MSRB revises proposed SEC rule changes covering disclosure on muni auction-rate securities, VRDOs

By Jennifer Chiou

New York, July 9 - The Municipal Securities Rulemaking Board announced amendments to its previously filed proposed rule change with the Securities and Exchange Commission that would expand the information it collects and distributes on municipal auction-rate securities and variable-rate demand obligations.

Under the original proposed change, brokers, dealers and municipal securities dealers would be required to submit additional documents to the MSRB that define auction procedures and interest-rate-setting mechanisms for ARS and liquidity facilities for VRDO, ARS bidding information and additional VRDO information.

According to an MSRB notice, the SEC received comments from five parties after the proposed rule change was filed on March 10.

As a result, the MSRB opted to make the following changes to:

• Collect ARS bidding information by way of data elements rather than as documents;

• Add a new requirement for a dealer submitting an order to an ARS program dealer to communicate the fact that the order is on behalf of an ARS issuer or conduit borrower;

• Remove the requirement for ARS program dealers to report whether an order on behalf of an ARS issuer or conduit borrower order was executed;

• Clarify that the requirement for dealers to keep a record of best efforts undertaken to obtain VRDO liquidity facility documents applies only to those instances when a document is unable to be obtained;

• Confirm that dealers must only report information concerning the identities of VRDO tender agents and liquidity providers that is available to VRDO remarketing agents as of the time of an interest-rate reset; and

• Change the timeframe for dealers to submit new or amended versions of a VRDO liquidity facility document or ARS program document to five business days after receipt instead of one business day.

According to the original proposed change, the specific list of auction-rate securities bidding information that would have to be reported included:

• The interest rate(s) and total par amount(s) of orders to sell at a specific interest rate and the total par amount of those orders that were executed;

• The total par amount of orders to sell at any interest rate and the total par amount of those orders that were executed;

• The interest rate(s) and total par amount(s) of orders to hold at a specific interest rate and the total par amount of those orders that were successfully held;

• The interest rate(s) and total par amount(s) of orders to buy and the total par amount of those orders that were executed;

• The interest rate(s), total par amount(s) and type of order - either buy, sell or hold - by a dealer for its own account and the total par amounts of those orders, by type, that were executed; and

• The interest rate(s), total par amount(s) and type of order - either buy, sell or hold - by an issuer or conduit borrower for that auction-rate security and the total par amounts of those orders, by type, that were executed.

As already noted, the additional VRDO information that would have to be reported by a remarketing agent included:

• The effective date that the interest rate reset is applicable;

• The identity of the tender agent;

• The identity of the liquidity provider(s), including a indication of those VRDOs for which an issuer provides "self liquidity" and the identity of the party providing that self liquidity;

• The information available to the VRDO remarketing agent as of the time of the interest-rate reset of the par amount of the VRDO, if any, held as a bank bond; and

• The information available to the VRDO remarketing agent as of the time of the interest-rate reset of the total par amount of the VRDO, if any, held by parties other than a liquidity provider, which includes the par amounts held by a VRDO remarketing agent and by investors.

The MSRB added that its revised proposal also would specifically amend:

• MSRB Rules G-8, books and records, and G-34, variable-rate security market information; and

• MSRB Short-term Obligation Rate Transparency System Facility to collect and disseminate the documents identified in the rule change proposal and to make these documents available on the Electronic Municipal Market Access web site.

If the rule change is approved by the SEC, the MSRB will seek to make it effective within nine months. The changes might be implemented in phases.

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