Self-Regulatory Organizations; Municipal Securities Rulemaking Board; Notice of Filing of Amendment No. 1 to and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 1, to Amend Rule A-3, on Membership on the Board, To Comply With the Dodd-Frank Wall Street Reform and Consumer Protection Act, 61806-61812 [2010-25108]

Download as PDF 61806 Federal Register / Vol. 75, No. 193 / Wednesday, October 6, 2010 / Notices III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; or (iii) become operative for 30 days after the date of the filing, or such shorter time as the Commission may designate, if consistent with the protection of investors and the public interest, it has become effective pursuant to Section 19(b)(3)(A) of the Act 11 and Rule 19b– 4(f)(6) thereunder.12 The Exchange has requested that the Commission waive the 30-day operative delay. The Commission hereby grants that request.13 The Commission believes that waiver of the operative delay is consistent with the protection of investors and the public interest because it has recently approved Phlx’s proposal to initiate trading on PSX, which it plans to do on October 8, 2010, and believes that the proposed rule change should be implemented on that date to ensure that the Exchange’s rules on clearly erroneous trades are consistent with the recently approved changes to the clearly erroneous execution rules of the other markets. At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: mstockstill on DSKH9S0YB1PROD with NOTICES 11 15 U.S.C. 78s(b)(3)(A). 12 17 CFR 240.19b–4(f)(6). In addition, Rule 19b– 4(f)(6) requires a self-regulatory organization to give the Commission written notice of its intent to file the proposed rule change, along with a brief description and text of the proposed rule change, at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. The Exchange has satisfied this requirement. 13 For purposes only of waiving the 30-day operative delay, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). VerDate Mar<15>2010 19:00 Oct 05, 2010 Jkt 223001 Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File No. SR–Phlx–2010–125 on the subject line. Paper Comments • Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549–1090. All submissions should refer to File No. SR–Phlx–2010–125. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Web site (https://www.sec.gov/rules/ sro.shtml). Copies of the submission,14 all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street, NE., Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. Copies of such filing also will be available for inspection and copying at the principal office of Phlx. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File No. SR–Phlx–2010–125 and should be submitted on or before October 27, 2010. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.15 Florence E. Harmon, Deputy Secretary. [FR Doc. 2010–25137 Filed 10–5–10; 8:45 am] BILLING CODE 8010–01–P 14 The text of the proposed rule change is available on the Commission’s Web site at https:// www.sec.gov. 15 17 CFR 200.30–3(a)(12). PO 00000 Frm 00115 Fmt 4703 Sfmt 4703 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–63025; File No. SR–MSRB– 2010–08] Self-Regulatory Organizations; Municipal Securities Rulemaking Board; Notice of Filing of Amendment No. 1 to and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 1, to Amend Rule A– 3, on Membership on the Board, To Comply With the Dodd-Frank Wall Street Reform and Consumer Protection Act September 30, 2010. On August 27, 2010, the Municipal Securities Rulemaking Board (‘‘Board’’ or ‘‘MSRB’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Exchange Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to amend MSRB Rule A–3, on membership on the Board, to comply with the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act (‘‘Dodd-Frank Act’’).3 The Commission published the proposed rule change for comment in the Federal Register on September 8, 2010.4 The Commission received ten comment letters, the MSRB’s response, and a supplemental response to the MSRB’s response.5 On September 30, 2010, the 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 See Public Law No. 111–203, 124 Stat. 1376 (2010). 4 See Securities Exchange Act Release No. 62827 (September 1, 2010), 75 FR 54673. 5 See e-mail from Peter Shapiro, Managing Director, Swap Financial Group, LLC, dated September 14, 2010 (‘‘Swap Financial Letter’’); email from Kevin Olson, dated September 17, 2010 (‘‘Olson Letter’’); letter from Mike Nicholas, Chief Executive Officer, Bond Dealers of America, dated September 17, 2010 (‘‘Bond Dealers Letter’’); letter from Robert W. Doty, President, American Governmental Financial Services, dated September 21, 2010 (‘‘AGFS Letter I’’); letter from Joy A. Howard, Principal, WM Financial Strategies, dated September 21, 2010 (‘‘WM Financial Letter’’); letter from Steve Apfelbacher, President, National Association of Independent Public Finance Advisors, dated September 22, 2010 (‘‘NAIPFA Letter’’); letter from Michael Decker, Managing Director and Co-Head, Municipal Securities Division, Securities Industry and Financial Markets Association, dated September 22, 2010 (‘‘SIFMA Letter’’); letter from Susan Gaffney, Director, Federal Liaison Center, Government Finance Officers Association, dated September 22, 2010 (‘‘GFOA Letter’’); letter from Thomas M. DeMars, Managing Principal, Fieldman, Rolapp & Associates, dated September 22, 2010 (‘‘Fieldman Letter’’); letter from Lawrence P. Sandor, Senior Associate General Counsel, MSRB, dated September 23, 2010 (‘‘MSRB Response Letter’’); email from Robert W. Doty, President, American Governmental Financial Services, dated September 27, 2010 (‘‘AGFS Letter 2 17 E:\FR\FM\06OCN1.SGM 06OCN1 Federal Register / Vol. 75, No. 193 / Wednesday, October 6, 2010 / Notices MSRB filed Amendment No. 1 to the proposed rule change.6 This notice and order provide notice of Amendment No.1 to the proposed rule change and approves the proposed rule change, as modified by Amendment No. 1, on an accelerated basis. I. Background and Description of the Proposal A. Dodd-Frank Act mstockstill on DSKH9S0YB1PROD with NOTICES The Dodd-Frank Act, among other things, amended provisions of Section 15B of the Exchange Act governing the nomination, election and composition of members of the Board.7 These amendments to Section 15B of the Exchange Act will be effective on October 1, 2010.8 Prior to enactment of the Dodd-Frank Act, Section 15B(b)(1) of the Exchange Act provided that the Board must be composed initially of fifteen members appointed by the Commission.9 In addition, the Exchange Act required that the initial members of the Board must consist of five individuals who are public representatives,10 five individuals who are broker-dealer representatives 11 and five individuals II’’); letter from Lawrence P. Sandor, Senior Associate General Counsel, MSRB, dated September 30, 2010 (‘‘MSRB Supplemental Response Letter’’). 6 In Amendment No. 1, to address concerns raised by commenters, MSRB proposes that advisor representatives (as defined below) shall not be associated with a broker, dealer or municipal securities dealer. In addition, in Amendment No. 1, the MSRB proposes to amend Rule A–3(i)(iv) to provide that on or after October 1, 2010 the MSRB will propose amendments to its rules that would assure that for future board elections that the Nominating Committee will be composed of a majority of public representatives and that would assure fair representation of bank representatives, broker-dealer representatives and advisor representatives (as such terms are defined below) on the Nominating Committee. 7 See Section 975(b) of the Dodd-Frank Act. 8 See Section 975(i) of the Dodd-Frank Act. 9 Section 15B(b)(1) of the Exchange Act also provided that ‘‘[p]rior to the expiration of the terms of office of the initial members of the Board, an election shall be held under rules adopted by the Board (pursuant to subsection (b)(2)(B) of this section) of the members to succeed such initial members.’’ 10 Section 15B(b)(1)(A) defined the term ‘‘public representatives’’ to mean 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 municipal broker, municipal dealer or municipal securities dealer), 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. 11 Section 15B(b)(1)(B) defined the term ‘‘brokerdealer representatives’’ to mean individuals who are associated with and representative of municipal securities brokers and municipal securities dealers which are not banks or subsidiaries or departments or divisions of banks. VerDate Mar<15>2010 19:00 Oct 05, 2010 Jkt 223001 who are bank representatives.12 Consistent with the requirements of the Exchange Act, the MSRB adopted Rule A–3 regarding membership on the Board. MSRB Rule A–3, among other things, provided that the Board shall be composed of 15 members, at all times equally divided among public representatives, broker-dealer representatives and bank representatives. The Dodd-Frank Act amended Section 15B(b)(1) of the Exchange Act to provide that the members of the Board shall consist of two separate groups: eight ‘‘public representatives’’ and seven ‘‘regulated representatives.’’ Section 15B(b)(1)(A) of the Exchange Act defines ‘‘public representatives’’ to mean individuals who are independent of any municipal securities broker, municipal securities dealer, or municipal advisor, at least one of whom shall be representative of institutional or retail municipal securities investors (‘‘investor representative’’), at least one of whom shall be representative of municipal entities (‘‘issuer representative’’), and at least one of whom shall be representative of the public with knowledge of or experience in the municipal industry (‘‘general public representative’’).13 Section 15B(b)(1)(B) of the Exchange Act defines ‘‘regulated representatives’’ to mean individuals who are associated with a broker, dealer, municipal securities dealer, or municipal advisor, including at least one individual who is associated with and representative of brokers, dealers, or municipal securities dealers that are not banks or subsidiaries or departments or divisions of banks (‘‘broker-dealer representative’’), at least one individual who is associated with and representative of municipal securities dealers which are banks or subsidiaries or departments or divisions of banks (‘‘bank representative’’), and at least one individual who is associated with a municipal advisor (‘‘advisor representative’’).14 In addition, Section 15B(b)(1) of the Exchange Act provides that each member of the Board must be knowledgeable of matters related to the municipal securities markets.15 The Dodd-Frank Act also amended Section 15B(b)(2)(B) of the Exchange 12 Section 15B(b)(1)(C) defined the term ‘‘bank representatives’’ to mean individuals who are associated with and representative of municipal securities dealers which are banks or subsidiaries or departments or divisions of banks. 13 See 15 U.S.C. 78o–4(b)(1)(A) (as amended by the Dodd-Frank Act). 14 See 15 U.S.C. 78o–4(b)(1)(B) (as amended by the Dodd-Frank Act). 15 See 15 U.S.C. 78o–4(b)(1) (as amended by the Dodd-Frank Act). PO 00000 Frm 00116 Fmt 4703 Sfmt 4703 61807 Act to provide that the Board shall establish fair procedures for the nomination and election of the members of the Board, and shall assure fair representation in such nominations and elections of public representatives, broker-dealer representatives, bank representatives and advisor representatives.16 Further, the DoddFrank Act amended Section 15B(b)(2)(B) to provide that the Board shall establish rules that: Set forth requirements regarding the independence of public representatives; provide that the number of public representatives at all times exceed the number of regulated representatives; and provide that membership on the Board is at all times as evenly divided as possible between public and regulated representatives. In addition, the Dodd-Frank Act amended Section 15B(b)(2)(B) to provide that the MSRB, by rule, may increase the number of members on the Board, provided that such number is an odd number.17 B. Proposal To implement the terms of the DoddFrank Act by the effective date of October 1, 2010, the MSRB proposes to add subsection (i) to Rule A–3 to implement, among other things, a transitional provision for the Board’s fiscal year commencing October 1, 2010 that would increase the size of the Board from 15 members to 21 members (who are knowledgeable of matters related to the municipal securities markets), with 11 public representatives and 10 regulated representatives. This transitional provision would be in effect until September 30, 2012. In addition, prior to October 1, 2010, the MSRB proposes to elect 11 new Board members, of which eight would be public representatives and three would be municipal advisor representatives. The MSRB proposes that the terms of these new Board members would expire on September 30, 2012. Of the 11 public representatives, the MSRB proposes that at least one would be an investor representative, at least one would be an issuer representative, and at least one would be a general public representative. With respect to the 10 regulated representatives, the MSRB proposes that at least one would be a broker-dealer representative, at least one would be a bank representative, and at least one (but not less than 30% of the total number of regulated representatives) would be an advisor representative, who shall not be 16 See 15 U.S.C. 78o–4(b)(2)(B) (as amended by the Dodd-Frank Act). 17 See id. E:\FR\FM\06OCN1.SGM 06OCN1 mstockstill on DSKH9S0YB1PROD with NOTICES 61808 Federal Register / Vol. 75, No. 193 / Wednesday, October 6, 2010 / Notices associated with a broker, dealer or municipal securities dealer. For purposes of determining whether an individual is a ‘‘public representative,’’ the MSRB proposes to add Rule A–3(h), among other things, to define the term ‘‘independent of any municipal securities broker, municipal securities dealer, or municipal advisor’’ to mean the individual has ‘‘no material business relationship’’ with any municipal securities broker, municipal securities dealer, or municipal advisor. The term ‘‘no material business relationship,’’ in turn, would mean that, at a minimum, the individual is not and, within the last two years, was not associated with a municipal securities broker, municipal securities dealer, or municipal advisor, and that the individual does not have a relationship with any municipal securities broker, municipal securities dealer, or municipal advisor, whether compensatory or otherwise, that reasonably could affect the independent judgment or decision making of the individual. The Board, or by delegation, its Nominating Committee, could also determine that additional circumstances involving the individual could constitute a ‘‘material business relationship’’ with a municipal securities broker, municipal securities dealer, or municipal advisor. To help ensure a fair nomination process, the MSRB also proposes, in its transitional provision under MSRB Rule A–3(i), to allow the Nominating Committee to solicit nominations for municipal advisor representatives by publishing a notice in a financial journal having general national circulation among members of the municipal securities industry on or after enactment of the Dodd-Frank Act. The proposal provides that the Nominating Committee shall accept recommendations for 14 days following the date of publication of such notice and shall make the names publicly available.18 The proposal also provides that prior to the formation of the Nominating Committee for purposes of nominating potential new members to the Board with terms commencing on October 1, 2011, the Board shall amend the provisions of subsection (c) of Rule A– 3 relating to the composition and procedures of the Nominating Committee to reflect the composition of the Board as provided under the Dodd18 The Dodd-Frank Act was signed into law on July 21, 2010. The MSRB published a notice on July 22, 2010, pursuant to which it received a number of additional recommendations for persons to serve as municipal advisor representatives on the Board. See MSRB Notice 2010–22 (July 22, 2010). VerDate Mar<15>2010 19:00 Oct 05, 2010 Jkt 223001 Frank Act, to assure that the Nominating Committee shall be composed of a majority of public representatives and to assure fair representation of bank representatives, broker-dealer representatives and advisor representatives, and ‘‘to reflect such other considerations consistent with the provisions of the Act and the DoddFrank Act as the Board shall determine are appropriate.’’ II. Discussion of Comments and MSRB’s Response The Commission received ten comment letters and the MSRB’s responses.19 The MSRB provided two responses to the comments.20 The comments and the MSRB’s responses are discussed in greater detail below. 1. Comments Regarding Requirements Relating to Independence of Public Representatives Some commenters disagreed with the MSRB’s proposed definition of the term ‘‘independent of any municipal securities broker, municipal securities dealer, or municipal advisor.’’ 21 In particular, these commenters did not agree with the proposed definition of ‘‘no material business relationship’’ and the requirement that an individual is not and, within the last two years, has not been, associated with a municipal securities broker, municipal securities dealer, or municipal advisor.22 One commenter suggested that a five-year ‘‘cooling off ’’ period would be more appropriate.23 Another commenter stated that under the proposed definition of the term ‘‘independent of any municipal securities broker, municipal securities dealer, or municipal advisor,’’ it is unclear whether any independent municipal advisor would be appointed to the Board because potentially 100% of the Board members could be, or could have been, associated with, or employed by, a municipal securities broker or dealer.24 This commenter stated that it believes that an individual who has been affiliated with, or employed by, a municipal securities broker, dealer, or municipal advisor cannot be truly independent, regardless of when the affiliation or employment ended.25 Thus, the commenter recommended that public representatives of the Board should consist solely of individuals ‘‘who have never been associated with, employed by and do not otherwise possess a material business relationship with a [sic] municipal securities brokers, municipal securities dealers, or municipal advisors.’’ 26 In response to these comments, the MSRB stated that it believes that ‘‘the two-year cooling off period is appropriate as a standard for independence’’ and referenced the one year cooling-off period imposed by other self-regulatory organizations (‘‘SROs’’) in determining the independence of public members.27 Further, the MSRB noted that the Board or the Nominating Committee could determine whether other circumstances involving the individual would constitute a ‘‘material business relationship’’ that would result in the person not being viewed as independent.28 The Commission understands commenters’ concerns regarding whether a public representative would be ‘‘independent of any municipal securities broker, municipal securities dealer, or municipal advisor’’ if the public representative previously has been associated with a municipal securities broker, municipal securities dealer, or municipal advisor, even where such association occurred at least two years prior to membership on the Board. Under Section 15B(b)(2)(B)(iv) of the Exchange Act,29 the MSRB must have rules establishing requirements regarding the independence of public representatives. The Commission believes the proposed requirements in Rule A–3(h) are consistent with the requirements of the Exchange Act and the rules and regulations thereunder applicable to the MSRB. In particular, as noted by the MSRB in the MSRB Response Letter, the proposal is consistent with and indeed, stricter than, cooling-off periods required by other SROs in determining whether public members are independent.30 Further, the proposed two-year cooling off period is a minimum requirement and, as noted by the MSRB in the MSRB Response Letter, the proposal would allow the Board, or by delegation, its Nominating Committee, to determine 26 See 27 See id. MSRB Response Letter; see also infra note 30. 28 See 19 See supra note 5. 20 See MSRB Response Letter; see also MSRB Supplemental Response Letter. 21 See AGFS Letter I; WM Financial Letter. 22 See id. 23 See AGFS Letter I. 24 See WM Financial Letter. 25 See id. PO 00000 Frm 00117 Fmt 4703 Sfmt 4703 MSRB Response Letter. U.S.C. 78o—4(b)(2)(B)(iv) (as amended by the Dodd-Frank Act). 30 See Independence Policy of the NYSE Euronext Board of Directors (stating a ‘‘Director is not independent if he or she is, or within the last year was, or has an immediate family member who is, or within the last year was a Member, allied member or allied person or approved person * * *’’). 29 15 E:\FR\FM\06OCN1.SGM 06OCN1 Federal Register / Vol. 75, No. 193 / Wednesday, October 6, 2010 / Notices additional circumstances involving the individual that would constitute a ‘‘material business relationship’’ with a municipal securities broker, municipal securities dealer, or municipal advisor. 2. Comments Regarding Composition of the Board mstockstill on DSKH9S0YB1PROD with NOTICES Several commenters expressed concerns that the representation of municipal advisors on the proposed Board is inadequate.31 For example, one commenter noted that during the transitional period (from October 1, 2010 to September 30, 2012), advisor representatives would constitute less than 15% of the entire Board and consequently may be outnumbered by broker-dealer representatives and bank representatives on the Board.32 This commenter suggested that four out of the ten regulated representatives should be advisor representatives and that these four advisor representatives should represent a variety of advisors.33 Another commenter recommended that five out of the ten regulated representatives should be advisor representatives, four of whom would be independent municipal advisors who are not, and have not been, associated with, or employed by, a municipal securities broker, dealer, bank or underwriter.34 This commenter, however, noted that even with this increase in the number of municipal advisor representatives, such representatives would constitute only 19% of the entire Board.35 Another commenter suggested that the number of independent advisor representatives on the Board should be equal to the number of bank and broker-dealer representatives on the Board.36 One commenter stated that due to the different services offered by municipal advisors, a strict limitation on the number of advisor representatives could not adequately represent this 31 See NAIPFA Letter; Swap Financial Group Letter; AGFS Letter I; AGFS Letter II; WM Financial Letter; see also GFOA Letter. 32 See Swap Financial Group Letter. 33 See id. The commenter suggested that the four advisor representatives should represent each of the following categories: (1) General financial advisory firm with a national scope; (2) regional financial advisory firm whose client base is principally governmental entities; (3) financial advisory firm whose client base is obligors who borrow through tax-exempt conduit agencies; and (4) swap or financial products advisor. 34 See WM Financial Letter. 35 See id. 36 See GFOA Letter; see also AGFS Letter II (stating that independent advisor representatives should be equal in numbers to broker-dealer representatives and bank representatives as municipal securities dealers are in an adverse role in relation to municipal issuers, while municipal advisors represent only the municipal issuers). VerDate Mar<15>2010 19:00 Oct 05, 2010 Jkt 223001 diversity.37 Five commenters stated that advisor representatives should be independent of bank and broker-dealer representatives because bank dealers and broker-dealers are already represented on the Board.38 One commenter stated that the Board should not require that at least 30% of regulated representatives be advisor representatives.39 This commenter stated that the proposal goes beyond the requirements of the Dodd-Frank Act and effectively increases the minimum number of advisor representatives.40 This commenter further stated that advisors who work for dealers should be eligible as advisor representatives.41 Another commenter generally supported the proposed amendments to Rule A–3, but suggested that after the transitional period, the Board should consider reducing its size back to 15 members and, at that time, reduce the number of advisor representatives on the Board to less than 30% of the regulated representatives.42 This commenter further noted that the Board should not establish, as a matter of policy, that advisors make up at least 30% of regulated representatives, especially because the Board has not established a minimum number of dealer or bank representatives.43 This commenter also stated that it believes that the requirement that at least one member of the Board be an advisor representative can be satisfied by representatives of ‘‘independent’’ municipal advisors or of dealers or banks whose firms also provide municipal advisory services.44 One commenter suggested that the proposed MSRB Board does not provide adequate issuer representation.45 This commenter recommended that the public representatives on the Board be comprised of four issuers, four investors, and three general public members.46 The commenter believes that the issuer members should represent various-sized state and local governments.47 This commenter also recommended that ‘‘[a]s the MSRB determines the composition of future boards, these numbers—as a percentage of the total number of board members— 37 See AGFS Letter I. WM Financials Letter; NAIPFA Letter; GFOA Letter; Fieldman letter; AGFS Letter II. 39 See BDA Letter. 40 See id. 41 See id. 42 See SIFMA Letter. 43 See id. 44 See id. 45 See GFOA Letter; see also NAIPFA Letter (stating that ‘‘fair representation also means that the issuers of municipal securities are appropriately represented’’). 46 See GFOA Letter. 47 See id. 38 See PO 00000 Frm 00118 Fmt 4703 Sfmt 4703 61809 should not be altered.’’ 48 Another commenter stated that the Board should be comprised of five investor representatives, five issuer representatives, and five vendor representatives.49 In its response, the MSRB stated that it believes that, during the transitional period, 30% regulatory representation on the Board for municipal advisors is appropriate because it will ensure fair representation of such entities, will assist the Board in its rulemaking process with respect to municipal advisors and ‘‘will inform the Board’s decisions regarding other municipal advisory activities while not detracting from the Board’s ability to continue its existing rulemaking duties with respect to broker-dealer and bank activity in the municipal securities markets.’’ 50 The MSRB also noted that, during the transitional period, the three municipal advisors on the Board are expected to be ‘‘advisors that are not affiliated with broker-dealers or banks.’’ 51 At the same time, the MSRB noted that it does not believe that setting the minimum advisor representation at 30% of regulated representatives is too low.52 In support, the MSRB noted the processes it has, or will have, in place, to maximize municipal advisor participation in the rulemaking process.53 The MSRB also stated that, having reviewed the composition requirements of other SROs, ‘‘it is comfortable that the proposed size and composition of the MSRB represents best practices in SRO governance and will be effective in meeting the full range of obligations that the MSRB will be undertaking beginning on October 1, 2010.’’ 54 With respect to comments regarding the composition of public representatives on the Board, the MSRB stated that ‘‘it is comfortable that the expanded number of public representatives will provide ample opportunity for municipal entity representation on the Board at levels above those that have historically occurred under the prior Board composition formulation that limited public representation to only five members.’’ 55 In addition, with respect to the one commenter that suggested that the Board should be comprised of five 48 See id. Olson Letter. 50 See MSRB Response Letter. 51 See id. 52 See id. 53 See id. (noting, for example, the establishment of a new advisory council to help address municipal advisor issues). 54 See id. 55 See MSRB Response Letter. 49 See E:\FR\FM\06OCN1.SGM 06OCN1 61810 Federal Register / Vol. 75, No. 193 / Wednesday, October 6, 2010 / Notices investor representatives, five issuer representatives, and five vendor representatives,56 the MSRB noted that such composition formulation would not comply with the Dodd-Frank Act, which requires that of the public representatives, at least one must be an investor representative, at least one must be an issuer representative, and at least one must be a general public representative. The MSRB noted that the Board is aware that municipal advisors are not homogeneous and is committed to seeking out all categories of members based on various criteria.57 In addition, the MSRB stated that the proposal would establish the Board composition for a two year transitional period only and, at the end of the transitional period, the MSRB will be in a better position to make ‘‘long-term decisions’’ regarding representation, size and related matters.58 The Commission believes that the proposal is consistent with the requirements of the Exchange Act, and the rules and regulations thereunder applicable to the MSRB, including the fair representation requirements of the Exchange Act. Section 15B(b)(2)(B) of the Exchange Act requires, among other things, that the rules of the Board establish fair procedures for the nomination and election of members of the Board and assure fair representation in such nominations and elections of public representatives, broker-dealer representatives, bank representatives, and advisor representatives.59 Section 15B(b)(2)(B)(i) of the Exchange Act provides that the number of public representatives of the Board must at all times exceed the total number of regulated representatives.60 The MSRB proposes that the Board consist of 11 public representatives and 10 regulated representatives. Of those 10 regulated representatives, the MSRB proposes that at least one, and not less than 30%, shall be advisor representatives. Previously, the Commission has considered whether an SRO’s proposed governance rules are consistent with the Exchange Act’s requirements under Sections 6 and 15A for fair representation of SRO members generally.61 For example, the mstockstill on DSKH9S0YB1PROD with NOTICES 56 See Olson Letter. MSRB Response Letter. 58 See id. 59 See 15 U.S.C. 78o–4(b)(2)(B) (as amended by the Dodd-Frank Act). 60 See 15 U.S.C. 78o–4(b)(2)(B)(i) (as amended by the Dodd-Frank Act). 61 Section 6(b)(3) of the Exchange Act provides that: ‘‘An exchange may not be registered as a national securities exchange unless the Commission determines that * * * (3) The rules of the exchange 57 See VerDate Mar<15>2010 19:00 Oct 05, 2010 Jkt 223001 Commission has approved an SRO’s governance rules that require that the SRO’s members as a whole be able select at least 20% of the total number of directors of the exchange’s or association’s board.62 In addition, the Commission has previously found SRO rules that provide sub-categories of regulated persons with the right to select a specified number of directors to be consistent with the Exchange Act.63 Under the MSRB proposal, of the 10 regulated representatives, at least one would be a broker-dealer representative, at least one would be a bank representative, and at least one, and not less than 30% of the total regulated representatives (i.e. three out of 10), would be an advisor representative. Section 15B(b)(2)(B)(i) of the Exchange Act requires the Board to consist of a majority of public representatives, leaving a minority of the Board available to achieve ‘‘fair representation’’ of the three sub-categories of regulated representatives.64 Accordingly, ‘‘fair assure fair representation of its members in its selection of its directors and administration of its affairs and provide that one or more directors shall be representative of issuers and investors and not be associated with a member of the exchange, broker, or dealer.’’ 15 U.S.C. 78f(b)(3). Section 15A(b)(4) of the Exchange Act contains an identical requirement with respect to the rules of a national securities association. See 15 U.S.C. 78o–3(b)(4). 62 See, e.g., Securities Exchange Act Release No. 58324 (August 7, 2008), 73 FR 46936 (August 12, 2008) (stating that ‘‘the requirement under BSE ByLaws that at least 20% of the BSE Directors represent members * * * [is] designed to ensure the fair representation of BSE members on the BSE Board’’); Securities Exchange Act Release No. 53128 (January 13, 2006), 71 FR 3550 (January 23, 2006) (stating that ‘‘the requirement in [Nasdaq’s] By-Laws that twenty percent of the directors be ‘Member Representative Directors’ * * * provides for the fair representation of members in the election of directors * * * consistent with the requirement in Section 6(b)(3) of the Exchange Act’’); Securities Exchange Act Release No. 48946 (December 17, 2003), 68 FR 74678 (December 24, 2003) (stating that the amended Constitution of the New York Stock Exchange, which gives Exchange members the ability to nominate no less than 20% of the directors on the Board, satisfies the Section 6(b)(3) fair representation requirement); see also Securities Exchange Act Release No. 50699 (November 18, 2004), 69 FR 71126 (December 8, 2004) (stating that ‘‘[c]onsistent with the fair representation requirement, the [Commission’s] proposed [SRO] governance rules would require that the Nominating Committee administer a fair process that provides members with the opportunity to elect at least 20% of the total number of directors (‘member candidates’). * * * This ‘20% standard’ for member candidates comports with previouslyapproved SRO rule changes that raised the issue of fair representation’’). 63 See, e.g., Securities Exchange Act Release No. 56145 (July 26, 2007), 72 FR 42169 (August 1, 2007) (approving the composition of the FINRA (f/k/a NASD) Board of Governors to include three small firm Governors, one mid-size firm Governor, and three large-firm Governors, elected by members of FINRA according to their classification as a small firm, mid-size firm, or large firm). 64 See 15 U.S.C. 78o–4(b)(2)(B)(i) (as amended by the Dodd-Frank Act). PO 00000 Frm 00119 Fmt 4703 Sfmt 4703 representation’’ of each of the subcategories must necessarily mean something less than the 20% standard, in relation to an entire board, previously approved by the Commission for SRO members generally under Sections 6 and 15A of the Exchange Act. The Commission also notes that Section 15B(b)(1) of the Exchange Act sets forth minimum representation requirements for bank, broker-dealer and advisor representatives.65 It does not mandate the specific number of any class of representative that should serve on the Board, nor does it set forth maximum Board composition or representation requirements.66 Thus, as with the interpretation of ‘‘fair representation’’ with respect to other SROs, the Commission has flexibility in determining what constitutes ‘‘fair representation’’ for purposes of the Board’s composition under Section 15B of the Exchange Act. Based on the constraints of Section 15B(b)(2)(B)(i) noted above, and the Commission’s consideration of ‘‘fair representation’’ in other contexts, the Commission believes that the MSRB’s proposal to ensure that representatives of municipal advisors (that are not associated with a broker, dealer or municipal securities dealer), which, for the first time will be subject to MSRB rulemaking,67 would constitute at least 30% of the directors that may be representatives of the three sub-categories of regulated representatives, is reasonable, and consistent with Section 15B(b)(2)(B) of the Exchange Act.68 3. Other Comments Four commenters discussed the MSRB’s process for determining the Board’s leadership for the next year.69 Three commenters made statements expressing concern about a lack of transparency to this leadership selection process, and stated their belief that the Board’s action was contrary to the goals of the Dodd-Frank Act and disenfranchises the new Board.70 65 See 15 U.S.C. 78o–4(b)(1) (as amended by the Dodd-Frank Act). 66 See id. 67 See 15 U.S.C. 78o–4(b)(2) (as amended by the Dodd-Frank Act). In addition, the Dodd-Frank Act amended Section 15B of the Exchange Act to require municipal advisors to register with the Commission as of October 1, 2010. See Securities Exchange Act Release No. 62824 (September 1, 2010), 75 FR 54465 (September 8, 2010) (adopting interim final temporary Rule 15Ba2–6T under the Exchange Act to require the temporary registration of municipal advisors on Form MA–T). 68 See 15 U.S.C. 78o–4(b)(2)(B) (as amended by the Dodd-Frank Act). 69 See NAIPFA Letter; GFOA Letter; Fieldman Letter; AGFS Letter II. 70 See NAIPFA Letter; Fieldman Letter; AGFS Letter II. E:\FR\FM\06OCN1.SGM 06OCN1 Federal Register / Vol. 75, No. 193 / Wednesday, October 6, 2010 / Notices mstockstill on DSKH9S0YB1PROD with NOTICES Another commenter also expressed concern with the ‘‘secrecy around the election of officers during this past summer.’’ 71 One commenter recommended ‘‘reversing the July election and allowing the reconstituted public majority Board to determine its leadership.’’ 72 Two commenters suggested that there be substantially more transparency with regard to Board action.73 Although the provisions of the proposed rule change do not directly relate to these matters, the Commission notes that with respect to comments regarding the Board’s election of its officers for the 2011 fiscal year, in its initial response, the MSRB noted that officer elections are governed by MSRB Rule A–5(b), and that the MSRB followed the process set out in that rule.74 In addition, in a supplemental response, the MSRB has agreed to hold a ratification vote with respect to the prior election of the MSRB officers by the newly constituted Board at its first meeting in October.75 In addition, as noted above, the proposal provides that prior to the formation of the Nominating Committee for purposes of nominating potential new members to the Board with terms commencing on October 1, 2011, the Board shall amend the provisions of subsection (c) of Rule A– 3 relating to the composition and procedures of the Nominating Committee to reflect, among other things, the composition of the Board as provided under the Dodd-Frank Act and to assure that the Nominating Committee shall be composed of a majority of public representatives and to assure fair representation of bank representatives, broker-dealer representatives and advisor representatives. With respect to the comments regarding transparency of the Board’s governance process, the MSRB stated that it believes that these processes are 71 See AGFS Letter I. The commenter suggested that the Board release all staff and Board member analyses and communications relating to: (1) the selection of the new officers and Board members, and the composition and structure of committees and advisory groups; (2) the need for regulation of municipal advisors; or (3) contacts with members of Congress and congressional staff members regarding municipal advisor regulation and the composition of the new independent Board. The commenter also opposed the manner in which the Board considers and takes actions with regard to its rules. See also AGFS Letter II (calling for the MSRB to hold open meetings on all rulemaking actions and selection of Board members and officers). 72 See Fieldman Letter. See also GFOA Letter. 73 See AGFS Letter I; Fieldman Letter; AGFS Letter II. 74 See MSRB Response Letter. 75 See MSRB Supplemental Response Letter. VerDate Mar<15>2010 19:00 Oct 05, 2010 Jkt 223001 transparent.76 The MSRB stated, however, that it would take the comments regarding these processes under advisement as its new Board is seated on October 1, 2010.77 III. Discussion and Commission’s Findings The Commission has carefully considered the proposed rule change, the comment letters received, and the MSRB’s responses to the comment letters and finds that the proposed rule change is consistent with the requirements of the Exchange Act and the rules and regulations thereunder applicable to the MSRB.78 In particular, the proposed rule change is consistent with Section 15B(b)(1) of the Act, which requires, among other things, that the Board shall consist of at least eight public representatives (with at least one investor representative, at least one issuer representative, and at least one general public representative) and seven regulated representatives (with at least one broker-dealer representative, at least one bank representative, and at least one advisor representative). The proposed rule change is also consistent with Section 15B(b)(2)(B) of the Act,79 which requires, among other things, that the rules of the Board shall establish fair procedures for the nomination and election of members of the Board and assure fair representation in such nominations and elections of public representatives, broker-dealer representatives, bank representatives, and advisor representatives.80 In the Commission’s view, the proposed composition of the Board is consistent with the requirements of the Exchange Act that there is fair representation on the Board of public representatives, broker-dealer representatives, bank representatives and advisor representatives. In addition, the composition of the Board with respect to advisor representatives will help assure that municipal advisors will have appropriate representation on the Board during this period of transition when, for the first time, municipal advisors will be subject to MSRB rulemaking. The Commission further believes that the proposed two-year ‘‘cooling-off’’ period for public representatives is appropriate because it 76 See MSRB Response Letter; see also MSRB Supplemental Response Letter. 77 See id. 78 In approving this proposed rule change, the Commission notes that it has considered the proposed rule’s impact on efficiency, competition and capital formation. 15 U.S.C. 78c(f). 79 15 U.S.C. 78o–4(b)(2)(B) (as amended by the Dodd-Frank Act). 80 See id. PO 00000 Frm 00120 Fmt 4703 Sfmt 4703 61811 is a minimum requirement for establishing independence and it is consistent with other SRO requirements for establishing independence of board members. The Commission notes that the proposed rule change with respect to the composition of the Board is being implemented as a transitional provision that will be effective for two years, until September 30, 2012. During this period, the MSRB will be able to monitor the effectiveness of the structure of the Board to determine to what extent, if any, proposed changes might be appropriate. The Commission is sensitive to commenters’ concerns regarding fair representation. The Commission notes that the proposal by the MSRB for the establishment of a permanent Board structure must be filed with, and considered by, the Commission pursuant to Section 19(b) of the Exchange Act 81 before the proposal can be effective, as would rules the MSRB seeks to implement with respect to oversight of municipal advisors. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning Amendment No. 1, including whether Amendment No. 1 is consistent with the Exchange Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–MSRB–2010–08 on the subject line. Paper Comments • Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–MSRB–2010–08. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the 81 See E:\FR\FM\06OCN1.SGM 15 U.S.C. 78s(b). 06OCN1 61812 Federal Register / Vol. 75, No. 193 / Wednesday, October 6, 2010 / Notices mstockstill on DSKH9S0YB1PROD with NOTICES Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission’s Public Reference Room, 100 F Street, NE., Washington DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. Copies of such filing also will be available for inspection and copying at the principal office of the MSRB. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–MSRB–2010–08 and should be submitted on or before October 27, 2010. V. Accelerated Approval of Proposed Rule Change, as Modified by Amendment No. 1 The Commission finds good cause for approving the proposed rule change, as modified by Amendment No. 1, before the 30th day after the date of publication in the Federal Register. The Commission notes that the proposal was published for notice and comment, and the Commission received ten comment letters, which comments have been discussed in detail above. Amendment No. 1 proposes to amend proposed Rule A–3(i)(i)(B)(3) to explicitly provide that, of the regulated representatives on the Board, ‘‘at least one, and not less than 30 percent of the total number of regulated representatives, shall be associated with and representative of municipal advisors and shall not be associated with a broker, dealer or a municipal securities dealer.’’ The Commission notes that in the MSRB’s Response Letter, the MSRB expressed its expectation that the advisor representatives would be ‘‘advisors that are not affiliated with broker-dealers or banks.’’ 82 Amendment No. 1 provides additional clarification that the advisor representatives on the Board during the transitional period will be independent advisors not associated with brokers, dealers or municipal securities dealers. In addition, Amendment No. 1 proposes that, with respect to the formation of the Nominating Committee for purposes of nominating potential new members of the Board with terms commencing on October 1, 2011, the Board shall amend the provisions of 82 See MSRB Response Letter. VerDate Mar<15>2010 19:00 Oct 05, 2010 Jkt 223001 section (c) of Rule A–3 relating to the composition and procedures of the Nominating Committee, among other things, to assure that the Nominating Committee shall be composed of a majority of public representatives and to assure fair representation of bank representatives, broker-dealer representatives and advisor representatives. Section 15B(b)(2)(B) of the Exchange Act provides that the MSRB’s rules must, at a minimum, ‘‘establish fair procedures for the nomination and election of members of the Board and assure fair representation in such nominations and elections of public representatives, broker dealer representatives, bank representatives, and advisor representatives.’’ 83 In addition, as discussed above, Section 15B(b)(2)(B)(i) of the Exchange Act provides that the MSRB’s rules shall provide that the number of public representatives of the Board shall at all times exceed the total number of regulated representatives. Amendment No. 1 proposes that the Nominating Committee would reflect the new composition of the Board with a majority public representation and with fair representation of bank representatives, broker-dealer representatives and advisor representatives. The Commission believes that Amendment No. 1 is consistent with the requirements of the Exchange Act and finds good cause, consistent with Section 19(b)(2) of the Act,84 to approve the proposed rule change, as modified by Amendment No. 1, on an accelerated basis. VI. Conclusion For the foregoing reasons, the Commission finds that the proposed rule change, as modified by Amendment No. 1, is consistent with the requirements of the Exchange Act and the rules and regulations thereunder applicable to the MSRB, and in particular, Sections 15B(b)(1) 85 and 15B(b)(2) 86 of the Exchange Act. It is therefore ordered that, pursuant to Section 19(b)(2) of the Exchange Act,87 the proposed rule change (SR– MSRB–2010–08), as modified by Amendment No. 1 be, and it hereby is, approved on an accelerated basis. 83 15 U.S.C. 78o–4(b)(2)(B) (as amended by the Dodd-Frank Act). 84 15 U.S.C. 78s(b)(2). 85 15 U.S.C. 78o–4(b)(1) (as amended by the Dodd-Frank Act). 86 15 U.S.C. 78o–4(b)(2) (as amended by the Dodd-Frank Act). 87 15 U.S.C. 78s(b)(2). PO 00000 Frm 00121 Fmt 4703 Sfmt 4703 By the Commission. Florence E. Harmon, Deputy Secretary. [FR Doc. 2010–25108 Filed 10–5–10; 8:45 am] BILLING CODE 8010–01–P DEPARTMENT OF TRANSPORTATION Office of the Secretary [DOT Docket No. DOT–OST–2010–0074] Future of Aviation Advisory Committee (FAAC) U.S. Department of Transportation, Office of the Secretary of Transportation. ACTION: The Future of Aviation Advisory Committee (FAAC); Notice of Meeting. AGENCY: The Department of Transportation, Office of the Secretary of Transportation, announces the fourth meeting of the FAAC, which will be held in the Los Angeles area. This notice announces the date, time and location of the meeting, which will be open to the public. The purpose of FAAC is to provide advice and recommendations to the Secretary of Transportation to ensure the competitiveness of the U.S. aviation industry and its capability to effectively manage the evolving transportation needs, challenges, and opportunities of the global economy. DATES: The meeting will be held on October 20, 2010, from 8:30 a.m. to 4:30 p.m. ADDRESSES: The meeting will be held at the offices of the Federal Aviation Administration’s Western-Pacific Region Headquarters Building, 15000 Aviation Boulevard, Lawndale, CA 90261. SUMMARY: FOR FURTHER INFORMATION CONTACT: Pamela Hamilton, Designated Federal Official, Future of Aviation Advisory Committee, 202–267–9677, FAAC@dot.gov. The advisory committee will also meet on the following date this year: • December 15 Location: U.S. Department of Transportation Headquarters, West Atrium, 1200 New Jersey Avenue, SE., Washington, DC 20590. Members of the public may review the FAAC charter and minutes of FAAC meetings at https://www.regulations.gov in docket number DOT–OST–2010– 0074 or the FAAC Web site at https:// www.dot.gov/faac. SUPPLEMENTARY INFORMATION: E:\FR\FM\06OCN1.SGM 06OCN1

Agencies

[Federal Register Volume 75, Number 193 (Wednesday, October 6, 2010)]
[Notices]
[Pages 61806-61812]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-25108]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63025; File No. SR-MSRB-2010-08]


Self-Regulatory Organizations; Municipal Securities Rulemaking 
Board; Notice of Filing of Amendment No. 1 to and Order Granting 
Accelerated Approval of a Proposed Rule Change, as Modified by 
Amendment No. 1, to Amend Rule A-3, on Membership on the Board, To 
Comply With the Dodd-Frank Wall Street Reform and Consumer Protection 
Act

September 30, 2010.
    On August 27, 2010, the Municipal Securities Rulemaking Board 
(``Board'' or ``MSRB'') filed with the Securities and Exchange 
Commission (``Commission''), pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Exchange Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to amend MSRB Rule A-3, on 
membership on the Board, to comply with the requirements of the Dodd-
Frank Wall Street Reform and Consumer Protection Act (``Dodd-Frank 
Act'').\3\ The Commission published the proposed rule change for 
comment in the Federal Register on September 8, 2010.\4\ The Commission 
received ten comment letters, the MSRB's response, and a supplemental 
response to the MSRB's response.\5\ On September 30, 2010, the

[[Page 61807]]

MSRB filed Amendment No. 1 to the proposed rule change.\6\ This notice 
and order provide notice of Amendment No.1 to the proposed rule change 
and approves the proposed rule change, as modified by Amendment No. 1, 
on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Public Law No. 111-203, 124 Stat. 1376 (2010).
    \4\ See Securities Exchange Act Release No. 62827 (September 1, 
2010), 75 FR 54673.
    \5\ See e-mail from Peter Shapiro, Managing Director, Swap 
Financial Group, LLC, dated September 14, 2010 (``Swap Financial 
Letter''); email from Kevin Olson, dated September 17, 2010 (``Olson 
Letter''); letter from Mike Nicholas, Chief Executive Officer, Bond 
Dealers of America, dated September 17, 2010 (``Bond Dealers 
Letter''); letter from Robert W. Doty, President, American 
Governmental Financial Services, dated September 21, 2010 (``AGFS 
Letter I''); letter from Joy A. Howard, Principal, WM Financial 
Strategies, dated September 21, 2010 (``WM Financial Letter''); 
letter from Steve Apfelbacher, President, National Association of 
Independent Public Finance Advisors, dated September 22, 2010 
(``NAIPFA Letter''); letter from Michael Decker, Managing Director 
and Co-Head, Municipal Securities Division, Securities Industry and 
Financial Markets Association, dated September 22, 2010 (``SIFMA 
Letter''); letter from Susan Gaffney, Director, Federal Liaison 
Center, Government Finance Officers Association, dated September 22, 
2010 (``GFOA Letter''); letter from Thomas M. DeMars, Managing 
Principal, Fieldman, Rolapp & Associates, dated September 22, 2010 
(``Fieldman Letter''); letter from Lawrence P. Sandor, Senior 
Associate General Counsel, MSRB, dated September 23, 2010 (``MSRB 
Response Letter''); email from Robert W. Doty, President, American 
Governmental Financial Services, dated September 27, 2010 (``AGFS 
Letter II''); letter from Lawrence P. Sandor, Senior Associate 
General Counsel, MSRB, dated September 30, 2010 (``MSRB Supplemental 
Response Letter'').
    \6\ In Amendment No. 1, to address concerns raised by 
commenters, MSRB proposes that advisor representatives (as defined 
below) shall not be associated with a broker, dealer or municipal 
securities dealer. In addition, in Amendment No. 1, the MSRB 
proposes to amend Rule A-3(i)(iv) to provide that on or after 
October 1, 2010 the MSRB will propose amendments to its rules that 
would assure that for future board elections that the Nominating 
Committee will be composed of a majority of public representatives 
and that would assure fair representation of bank representatives, 
broker-dealer representatives and advisor representatives (as such 
terms are defined below) on the Nominating Committee.
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I. Background and Description of the Proposal

A. Dodd-Frank Act

    The Dodd-Frank Act, among other things, amended provisions of 
Section 15B of the Exchange Act governing the nomination, election and 
composition of members of the Board.\7\ These amendments to Section 15B 
of the Exchange Act will be effective on October 1, 2010.\8\
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    \7\ See Section 975(b) of the Dodd-Frank Act.
    \8\ See Section 975(i) of the Dodd-Frank Act.
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    Prior to enactment of the Dodd-Frank Act, Section 15B(b)(1) of the 
Exchange Act provided that the Board must be composed initially of 
fifteen members appointed by the Commission.\9\ In addition, the 
Exchange Act required that the initial members of the Board must 
consist of five individuals who are public representatives,\10\ five 
individuals who are broker-dealer representatives \11\ and five 
individuals who are bank representatives.\12\ Consistent with the 
requirements of the Exchange Act, the MSRB adopted Rule A-3 regarding 
membership on the Board. MSRB Rule A-3, among other things, provided 
that the Board shall be composed of 15 members, at all times equally 
divided among public representatives, broker-dealer representatives and 
bank representatives.
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    \9\ Section 15B(b)(1) of the Exchange Act also provided that 
``[p]rior to the expiration of the terms of office of the initial 
members of the Board, an election shall be held under rules adopted 
by the Board (pursuant to subsection (b)(2)(B) of this section) of 
the members to succeed such initial members.''
    \10\ Section 15B(b)(1)(A) defined the term ``public 
representatives'' to mean 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 municipal broker, 
municipal dealer or municipal securities dealer), 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.
    \11\ Section 15B(b)(1)(B) defined the term ``broker-dealer 
representatives'' to mean individuals who are associated with and 
representative of municipal securities brokers and municipal 
securities dealers which are not banks or subsidiaries or 
departments or divisions of banks.
    \12\ Section 15B(b)(1)(C) defined the term ``bank 
representatives'' to mean individuals who are associated with and 
representative of municipal securities dealers which are banks or 
subsidiaries or departments or divisions of banks.
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    The Dodd-Frank Act amended Section 15B(b)(1) of the Exchange Act to 
provide that the members of the Board shall consist of two separate 
groups: eight ``public representatives'' and seven ``regulated 
representatives.'' Section 15B(b)(1)(A) of the Exchange Act defines 
``public representatives'' to mean individuals who are independent of 
any municipal securities broker, municipal securities dealer, or 
municipal advisor, at least one of whom shall be representative of 
institutional or retail municipal securities investors (``investor 
representative''), at least one of whom shall be representative of 
municipal entities (``issuer representative''), and at least one of 
whom shall be representative of the public with knowledge of or 
experience in the municipal industry (``general public 
representative'').\13\ Section 15B(b)(1)(B) of the Exchange Act defines 
``regulated representatives'' to mean individuals who are associated 
with a broker, dealer, municipal securities dealer, or municipal 
advisor, including at least one individual who is associated with and 
representative of brokers, dealers, or municipal securities dealers 
that are not banks or subsidiaries or departments or divisions of banks 
(``broker-dealer representative''), at least one individual who is 
associated with and representative of municipal securities dealers 
which are banks or subsidiaries or departments or divisions of banks 
(``bank representative''), and at least one individual who is 
associated with a municipal advisor (``advisor representative'').\14\ 
In addition, Section 15B(b)(1) of the Exchange Act provides that each 
member of the Board must be knowledgeable of matters related to the 
municipal securities markets.\15\
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    \13\ See 15 U.S.C. 78o-4(b)(1)(A) (as amended by the Dodd-Frank 
Act).
    \14\ See 15 U.S.C. 78o-4(b)(1)(B) (as amended by the Dodd-Frank 
Act).
    \15\ See 15 U.S.C. 78o-4(b)(1) (as amended by the Dodd-Frank 
Act).
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    The Dodd-Frank Act also amended Section 15B(b)(2)(B) of the 
Exchange Act to provide that the Board shall establish fair procedures 
for the nomination and election of the members of the Board, and shall 
assure fair representation in such nominations and elections of public 
representatives, broker-dealer representatives, bank representatives 
and advisor representatives.\16\ Further, the Dodd-Frank Act amended 
Section 15B(b)(2)(B) to provide that the Board shall establish rules 
that: Set forth requirements regarding the independence of public 
representatives; provide that the number of public representatives at 
all times exceed the number of regulated representatives; and provide 
that membership on the Board is at all times as evenly divided as 
possible between public and regulated representatives. In addition, the 
Dodd-Frank Act amended Section 15B(b)(2)(B) to provide that the MSRB, 
by rule, may increase the number of members on the Board, provided that 
such number is an odd number.\17\
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    \16\ See 15 U.S.C. 78o-4(b)(2)(B) (as amended by the Dodd-Frank 
Act).
    \17\ See id.
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B. Proposal

    To implement the terms of the Dodd-Frank Act by the effective date 
of October 1, 2010, the MSRB proposes to add subsection (i) to Rule A-3 
to implement, among other things, a transitional provision for the 
Board's fiscal year commencing October 1, 2010 that would increase the 
size of the Board from 15 members to 21 members (who are knowledgeable 
of matters related to the municipal securities markets), with 11 public 
representatives and 10 regulated representatives. This transitional 
provision would be in effect until September 30, 2012. In addition, 
prior to October 1, 2010, the MSRB proposes to elect 11 new Board 
members, of which eight would be public representatives and three would 
be municipal advisor representatives. The MSRB proposes that the terms 
of these new Board members would expire on September 30, 2012.
    Of the 11 public representatives, the MSRB proposes that at least 
one would be an investor representative, at least one would be an 
issuer representative, and at least one would be a general public 
representative. With respect to the 10 regulated representatives, the 
MSRB proposes that at least one would be a broker-dealer 
representative, at least one would be a bank representative, and at 
least one (but not less than 30% of the total number of regulated 
representatives) would be an advisor representative, who shall not be

[[Page 61808]]

associated with a broker, dealer or municipal securities dealer.
    For purposes of determining whether an individual is a ``public 
representative,'' the MSRB proposes to add Rule A-3(h), among other 
things, to define the term ``independent of any municipal securities 
broker, municipal securities dealer, or municipal advisor'' to mean the 
individual has ``no material business relationship'' with any municipal 
securities broker, municipal securities dealer, or municipal advisor. 
The term ``no material business relationship,'' in turn, would mean 
that, at a minimum, the individual is not and, within the last two 
years, was not associated with a municipal securities broker, municipal 
securities dealer, or municipal advisor, and that the individual does 
not have a relationship with any municipal securities broker, municipal 
securities dealer, or municipal advisor, whether compensatory or 
otherwise, that reasonably could affect the independent judgment or 
decision making of the individual. The Board, or by delegation, its 
Nominating Committee, could also determine that additional 
circumstances involving the individual could constitute a ``material 
business relationship'' with a municipal securities broker, municipal 
securities dealer, or municipal advisor.
    To help ensure a fair nomination process, the MSRB also proposes, 
in its transitional provision under MSRB Rule A-3(i), to allow the 
Nominating Committee to solicit nominations for municipal advisor 
representatives by publishing a notice in a financial journal having 
general national circulation among members of the municipal securities 
industry on or after enactment of the Dodd-Frank Act. The proposal 
provides that the Nominating Committee shall accept recommendations for 
14 days following the date of publication of such notice and shall make 
the names publicly available.\18\
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    \18\ The Dodd-Frank Act was signed into law on July 21, 2010. 
The MSRB published a notice on July 22, 2010, pursuant to which it 
received a number of additional recommendations for persons to serve 
as municipal advisor representatives on the Board. See MSRB Notice 
2010-22 (July 22, 2010).
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    The proposal also provides that prior to the formation of the 
Nominating Committee for purposes of nominating potential new members 
to the Board with terms commencing on October 1, 2011, the Board shall 
amend the provisions of subsection (c) of Rule A-3 relating to the 
composition and procedures of the Nominating Committee to reflect the 
composition of the Board as provided under the Dodd-Frank Act, to 
assure that the Nominating Committee shall be composed of a majority of 
public representatives and to assure fair representation of bank 
representatives, broker-dealer representatives and advisor 
representatives, and ``to reflect such other considerations consistent 
with the provisions of the Act and the Dodd-Frank Act as the Board 
shall determine are appropriate.''

II. Discussion of Comments and MSRB's Response

    The Commission received ten comment letters and the MSRB's 
responses.\19\ The MSRB provided two responses to the comments.\20\ The 
comments and the MSRB's responses are discussed in greater detail 
below.
---------------------------------------------------------------------------

    \19\ See supra note 5.
    \20\ See MSRB Response Letter; see also MSRB Supplemental 
Response Letter.
---------------------------------------------------------------------------

1. Comments Regarding Requirements Relating to Independence of Public 
Representatives

    Some commenters disagreed with the MSRB's proposed definition of 
the term ``independent of any municipal securities broker, municipal 
securities dealer, or municipal advisor.'' \21\ In particular, these 
commenters did not agree with the proposed definition of ``no material 
business relationship'' and the requirement that an individual is not 
and, within the last two years, has not been, associated with a 
municipal securities broker, municipal securities dealer, or municipal 
advisor.\22\ One commenter suggested that a five-year ``cooling off '' 
period would be more appropriate.\23\ Another commenter stated that 
under the proposed definition of the term ``independent of any 
municipal securities broker, municipal securities dealer, or municipal 
advisor,'' it is unclear whether any independent municipal advisor 
would be appointed to the Board because potentially 100% of the Board 
members could be, or could have been, associated with, or employed by, 
a municipal securities broker or dealer.\24\ This commenter stated that 
it believes that an individual who has been affiliated with, or 
employed by, a municipal securities broker, dealer, or municipal 
advisor cannot be truly independent, regardless of when the affiliation 
or employment ended.\25\ Thus, the commenter recommended that public 
representatives of the Board should consist solely of individuals ``who 
have never been associated with, employed by and do not otherwise 
possess a material business relationship with a [sic] municipal 
securities brokers, municipal securities dealers, or municipal 
advisors.'' \26\
---------------------------------------------------------------------------

    \21\ See AGFS Letter I; WM Financial Letter.
    \22\ See id.
    \23\ See AGFS Letter I.
    \24\ See WM Financial Letter.
    \25\ See id.
    \26\ See id.
---------------------------------------------------------------------------

    In response to these comments, the MSRB stated that it believes 
that ``the two-year cooling off period is appropriate as a standard for 
independence'' and referenced the one year cooling-off period imposed 
by other self-regulatory organizations (``SROs'') in determining the 
independence of public members.\27\ Further, the MSRB noted that the 
Board or the Nominating Committee could determine whether other 
circumstances involving the individual would constitute a ``material 
business relationship'' that would result in the person not being 
viewed as independent.\28\
---------------------------------------------------------------------------

    \27\ See MSRB Response Letter; see also infra note 30.
    \28\ See MSRB Response Letter.
---------------------------------------------------------------------------

    The Commission understands commenters' concerns regarding whether a 
public representative would be ``independent of any municipal 
securities broker, municipal securities dealer, or municipal advisor'' 
if the public representative previously has been associated with a 
municipal securities broker, municipal securities dealer, or municipal 
advisor, even where such association occurred at least two years prior 
to membership on the Board. Under Section 15B(b)(2)(B)(iv) of the 
Exchange Act,\29\ the MSRB must have rules establishing requirements 
regarding the independence of public representatives. The Commission 
believes the proposed requirements in Rule A-3(h) are consistent with 
the requirements of the Exchange Act and the rules and regulations 
thereunder applicable to the MSRB. In particular, as noted by the MSRB 
in the MSRB Response Letter, the proposal is consistent with and 
indeed, stricter than, cooling-off periods required by other SROs in 
determining whether public members are independent.\30\ Further, the 
proposed two-year cooling off period is a minimum requirement and, as 
noted by the MSRB in the MSRB Response Letter, the proposal would allow 
the Board, or by delegation, its Nominating Committee, to determine

[[Page 61809]]

additional circumstances involving the individual that would constitute 
a ``material business relationship'' with a municipal securities 
broker, municipal securities dealer, or municipal advisor.
---------------------------------------------------------------------------

    \29\ 15 U.S.C. 78o--4(b)(2)(B)(iv) (as amended by the Dodd-Frank 
Act).
    \30\ See Independence Policy of the NYSE Euronext Board of 
Directors (stating a ``Director is not independent if he or she is, 
or within the last year was, or has an immediate family member who 
is, or within the last year was a Member, allied member or allied 
person or approved person * * *'').
---------------------------------------------------------------------------

2. Comments Regarding Composition of the Board

    Several commenters expressed concerns that the representation of 
municipal advisors on the proposed Board is inadequate.\31\ For 
example, one commenter noted that during the transitional period (from 
October 1, 2010 to September 30, 2012), advisor representatives would 
constitute less than 15% of the entire Board and consequently may be 
outnumbered by broker-dealer representatives and bank representatives 
on the Board.\32\ This commenter suggested that four out of the ten 
regulated representatives should be advisor representatives and that 
these four advisor representatives should represent a variety of 
advisors.\33\ Another commenter recommended that five out of the ten 
regulated representatives should be advisor representatives, four of 
whom would be independent municipal advisors who are not, and have not 
been, associated with, or employed by, a municipal securities broker, 
dealer, bank or underwriter.\34\ This commenter, however, noted that 
even with this increase in the number of municipal advisor 
representatives, such representatives would constitute only 19% of the 
entire Board.\35\ Another commenter suggested that the number of 
independent advisor representatives on the Board should be equal to the 
number of bank and broker-dealer representatives on the Board.\36\ One 
commenter stated that due to the different services offered by 
municipal advisors, a strict limitation on the number of advisor 
representatives could not adequately represent this diversity.\37\ Five 
commenters stated that advisor representatives should be independent of 
bank and broker-dealer representatives because bank dealers and broker-
dealers are already represented on the Board.\38\
---------------------------------------------------------------------------

    \31\ See NAIPFA Letter; Swap Financial Group Letter; AGFS Letter 
I; AGFS Letter II; WM Financial Letter; see also GFOA Letter.
    \32\ See Swap Financial Group Letter.
    \33\ See id. The commenter suggested that the four advisor 
representatives should represent each of the following categories: 
(1) General financial advisory firm with a national scope; (2) 
regional financial advisory firm whose client base is principally 
governmental entities; (3) financial advisory firm whose client base 
is obligors who borrow through tax-exempt conduit agencies; and (4) 
swap or financial products advisor.
    \34\ See WM Financial Letter.
    \35\ See id.
    \36\ See GFOA Letter; see also AGFS Letter II (stating that 
independent advisor representatives should be equal in numbers to 
broker-dealer representatives and bank representatives as municipal 
securities dealers are in an adverse role in relation to municipal 
issuers, while municipal advisors represent only the municipal 
issuers).
    \37\ See AGFS Letter I.
    \38\ See WM Financials Letter; NAIPFA Letter; GFOA Letter; 
Fieldman letter; AGFS Letter II.
---------------------------------------------------------------------------

    One commenter stated that the Board should not require that at 
least 30% of regulated representatives be advisor representatives.\39\ 
This commenter stated that the proposal goes beyond the requirements of 
the Dodd-Frank Act and effectively increases the minimum number of 
advisor representatives.\40\ This commenter further stated that 
advisors who work for dealers should be eligible as advisor 
representatives.\41\ Another commenter generally supported the proposed 
amendments to Rule A-3, but suggested that after the transitional 
period, the Board should consider reducing its size back to 15 members 
and, at that time, reduce the number of advisor representatives on the 
Board to less than 30% of the regulated representatives.\42\ This 
commenter further noted that the Board should not establish, as a 
matter of policy, that advisors make up at least 30% of regulated 
representatives, especially because the Board has not established a 
minimum number of dealer or bank representatives.\43\ This commenter 
also stated that it believes that the requirement that at least one 
member of the Board be an advisor representative can be satisfied by 
representatives of ``independent'' municipal advisors or of dealers or 
banks whose firms also provide municipal advisory services.\44\
---------------------------------------------------------------------------

    \39\ See BDA Letter.
    \40\ See id.
    \41\ See id.
    \42\ See SIFMA Letter.
    \43\ See id.
    \44\ See id.
---------------------------------------------------------------------------

    One commenter suggested that the proposed MSRB Board does not 
provide adequate issuer representation.\45\ This commenter recommended 
that the public representatives on the Board be comprised of four 
issuers, four investors, and three general public members.\46\ The 
commenter believes that the issuer members should represent various-
sized state and local governments.\47\ This commenter also recommended 
that ``[a]s the MSRB determines the composition of future boards, these 
numbers--as a percentage of the total number of board members--should 
not be altered.'' \48\ Another commenter stated that the Board should 
be comprised of five investor representatives, five issuer 
representatives, and five vendor representatives.\49\
---------------------------------------------------------------------------

    \45\ See GFOA Letter; see also NAIPFA Letter (stating that 
``fair representation also means that the issuers of municipal 
securities are appropriately represented'').
    \46\ See GFOA Letter.
    \47\ See id.
    \48\ See id.
    \49\ See Olson Letter.
---------------------------------------------------------------------------

    In its response, the MSRB stated that it believes that, during the 
transitional period, 30% regulatory representation on the Board for 
municipal advisors is appropriate because it will ensure fair 
representation of such entities, will assist the Board in its 
rulemaking process with respect to municipal advisors and ``will inform 
the Board's decisions regarding other municipal advisory activities 
while not detracting from the Board's ability to continue its existing 
rulemaking duties with respect to broker-dealer and bank activity in 
the municipal securities markets.'' \50\ The MSRB also noted that, 
during the transitional period, the three municipal advisors on the 
Board are expected to be ``advisors that are not affiliated with 
broker-dealers or banks.'' \51\
---------------------------------------------------------------------------

    \50\ See MSRB Response Letter.
    \51\ See id.
---------------------------------------------------------------------------

    At the same time, the MSRB noted that it does not believe that 
setting the minimum advisor representation at 30% of regulated 
representatives is too low.\52\ In support, the MSRB noted the 
processes it has, or will have, in place, to maximize municipal advisor 
participation in the rulemaking process.\53\ The MSRB also stated that, 
having reviewed the composition requirements of other SROs, ``it is 
comfortable that the proposed size and composition of the MSRB 
represents best practices in SRO governance and will be effective in 
meeting the full range of obligations that the MSRB will be undertaking 
beginning on October 1, 2010.'' \54\
---------------------------------------------------------------------------

    \52\ See id.
    \53\ See id. (noting, for example, the establishment of a new 
advisory council to help address municipal advisor issues).
    \54\ See id.
---------------------------------------------------------------------------

    With respect to comments regarding the composition of public 
representatives on the Board, the MSRB stated that ``it is comfortable 
that the expanded number of public representatives will provide ample 
opportunity for municipal entity representation on the Board at levels 
above those that have historically occurred under the prior Board 
composition formulation that limited public representation to only five 
members.'' \55\ In addition, with respect to the one commenter that 
suggested that the Board should be comprised of five

[[Page 61810]]

investor representatives, five issuer representatives, and five vendor 
representatives,\56\ the MSRB noted that such composition formulation 
would not comply with the Dodd-Frank Act, which requires that of the 
public representatives, at least one must be an investor 
representative, at least one must be an issuer representative, and at 
least one must be a general public representative.
---------------------------------------------------------------------------

    \55\ See MSRB Response Letter.
    \56\ See Olson Letter.
---------------------------------------------------------------------------

    The MSRB noted that the Board is aware that municipal advisors are 
not homogeneous and is committed to seeking out all categories of 
members based on various criteria.\57\ In addition, the MSRB stated 
that the proposal would establish the Board composition for a two year 
transitional period only and, at the end of the transitional period, 
the MSRB will be in a better position to make ``long-term decisions'' 
regarding representation, size and related matters.\58\
---------------------------------------------------------------------------

    \57\ See MSRB Response Letter.
    \58\ See id.
---------------------------------------------------------------------------

    The Commission believes that the proposal is consistent with the 
requirements of the Exchange Act, and the rules and regulations 
thereunder applicable to the MSRB, including the fair representation 
requirements of the Exchange Act. Section 15B(b)(2)(B) of the Exchange 
Act requires, among other things, that the rules of the Board establish 
fair procedures for the nomination and election of members of the Board 
and assure fair representation in such nominations and elections of 
public representatives, broker-dealer representatives, bank 
representatives, and advisor representatives.\59\ Section 
15B(b)(2)(B)(i) of the Exchange Act provides that the number of public 
representatives of the Board must at all times exceed the total number 
of regulated representatives.\60\ The MSRB proposes that the Board 
consist of 11 public representatives and 10 regulated representatives. 
Of those 10 regulated representatives, the MSRB proposes that at least 
one, and not less than 30%, shall be advisor representatives.
---------------------------------------------------------------------------

    \59\ See 15 U.S.C. 78o-4(b)(2)(B) (as amended by the Dodd-Frank 
Act).
    \60\ See 15 U.S.C. 78o-4(b)(2)(B)(i) (as amended by the Dodd-
Frank Act).
---------------------------------------------------------------------------

    Previously, the Commission has considered whether an SRO's proposed 
governance rules are consistent with the Exchange Act's requirements 
under Sections 6 and 15A for fair representation of SRO members 
generally.\61\ For example, the Commission has approved an SRO's 
governance rules that require that the SRO's members as a whole be able 
select at least 20% of the total number of directors of the exchange's 
or association's board.\62\ In addition, the Commission has previously 
found SRO rules that provide sub-categories of regulated persons with 
the right to select a specified number of directors to be consistent 
with the Exchange Act.\63\
---------------------------------------------------------------------------

    \61\ Section 6(b)(3) of the Exchange Act provides that: ``An 
exchange may not be registered as a national securities exchange 
unless the Commission determines that * * * (3) The rules of the 
exchange assure fair representation of its members in its selection 
of its directors and administration of its affairs and provide that 
one or more directors shall be representative of issuers and 
investors and not be associated with a member of the exchange, 
broker, or dealer.'' 15 U.S.C. 78f(b)(3). Section 15A(b)(4) of the 
Exchange Act contains an identical requirement with respect to the 
rules of a national securities association. See 15 U.S.C. 78o-
3(b)(4).
    \62\ See, e.g., Securities Exchange Act Release No. 58324 
(August 7, 2008), 73 FR 46936 (August 12, 2008) (stating that ``the 
requirement under BSE By-Laws that at least 20% of the BSE Directors 
represent members * * * [is] designed to ensure the fair 
representation of BSE members on the BSE Board''); Securities 
Exchange Act Release No. 53128 (January 13, 2006), 71 FR 3550 
(January 23, 2006) (stating that ``the requirement in [Nasdaq's] By-
Laws that twenty percent of the directors be `Member Representative 
Directors' * * * provides for the fair representation of members in 
the election of directors * * * consistent with the requirement in 
Section 6(b)(3) of the Exchange Act''); Securities Exchange Act 
Release No. 48946 (December 17, 2003), 68 FR 74678 (December 24, 
2003) (stating that the amended Constitution of the New York Stock 
Exchange, which gives Exchange members the ability to nominate no 
less than 20% of the directors on the Board, satisfies the Section 
6(b)(3) fair representation requirement); see also Securities 
Exchange Act Release No. 50699 (November 18, 2004), 69 FR 71126 
(December 8, 2004) (stating that ``[c]onsistent with the fair 
representation requirement, the [Commission's] proposed [SRO] 
governance rules would require that the Nominating Committee 
administer a fair process that provides members with the opportunity 
to elect at least 20% of the total number of directors (`member 
candidates'). * * * This `20% standard' for member candidates 
comports with previously-approved SRO rule changes that raised the 
issue of fair representation'').
    \63\ See, e.g., Securities Exchange Act Release No. 56145 (July 
26, 2007), 72 FR 42169 (August 1, 2007) (approving the composition 
of the FINRA (f/k/a NASD) Board of Governors to include three small 
firm Governors, one mid-size firm Governor, and three large-firm 
Governors, elected by members of FINRA according to their 
classification as a small firm, mid-size firm, or large firm).
---------------------------------------------------------------------------

    Under the MSRB proposal, of the 10 regulated representatives, at 
least one would be a broker-dealer representative, at least one would 
be a bank representative, and at least one, and not less than 30% of 
the total regulated representatives (i.e. three out of 10), would be an 
advisor representative. Section 15B(b)(2)(B)(i) of the Exchange Act 
requires the Board to consist of a majority of public representatives, 
leaving a minority of the Board available to achieve ``fair 
representation'' of the three sub-categories of regulated 
representatives.\64\ Accordingly, ``fair representation'' of each of 
the sub-categories must necessarily mean something less than the 20% 
standard, in relation to an entire board, previously approved by the 
Commission for SRO members generally under Sections 6 and 15A of the 
Exchange Act.
---------------------------------------------------------------------------

    \64\ See 15 U.S.C. 78o-4(b)(2)(B)(i) (as amended by the Dodd-
Frank Act).
---------------------------------------------------------------------------

    The Commission also notes that Section 15B(b)(1) of the Exchange 
Act sets forth minimum representation requirements for bank, broker-
dealer and advisor representatives.\65\ It does not mandate the 
specific number of any class of representative that should serve on the 
Board, nor does it set forth maximum Board composition or 
representation requirements.\66\ Thus, as with the interpretation of 
``fair representation'' with respect to other SROs, the Commission has 
flexibility in determining what constitutes ``fair representation'' for 
purposes of the Board's composition under Section 15B of the Exchange 
Act. Based on the constraints of Section 15B(b)(2)(B)(i) noted above, 
and the Commission's consideration of ``fair representation'' in other 
contexts, the Commission believes that the MSRB's proposal to ensure 
that representatives of municipal advisors (that are not associated 
with a broker, dealer or municipal securities dealer), which, for the 
first time will be subject to MSRB rulemaking,\67\ would constitute at 
least 30% of the directors that may be representatives of the three 
sub-categories of regulated representatives, is reasonable, and 
consistent with Section 15B(b)(2)(B) of the Exchange Act.\68\
---------------------------------------------------------------------------

    \65\ See 15 U.S.C. 78o-4(b)(1) (as amended by the Dodd-Frank 
Act).
    \66\ See id.
    \67\ See 15 U.S.C. 78o-4(b)(2) (as amended by the Dodd-Frank 
Act). In addition, the Dodd-Frank Act amended Section 15B of the 
Exchange Act to require municipal advisors to register with the 
Commission as of October 1, 2010. See Securities Exchange Act 
Release No. 62824 (September 1, 2010), 75 FR 54465 (September 8, 
2010) (adopting interim final temporary Rule 15Ba2-6T under the 
Exchange Act to require the temporary registration of municipal 
advisors on Form MA-T).
    \68\ See 15 U.S.C. 78o-4(b)(2)(B) (as amended by the Dodd-Frank 
Act).
---------------------------------------------------------------------------

3. Other Comments

    Four commenters discussed the MSRB's process for determining the 
Board's leadership for the next year.\69\ Three commenters made 
statements expressing concern about a lack of transparency to this 
leadership selection process, and stated their belief that the Board's 
action was contrary to the goals of the Dodd-Frank Act and 
disenfranchises the new Board.\70\

[[Page 61811]]

Another commenter also expressed concern with the ``secrecy around the 
election of officers during this past summer.'' \71\ One commenter 
recommended ``reversing the July election and allowing the 
reconstituted public majority Board to determine its leadership.'' \72\ 
Two commenters suggested that there be substantially more transparency 
with regard to Board action.\73\
---------------------------------------------------------------------------

    \69\ See NAIPFA Letter; GFOA Letter; Fieldman Letter; AGFS 
Letter II.
    \70\ See NAIPFA Letter; Fieldman Letter; AGFS Letter II.
    \71\ See AGFS Letter I. The commenter suggested that the Board 
release all staff and Board member analyses and communications 
relating to: (1) the selection of the new officers and Board 
members, and the composition and structure of committees and 
advisory groups; (2) the need for regulation of municipal advisors; 
or (3) contacts with members of Congress and congressional staff 
members regarding municipal advisor regulation and the composition 
of the new independent Board. The commenter also opposed the manner 
in which the Board considers and takes actions with regard to its 
rules. See also AGFS Letter II (calling for the MSRB to hold open 
meetings on all rulemaking actions and selection of Board members 
and officers).
    \72\ See Fieldman Letter. See also GFOA Letter.
    \73\ See AGFS Letter I; Fieldman Letter; AGFS Letter II.
---------------------------------------------------------------------------

    Although the provisions of the proposed rule change do not directly 
relate to these matters, the Commission notes that with respect to 
comments regarding the Board's election of its officers for the 2011 
fiscal year, in its initial response, the MSRB noted that officer 
elections are governed by MSRB Rule A-5(b), and that the MSRB followed 
the process set out in that rule.\74\ In addition, in a supplemental 
response, the MSRB has agreed to hold a ratification vote with respect 
to the prior election of the MSRB officers by the newly constituted 
Board at its first meeting in October.\75\ In addition, as noted above, 
the proposal provides that prior to the formation of the Nominating 
Committee for purposes of nominating potential new members to the Board 
with terms commencing on October 1, 2011, the Board shall amend the 
provisions of subsection (c) of Rule A-3 relating to the composition 
and procedures of the Nominating Committee to reflect, among other 
things, the composition of the Board as provided under the Dodd-Frank 
Act and to assure that the Nominating Committee shall be composed of a 
majority of public representatives and to assure fair representation of 
bank representatives, broker-dealer representatives and advisor 
representatives.
---------------------------------------------------------------------------

    \74\ See MSRB Response Letter.
    \75\ See MSRB Supplemental Response Letter.
---------------------------------------------------------------------------

    With respect to the comments regarding transparency of the Board's 
governance process, the MSRB stated that it believes that these 
processes are transparent.\76\ The MSRB stated, however, that it would 
take the comments regarding these processes under advisement as its new 
Board is seated on October 1, 2010.\77\
---------------------------------------------------------------------------

    \76\ See MSRB Response Letter; see also MSRB Supplemental 
Response Letter.
    \77\ See id.
---------------------------------------------------------------------------

III. Discussion and Commission's Findings

    The Commission has carefully considered the proposed rule change, 
the comment letters received, and the MSRB's responses to the comment 
letters and finds that the proposed rule change is consistent with the 
requirements of the Exchange Act and the rules and regulations 
thereunder applicable to the MSRB.\78\ In particular, the proposed rule 
change is consistent with Section 15B(b)(1) of the Act, which requires, 
among other things, that the Board shall consist of at least eight 
public representatives (with at least one investor representative, at 
least one issuer representative, and at least one general public 
representative) and seven regulated representatives (with at least one 
broker-dealer representative, at least one bank representative, and at 
least one advisor representative). The proposed rule change is also 
consistent with Section 15B(b)(2)(B) of the Act,\79\ which requires, 
among other things, that the rules of the Board shall establish fair 
procedures for the nomination and election of members of the Board and 
assure fair representation in such nominations and elections of public 
representatives, broker-dealer representatives, bank representatives, 
and advisor representatives.\80\
---------------------------------------------------------------------------

    \78\ In approving this proposed rule change, the Commission 
notes that it has considered the proposed rule's impact on 
efficiency, competition and capital formation. 15 U.S.C. 78c(f).
    \79\ 15 U.S.C. 78o-4(b)(2)(B) (as amended by the Dodd-Frank 
Act).
    \80\ See id.
---------------------------------------------------------------------------

    In the Commission's view, the proposed composition of the Board is 
consistent with the requirements of the Exchange Act that there is fair 
representation on the Board of public representatives, broker-dealer 
representatives, bank representatives and advisor representatives. In 
addition, the composition of the Board with respect to advisor 
representatives will help assure that municipal advisors will have 
appropriate representation on the Board during this period of 
transition when, for the first time, municipal advisors will be subject 
to MSRB rulemaking. The Commission further believes that the proposed 
two-year ``cooling-off'' period for public representatives is 
appropriate because it is a minimum requirement for establishing 
independence and it is consistent with other SRO requirements for 
establishing independence of board members.
    The Commission notes that the proposed rule change with respect to 
the composition of the Board is being implemented as a transitional 
provision that will be effective for two years, until September 30, 
2012. During this period, the MSRB will be able to monitor the 
effectiveness of the structure of the Board to determine to what 
extent, if any, proposed changes might be appropriate. The Commission 
is sensitive to commenters' concerns regarding fair representation. The 
Commission notes that the proposal by the MSRB for the establishment of 
a permanent Board structure must be filed with, and considered by, the 
Commission pursuant to Section 19(b) of the Exchange Act \81\ before 
the proposal can be effective, as would rules the MSRB seeks to 
implement with respect to oversight of municipal advisors.
---------------------------------------------------------------------------

    \81\ See 15 U.S.C. 78s(b).
---------------------------------------------------------------------------

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning Amendment No. 1, including whether Amendment No. 1 
is consistent with the Exchange Act. Comments may be submitted by any 
of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-MSRB-2010-08 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-MSRB-2010-08. This file 
number should be included on the subject line if e-mail is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the

[[Page 61812]]

Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for inspection and copying in the 
Commission's Public Reference Room, 100 F Street, NE., Washington DC 
20549, on official business days between the hours of 10 a.m. and 3 
p.m. Copies of such filing also will be available for inspection and 
copying at the principal office of the MSRB. All comments received will 
be posted without change; the Commission does not edit personal 
identifying information from submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-MSRB-2010-08 and should be submitted on 
or before October 27, 2010.

V. Accelerated Approval of Proposed Rule Change, as Modified by 
Amendment No. 1

    The Commission finds good cause for approving the proposed rule 
change, as modified by Amendment No. 1, before the 30th day after the 
date of publication in the Federal Register. The Commission notes that 
the proposal was published for notice and comment, and the Commission 
received ten comment letters, which comments have been discussed in 
detail above. Amendment No. 1 proposes to amend proposed Rule A-
3(i)(i)(B)(3) to explicitly provide that, of the regulated 
representatives on the Board, ``at least one, and not less than 30 
percent of the total number of regulated representatives, shall be 
associated with and representative of municipal advisors and shall not 
be associated with a broker, dealer or a municipal securities dealer.'' 
The Commission notes that in the MSRB's Response Letter, the MSRB 
expressed its expectation that the advisor representatives would be 
``advisors that are not affiliated with broker-dealers or banks.'' \82\ 
Amendment No. 1 provides additional clarification that the advisor 
representatives on the Board during the transitional period will be 
independent advisors not associated with brokers, dealers or municipal 
securities dealers.
---------------------------------------------------------------------------

    \82\ See MSRB Response Letter.
---------------------------------------------------------------------------

    In addition, Amendment No. 1 proposes that, with respect to the 
formation of the Nominating Committee for purposes of nominating 
potential new members of the Board with terms commencing on October 1, 
2011, the Board shall amend the provisions of section (c) of Rule A-3 
relating to the composition and procedures of the Nominating Committee, 
among other things, to assure that the Nominating Committee shall be 
composed of a majority of public representatives and to assure fair 
representation of bank representatives, broker-dealer representatives 
and advisor representatives. Section 15B(b)(2)(B) of the Exchange Act 
provides that the MSRB's rules must, at a minimum, ``establish fair 
procedures for the nomination and election of members of the Board and 
assure fair representation in such nominations and elections of public 
representatives, broker dealer representatives, bank representatives, 
and advisor representatives.'' \83\ In addition, as discussed above, 
Section 15B(b)(2)(B)(i) of the Exchange Act provides that the MSRB's 
rules shall provide that the number of public representatives of the 
Board shall at all times exceed the total number of regulated 
representatives. Amendment No. 1 proposes that the Nominating Committee 
would reflect the new composition of the Board with a majority public 
representation and with fair representation of bank representatives, 
broker-dealer representatives and advisor representatives.
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    \83\ 15 U.S.C. 78o-4(b)(2)(B) (as amended by the Dodd-Frank 
Act).
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    The Commission believes that Amendment No. 1 is consistent with the 
requirements of the Exchange Act and finds good cause, consistent with 
Section 19(b)(2) of the Act,\84\ to approve the proposed rule change, 
as modified by Amendment No. 1, on an accelerated basis.
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    \84\ 15 U.S.C. 78s(b)(2).
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VI. Conclusion

    For the foregoing reasons, the Commission finds that the proposed 
rule change, as modified by Amendment No. 1, is consistent with the 
requirements of the Exchange Act and the rules and regulations 
thereunder applicable to the MSRB, and in particular, Sections 
15B(b)(1) \85\ and 15B(b)(2) \86\ of the Exchange Act.
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    \85\ 15 U.S.C. 78o-4(b)(1) (as amended by the Dodd-Frank Act).
    \86\ 15 U.S.C. 78o-4(b)(2) (as amended by the Dodd-Frank Act).
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    It is therefore ordered that, pursuant to Section 19(b)(2) of the 
Exchange Act,\87\ the proposed rule change (SR-MSRB-2010-08), as 
modified by Amendment No. 1 be, and it hereby is, approved on an 
accelerated basis.
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    \87\ 15 U.S.C. 78s(b)(2).

    By the Commission.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-25108 Filed 10-5-10; 8:45 am]
BILLING CODE 8010-01-P
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