must send confirmations to those to whom they resell the bonds. August 10, 1988 In March 1988, the Securities and Exchange Commission approved amendments to rules G-12 and G-15 concerning municipal securities that may be issued in bearer or registered form (interchangeable securities).1 These amendments will become effective for transactions executed on or after September 18, 1988. The amendments revise rules G-12(e) and G-15(c) to allow inter–dealer and customer deliveries of interchangeable securities to be either in bearer or registered form, ending the presumption in favor of bearer certificates for such deliveries. The amendments also delete the provision in rule G-12(g) that allows an inter-dealer delivery of interchangeable securities to be reclaimed within one day if the delivery is in registered form. In addition, the amendments remove the provisions in rules G-12(c) and G-15(a) that require dealers to disclose on inter-dealer and customer confirmations that securities are in registered form. The Board has received inquiries on several matters concerning the amendments and is providing the following clarifications and interpretive guidance. Deliveries of Interchangeable Securities. Several dealers have asked whether the amendments apply to securities that can be converted from bearer to registered form, but that cannot then be converted back to bearer form. These securities are “interchangeable securities” because they originally were issuable in either bearer or registered form. Therefore, under the amendments, physical deliveries of these certificates may be made in either bearer or registered form, unless a contrary agreement has been made by the parties to the transaction.2 The Board also has been asked whether a mixed delivery of bearer and registered certificates is permissible under the amendments. Since the amendments provide that either bearer or registered certificates are acceptable for physical deliveries, a delivery consisting of bearer and registered certificates also is an acceptable delivery under the amendments. If these funds are not sufficient to pay tendering bondholders, such bondholders usually are paid from certain funds set up under the issue’s indenture or from advances under the letter of credit that usually backs the put option. NOTICE CONCERNING CONFIRMATION DISCLOSURE REQUIREMENTS FOR CALLABLE MUNICIPAL SECURITIES February 20, 1986 Recently, the Board has received inquiries concerning the application of its inter-dealer and customer confirmation rules, rules G-12(c) and G-15(a) respectively, to municipal securities subject to call features. In particular, the Board has been made aware of instances in which dealers note one call date and price, usually the first in-whole call, on inter-dealer and customer confirmations without noting that the call information relates to the first in-whole call or that the bonds are otherwise callable. Rules G-12(c) and G-15(a) require that confirmations set forth a description of the securities, including… if the securities are… subject to redemption prior to maturity (callable)…, an indication to such effect… Thus, municipal securities subject to in-whole or in-part calls must be described as callable. Rules G-12(c) and G-15(a) also require dealers, when securities transactions are effected on a yield basis, to set forth a dollar price that has been computed to the lowest of the price to call, price to par option, or price to maturity; rule G-15 requires that confirmations of customer transactions effected on a dollar price disclose a yield in a similar manner. These rules provide that when a price or yield is calculated to a call, this must be stated, and the call date and price used in the calculation must be shown.1 These are the only instances in which specific call features must be identified on a confirmation. The Board understands that confusion may arise when specific call features are noted on confirmations without an adequate description of such information. The Board has determined that 133 Rule
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 Fees for Conversion Transfer agents for some interchangeable securities charge fees for conversion of registered certificates to bearer form. Dealers should be aware that these fees can be substantial and, in some cases, may be prohibitively expensive. Dealers, therefore, should ascertain the amount of the fee prior to agreeing to deliver bearer certificates. A dealer may pass on the costs of converting registered securities to bearer form to its customer. In such a case, the dealer must disclose the amount of the conversion fee to the customer at or prior to the time of trade, and the customer must agree to pay it.3 In addition, rule G-15(a)(iii)(J)[*] requires that the dealer note such an agreement (including the amount of the conversion fee) on the confirmation.4 The conversion fee, however, should not be included in the price when calculating the yield shown on the confirmation.5 In collecting this fee, the dealer merely would be passing on the costs imposed by a third party, voluntarily assumed by the customer, relating to the form in which the securities are held. The conversion fee thus is not a necessary or intrinsic cost of the transaction for purposes of yield calculation.6 Continued Application of the Board’s Automated Clearance Rules The Board’s automated clearance rules, rules G-12(f) and G-15(d), require book-entry settlements of certain inter-dealer and customer transactions.7 The amendments on interchangeable securities address only physical deliveries of certificates and, therefore, apply solely to transactions that are not required to be settled by book-entry under the automated clearance rules. When a physical delivery is permitted under Board rules (e.g., because the securities are not depository eligible), dealers may agree at the time of trade on the form of certificates to be delivered. When such an agreement is made, this special condition must be included on the confirmation, as required by rules G12(c)(vi)(I) and G-15(a)(iii)(J).8 [*] Dealers, however, may not enter into an agreement providing for a physical delivery when book-entry settlement is required under the automated clearance rules, as this would result in a violation of the automated clearance rules.9 Need for Education of Customers on Benefits of Registered Securities Dealers should begin planning as soon as possible any internal or operational changes that may be needed to comply with the amendments. The Depository Trust Company (DTC) has announced plans for a full-scale program of converting interchangeable securities now held in bearer form to registered form beginning on September 18, 1988.10 When possible, DTC plans to retain a small supply of bearer certificates in interchangeable issues to accommodate withdrawal requests for bearer certificates.11 The general effect of the amendments and DTC’s policy, however, will make it difficult for dealers, in certain cases, to ensure that their customers will receive bearer certificates. Dealers should educate customers who now prefer bearer certificates on the call notification and interest payment benefits offered by registered certificates and dealer safekeeping and advise them when it is unlikely that bearer certificates can be obtained in a particular transaction. Dealers safekeeping municipal securities through Rule
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 DTC on behalf of such customers also may wish to review with those customers DTC’s new arrangements for interchangeable securities. 1   See SEC Release No. 34-25489 (March 18, 1988); MSRB Reports Vol. 8, no. 2 (March 1988), at 3. 2 3 4 5 6 7 The amendments should substantially reduce delays in physical deliveries that result because of dealer questions about whether specific certificates should be in bearer form. This efficiency would be impossible if these “one-way” interchangeable securities were excluded from the amendments since dealers would be required to determine, for each physical delivery of registered securities, whether the securities are “one-way” interchangeable securities. Rule G-17, on fair dealing, requires dealers to disclose all material facts about a transaction to a customer at or before the time of trade. In many cases, the conversion fee is as much as $15 for each bearer certificate. The Board also has been made aware of some cases in which the transfer agent must obtain new printing plates or print new bearer certificates to effect a conversion. The conversion costs then may be in excess of several hundred or a thousand dollars. Therefore, it is important that the customer be aware of the amount of the conversion costs prior to agreeing to pay for them. This rule requires that, in addition to any other information required on the confirmation, the dealer must include “such other information as may be necessary to ensure that the parties agree on the details of the transaction.” Rule G-15(a)(i)(I) [currently codified at rule G-15(a)(i)(A)(5)] requires the yield of a customer transaction to be shown on the confirmation. Some customers, for example, may ask dealers to convert registered securities to bearer form even though the customers also may be willing to accept registered certificates if this is more economical. Rule G-12(f)(ii) requires book-entry settlement of an inter-dealer municipal securities transaction if both dealers (or their clearing agents for the transaction) are members of a depository making the securities eligible and the transaction is compared through a registered securities clearing agency. Rule G-15(d)(iii) requires book-entry settlement of a customer transaction if the dealer grants delivery versus payment or receipt versus payment privileges on the transaction and both the dealer and the customer (or the clearing agents for the transaction) are members of a depository making the securities eligible. 8 9 These rules require that, in addition to the other information required on interdealer and customer confirmation, confirmations must include “such other information as may be necessary to ensure that the parties agree to the details of the transaction.” Of course, dealers may withdraw physical certificates from a depository once a book-entry delivery is accepted. 10 11 DTC expects this conversion process to take approximately two years. Midwest Securities Trust Company and The Philadelphia Depository Trust Company have not yet announced their plans with regard to interchangeable securities. DTC Notice to Participants on Plans for Comprehensive Conversion of Interchangeable Municipal Bonds to the Registered Form (August 10, 1988). [*] [Currently codified at rule G-15(a)(i)(A)(8)] NOTICE CONCERNING STRIPPED COUPON MUNICIPAL SECURITIES March 13, 1989 In 1986, several municipal securities dealers began selling ownership rights to discrete interest payments, principal payments or combinations of interest and principal payments on municipal securities. In 1987, the Board asked the Securities and Exchange Commission staff whether these “stripped coupon” instruments are municipal securities for purposes of the Securities Exchange Act and thus are subject to Board rules. On January 19, 1989, the 134

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 staff of the Division of Market Regulation of the Commission issued a letter stating that, subject to certain conditions, these instruments are municipal securities for purposes of Board rules (SEC staff letter). The Board is providing the following guidance on the application of its rules to transactions in stripped coupon instruments defined as municipal securities in the SEC staff letter (stripped coupon municipal securities). Questions whether other stripped coupon instruments are municipal securities and questions concerning the SEC staff letter should be directed to the Commission staff. Background A dealer sponsoring a stripped coupon municipal securities program typically deposits municipal securities (the underlying securities) with a barred custodian. Pursuant to a custody agreement, the custodian separately records the ownership of the various interest payments, principal payments, or specified combinations of interest and principal payments. One combination of interest and principal payments sometimes offered is the “annual payment security,” which represents one principal payment, with alternate semi-annual interest payments. This results in an annual interest rate equal to one-half the original interest rate on the securities.1 Stripped coupon municipal securities are marketed under trade names such as Municipal Tax Exempt Investment Growth Receipts (Municipal TIGRs), Municipal Receipts (MRs), and Municipal Receipts of Accrual on Exempt Securities (MUNI RAES). Application of Board Rules In general, the Board’s rules apply to transactions in stripped coupon municipal securities in the same way as they apply to other municipal securities transactions. The Board’s rules on professional qualifications and supervision, for example, apply to persons executing transactions in the securities the same as any other municipal security. The Board’s rules on recordkeeping, quotations, advertising and arbitration also apply to transactions in the securities. Dealers should be aware that rule G-19, on suitability of recommendations, and rule G-30, on fair pricing, apply to transactions in such instruments. The Board emphasizes that its rule on fair dealing, rule G17, requires dealers to disclose to customers purchasing stripped coupon municipal securities all material facts about the securities at or before the time of trade. Any facts concerning the underlying securities which materially affect the stripped coupon instruments, of course, must be disclosed to the customer. The Board understands that some stripped coupon municipal securities are sold without any credit enhancement to the underlying municipal securities. As pointed out in the SEC staff letter, dealers must be particularly careful in these cases to disclose all material facts relevant to the creditworthiness of the underlying issue. Confirmation Requirements Dealers generally should confirm transactions in stripped coupon municipal securities as they would transactions in other municipal securities that do not pay periodic interest or which pay interest annually.2 A review of the Board’s confirmation requirements applicable to the securities follows. Securities Descriptions. Rules G-12(c)(v)(E) and G15(a)(i)(E)[*] require a complete securities description to be included on inter-dealer and customer confirmations, respectively, including the name of the issuer, interest rate and maturity date.3 In addition to the name of the issuer of the underlying municipal securities, the trade name and series designation assigned to the stripped coupon municipal security by the dealer sponsoring the program must be included on the confirmation.4 Of course, the interest rate actually paid by the stripped coupon security (e.g., zero percent or the actual, annual interest rate) must be stated on the confirmation rather than the interest rate on the underlying security.† Similarly, the maturity date listed on the confirmation must be the date of the final payment made by the stripped coupon municipal security rather than the maturity date of the underlying securities.5 Credit Enhancement Information. Rules G-12(c)(vi)(D) and G-15(a)(ii)(D)[‡] require confirmations of securities pre-refunded to a call date or escrowed to maturity to state this fact along with the date of maturity set by the advance refunding and the redemption price. If the underlying municipal securities are advancerefunded, confirmations of the stripped coupon municipal securities must note this. In addition, rules G-12(c)(v)(E) and G15(c)(i)(E)[#] require that the name of any company or other person, in addition to the issuer, obligated directly or indirectly with respect to debt service on the underlying issue or the stripped coupon security be included on confirmations.6 Quantity of Securities and Denominations. For securities that mature in more than two years and pay investment return only at maturity, rules G-12(c)(v) and G-15(a)(v)[**] require the maturity value to be stated on confirmations in lieu of par value. This requirement is applicable to transactions in stripped coupon municipal securities over two years in maturity that pay investment return only at maturity, e.g., securities representing one interest payment or one principal payment. For securities that pay only principal and that are pre-refunded at a premium price, the principal amount may be stated as the transaction amount, but the maturity value must be clearly noted elsewhere on the confirmation. This will permit such securities to be sold in standard denominations and will facilitate the clearance and settlement of the securities. Rules G-12(c)(vi)(F) and G-15(a)(iii)(G)[††] require confirmations of securities that are sold or that will be delivered in denominations other than the standard denominations specified in rules G-12(e)(v) and G-15(a)(iii)(G)[††] to state the denominations on the confirmation. The standard denominations are $1,000 or $5,000 for bearer securities, and for registered securities, increments of $1,000 up to a maximum of $100,000. If stripped coupon municipal securities are sold or will be delivered in any other denominations, the denomination of the security must be stated on the confirmation. Dated Date. Rules G-12(c)(vi)(A) and G-15(a)(iii)(A)[***] require that confirmations state the dated date of a security if it affects price or interest calculations, and the first interest payment date if other than semi-annual. The dated date for purposes of an interest-paying stripped coupon municipal security is the date that interest begins accruing to the custodian for payment to the bene135 Rule
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 ficial owner. This date, along with the first date that interest will be paid to the owner, must be stated on the confirmation whenever it is necessary for calculation of price or accrued interest. Original Issue Discount Disclosure. Rules G-12(c)(vi)(G) and G-15(a)(iii)(H)[†††] require that confirmations identify securities that pay periodic interest and that are sold by an underwriter or designated by the issuer as “original issue discount.” This alerts purchasers that the periodic interest received on the securities is not the only source of tax-exempt return on investment. Under federal tax law, the purchaser of stripped coupon municipal securities is assumed to have purchased the securities at an “original issue discount,” which determines the amount of investment income that will be tax-exempt to the purchaser. Thus, dealers should include the designation of “original issue discount” on confirmations of stripped coupon municipal securities, such as annual payment securities, which pay periodic interest. Clearance and Settlement of Stripped Coupon Municipal Securities Under rules G-12(e)(vi)(B) and G-15(a)(iv)(B), delivery of securities transferable only on the books of a custodian can be made only by the bookkeeping entry of the custodian.7 Many dealers sponsoring stripped coupon programs provide customers with “certificates of accrual” or “receipts,” which evidence the type and amount of the stripped coupon municipal securities that are held by the custodian on behalf of the beneficial owner. Some of these documents, which generally are referred to as “custodial receipts,” include “assignment forms,” which allow the beneficial owner to instruct the custodian to transfer the ownership of the securities on its books. Physical delivery of a custodial receipt is not a good delivery under rules G-12(e) and G-15(a) unless the parties specifically have agreed to the delivery of a custodial receipt. If such an agreement is reached, it should be noted on the confirmation of the transaction, as required by rules G12(c)(v)(N) and G-15(a)(i)(N)[****]. The Board understands that some stripped coupon municipal securities that are assigned CUSIP numbers and sold in denominations which are multiples of $1,000 are eligible for automated comparison and automated confirmation/affirmation and that some of these instruments also are eligible for book-entry delivery through registered securities depositories. The Board reminds dealers that transactions in stripped coupon municipal securities are subject to the automated clearance requirements of rules G-12(f) and G-15(d) if they are eligible in the automated clearance systems. Dealers sponsoring stripped coupon programs also should note that rule G-34(b)(ii) requires CUSIP numbers to be assigned to stripped coupon municipal securities prior to the initial sale of the securities to facilitate clearance and settlement. Written Disclosures in Connection with Sales of Stripped Coupon Municipal Securities Dealers sponsoring stripped coupon municipal securities programs generally prepare “offering circulars” or “offering memoranda” describing the securities that have been placed on deposit with the custodian, the custody agreement under which the securities are held, and the tax treatment of transactions in the securities. These documents generally are provided to all custom- Rule
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 ers purchasing the securities during the initial offering of the instruments. The Board strongly encourages all dealers selling stripped coupon municipal securities to provide these documents to their customers whether the securities are purchased during the initial distribution or at a later time.8 Although the material information contained in these documents, under rule G-17, must be disclosed to customers orally if not provided in writing prior to the time of trade, the Board believes that the unusual nature of stripped coupon municipal securities and their tax treatment warrants special efforts to provide written disclosures. Moreover, if stripped coupon municipal securities are marketed during the underwriting period of the underlying issue, rule G-32 requires distribution of the official statement for the underlying issue prior to settlement of the transaction of the stripped coupon municipal securities. 1 2 3 4 5 6 7 8   The Board understands that other types of stripped coupon municipal securities also may be offered with combinations of interest and principal payments providing an interest rate different than the original interest rate of the securities. Thus, for stripped coupon municipal securities that do not pay periodic interest, rules G-12(c)(v) and G-15(a)(v) require confirmations to state the interest rate as zero and, for customer confirmations, the inclusion of a legend indicating that the customer will not receive periodic interest payments. [See current rule G15(a)(vi)(D), G-15(a)(i)(B)(4)(a) and G-15(a)(i)(D)(1).] Rules G-12(c)(vi)(H) and G-15(a)(iii)(l) [currently codified at rule G-15(a)(i)(C)(2)(e)] require confirmations of securities paying annual interest to note this fact. The complete description consists of all of the following information: the name of the issuer, interest rate, maturity date, and if the securities are limited tax, subject to redemption prior to maturity (callable), or revenue bonds, an indication to such effect, including in the case of revenue bonds the type of revenue, if necessary for a materially complete description of the securities and in the case of any securities, if necessary for a materially complete description of the securities, the name of any company or other person in addition to the issuer obligated, directly or indirectly, with respect to debt service or, if there is more than one such obligor, the statement, “multiple obligors” may be shown. Trade name and series designation is required under rules G-12(c)(vi)(l) and G15(a)(iii)(J) [currently codified at rule G-15(a)(i)(A)(8)], which state that confirmations, must include all information necessary to ensure that the parties agree to the details of the transaction. [See also current rule G-15(a)(i)(B)(1)(a).] Therefore, the maturity date of a stripped coupon municipal security representing one interest payment is the date of the interest payment. [See current rule G15(a)(i)(B)(3)(a).] It should be noted that the SEC staff letter is limited to instruments in which “neither the custodian nor sponsor additionally will guarantee or otherwise enhance the creditworthiness of the underlying municipal security or the stripped coupon security.” Under rules G-12(c)(vi)(B) and G-15(a)(iii)(B) [currently codified at rule G15(a)(i)(C)(2)(d)] the book-entry-only nature of the securities also must be noted on the confirmation. The Board understands that these documents generally are available from the dealers sponsoring the stripped coupon municipal securities program. [*] [†] [‡] [#] [Currently codified at rule G-15(a)(i)(B)] [Currently codified at rule G-15(a)(i)(B)(4)(e)] [Currently codified at rule G-15(a)(i)(C)(3)(c)] [Currently codified at rule G-15(a)(i)(C)(1)(b)] [**] [††] [Currently codified at rule G-15(a)(i)(A)(3)] [Currently codified at rule G-15(a)(i)(A)(7)(b)] [***] 136 [Currently codified at rule G-15(a)(i)(B)(5)]

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 [†††] [Currently codified at rule G-15(a)(i)(C)(4)(c)] [****] [Currently codified at rule G-15(a)(i)(A)(7)(c)] NOTICE CONCERNING TRANSACTIONS IN MUNICIPAL COLLATERALIZED MORTGAGE OBLIGATIONS: RULE G-15 NOTICE CONCERNING CONFIRMATION DISCLOSURE OF MISCELLANEOUS TRANSACTION CHARGES April 8, 1992 The Board has become aware that some municipal issuers recently have issued securities that are structured as collateralized mortgage obligations (CMOs). Like the CMOs issued by nonmunicipal issuers, these securities represent interest in pools of mortgages and are partitioned into several classes (or tranches), which are serialized as to priority for redemption and payment of principal. Since these “municipal CMOs” are being issued directly by political subdivisions, agencies or instrumentalities of state or local governments, it appears that they may be “municipal securities,” as that term is defined under section 3(a)(29) of the Securities Exchange Act of 1934.1 Although the interest paid on these instruments may be subject to federal taxation, the Board reminds dealers that transactions in municipal securities are subject to Board rules whether those securities are taxable or tax-exempt. Accordingly, dealers executing transactions in municipal CMOs should ensure that they are in compliance with all applicable Board rules. For example, dealers should ensure that all Board requirements regarding professional qualifications and recordkeeping are observed.2 Because the interest and principal payment features of municipal CMOs are very different from those of traditional municipal bonds, dealers should take care to ensure that all Board rules designed for the protection of customers are observed. This includes ensuring that: (i) all material facts about each transaction are disclosed to the customer, in compliance with rule G-17; (ii) each transaction recommended to a customer is suitable for the customer, in compliance with rule G-19; and (iii) the price of each customer transaction is fair and reasonable, in compliance with rule G-30. With respect to the material facts that should be disclosed to customers, dealers should ensure that customers are adequately informed of the likelihood of “prepayment” of principal on the securities and the likelihood of the securities being redeemed substantially prior to the stated maturity date. If the amount of principal that will be delivered to the customer differs from the “face” amount to be delivered, the customer also should be informed of this fact, along with the amount of the principal that will be delivered. The Board also has reviewed the requirements of rule G15(a)(i)(l)[*] with respect to confirmation disclosure of “yield to maturity” or “yield to call” on customer confirmations in these securities. Because CMOs typically pay principal to holders prior to maturity and because the actual duration of the securities often varies significantly from the stated maturity, the Board has interpreted rule G-15(a) not to require a statement of yield for transactions in municipal CMOs. A dealer that decides to voluntarily include a statement of “yield” on a confirmation for these securities must also disclose on the confirmation the method by which yield was computed. This will help to avoid the possibility of the customer misunderstanding the yield figure if he should use it to compare the merits of alternative investments. May 14, 1990 In recent months, several dealers have requested guidance from the Board on the appropriate confirmation treatment of miscellaneous charges added to customer transactions. These inquiries typically relate to small amounts which some dealers add to the combined extended principal and accrued interest of a transaction, prior to arriving at the final monies.1 In some cases, the charges are levied for specific services provided as part of the transaction (e.g., special delivery arrangements, delivery of physical securities, delivery vs. payment settlement). In other cases, dealers may charge a flat fee characterized simply as a “transaction fee.” These miscellaneous fees differ from the commissions charged on agency transactions in that they are flat amounts and are not computed from the par value of the transaction. Rule G-15(a)(iii)(J)[*] requires each customer confirmation to include, in addition to the specific items noted in G-15(a), “such other information as may be necessary to ensure that the parties agree to the details of the transaction.” Accordingly, the nature and amount of miscellaneous charges must be noted on the confirmation.2 Questions have arisen whether miscellaneous transaction fees also should be reflected in the yield required to be disclosed on the confirmation under rule G-15(a)(i)(l).3 The Board does not believe that it is appropriate for these fees to be incorporated in the stated yield. Because such fees are small, they generally will not significantly affect a customer’s return on investment. To the extent that the minor miscellaneous fees charged in today’s market may be relevant to the customer’s investment decision, the Board believes that a clear disclosure of the nature and amount of the fee on the confirmation will provide customers with sufficient information. If the practice of charging that the fees routinely begin to represent significant factors in customers’ return on investment, the Board may reconsider this interpretation in favor of placing the charges in the stated yield. 1 2 3 
 In purchases from customers, such transaction charges may be subtracted from the monies owed the customer. The Board also has considered questions relating to periodic charges, such as monthly charges for safekeeping. A dealer assessing periodic charges to customer accounts, of course, must reach agreement with the customer on the nature and extent of the charges and the services that will be provided in return. However, since periodic charges do not relate to a specific transaction and may change over time, a dealer’s policy on periodic charges is not required on the confirmation as a “detail of the transaction.” [Currently codified at rule G-15(a)(i)(A)(8)] Commissions charged on agency transactions must be included in the yield calculation. See [Rule G-15 Interpretive Letter – Agency transactions: yield disclosures] MSRB interpretation of July 13, 1984, MSRB Manual 3571,33 at 4528. This has led dealers to ask whether miscellaneous transaction charges should be handled in a similar manner. As noted above, the Board does not believe that miscellaneous charges should be handled in the same manner as commissions. [*] [Currently codified at rule G-15(a)(i)(A)(8)] 137 Rule
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 The Board will be monitoring municipal CMOs and will adopt specific rules for the instruments in the future if this appears to be necessary. 1 2 2 
 Of course, whether any instrument is a municipal security is a matter to be determined by the Securities and Exchange Commission. 3 In addition, as noted above, the interest paid on these instruments may be subject to federal taxation. If the securities are identified by the issuer or sold by the underwriter as subject to federal taxation, rules G-12(c) and G-15(a) require confirmations to contain a designation to that effect. [*] The Commission’s October 8, 1993 no-action letter is reprinted in MSRB Reports, Vol. 14, No. 3 (June 1994) at 38-39. The Board understands that Thomson’s OASYS Global system is not at this time a registered securities clearing agency and is not linked with other registered securities clearing agencies for purposes of automated confirmation/acknowledgement required under rule G-15(d). Thus, under these circumstances, use of the OASYS Global system will not constitute compliance with rule G-15(d) on automated confirmation/acknowledgement. NOTICE CONCERNING FLAT TRANSACTION FEES [Currently codified at rule G-15(a)(i)(A)(5)] NOTICE CONCERNING USE OF THE OASYS GLOBAL TRADE CONFIRMATION SYSTEM TO SATISFY RULE G-15(a) June 6, 1994 Rule G-15(a) requires that, at or before the completion of a transaction in municipal securities with or for the account of a customer, each broker, dealer or municipal securities dealer (dealers) shall give or send to the customer “a written confirmation of the transaction” containing specified information. Securities Exchange Act Rule 10b-10 states similar confirmation requirements for customer transactions in securities other than municipal securities. In December 1992, Thomson Financial Services, Inc. (Thomson) asked the Securities and Exchange Commission (Commission) to allow dealers to use Thomson’s OASYS Global system for delivering confirmation under Rule 10b-10. In October 1993, the Commission staff provided Thomson with a “noaction” letter stating that, if OASYS Global system participants agree between themselves to use the system’s electronic “contract confirmation messages” (CCMs) instead of hard-copy confirmations and if certain other requirements are met1 the Commission staff would not recommend enforcement action to the Commission if broker-dealers rely on CCMs sent through the OASYS Global system to satisfy the requirements to confirm a transaction under Rule 10b-10.2 Thomson has asked the Board for an interpretation of rule G-15(a) that would allow dealers to use the OASYS Global system for municipal securities transactions to the same extent as dealers are allowed to use the system to comply with Rule 10b-10. The Board believes that the speed and efficiencies offered by electronic confirmation delivery are of benefit to the municipal securities industry, especially in light of the move to T+3 settlement. Therefore, the Board has interpreted the requirement in rule G15(a) to provide customers with a written confirmation to be satisfied by a CCM sent through the OASYS Global system when the following conditions are met: (i) the customer and dealer have both agreed to use the OASYS Global system for purposes of confirmation delivery; (ii) the CCM includes all information required by rule G-15(a); and (iii) all other applicable requirements and conditions concerning the OASYS Global system expressed in the Commission’s October 8, 1993 no-action letter concerning Securities Exchange Act Rule 10b-10 continue to be met.3 1 the trade, (iii) that the CCMs will not be automatically deleted by the system, and (iv) that the use of the system by the participants ensures that both parties to the transaction have the capacity to receive the CCMs. June 13, 2001 The MSRB has received inquiries regarding an interpretation of rule G-15(a) from dealers who offer automated execution of transactions and charge a small, flat “transaction fee” per transaction. These dealers asked whether a $15.00 flat fee qualifies as a miscellaneous transaction charge. Rule G-15(a) sets out confirmation requirements for transactions with customers and specifies that dealers include a yield on the confirmation. In computing yield, G-15(a)(i)(A)(5)(c)(iii) states that such “computations shall take into account … commissions charged to the customer … but shall not take into account incidental transaction fees or miscellaneous charges, provided, however, that … such fees or charges [are] indicated on the confirmation.” In a May 14, 1990 Notice Concerning Confirmation Disclosure of Miscellaneous Transaction Charges,1 the MSRB reminded dealers that clear disclosure of the nature and amount of miscellaneous fees is required. The notice stated that these fees should not be incorporated into the stated yield because they are small and do not significantly affect a customer’s return on investment, as shown in the yield. The notice also stated that miscellaneous fees differ from commissions because they are flat amounts, and, unlike the common practice used in computing commissions for agency transactions, are not related to the par value of the transaction. The dealers who contacted the MSRB will charge a flat transaction fee of $15.00 for trades executed through an automated trading system. Since this fee is relatively small and unrelated to the par value of the transaction, the MSRB believes that the transaction fee should be considered a miscellaneous transaction fee. Therefore the fee would not have to be incorporated into the stated yield, but would need to be separately disclosed on the confirmation. 1 
 See Rule G-15 Interpretation - Notice Concerning Confirmation Disclosure of Miscellaneous Transaction Charges, May 14, 1990, MSRB Rule Book (January 1, 2001) at 108. See
also:
 Rule G-12 Interpretations – Notice of Interpretation of Rules G-12(e) and G-15(c) on Deliveries of Called Securities – Definition of “Publication Date,” October 20, 1986. The other requirements contained in the Commission’s no-action letter are as follows: (i) that the CCMs can be printed or downloaded by the participants, (ii) that the recipient of a CCM must respond through the system affirming or rejecting Rule
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 - Notice on Determining Whether Transactions are InterDealer or Customer Transactions: Rules G-12 and G-15, May 1988. Rule G-17 Interpretations – Altering the Settlement Date on Transactions in “When-Issued” Securities, February 26, 1985. - Notice of Interpretation on Escrowed-to-Maturity Securities: Rules G-17, G-12 and G-15, September 21, 1987. - Educational Notice on Bonds Subject to “Detachable” Call Features, May 13, 1993. - Bond Insurance Ratings – Application of MSRB Rules, January 22, 2008. Rule G-32 Interpretation – Notice Regarding Electronic Delivery and Receipt of Information by Brokers, Dealers and Municipal Securities Dealers, November 20, 1998. - Notice Concerning the Application of Board Rules to Put Option Bonds, September 30, 1985. - Notice Concerning Disclosure of Call Information to Customers of Municipal Securities, March 4, 1986. 
   INTERPRETIVE LETTERS  Callable securities: “catastrophe” calls. This will acknowledge receipt of your letter dated October 20, 1977 which has been referred to me for reply. In your letter you request an interpretation of the provisions in rules G-12 and G-15 requiring that the dollar price for transactions in callable securities effected on a yield basis be priced to the lower of price to call or price to maturity. (See rules G-12(c)(v)(I) and G-15(a)(viii)[*]). At its meeting held October 25-26, 1977, the Board confirmed that the requirements in rules G-12 and G-15 relating to pricing to call do not include “catastrophe” calls, that is, calls which occur as a result of events specified in the bond indenture which are beyond the control of the issuer. MSRB interpretation of November 7, 1977. [*] [Currently codified at rule G-15(a)(i)(A)(5)] Callable securities: disclosure. I am writing in response to your letter of August 17, 1982, concerning the requirements of Board rules G-12(c)(v)(E) and G15(a)(v)[*] concerning securities descriptions set forth on confirmations. In your letter you note that certain descriptive details are required to be disclosed on the confirmation only “if necessary for a materially complete description of the securities,” and you inquire whether information as to a security's callability is one of these details. Rules G-12(c)(v)(E) and G15(a)(v)[*] require confirmations to set forth a description of the securities, including at a minimum the name of the issuer, interest rate, maturity date, and if the securities are limited tax, subject to redemption prior to maturity (callable) or revenue bonds, an indication to such effect, including in the case of revenue bonds the type of revenue, if necessary for a materially complete description of the securities, and in the case of any securities, if necessary for a materially complete description of the securities, the name of any company or other person in addition to the issuer obligated, directly or indirectly, with respect to debt service or, if there is more than one such obligor, the statement 'multiple obligators' may be shown.” (emphasis added) As you can see, the phrase “if necessary for a materially complete description of the securities” modifies only the requirements for disclosure of “the type of revenue,” or ... disclosure of “the name of any company or other person obligated ... with respect to debt service...,” and does not modify the requirements for disclosure of the other listed information. Both rules, therefore, deem information as to the “name of the issuer, interest rate, maturity date and if the securities are limited tax, subject to redemption prior to maturity (callable) or revenue bonds” to be necessarily material and subject to disclosure on the confirmation. In the specific case which you cite, that of a security with an “in-part” sinking fund call feature, the confirmation of a transaction in such security would be required to identify the security as “callable.” MSRB interpretation of August 23, 1982. [*] [Currently codified at rules G-15(a)(i)(B) and G-15 (a)(i)(C)] Callable securities: extraordinary mandatory redemption features. I am writing in response to your letter of February 15, 1983 regarding the confirmation disclosure requirements applicable to mu139 nicipal securities which are subject to extraordinary mandatory redemption features. In your letter you inquire whether such securities need be identified as “callable” securities on the confirmation. You also inquire as to the relationship between an extraordinary mandatory redemption feature and a “catastrophe call” feature, and the disclosure requirements applicable to the latter type of provision. An extraordinary mandatory redemption feature, in my understanding, is a call provision under which an issuer of securities would be obliged to call all or a part of an issue if certain stated unexpected events occur. For example, many of the recent mortgage revenue issues have extraordinary mandatory redemption provisions under which securities would be called if a portion of the proceeds of the issue has not been used to acquire mortgages by a certain stated date, or if moneys received from principal prepayments have not been used to acquire new mortgages by a certain period following receipt of the prepayment. In general, securities which are subject to extraordinary mandatory redemption provisions must be identified as “callable” securities on any confirmation. Extraordinary redemption provisions would not, however, be used for purposes of computing a yield or dollar price. One specific type of extraordinary mandatory redemption provision is what has been colloquially termed a “catastrophe” or “calamity” call provision. Under this type of provision the issuer of securities would be obliged to call all or part of an issue if the financed project is destroyed or damaged by some catastrophe (e.g., by fire, flood, lightning or other act of God) or if the tax exempt status of the issue is negated. The Board has previously expressed the view that securities which are callable Rule
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 solely under this type of “catastrophe” call provision, and are not otherwise callable, need not be designated as “callable” securities on a confirmation. In summary, therefore, securities which are subject to extraordinary mandatory redemption provisions other than “catastrophe” call provisions must be identified as “callable” securities on confirmations. MSRB interpretation of February 18, 1983. Original issue discount, zero coupon securities: disclosure of, pricing to call feature. I am writing in response to your inquiry in our recent telephone conversation regarding the application of Board rules to the recent original issue discount on “zero coupon” new issues of municipal securities. In particular, you indicated that these types of securities are often subject to somewhat unusual call provisions, and you inquired as to the application to these types of securities of Board rules concerning the disclosure of call provisions and the use of such call provisions in dollar price and yield computations. Subsequent to our conversation, I obtained several examples of these call provisions, which were provided to the Board in connection with your inquiry. In the first of these examples, involving an original issue discount security, the call provision commences ten years after issuance, with the redemption price initially set at 90 and increasing by 2 points every three years, reaching a redemption price of 100 twentyfive years after issuance. In the second example, involving a “zero coupon” security, the call provision commences ten years after issuance; the redemption price is based on the compound accreted value of the security (plus a stated redemption premium for the first five years of the call provision), with certain of the securities initially redeemable at an approximate dollar price of 18. As you know, the call provisions on “zero coupon” and original issue discount securities are one of the special characteristics of such securities, but are not, by any means, the sole special characteristic. The Board is of the view that municipal securities brokers and dealers selling such securities are obliged, under Board rule G-17 as well as under the anti-fraud rules under the Rule
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 Securities Exchange Act, to disclose to customers all material information regarding such special characteristics. As the Board stated in its April 27, 1982 “Notice Concerning 'Zero Coupon' and 'Stepped Coupon' Securities,” persons selling such securities to the public have an obligation to adequately disclose the special characteristics of such securities so as to comply with the Board's fair practice rules. Therefore, in selling an original issue discount or “zero coupon” security to a customer, a dealer would be obliged to disclose, among other matters, any material information with respect to the call provisions of such securities. I note also that Rule G-15 requires customer confirmations of transactions in callable securities to indicate that the securities are “callable,” and to contain a legend stating, in part, that information concerning the call provisions of such securities will be made available upon the customer's request. Customer confirmations of transactions in callable original issue discount or “zero coupon” securities would have to contain such a legend, in addition to the designation “callable,” and the details of the call provisions of such securities would have to be provided to the customer in writing upon the customer's request. The requirement under rules G-12 and G-15 for the computation of dollar price and (under rule G-15) yield to a call or option feature would apply to a transaction in an original issue discount or “zero coupon” security. Therefore, if the dollar price to the call on a transaction in such securities is lower than the price to maturity, such dollar price should be used. In the case of customer confirmations, if the yield to call on a transaction in such securities is lower, such yield must be shown. As you noted in our conversation, in view of the redemption price structure of the call provisions on such securities, the price or yield to call on a particular transaction might be lower than the price or yield to maturity, even though the transaction is effected at a price below par. Since heretofore the industry has been accustomed to call provisions at prices at or above par, industry members may wish to pay particular attention to the processing of transactions in 140 original issue discount or “zero coupon” securities with these unusual types of call provisions, to ensure that the dollar price or yield of such transactions is not inadvertently overstated due to a failure to check the price or yield to call. MSRB interpretation of June 30, 1982. Callable securities: pricing to call. Your letter dated May 1, 1978 concerning the pricing to call provisions of rules G-12 and G-15 has been referred to me for response. In your letter, you request clarification of the application of such provisions to a situation in which securities have been prerefunded and the escrow fund is to be held to the maturity date of the securities. We understand that the securities in question are part of a term issue, sold on a yield basis, and are subject to a mandatory sinking fund call beginning two years prior to maturity. Under rules G-12 and G-15, the dollar price of a transaction effected on a yield basis must be calculated to the lowest of price to premium call price to par option or price to maturity. The calculation of dollar price to a premium call or par option date should be to that date at which the issuer may exercise an option to call the whole of a particular issue or, in the case of serial bonds, a particular maturity, and not to the date of a call in part. Accordingly, the calculation of the dollar price of a transaction in the securities in your example should be made to the maturity date. The existence of the sinking fund call should, however, be disclosed on the confirmation by an indication that the securities are “callable.” The fact that the securities are prerefunded should also be noted on the confirmation. MSRB interpretation of June 8, 1978. Callable securities: pricing to call. Your letter, dated January 25, 1979 has been referred to me for response. In your letter, you raise a question regarding pricing of callable securities under rules G-12 and G-15. Specifically, you inquire as to how the dollar price should be calculated for transactions in a particular issue of [Name of bond deleted] bonds. The terms of the issue provide in pertinent part that the securities are subject to redemption prior to maturity on or after October 1, 1984, at declining premiums, from the

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 proceeds of prepayments of mortgage loans (the “1984 call feature”). As you know, Board rules G-12 and G-15 require that ... where a transaction is effected on a yield basis, the dollar price shall be calculated to the lowest of price to premium call, price to par option, or price to maturity... As an interpretive matter, the Board has adopted the position that the calculation of dollar price to a premium call or par option date should be to that date at which the issuer may exercise an option to call the whole of a particular issue or, in the case of serial bonds, a particular maturity, and not to the date of a call in part. With respect to your question, the Board is of the view that the dollar price for transactions involving the securities in question should not be calculated to the 1984 call feature. The Board bases its conclusion on (1) the fact that it is extremely unlikely as a practical matter that the call would be exercised as to all or even a significant part of the issue (that is, it is much more likely to operate in practice as an “in part” call) and (2) the exercise of the 1984 call feature would depend on events which are not subject to the control of the issuer. I note that the Board cited this as the reason for not utilizing “catastrophe call” features for purposes of price calculation. MSRB interpretation of March 9, 1979. Callable securities: pricing transactions on construction loan notes. I am writing in response to your letter of February 3, 1984 concerning the application of certain of the confirmation requirements of Board rules G-12 and G-15 to transactions in construction loan notes. In your letter you note that both rules require that the confirmation of a transaction in callable securities effected on a yield basis set forth a dollar price that has been computed to the lowest of the price to the call, the price to the par option, or the price to maturity of the securities; rule G-15 requires that customer confirmations effected on a dollar price basis state the resulting yield computed to the lowest of the yield to call, to the par option, or to maturity. You inquire how these comparative calculation requirements would apply to a confirmation of a transaction in construction loan notes, which generally are callable “in whole” six months prior to the stated maturity date at par. Your inquiry was referred to a committee of the Board which has responsibility for interpreting the Board's confirmation rules; that committee has authorized my sending you this response. The committee notes that a Board interpretive notice of December 1980, which discussed the types of call features which should be used for purposes of the comparative calculation requirements, stated clearly that these requirements would apply to a transaction in a callable security if the issue of which the security is a part is callable “in whole” and if there is no restriction on the source of the funds which may be used to exercise the call. Since the call feature applicable to issues of construction loan notes is this type of “in whole” call feature, the committee is of the view that the comparative calculation requirements would apply. The confirmation of a transaction in a construction loan note effected on a yield basis, therefore, should state a dollar price computed to the lower of the price to this call feature or the price to maturity. Similarly, a customer confirmation of a transaction in these securities effected on a dollar price basis should set forth a yield to the lower of the yield to this call feature or a yield to maturity. MSRB interpretation of March 5, 1984. Callable securities: pricing to call and extraordinary mandatory redemption features. This is in response to your November 16, 1983, letter concerning the application of the Board's rules to sales of municipal securities that are subject to extraordinary redemption features. As a general matter, rule G-17 of the Board's rules of fair practice requires municipal securities brokers and dealers to deal fairly with all persons and prohibits them from engaging in any deceptive, dishonest, or unfair practice. The Board has interpreted this rule to require, in connection with the purchase from or sale of a municipal security to a customer, that a dealer must disclose, at or before the time the transaction occurs, all material facts concerning the transaction and not omit any material facts which would render other statements misleading. The fact that a security may be redeemed “in whole,” “in part,” or in extraordinary circumstances 141 prior to maturity is essential to a customer's investment decision about the security and is one of the facts a dealer must disclose prior to the transaction. It should be noted that the Board has determined that certain items of information must, because of their materiality, be disclosed on confirmations of transactions. However, a confirmation is not received by a customer until after a transaction is effected and is not meant to take the place of oral disclosure prior to the time the trade occurs. You ask whether, for an issue which has more than one call feature, the disclosure requirements of MSRB rule G-15 would be better served by merely stating on the confirmation that the bonds are callable, instead of disclosing the terms of one call feature and not another. Board rule G15, among other things, prescribes what items of information must be disclosed on confirmations of transactions with customers.1 Rule G-15(a)(i)(E)[*] requires that customer confirmations contain a materially complete description of the securities and specifically identifies the fact that securities are subject to redemption prior to maturity as one item that must be specified. The Board is of the view that the fact that a security may be subject to an “in whole” or “in part” call is a material fact for an individual making an investment decision about the securities and has further required in rule G-15a(iii)(D)[†] that confirmations of transactions in callable securities must state that the resulting yield may be affected by the exercise of a call provision, and that information relating to call provisions is available upon request.2 With respect to the computation of yields and dollar prices, rule G15(a)(i)(I)[‡] requires that the yield and dollar price for the transaction be disclosed as the price (if the transaction is done on a yield basis) or yield (if the transaction is done on the basis of a dollar price) calculated to the lowest price or yield to call, to par option, or to maturity. The provision also requires, in cases in which the resulting dollar price or yield shown on the confirmation is calculated to call or par option, that this must be stated and the call or option date and price used in the calculation must be shown. The Board has determined that, for purposes of making this computation, only “in whole” calls should be used.3 Rule
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 This requirement reflects the longstanding practice of the municipal securities industry and advises a purchaser what amount of return he can expect to realize from the investment and the terms under which such return would be realized. You also ask whether it is reasonable to infer from the discharge of one call feature that no other call features exist. As discussed above, the Board requires a customer confirmation to disclose, when applicable, that a security is subject to redemption prior to maturity and that the call feature may affect the security's yield. This requirement applies to securities subject to either “in whole” or “in part” calls. Moreover, as noted earlier, because information concerning call features is material information, principles of fair dealing embodied by rule G-17 require that these details be disclosed orally at the time of trade. By contrast, identification of the first “in-whole” call date and its price must be made only when they are used to compute the yield or resulting dollar price for a transaction. This disclosure is designed only to advise an investor what information was used in computing the lowest of yield or price to call, to par option, or to maturity and is not meant to describe the only call features of the municipal security. In addition, in the case of the sale of new issue securities during the underwriting period, Board rule G-32 requires that … a copy of the final official statement, if any, must be provided to the customer.4 While the official statement would describe all call features of an issue, it must be emphasized that delivery of this document does not relieve a dealer of its obligation to advise a customer of material characteristics and facts concerning the security at the time of trade. Finally, you ask whether the omission of this or other call features on the confirmation is a material omission of the kind which would be actionable under SEC rule 10b-5. The Board is not empowered to interpret the Securities Exchange Act or rules thereunder; that responsibility has been delegated to the Securities and Exchange Commission. We note, however, that the failure to disclose the existence of a call feature would violate rule G-15 and, in egregious situations, also may violate rule Rule
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 G-17, the Board's fair dealing rule. MSRB interpretation of February 10 1984. 1 2 Similar requirements are specified in rule G-12 for confirmations of inter-dealer transactions. The rule states that this requirement will be satisfied by placing in footnote or otherwise the statement: “[Additional] call features … exist [that may] affect yield; complete information will be provided upon request.” 3 4 See [Rule G-15 Interpretation – Notice concerning pricing to call], December 10, 1980 … at ¶ 3571. The term underwriting period is defined in rule G-11 as: the period commencing with the first submission to a syndicate of an order for the purchase of new issue municipal securities or the purchase of such securities from the issuer, whichever first occurs, and ending at such time as the issuer delivers the securities to the syndicate or the syndicate no longer retains an unsold balance of securities, whichever last occurs. [*] [Currently codified at rule G-15 (a)(i)(C)] [†]  [Currently codified at rule G-15 (a)(i)(C)(2)(a)] [‡]  [Currently codified at rule G-15 (a)(i)(A)(5)] NOTE: Revised to reflect subsequent amendments. Calculation of price and yield on continuously callable securities. This will respond to your letter of May 30, 1989, relating to the calculation of price and yield in transactions involving municipal securities which can be called by the issuer at any time after the first optional “in-whole” call date. The Board reviewed your letter at its August 1989 meeting and has authorized this response. Rules G-12(c) and G-15(a) govern inter-dealer and customer confirmations, respectively. For transactions executed on a yield basis, rules G-12(c)(v)(l) and G15(a)(v)(l)[*] require the dollar price computed from yield and shown on the confirmation to be computed to the lower of call or maturity. The rules also require the call date and price to be shown on the confirmation when securities are priced to a call date. In computing price to call, only “inwhole” calls, of the type which may be exercised in the event of a refunding, should be used.1 The “in-whole” call producing the lowest price must be used when computing price to call. If there is a series of “in-whole” call dates with declining premiums, a calculation to the first premium call date generally will produce the 142 lowest price to call. However, in certain circumstances involving premiums which decline steeply over a short time, an “intermediate” call date--a date on which a lower premium or par call becomes operative--may produce the lowest price. Dealers must calculate prices to intermediate call dates when this is the case.2 Identical rules govern the computation and display of yield to call and yield to maturity, as required on customer confirmations under rule G-15(a). The issues that you describe are callable at declining premiums, in part or in whole, at any time after the first optional call date. There is no restriction on the issuer in exercising a call after this date except for the requirement to give 30 to 60 days notice of the redemption. Since this “continuous” call provision is an “inwhole” call of the type which may be used for a refunding, it must be considered when calculating price or yield. The procedure for calculating price to call for these issues is the same as for other securities with declining premium calls. Dealers must take the lowest price possible from the operation of an “in-whole” call feature, compare it to the price calculated to maturity and use the lower of the two figures on the confirmation. For settlement dates prior to the first “in-whole” call, it generally should be sufficient to check the first and intermediate call dates (including the par call), determine which produces the lowest price, and compare that price to the price calculated to maturity. For settlement dates occurring after the first “in-whole” call date, it must be assumed that a notice of call could be published on the day after trade date, which would result in the redemption of the issue 31 days after trade date.3 The price calculated to this possible redemption date should be compared to prices calculated to subsequent intermediate call dates and the lowest of these prices used as the price to call. The price computed to call then can be compared to the price computed to maturity and the lower of the two included on the confirmation. If a price to call is used, the date and redemption price of the call must be stated. Identical procedures are used for computing yield from price for display on customer confirmations under rule G-15(a).

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 You also have asked for the Board's interpretation of two official statements which you believe have a continuous call feature and ask whether securities with continuous call features typically are called between the normal coupon dates. The Board's rulemaking authority does not extend to the interpretation of official statements and the Board does not collect information on issuer practices in calling securities. Therefore, the Board cannot assist you with these inquiries. MSRB Interpretation of August 15, 1989. 1 2 3 The parties to a transaction may agree at the time of trade to price securities to a date other than an “inwhole” call date or maturity. If such an agreement is reached, if must be noted on the confirmation. See [Rule G-15 Interpretation -] Notice Concerning Pricing to Call, December 10, 1980, MSRB Manual (CCH) paragraph 3571. If a notice of call for the entire issue occurs on or prior to the trade date, delivery cannot be made on the transaction and it must be worked out or arbitrated by the parties. See rules G-12(e)(x)(B) and G15(c)(viii)(B). [*] [Currently codified at rule G-15(a)(i)(A)(5)(c)] Callable securities: pricing to mandatory sinking fund calls. This is in response to your February 21, 1986 letter concerning the application of rule G-15(a) regarding pricing to prerefunded bonds with mandatory sinking fund calls. You give the following example: Bonds, due 7/1/10, are prerefunded to 7/1/91 at 102. There are $17,605,000 of these bonds outstanding. However, there is a mandatory sinking fund which will operate to call $1,000,000 of these bonds at par every year from 7/1/86 to 7/1/91. The balance ($11,605,000) then will be redeemed 7/1/91 at 102. If this bond is priced to the 1991 prerefunded date in today's market at a 6.75 yield, the dollar price would be approximately 127.94. However, if this bond is called 7/1/86 at 100 and a customer paid the above price, his/her yield would be a minus 52 percent (-52%) on the called portion. You state that the correct way to price the bond is to the 7/1/86 par call at a 5% level which equates to an approximate dollar price of 102.61. The subsequent yield to the 7/1/91 at 102 prerefunded date would be 12.33% if the bond survived all the mandatory calls to that date. You note that a June 8, 1978, MSRB interpretation states, “the calculation of dollar price to a premium call or par option date should be to that date at which the issuer may exercise an option to call the whole of a particular issue or, in the case of serial bonds, a particular maturity, and not to the date of a call in-part.” You believe, however, that, as the rule is presently written, dealers are leaving themselves open for litigation from customers if bonds, which are trading at a premium, are not priced to the mandatory sinking fund call. You ask that the Board review this interpretation. Your letter was referred to a Committee of the Board which has responsibility for interpreting the Board's fair practice rules. That Committee has authorized this response. Rule G-15(a)(i)(I)[*] requires that on customer confirmations the yield and dollar price for the transaction be disclosed as the price (if the transaction is done on a yield basis) or yield (if the transaction is done on the basis of the dollar price) calculated to the lowest price or yield to call, to par option, or to maturity. The provision also requires, in cases in which the resulting dollar price or yield shown on the confirmation is calculated to call or par option, that this must be stated and the call or option date and price used in the calculation must be shown. The Board has determined that, for purposes of making this computation, only “in-whole” calls should be used.1 This requirement reflects the longstanding practice of the municipal securities industry that a price calculated to an “in-part” call, such as a sinking fund call, is not adequate because, depending on the probability of the call provision being exercised and the portion of the issue subject to the call provision, the effective yield based on the price to a sinking fund date may not bear any relation to the likely return on the investment. Rule G-15(a)(i)(I)[*] applies, however, only when the parties have not specified that the bonds are priced to a specific call date. In some circumstances, the parties to a particular transaction may agree that the transaction is effected on the basis of a yield to a particular date, e.g. put option date, and that the dollar price will be computed in this fashion. If that is the case, the yield to this agreed upon date must be included on confirmations as the yield at which the transaction was effected and the 143 resulting dollar price computed to that date, together with a statement that it is a “yield to [date].” In an August 1979 interpretive notice on pricing of callable securities, the Board stated that, under rule G-30, a dealer pricing securities on the basis of a yield to a specified call feature should take into account the possibility that the call feature may not be exercised.2 Accordingly, the price to be paid by the customer should reflect this possibility, and the resulting yield to maturity should bear a reasonable relationship to yields on securities of similar quality and maturity. Failure to price securities in such a manner may constitute a violation of rule G-30 since the price may not be “fair and reasonable” in the event the call feature is not exercised. The Board also no