Municipal Securities Rulemaking Board:
Notice of Filing of Proposed Rule Change Relating to Municipal Fund Securities

SECURITIES AND EXCHANGE COMMISSION

(Release No. 34-43066; File No. SR-MSRB-00-06)

July 21, 2000

Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by the Municipal Securities Rulemaking Board Relating to Municipal Fund Securities

Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 ("Act"),¹ and Rule 19b-4 thereunder,² notice is hereby given that on April 5, 2000, the Municipal Securities Rulemaking Board ("MSRB" or "Board") filed with the Securities and Exchange Commission ("Commission" or "SEC") the proposed rule change described in Items I, II, and III below, which Items have been prepared by the Board. The Board submitted an amendment to the proposed rule change on July 17, 2000.³ The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons.

I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change

The Board has filed with the Commission a proposed rule change consisting of (i) proposed new Rule D-12, defining municipal fund security; (ii) amendments to Rule A-13, on underwriting and transaction assessments for brokers, dealers and municipal securities dealers, Rule G-3, on classification of principals and representatives, numerical requirements, testing and continuing education requirements, Rule G-8, on books and records to be made by brokers, dealers and municipal securities dealers, Rule G-14, on reports of sales or purchases, Rule G-15, on confirmation, clearance and settlement of transactions with customers, Rule G-26, on customer account transfers, Rule G-32, on disclosures in connection with new issues, and

Rule G-34, on CUSIP numbers and new issue requirements; and (iii) a Board interpretation on sales of municipal fund securities in the primary market. The text of the proposed rule change is set forth below. Additions are italicized; deletions are bracketed.

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.

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)-(ii) No change.

(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; [or]

(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)-(f) No change.

Rule G-3. Classification of Principals and Representatives; Numerical Requirements; Testing; Continuing Education 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) No change.

(ii) Qualification Requirements.

(A)-(B) No change.

(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[s] (a)(ii)(A), (B) or (C) [or (B)] shall again meet the requirements of subparagraph[s] (a)(ii)(A), (B) or (C) [or (B)] 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, [or] general securities representative or limited representative - investment company and variable contracts products) without having previously qualified as a municipal securities representative, [or] 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[s] (a)(ii)(A), (B) or (C) [or (B)] 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[s] (a)(ii)(A) (B) or (C) [or (B)].

(B) Prior experience, of at least 90 days, as a general securities representative, limited representative - investment company and variable contracts products [mutual fund salesperson] or limited representative - government securities [representative], will meet the requirements of this paragraph (a)(iii).

(b)-(h) No change.

Rule 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)-(viii) No change.

(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) 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.

(x) No change.

(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)-(G) No change.

(H) signature of municipal securities representative, [and] 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)-(K) No change.

For purposes of this subparagraph, the terms "general securities representative," [and] "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)-(xix) No change.

(b)-(f) No change.

(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 securities dealer in connection with such transactions; provided that, in the case of a broker, dealer or municipal securities dealer other than a bank dealer, the arrangements with such transfer agent 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.

(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.

Rule G-14. Reports of Sales or Purchases

(a) No change.

(b) Transactions Reporting Requirements.

(i) Each broker, dealer or municipal securities dealer shall report to the Board or its designee information about its transactions in municipal securities to the extent required by, and using the formats and within the timeframes specified in, Rule G-14 Transaction Reporting Procedures. 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)-(iii) No change.

Rule G-14 Transaction Reporting Procedures

(a) No change.

(b) Customer Transactions.

(i)-(ii) No change.

(iii) The following transactions shall not be required to be reported under this section (b):

(A) [A] a transaction in a municipal security that is ineligible for assignment of a CUSIP number by the Board or its designee; and [shall not be required to be reported under this section (b).]

(B) a transaction in a municipal fund security.

(iv) No change.

Rule G-15. Confirmation, Clearance and Settlement of 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)-(2) No change.

(3) Par value. The par value of the securities shall be shown, with special requirements for the following securities:

(a) No change.

(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) No change.

(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)-(c) No change.

(d) Notwithstanding the requirements noted in subparagraphs (A)(5)(a) through (c) of this paragraph[,] above:

(i)-(v) No change.

(vi) Municipal fund securities. For municipal fund securities, neither yield nor dollar price shall be shown.

(6) Final Monies. The following information relating to the calculation and display of final monies shall be shown:

(a) No change.

(b) amount of accrued interest, with special requirements for the following securities:

(i)-(ii) No change.

(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) No change.

(ii) Municipal fund securities. For municipal fund securities, no extended principal amount shall be shown;

(e)-(h) No change.

(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) No change.

(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) No change.

(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) No change.

(3) maturity date, if any, with special requirements for the following securities:

(a) No change.

(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)-(e) No change.

(f) Municipal fund securities. For municipal fund securities, no interest rate shall be shown;

(5) No change.

(C) Securities descriptive information. The confirmation shall include descriptive information about the securities which includes, at a minimum:

(1)-(4) No change.

(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; provided, however, that if the municipal fund securities are puttable or otherwise redeemable by the customer, the confirmation shall include a designation to that effect.

(D) Disclosure statements:

(1)-(2) No change.

(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) [and (2)] of this paragraph, provided that their specific applicability is noted on the front of the confirmation.

(2)-(3) No change.

(ii)-(iii) No change.

(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) No change.

(vi) Definitions. For purposes of this rule, the following terms shall have the following meanings:

(A)-(F) No change.

(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), (C)(5) 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;

(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)-(e) No change.

Rule G-26. Customer Account Transfers

(a) Definitions. For purposes of this rule, the following terms have the following meanings:

(i)-(ii) No change.

(iii) The term "nontransferable asset" means an asset that is incapable of being transferred from the carrying party to the receiving party because (A) it is an issue in default for which the carrying party does not possess the proper denominations to effect delivery and no transfer agent is available to re-register the securities, or (B) it is a municipal fund security which the issuer requires to be held in an account carried by one or more specified brokers, dealers or municipal securities dealers that does not include the receiving party.

(b) No change.

(c) Transfer Instructions.

(i) No change.

(ii) If an account includes any nontransferable assets, the carrying party must request, in writing and prior to or at the time of validation of the transfer instruction, further instructions from the customer with respect to the disposition of such assets. Such request shall provide the customer with the following alternative methods of disposition of nontransferable assets, if applicable:

(A) No change.

(B) retention by the carrying party for the customer's benefit; or

(C) in the case of a nontransferable asset described in section (a)(iii)(B), transfer to another broker, dealer or municipal securities dealer, if any, which the issuer has specified as being permitted to carry such asset.

(d)-(i) No change.

Rule G-32. Disclosures in Connection with New Issues

(a) Customer Disclosure Requirements. No broker, dealer or municipal securities dealer shall sell, whether as principal or agent, any new issue municipal securities to a customer unless such broker, dealer or municipal securities dealer delivers to the customer no later than the settlement of the transaction:

(i) a copy of the official statement in final form prepared by or on behalf of the issuer or, if an official statement in final form is not being prepared by or on behalf of the issuer, a written notice to that effect together with a copy of an official statement in preliminary form, if any; provided, however, that:

(A) if a customer who participates in a periodic municipal fund security plan or a non-periodic municipal fund security program has previously received a copy of the official statement in final form in connection with the purchase of municipal fund securities under such plan or program, a broker, dealer or municipal securities dealer may sell additional shares or units of the municipal fund securities under such plan or program to the customer if such broker, dealer or municipal securities dealer sends to the customer a copy of any new, supplemented, amended or "stickered" official statement in final form, by first class mail or other equally prompt means, promptly upon receipt thereof; provided that, if the broker, dealer or municipal securities dealer sends a supplement, amendment or sticker without including the remaining portions of the official statement in final form, such broker, dealer or municipal securities dealer includes a written statement describing which documents constitute the complete official statement in final form and stating that the complete official statement in final form is available upon request; or

(B) if an official statement in final form is being prepared for new issue municipal securities issued in a primary offering that qualifies for the exemption set forth in paragraph (iii) of section (d)(1) of Securities Exchange Act Rule 15c2-12, a broker, dealer or municipal securities dealer may sell such new issue municipal securities to a customer if such broker, dealer or municipal securities dealer:

(A)-(B) Renumbered as (1)-(2).

(ii) in connection with a negotiated sale of new issue municipal securities, the following information concerning the underwriting arrangements:

(A) the underwriting spread, if any;

(B) the amount of any fee received by the broker, dealer or municipal securities dealer as agent for the issuer in the distribution of the securities; provided, however, that if a broker, dealer or municipal securities dealer selling municipal fund securities provides periodic statements to the customer pursuant to rule G-15(a)(viii) in lieu of individual transaction confirmations, this paragraph (ii)(B) shall be deemed to be satisfied if the broker, dealer or municipal securities dealer provides this information to the customer at least annually and provides information regarding any change in such fee on or prior to the sending of the next succeeding periodic statement to the customer; and

(C) except with respect to an issue of municipal fund securities, the initial offering price for each maturity in the issue that is offered or to be offered in whole or in part by the underwriters, including maturities that are not reoffered.

(b) Inter-Dealer Disclosure Requirements. Every broker, dealer or municipal securities dealer shall send, upon request, the documents and information referred to in [this] section (a) to any broker, dealer or municipal securities dealer to which it sells new issue municipal securities no later than the business day following the request or, if an official statement in final form is being prepared but has not been received from the issuer or its agent, no later than the business day following such receipt. Such items shall be sent by first class mail or other equally prompt means, unless the purchasing broker, dealer or municipal securities dealer arranges some other method of delivery and pays or agrees to pay for such delivery.

(b)-(c) Relettered as (c)-(d).

Rule G-34. CUSIP Numbers and New Issue Requirements

(a)-(b) No change.

(c) [CUSIP Number Eligibility] Exemptions. The provisions of this rule shall not apply to an issue of municipal securities (or for the purpose of section (b) any part of an outstanding maturity of an issue) which (i) does not meet the eligibility criteria for CUSIP number assignment or (ii) consists entirely of municipal fund securities.

* * * * *

Interpretation Relating to Sales of Municipal Fund Securities in the Primary Market

The Municipal Securities Rulemaking Board ("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 state or local governmental entities ("local government pools")⁴ and higher education savings plan trusts established by states ("higher education trusts").⁵ In response to a request of the Board, staff of the Division of Market Regulation of the Securities and Exchange Commission ("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]."⁶ 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 securities, such transactions are subject to the jurisdiction of the Board pursuant to Section 15B of the Securities Exchange Act of 1934 ("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 15c2-12.⁷

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."⁸

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 15c2-12(b)(3).⁹ 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).¹⁰ "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.¹¹

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.¹² 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.¹³ 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.¹⁴

Certain other implications arise under Board rules as a result of the status, in the view of SEC staff, of sales of municipal fund securities as primary offerings. For example, dealers are reminded that the definition of "municipal securities business" under rule G-37, 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.

II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change

In its filing with the Commission, the Board included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The texts of these statements may be examined at the places specified in Item IV below. The Board has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change

1. Purpose

Dealers that effect transactions in municipal securities are subject to the Board's jurisdiction pursuant to Section 15B of the Act.¹⁵ In particular, Section 15B(c)(1)¹⁶ prohibits dealers from effecting transactions in, or inducing or attempting to induce the purchase or sale of, a municipal security in contravention of any Board rule. Thus, since the enactment of Section 15B and the creation of the Board in the Securities Acts Amendments of 1975 ("Securities Acts Amendments"),¹⁷ a transaction effected by a dealer in a municipal security must be effected in conformity with Board rules.

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 dealers. In particular, the Board has reviewed two types of state or local governmental programs in which dealers may effect transactions in such interests: local government pools

and higher education trusts.¹⁸ In response to a request of the Board, staff of the SEC's Division of Market Regulation 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 Act."¹⁹ 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 securities, such transactions would be subject to the jurisdiction of the Board pursuant to Section 15B of the Act.²⁰

Board rules do not apply to any interest in a local government pool or higher education trust that is not a municipal security. In addition, Board rules apply only to activities of dealers that effect municipal securities transactions. Thus, Board rules do not apply to an issuer of, or a non-dealer entity providing advice to issuers on, municipal securities, including municipal fund securities. However, to the extent that interests in a local government pool or a higher education trust are municipal securities and dealers are effecting transactions in them, Board rules automatically govern such dealer transactions, without the necessity of further Board rulemaking.²¹ On several previous occasions, the Board has alerted the industry to the applicability of Board rules to (and has adopted rule changes to accommodate) transactions in new forms of municipal securities or pre-existing forms of securities that many in the industry had not previously recognized as municipal securities.²²

A municipal fund security is defined in proposed Rule D-12 as a municipal security issued by an issuer that, but for Section 2(b) of the Investment Company Act of 1940 ("Investment Company Act"),²³ would constitute an investment company under the Investment Company Act. Thus, Board rules on municipal fund securities would apply to interests in state or local governmental trusts, such as local government pools and higher education trusts, only if the following three conditions are met:

1. A dealer is engaging in transactions in such interests;

2. Such interests, in fact, constitute municipal securities; and

3. Such interests are issued by an issuer that, but for the exemption under Section 2(b) of the Investment Company Act, would be considered an investment company within the meaning of that Act.

The Board understands that municipal fund securities may not have features typically associated with more traditional municipal securities. Instead, their features are similar to those of investment company securities.²⁴ Although Board rules generally have been drafted to accommodate the characteristics of debt securities, the Board believes that most current rules can appropriately be applied to municipal fund securities. Nonetheless, the Board feels that certain rules should be amended to recognize the unique characteristics of municipal fund securities. The proposed rule change does not seek to extend the reach of Board rules, because the rules already apply to municipal fund securities, but seeks to tailor certain Board rules to accommodate the nature of municipal fund securities.

Description of Proposed Rule Change

The proposed rule change defines a municipal fund security to include any interest in a local government pool or a higher education trust as they have been described to the Board, to the extent such interests are municipal securities. As a general matter, the proposed rule change has been drafted with the view that municipal fund securities should be treated differently from other municipal securities only under circumstances where current rules would not apply properly. In addition, the Board has not attempted to draft any proposed rule changes intended to address secondary market transactions in municipal fund securities because the Board understands that no such market now exists. The Board would undertake appropriate action should a secondary market develop in municipal fund securities.

Proposed Rule D-12 - Definition of Municipal Fund Security. Proposed Rule D-12 defines municipal fund security as a municipal security that would qualify as a security of an investment company under the Investment Company Act if it had not been issued by a state or local governmental entity.²⁵ Before a security can be considered a municipal fund security, it must first be considered to be a municipal security. If an investment is deemed a municipal fund security, then dealer transactions are subject to all Board rules because of its status as a municipal security. Municipal securities, however, would receive special treatment in those instances where provisions are proposed to be added to relate specifically to municipal fund securities.²⁶

Rule A-13 - Assessments. Proposed Rule A-13 exempts the sale of municipal fund securities from the underwriting assessment imposed under section (b) thereof because the continuous nature of offerings in municipal fund securities, the predetermined and automatic nature of most customer investments and the heightened potential that underwriting assessments could create significant financial burdens on issuers to their customers' detriment justify exempting municipal fund securities from the underwriting assessment. As a result, fees generally are fixed and are low relative to traditional underwriting fees and the level of fees generated by the Board from underwriting assessments would be disproportionate to the resulting regulatory costs.

Rule G-3 - Professional Qualifications. Proposed Rule G-3 permits an associated person qualified as an investment company limited representative to effect transactions in municipal fund securities (but not in other municipal securities).²⁷ However, a dealer must continue to have one or two municipal securities principals as required under existing section (b) of Rule G-3, even if the dealer's only municipal securities transactions are sales of municipal fund securities.

Rule G-8 - Recordkeeping. Proposed Rule G-8 ensures consistency with proposed Rules G-3 and G-15. Thus, amended Rule G-8 would recognize that municipal fund securities do not have par values, dollar prices, yields and accrued interest and that investment company limited representatives may be permitted to effect transactions in municipal fund securities. In addition, proposed Rule G-8 requires dealers to retain copies of all periodic statements delivered to customers in lieu of individual confirmations with respect to transactions in municipal fund securities under proposed Rule G-15. Furthermore, proposed Rule G-8 would permit a dealer effecting transactions in municipal fund securities to meet its books and records requirements by having a transfer agent maintain books and records for such municipal fund securities so long as the books and records of the transfer agent meet the requirements of proposed Rule G-8 as proposed to be amended and the dealer remains responsible for the accurate maintenance and preservation of the books and records.

Rule G-14 - Transaction Reporting. Proposed Rule G-14(b)(i) clarifies that certain types of municipal securities transactions may be excluded from transaction reporting as provided in the Rule G-14 Transaction Reporting Procedures. The Board is proposing to amend the Transaction Reporting Procedures to expressly exempt any transaction in municipal fund securities from the customer transaction reporting system. A number of factors unique to municipal fund securities have contributed to the Board's determination to exempt such securities from proposed Rule G-14 at this time. In particular, municipal fund securities do not trade in the secondary market. Thus, for example, unlike the bulk of data currently received by the Board through the system, any data obtained regarding transactions in municipal fund securities would be limited to one-time sales to customers upon initial issuance and one-time purchases (or redemptions) from customers upon cashing out. Municipal fund securities are sold by dealers on an agency basis generally without payment of commissions by customers; therefore, dealers effecting transactions in municipal fund securities would have little opportunity to alter the pricing on such securities from that set by the issuer. Furthermore, certain critical data elements that the transaction reporting system currently collects (e.g., dollar price, yield, etc.) would not apply to transactions in municipal fund securities. Nonetheless, should the Board in the future receive information that practices have developed in the municipal fund security market that merit reporting of transaction information, the Board would consider whether to revisit the exemption from Rule G-14.

Rule G-15 - Customer Confirmations. Various amendments are being proposed to Rule G-15 relating to the concepts of par value, yield, dollar price, maturity date and interest, none of which apply to a municipal fund security. Thus, as proposed, a dealer is required to use the purchase or sale price of the securities, as appropriate, on a confirmation of a municipal fund securities transaction, rather than par value and would be able to omit yield, dollar price, accrued interest, extended principal, maturity date and interest rate. Dealers selling municipal fund securities are required to include the purchase price of each share or unit (rather than denomination) as well as the number of shares or units to be delivered. Confirmations of municipal fund securities transactions are required to include a disclosure that a deferred commission or other charge may be imposed upon redemption, if applicable.²⁸ The proposal also makes clear that dealers must confirm redemptions of municipal fund securities. A confirmation of a municipal fund security transaction need not show the information required under paragraph (a)(i)(C) other than whether the security is puttable. In addition, the confirmation must include the name used by the issuer to identify the security and, to the extent necessary to differentiate the security from other municipal fund securities of the issuer, any separate program series, portfolio or fund designation.

In addition, the amendment would permit dealers to use periodic statements, rather than transaction-by-transaction confirmations, if customers are purchasing such securities pursuant to certain periodic plans or non-periodic programs, in a manner similar to the periodic reporting provision under Rule 10b-10 under the Act.²⁹

Rule G-26 - Customer Account Transfers. The definition of "nontransferable asset" and the transfer instructions for nontransferable assets in proposed Rule G-26 are proposed to be amended to reflect the fact that the issuer of municipal fund securities may limit the dealers that are authorized to carry accounts for customers in such securities.

Rule G-32 - Disclosures in Connection with New Issues. Proposed Rule G-32 permits a dealer to sell, pursuant to a periodic plan or a non-periodic program as defined in Rule G-15, as proposed to be amended, a municipal fund security to a customer who has previously received the official statement for the security so long as it sends to the customer a copy of any new, supplemented, amended or stickered official statement promptly upon receipt from the issuer (i.e., actual delivery by settlement is not required). The dealer is permitted to satisfy this delivery requirement by delivering the amendment alone (including a notice that the complete official statement is available upon request) so long as the customer already has the official statement that is being amended and the dealer ensures that the amendment makes clear what constitutes the complete official statement. The proposed rule change also excepts municipal fund securities for which periodic statements in lieu of transaction confirmations are provided from the requirement that information on the underwriting fees paid to the dealer by the issuer be provided to customers by settlement so long as such information is disclosed at least annually and information on any fee changes paid by the issuer to the dealer is sent to customers simultaneously with or prior to the sending of the next periodic statement.

Rule G-34 - CUSIP Numbers and Depository Eligibility. The proposal would exempt municipal fund securities from the requirements of Rule G-34 because no secondary market is expected to develop.³⁰

Interpretation Relating to Sales of Municipal Fund Securities in the Primary Market. Interpretive guidance is provided in connection with the application of Rules G-23, G-32, G-36, G-37 and G-38 to dealer transactions in municipal fund securities.

2. Statutory Basis

The Board believes the proposed rule change is consistent with Section 15B(b)(2)(C)³¹ of the Act, which requires the Board's rules to be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in municipal securities, to remove impediments to and perfect the mechanism of a free and open market in municipal securities, and, in general, to protect investors and the public interest. The Board believes that the proposed rule change is consistent with the Act because it amends existing Board rules to better accommodate the unique characteristics of municipal fund securities, thereby removing impediments to a free and open market in these securities and promoting the protection of investors and the public interest.

B. Self-Regulatory Organization's Statement on Burden on Competition

The Board does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act because it applies equally to all dealers effecting transactions in municipal fund securities.

C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received from Members, Participants, or Others

On March 17, 1999, the Board published a notice ("March Notice") requesting comments on draft rule changes relating to transactions effected by or through dealers in municipal fund securities.³² The Board received twelve comment letters on the March Notice.³³ After reviewing these comments, the Board re-circulated the draft rule changes, with certain modifications and additions, for further comment from industry participants in a notice published on August 27, 1999 ("August Notice").³⁴ The Board received seven comment letters on the August Notice.³⁵ After reviewing these additional comments, the Board approved the revised draft rule changes, with certain additional modifications and additions, for filing with the SEC. The comments received, and the Board's response, are summarized below.

A. Authority of Board to Adopt Rules Governing Dealer Transactions in Municipal Fund Securities

1. Comments Received

Some commentators question the Board's authority to regulate municipal fund securities, particularly local government pool interests.³⁶ Fidelity, Fulbright, MBIA-MISC and Schulte state that such interests are not municipal securities under the Act. They argue that the term "municipal securities" as used in the Act is limited to debt obligations of municipal issuers and that interests in local government pools represent equity interests in trust assets, not debt obligations.³⁷ Duane and Eckert question whether Congress intended that the Board regulate local government pools when it created the Board.

2. Board Response

A security must first be a municipal security in order to be a municipal fund security. The proposed rule change would not, and existing Board rules do not, apply to local government pool or higher education trust interests that are not municipal securities. Thus, the Board does not overstep its authority by regulating dealer transactions in municipal fund securities because, by definition, regulation is limited to interests that are municipal securities.

A firm wishing to determine if Board rules apply to services it provides to an issuer of local government pool or higher education trust interests may seek advice of counsel as to whether (1) such services constitute broker-dealer activities, or (2) such interests are municipal securities. In addition, the firm may seek no-action relief from SEC staff. If a non-dealer firm's activities do not constitute broker-dealer activities, the firm need not be a registered broker or dealer subject to Board rules, even if the interests are municipal securities.³⁸ If the interests are not municipal securities, the dealer need not comply with Board rules; however, the dealer's activities may be subject to provisions of the Act, the rules and regulations thereunder, and National Association of Securities Dealers ("NASD") rules, unless the interests otherwise qualify for an exemption (e.g., as exempted securities other than municipal securities) under the Act.

Of course, the Board's rulemaking proposal is meaningful only if municipal fund securities, in fact, exist. As noted above, the Board asked SEC staff whether local government pool and higher education trust interests are municipal securities. SEC staff replied 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 Act."³⁹ Although the Board is not empowered to determine whether a security is a municipal security within the meaning of Section 3(a)(29) of the Act, the Board believes that, based on the SEC's response as well as a close review of existing no-action letters and legislative history of the Securities Acts Amendments, the Act, and the Securities Act of 1933 ("Securities Act"), as discussed below, at least some interests in local government pools and higher education trusts are municipal securities.

For example, in agreeing not to recommend enforcement action in several no-action letters, SEC staff relied on opinions of counsel that interests in state or local governmental trusts were municipal securities under the Act.⁴⁰ In one instance, SEC staff agreed not to recommend enforcement action if a dealer, in offering and selling interests in a higher education trust, were to comply with Board rules as they have been proposed to be amended in the March Notice, in lieu of complying with such rules as currently in effect.⁴¹ In another no-action letter, SEC staff agreed not to recommend enforcement action against dealers who (1) sold interests in a higher education trust through persons qualified to sell investment company products but who did not meet the

Board's professional qualification requirements⁴² and (2) complied with Rule 15c2-12(b)(5)⁴³ through a continuing disclosure undertaking from a dealer affiliate, rather than from the issuer. In reaching this position, SEC staff noted that the higher education trust interests were "atypical municipal securities."⁴⁴

In other instances, SEC staff agreed not to recommend enforcement action if state entities and their employees sold higher education trust interests without registering as brokers.⁴⁵ The applicants opined in these cases that the interests were municipal securities under the Act, thereby exempting the issuers from registering as brokers by virtue of the exemption for issuers of municipal securities set forth in Section 3(d)⁴⁶ of the Act.⁴⁷ SEC staff also agreed not to recommend enforcement action if interests in a state trust were not registered under the Act, in reliance on an opinion that the exemption under Section 3(a)(12) of the Act⁴⁸ for exempted securities was available.⁴⁹

SEC staff also has taken the position that non-debt securities may be municipal securities under the Act.⁵⁰ In one instance, SEC staff was unable to conclude that receipts/certificates evidencing developers' payments to a city of fees for the issuance of building permits were not municipal securities under the Act.⁵¹ SEC staff also has advised the Board that warrants sold by a municipal corporation entitling the holders to purchase other municipal securities of that corporation are themselves municipal securities under the Act.⁵² Finally, in those cases in which SEC staff concluded that an "obligation" within the meaning of the Internal Revenue Code would also constitute an "obligation" for purposes of Section 3(a)(29) of the Act, SEC staff did not conclude that the failure of a security to be an obligation for purposes of the Internal Revenue Code would mean that such security was not a municipal security for purposes of the Act.⁵³ In these cases, SEC staff was not presented with the issue of whether a non-debt security could be a municipal security. As noted above, on the last two occasions when SEC staff was confronted with this issue, it concluded that a non-debt security may be a municipal security for purposes of the Act.⁵⁴

A review of legislative history also suggests that the commentators' position that the term "municipal securities" in the Act excludes non-debt securities is not justified. The Senate report on the Securities Acts Amendments notes that the legislation created a definition of municipal securities in new Section 3(a)(29) of the Securities Act⁵⁵ that, for all relevant purposes, used the same language as in the original version of the definition of exempted municipal securities in Section 3(a)(12) of the Act.⁵⁶ It also states that no substantive changes in meaning would be effected by creating Section 3(a)(29).⁵⁷ Thus, the import of the term "municipal securities" must be viewed, in the first instance, through the eyes of the original drafters of the Act in 1934 rather than the drafters of the Securities Acts Amendments in 1975.

The purpose of including municipal securities in the definition of exempted securities in the Act was to provide an exemption for municipal securities from most provisions of the Act and the Securities Act. Although commentators suggest that Board regulation of dealer transactions in non-debt securities of municipal issuers is inconsistent with the intent of the drafters of the Securities Acts Amendments, the appropriate inquiry is whether the drafters of the original Act would have intended that only debt securities of municipal issuers be exempted from most provisions of the Act. That is, would the drafters of the original Act have intended that non-debt securities of state or local governmental entities - had such securities existed at the time - be subject to the entire range of regulation of the Act applicable to other equity securities, including in some instances a requirement for registration of such securities with the SEC? A review of Congressional debates, committee reports and hearing testimony relating to enactment of the Securities Act and the Act reveals that, in spite of differences in statutory language, both Acts were expected to exempt the same universe of municipal securities.

For example, the 1933 House report on the Securities Act speaks of exempted state and local government securities almost exclusively in terms of "obligations" and "bonds," not "securities."⁵⁸ The report explains the exemption set forth in Section 3(a) of the Securities Act as follows: