As summarized below, the Municipal Securities Rulemaking Board (MSRB) recently published a Regulatory Notice seeking comment on draft rule amendments to MSRB Rule G-34, on CUSIP numbers, new issue, and market information requirements, to clarify existing application of the rule to certain new issue municipal securities, and to expand the application of the rule to certain additional industry participants. In addition, the MSRB also wanted to remind firms of their existing obligation under Rule G-34(b) to obtain CUSIP numbers for certain secondary market securities.
Specifically, the MSRB is seeking comment on draft amendments to Rule G-34(a) that would clarify the requirement for firms to obtain CUSIP numbers for new issue securities sold in private placement transactions, including direct purchases where the firm acts as a placement agent; and would require municipal advisors that are not dealers also to be subject to the CUSIP requirement for new issue securities when acting as a financial advisor in new issue municipal securities sold in a competitive offering. Comments related to this Regulatory Notice are requested to be submitted no later than March 31, 2017.
In 1983, the Securities and Exchange Commission (SEC) approved MSRB Rule G-34, on CUSIP numbers, which was adopted to improve efficiencies in the processing and clearance activities of the municipal securities industry. The new rule required, among other things, that firms make application for a CUSIP number based on eight specified items of information about the new issue.
Shortly after adopting Rule G-34, the MSRB recognized that “[c]ertain events may occur after the underwriting of a particular new issue of municipal securities which affect the integrity of the CUSIP numbers originally assigned to the issue and may prevent the use of these numbers to uniquely identify securities of the issue.”
The MSRB subsequently adopted amendments to Rule G-34 to, among other things, require CUSIP numbers be obtained for secondary market securities where the terms of a portion of an issue were altered so as to no longer be part of a fungible group of securities.
Rule G-34(a), regarding new issue securities, applies only to a firm acting as an “underwriter” in new issue securities or a firm acting as a “financial advisor” in a competitive sale of new issue securities. There have been questions in the industry regarding the application of Rule G-34(a) to private placements of municipal securities, including direct purchase transactions in which a firm acts as a placement agent.
The MSRB is seeking comment from interested industry participants on draft amendments to Rule G-34 to: 1) revise the definition of “underwriter” in Rule G-34 to clarify the current application of the requirements of Rule G-34(a) to private placement securities transactions, including direct purchases of municipal securities in which the dealer acts as placement agent; and 2) expand the scope of Rule G-34(a) to include all municipal advisors advising on competitive new issue transactions, whether dealer or non-dealer. In addition, the MSRB is reminding firms of their existing obligations under Rule G-34(b) regarding obtaining CUSIP numbers for secondary market securities.
For further guidance, please refer to MSRB Regulatory Notice 2017-05.