Registration of Municipal Advisors, 824-969 [2010-32445]
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Federal Register / Vol. 76, No. 4 / Thursday, January 6, 2011 / Proposed Rules
SECURITIES AND EXCHANGE
COMMISSION
17 CFR Parts 240 and 249
[Release No. 34–63576; File No. S7–45–10]
RIN 3235–AK86
Registration of Municipal Advisors
Securities and Exchange
Commission.
ACTION: Proposed rule.
AGENCY:
Section 975 of Title IX of the
Dodd-Frank Wall Street Reform and
Consumer Protection Act (‘‘Dodd-Frank
Act’’) amended Section 15B of the
Securities Exchange Act of 1934 (as
amended, the ‘‘Exchange Act’’) to require
municipal advisors, as defined below, to
register with the Securities and
Exchange Commission (‘‘Commission’’
or ‘‘SEC’’) effective October 1, 2010. To
enable municipal advisors to
temporarily satisfy this requirement, the
Commission adopted an interim final
temporary rule and form, Exchange Act
rule 15Ba2–6T and Form MA–T,
effective October 1, 2010. Rule 15Ba2–
6T will expire on December 31, 2011.
The Commission is proposing new
rules 15Ba1–1 through 15Ba1–7 and
new Forms MA, MA–I, MA–W, and
MA–NR under the Exchange Act. These
proposed rules and forms are designed
to give effect to provisions of Title IX of
the Dodd-Frank Act that, among other
things, would establish a permanent
registration regime with the
Commission for municipal advisors and
would impose certain record-keeping
requirements on such advisors.
DATES: Comments should be received on
or before February 22, 2011.
ADDRESSES: Comments may be
submitted by any of the following
methods:
SUMMARY:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/proposed); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number S7–45–10 on the subject line;
or
• Use the Federal eRulemaking Portal
(https://www.regulations.gov). Follow the
instructions for submitting comments.
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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 S7–45–10. This file number
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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/proposed.shtml). Comments will
also 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. 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.
FOR FURTHER INFORMATION CONTACT:
Martha Haines, Assistant Director and
Chief, Office of Municipal Securities, at
(202) 551–5681; Dave Sanchez, Attorney
Fellow, Office of Municipal Securities,
at (202) 551–5540; Victoria Crane,
Assistant Director, Office of Market
Supervision, at (202) 551–5744; Ira
Brandriss, Special Counsel, Office of
Market Supervision, at (202) 551–5651;
Jennifer Dodd, Special Counsel, Office
of Market Supervision, at (202) 551–
5653; Steve Kuan, Special Counsel,
Office of Market Supervision, at (202)
551–5624; Daniel Gien, AttorneyAdviser, Office of Market Supervision,
at (202) 551–5747; Yue Ding, Law Clerk,
Office of Market Supervision, at (202)
551–5842; or any of the above at
Division of Trading and Markets,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–6628.
SUPPLEMENTARY INFORMATION: The
Commission is proposing rules 15Ba1–
1 to 15Ba1–7 [17 CFR 240.15Ba1–1 to
240.15Ba1–7] under the Exchange Act,
and Forms MA, MA–I, MA–W, and
MA–NR [17 CFR 249.1300, 1310, 1320,
and 1330].
Table of Contents
I. Introduction
A. Background
1. Overview of Municipal Securities
Market
a. Municipal Advisors
b. Municipal Entities and Municipal
Financial Products
2. Historical Regulation of Municipal
Securities and Municipal Advisors
a. Municipal Securities Market
b. Municipal Advisors
B. Interim Final Temporary Rule 15Ba2–6T
and Form MA–T
II. Discussion
A. Proposed Rules for the Permanent
Registration of Municipal Advisors
1. Proposed Rule 15Ba1–1: Definition of
‘‘Municipal Advisor’’ and Related Terms
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a. Statutory Definition of ‘‘Municipal
Advisor’’
b. Interpretation of the Term ‘‘Municipal
Advisor’’; Definition of Related Terms
c. Exclusions From the Definition of
‘‘Municipal Advisor’’
2. Proposed Rule 15Ba1–2
a. Application for Municipal Advisor
Registration
b. Instructions and Glossary
c. Information Requested in Form MA
d. Information Requested in Form MA–I
3. Proposed Rule 15Ba1–3
a. Withdrawal From Municipal Advisor
Registration
b. Form MA–W
4. Proposed Rule 15Ba1–4: Amendment to
Application for Registration and SelfCertification
5. Proposed Rule 15Ba1–5: General
Procedures for Serving Non-Residents
and Form MA–NR
6. Proposed Rule 15Ba1–6: Registration of
Successor to Municipal Advisor
B. Approval or Denial of Registration
C. Proposed Rule 15Ba1–7: Books and
Records to be Made and Maintained by
Municipal Advisors
III. General Request for Comment
IV. Paperwork Reduction Act
A. Summary of Collection of Information
B. Proposed Use of Information
C. Respondents
D. Total Initial and Annual Reporting and
Record-Keeping Burdens
1. Form MA
2. Form MA–I
3. Amendments to Form MA and Form
MA–I
4. Withdrawal From Municipal Advisor
Registration
5. Non-Resident Municipal Advisors
6. Outside Counsel
7. Maintenance of Books and Records
8. Total Burden
E. Collections of Information Are
Mandatory
F. Request for Comment
V. Economic Analysis
A. Proposed Rule 15Ba1–1: Definition of
‘‘Municipal Advisor’’ and Related Terms
B. Registration System
1. Benefits
2. Costs
C. Non-Resident Municipal Advisors
1. Benefits
2. Costs
D. Record keeping
1. Benefits
2. Costs
E. Request for Comment on Economic
Analysis
VI. Consideration of Impact on the Economy
VII. Initial Regulatory Flexibility Analysis
A. Reasons and Objectives for the Proposed
Rules
B. Legal Basis
C. Small Entities Subject to the Proposed
Rules
D. Reporting, Record keeping, and Other
Compliance Requirements
E. Duplicative, Overlapping, or Conflicting
Federal Rules
F. Significant Alternatives
G. General Request for Comment
VIII. Statutory Basis and Text of Proposed
Amendments
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Federal Register / Vol. 76, No. 4 / Thursday, January 6, 2011 / Proposed Rules
I. Introduction
A. Background
On July 21, 2010, President Obama
signed into law the Dodd-Frank Act.1
The Dodd-Frank Act was enacted,
among other things, to promote the
financial stability of the United States
by improving accountability and
transparency in the financial system.2
With Section 975 of Title IX of the
Dodd-Frank Act, Congress amended
Section 15B of the Exchange Act 3 to,
among other things, make it unlawful
for municipal advisors 4 to provide
certain advice to, or solicit, municipal
entities 5 or certain other persons
without registering with the
Commission.6
1. Overview of Municipal Securities
Market
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a. Municipal Advisors
Until the passage of the Dodd-Frank
Act, the activities of municipal advisors
were largely unregulated and municipal
advisors were generally not required to
register with the Commission or any
other Federal, State or self-regulatory
entity with respect to their municipal
advisory activities. As discussed below
in this section, some entities that are
now subject to registration as municipal
advisors pursuant to Section 15B of the
Exchange Act, and rules or regulations
promulgated thereunder, currently are
subject to regulation by various Federal
and State regulators in other capacities.
These entities include brokers, dealers,
municipal securities dealers, investment
advisers, and banks. Such regulations,
however, generally do not apply to their
activities as municipal advisors.
Municipal advisors engage in
municipal advisory activities in a
variety of contexts. For example,
municipal advisors participate in the
majority of issuances of municipal
securities.7 According to the Municipal
1 The Dodd-Frank Wall Street Reform and
Consumer Protection Act, Public Law 111–203, 124
Stat. 1376 (2010).
2 See Public Law 111–203 Preamble.
3 15 U.S.C. 78o–4. All references in this Release
to the Exchange Act refer to the Exchange Act as
amended by the Dodd-Frank Act.
4 See infra Section II.A.1. (discussing the term
‘‘municipal advisor’’).
5 See infra note 82, and accompanying text
(discussing the term ‘‘municipal entity’’).
6 See Section 975(a)(1)(B) of the Dodd-Frank Act;
15 U.S.C. 78o–4(a)(1)(B).
7 With respect to the issuance of municipal
securities, municipal advisors (which may include
entities registered as broker-dealers acting as
municipal advisors) engage in such activities as
assisting municipal entities in developing a
financing plan, assisting in the selection of other
parties to the financing such as bond counsel and
underwriters, coordinating the rating process,
ensuring adequate disclosure, and evaluating and
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Securities Rulemaking Board (‘‘MSRB’’
or ‘‘Board’’), approximately $315 billion
(70%) 8 of the municipal debt issued in
2008 was issued with the participation
of municipal advisors commonly
referred to as ‘‘financial advisors.’’ 9
Research also suggests that participation
by municipal advisory firms in the
issuance of municipal securities is
rising, with the MSRB noting a 63%
participation rate in 2006, a 66%
participation rate in 2007, and a 70%
participation rate in 2008.10 A study
that looked at historical involvement by
‘‘financial advisors’’ identified
participation rates of approximately
50% in a nearly twenty-year period
ending in 2002.11
Municipal advisors also engage in
municipal advisory activities with
respect to municipal financial
products.12 For example, as derivatives
have developed in the municipal
securities market, some municipal
advisory firms developed expertise in
that area. These municipal advisory
firms are generally referred to as ‘‘swap
advisors.’’ 13 Swap advisors may provide
advice solely with respect to a
municipal derivative transaction or may
provide such advice in connection with
other types of municipal advisory
activities.
In addition, municipal advisors may
provide advice to municipal entities
concerning investment strategies. These
advisory firms assist in investing
proceeds from bond offerings as well as
manage other public monies. Such
public monies include, for example, the
general funds of states and local
governments, public pension plans and
funds dedicated to other public
negotiating the financing terms. See
JayaramanVijayakumar and Kenneth N. Daniels,
2006, The Role and Impact of Financial Advisors
in the Market for Municipal Bonds (‘‘Vijayakumar
and Daniels’’), Journal of Financial Services
Research, 30:43, at 46.
8 See Municipal Securities Rulemaking Board,
‘‘Unregulated Municipal Market Participants: A
Case for Reform’’ (Apr. 2009), available at https://
www.msrb.org/News-and-Events/Press-Releases/
Press-Releases/∼/media/Files/Special-Publications/
MSRBReportonUnregulatedMarketParticipants_
April09.ashx (‘‘MSRB Study’’).
9 See id. (referring to municipal advisors as
‘‘financial advisors’’). Approximately 43% of the
$453 billion of municipal debt issued in 2008 (by
par amount of bonds) (or 62% of the $315 billion
of municipal debt issued with financial advisors)
was issued with the assistance of ‘‘financial
advisors’’ that were not part of dealer firms
regulated by the MSRB. Id.
10 See id.
11 See Arthur Allen and Donna Dudney, May
2010, Does the Quality of Financial Advice Affect
Prices? The Financial Review 45: 389 (‘‘Allen and
Dudney’’) (analyzing data from 1984 to 2002).
12 See infra note 93 and accompanying text
(discussing the term ‘‘municipal financial
products’’).
13 See MSRB study, supra note 8.
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programs, such as public transportation,
police and fire protection, public health,
and public education. In addition,
municipal advisors provide risk
management, asset allocation, financial
planning and cash management services
and help State and local governments
find and evaluate other advisors that
manage public funds and provide other
types of services.14 As discussed in
more detail below, unless excluded,
these firms generally will have to
register as municipal advisors under
Section 15B of the Exchange Act.15
Municipal advisors subject to
registration may include Federal and
State registered investment advisers,
depending on the activities in which
they are engaged.16
Depending on their role with respect
to investment strategies for municipal
entities, commercial banks subject to
regulation by various Federal and State
regulators may also engage in activities
that would subject them to registration
as municipal advisors. Such commercial
banks may act as trustees with respect
to an issuance of municipal securities or
otherwise provide advice with respect
to municipal financial products. Other
persons that are subject to registration as
municipal advisors include those who
solicit municipal entities on behalf of
the types of municipal advisors
discussed above, as well as on behalf of
brokers, dealers, municipal securities
dealers and other parties.
b. Municipal Entities and Municipal
Financial Products
The municipal securities market
consists of over 51,000 issuers,17 a
diverse group that includes states, their
political subdivisions such as cities,
towns and counties, and their
instrumentalities such as school
districts or port authorities. These
public bodies are governed by State and
local laws, including State
constitutions, statutes, city charters, and
municipal codes.18 Such constitutions,
statutes, charters, and codes impose on
municipal issuers a vast and varied
multiplicity of requirements relating to
14 See Investment Advisers Act Release No. IA–
2910 (August 3, 2009), 74 FR 39840, 39840–41
(August 7, 2009) (‘‘Political Contributions Proposed
Rule’’).
15 See infra Section II.A.1. (discussing the term
‘‘municipal advisor’’).
16 See id.
17 See Report on Transactions in Municipal
Securities, Office of Economic Analysis and Office
of Municipal Securities, the Division of Trading and
Markets, U.S. Securities and Exchange Commission,
(July 1, 2004).
18 See American Bar Association, Disclosure
Roles of Counsel in State and Local Government
Securities Offerings 1 (Third Edition, 2009)
(‘‘Disclosure of Bond Counsel’’).
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Federal Register / Vol. 76, No. 4 / Thursday, January 6, 2011 / Proposed Rules
governance, budgeting, accounting, and
other financial matters.19 The governing
bodies of municipal issuers are as varied
as the types of issuers, ranging from
State governments, cities, towns, and
counties with elected officials to
commissions and other special purpose
enterprises having appointed
members.20 Municipal securities are
issued by government entities to pay for
a variety of public projects, for cash
flow and other governmental needs, and
to fund non-governmental private
projects by acting as a conduit on behalf
of private organizations that wish to
obtain tax-exempt interest rates.21 As of
March 31, 2010, municipal issuers had
an outstanding principal amount of
securities in excess of $2.8 trillion.22 In
2009 alone, 15,055 new issuances of
municipal securities took place, with a
value of over $474.5 billion.23 As of
2009, the average daily trading volume
for the municipal bond market was
$12.5 billion, as compared to $16.8
billion in the corporate bond market and
$407.9 billion in the Treasury bond
market.24
Presently, there is no definitive public
information regarding the size of the
municipal securities derivative market.
Estimates of the size of the market have
been reported to range from $100 billion
to $300 billion, annually, in notional
principal amount.25 Estimates of the
number of municipal issuers that have
engaged in derivative transactions also
vary. Since interest rate swaps are
bilateral contracts entered into
privately, there is no comprehensive
data on how many municipal issuers are
active in the $450 trillion interest-rate
swap market, although some anecdotal
evidence suggests a relatively wide use.
For instance, a review of Pennsylvania
Department of Community and
Economic Development records
revealed that 185 school districts, towns
and counties in Pennsylvania have
19 See
id. at 2.
id. at 78.
21 The Internal Revenue Code delineates the
purposes for which tax-exempt municipal bonds
may be issued for the benefit of organizations other
than states and local governments, i.e., conduit
borrowers. See 26 U.S.C. 142–145, 1394.
22 See Federal Reserve Board, Flow of Funds
Accounts, Flows and Outstandings, First Quarter
2010.
23 See The Bond Buyer Yearbook 14
(SourceMedia Inc.) (2010).
24 See SIFMA, Average Daily Trading Volume in
the U.S. Bond Markets, available at https://
www.google.com/url?q=https://www.sifma.org/
uploadedFiles/Research/Statistics/StatisticsFiles/
CM–US–Bond-Market-Trading-Volume-SIFMA.xls&
sa=U&ei=5EHsTLvBFoT58AbPqdGjAQ&
ved=0CBYQFjAA&usg=AFQjCNHv-FKIpdi
_QB8m7jgvg2ssJJ1ikg (last visited November 23,
2010).
25 See MSRB Study, supra note 8.
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20 See
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engaged in derivative transactions since
2003, when the State’s law was
explicitly changed to allow for such
transactions.26 However, other estimates
have pointed to a less widespread use
of derivatives among municipal
issuers.27 Since 2008, the use of
derivatives by municipal entities has
declined and many municipal entities
have terminated existing interest rate
swaps.28
According to recently available
United States census data, as of 2008,
there were approximately 2,550 state
and local government employee
retirement systems.29 These ‘‘public
pension plans’’ had over $2.2 trillion of
assets and represented one-third of all
U.S. pension assets.30 Public pension
plans might seek advice with respect to
municipal financial products. In
addition, third parties might solicit
these public pension plans on behalf of
firms seeking to provide services to
these plans.31
College savings plans (‘‘529 Plans’’)
that comply with Section 529 of the
Internal Revenue Code (‘‘IRC’’) provide
tax advantages designed to encourage
saving for future college costs.32 529
Plans are sponsored by states, state
agencies, or educational institutions.
529 plan assets have increased from
$8.6 billion in 2000 to $104.9 billion in
the fourth quarter of 2008, and the
number of 529 plan participants has
increased from 1.3 million in 2000 to
11.2 million in the fourth quarter of
26 See Martin Z. Braun, Deutsche Bank Swap
Lures County as Budgets Crumble, Bloomberg
(November 26, 2008).
27 In a 2007 study, Standard & Poor’s identified
750 municipal issuers that used swaps. See Joe
Mysak, California Declares War on State Bond
Short-Sellers, Bloomberg Businessweek (Apr. 27,
2010). In October 2009, Moody’s undertook a
review of the state and local governments that it
rates with outstanding swaps and identified 500 of
such entities. See id. Moody’s also estimated that
Pennsylvania issuers accounted for 22% of all
municipal derivative transactions, suggesting that
broad participation by municipal entities in
Pennsylvania did not translate into broad
participation by municipal entities nationwide. See
Joe Mysak, Swaps Nightmares Become Real for
Amateur Financiers, Bloomberg (Dec. 15, 2009).
28 See, e.g., Michael McDonald, Wall Street
Collects $4 Billion From Taxpayers as Swaps
Backfire, Bloomberg (Nov. 10, 2010), available at
https://www.bloomberg.com/news/2010-11-10/wallstreet-collects-4-billion-from-taxpayers-as-swapsbackfire.html.
29 See U.S. Census Bureau, State & Local
Government Employee Retirement Systems,
available at https://www.census.gov/govs/retire.
30 See Federal Reserve Board, Flow of Funds
Accounts, Flows and Outstanding, First Quarter
2009 (at table L.119).
31 See Investment Advisers Act Release No. IA–
3043 (July 1, 2010), 75 FR 41018, 41019 (July 14,
2010) (‘‘Political Contributions Final Rule’’).
32 See 26 U.S.C. 529.
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2008.33 Like public pension plans, 529
Plans might be solicited on behalf of
third parties seeking to do business with
such plans.34 529 Plans might also seek
advice with respect to municipal
financial products and the issuance of
municipal securities.35
In addition to public pension plans
and 529 Plans, state and local
government agencies also maintain
other pools of assets including their
general funds and other special funds.
Governmental entities generally invest
such funds in a combination of
individualized investments, investment
agreements or local government
investment pools (‘‘LGIPs’’).36
2. Historical Regulation of Municipal
Securities and Municipal Advisors
a. Municipal Securities Market
The Securities Act of 1933
(‘‘Securities Act’’) 37 and the Exchange
Act 38 were both enacted with broad
exemptions for municipal securities
from all of their provisions except for
the antifraud provisions of Section 17(a)
of the Securities Act and Section 10(b)
of the Exchange Act.39 In the early
1970s, the municipal securities market
was still relatively small.40 Up until that
time, the standard issue was usually a
general obligation bond, with fairly
33 See Investment Company Institute, 529 Plan
Program Statistics, December 2008 (May 22, 2009),
available at https://www.ici.org/research/stats/529s/
529s_12–08.
34 See Political Contributions Final Rule, supra
note 31, at 41019.
35 See MSRB, Interpretation Relating to Sales of
Municipal Fund Securities in the Primary Market,
Interpretative Notice of Rule D–12, dated January
18, 2001, available at https://www.msrb.org/Rulesand-Interpretations/MSRB-Rules/Definitional/Rule–
D-12.aspx?tab=2 (citing Letter from Catherine
McGuire, Chief Counsel, Division of Trading and
Markets, Commission, to Diane G. Klinke, General
Counsel, MSRB, dated February 26, 1999, in
response to letter from Diane G. Klinke, General
Counsel, MSRB, to Catherine McGuire, Chief
Counsel, Division of Trading and Markets,
Commission, dated June 2, 1998).
36 45 states have LGIPs with assets totaling more
than $250 billion. See Jeff Pentages, Local
Government Investment Pools and the Financial
Crisis: Lessons Learned, October 2009, Government
Finance Review 25. States have several trillion
dollars in state funds, including general funds,
public pension plans, and 529 plans. See e.g.,The
National Association of State Treasurers, Reforming
Corporate Governance, State Government News
(June/July 2003), available at https://www.csg.org/
knowledgecenter/docs/sgn0307Reforming
Corporate.pdf.
37 15 U.S.C. 77a et seq.
38 15 U.S.C. 78a et seq.
39 See, e.g., Securities Act Section 3(a)(2) (15
U.S.C. 77c(a)(2)); Securities Act Section 12(a)(2) (15
U.S.C. 77l(a)(2)); Exchange Act Section 3(a)(12) (15
U.S.C. 78c(a)(12)); Exchange Act Section 3(a)(29)
(15 U.S.C. 78c(a)(29)).
40 There were $235.4 billion of bonds outstanding
in 1975 after an issuance of $58 billion in that year.
See The Bond Buyer’s Municipal Finance Statistics,
1975 (June 1976).
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standard features, and the typical
participants were banks, underwriters,
and bond counsel.41
The regulation of the market for
municipal securities at the Federal level
essentially began in 1975. Congress, as
part of the Securities Act Amendments
of 1975 (‘‘1975 Amendments’’) created a
limited regulatory scheme for the
municipal securities market at the
Federal level.42 That scheme included
mandatory registration with the
Commission of brokers and dealers in
municipal securities and gave the
Commission broad rulemaking and
enforcement authority over such brokers
and dealers. At the same time, however,
Congress prohibited the Commission
from requiring issuers of municipal
securities to file disclosures, such as a
prospectus, with the Commission before
selling municipal securities to investors.
Thus, the Commission’s oversight of the
municipal securities market has been
focused on the intermediaries between
municipal entities and investors, rather
than on municipal entities themselves.
In addition, the 1975 Amendments
authorized the creation of the MSRB
and granted it authority to promulgate
rules concerning broker and dealer
transactions in municipal securities.
As noted above, pursuant to the 1975
Amendments, all brokers and dealers
that underwrite or trade municipal
securities are required to register with
the Commission.43 If a person engages
in the activities of a broker or dealer in
municipal securities and does not
satisfy an exception from the
registration provisions of the Exchange
Act, such person must register with the
Commission and may have to join a selfregulatory organization (‘‘SRO’’) such as
the Financial Industry Regulatory
Authority, Inc. (‘‘FINRA’’). The
Exchange Act defines a ‘‘municipal
securities dealer’’ as any person
(including a separately identifiable
department or division of a bank)
engaged in the business of buying and
selling municipal securities for its own
account other than in a fiduciary
capacity, through a broker or
otherwise 44 and requires such person to
register with the Commission.45 All
brokers, dealers, and municipal
securities dealers that engage in
municipal securities transactions also
41 See Ann Judith Gellis, Municipal Securities
Market: Same Problems—No Solutions, 21 Del. J.
Corp. L. 427, 428 (1996).
42 See, e.g., Exchange Act Sections 15(c)(1),
15(c)(2), 15B(c)(1), 15B(c)(2), 17(a), 17(b), and
21(a)(1) (15 U.S.C. 78o(c)(1), 78o(c)(2), 78o–4(c)(1),
78o–4(c)(2), 78q(a), 78q(b), and 78u(a)(1)).
43 See 15 U.S.C. 78o–4(a)–(b).
44 See 15 U.S.C. 78c(a)(30).
45 See 15 U.S.C. 78o–4(a)–(b).
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must register with the MSRB and may
not act in contravention of its rules.46
Since 1975, the municipal securities
market has grown and evolved
significantly to encompass a wide
variety of bond structures 47 and credit
enhancement. Municipal bond
insurance was first introduced in 1971
and letter of credit-supported municipal
bonds became very popular after the
introduction of variable rate municipal
bonds in the early 1980s.48 In 1988,
auction rate securities were introduced
into the municipal market.49 In
addition, the municipal securities
market has experienced a proliferation
of complex derivative products
beginning generally with interest rate
swap transactions in the mid 1980s.50
The availability of such a variety of
financing options has led to an
increasing reliance on external advisors
by municipal entities that issue
municipal securities to assist them in
deciding among the multiplying array of
structural choices for their debt and to
help them negotiate with the
multiplying number of intermediaries.51
b. Municipal Advisors
As discussed above, many market
professionals are involved in issuing
municipal securities and advising
municipal entities with respect to
municipal financial products.
Historically, however, municipal
advisors have been largely unregulated.
For example, Commission staff has
46 See MSRB rule A–12. These requirements for
registration with the Commission and MSRB were
in effect prior to passage of the Dodd-Frank Act and
remain in effect.
47 Although it is helpful to think of municipal
securities as either (1) general obligation bonds
backed by the ‘‘full faith and credit’’ or an unlimited
taxing power of the issuing entity or (2) revenue
bonds, these general categories mask a broad range
of diversity and complexity in the underlying
security for municipal bonds. See Gary Gray and
Patrick Cusatis, Municipal Derivative Securities—
Uses and Valuation 21 (1995) (discussion of
revenue bonds). See also Disclosure of Bond
Counsel, supra note 18, at 54–55 (discussion of
conduit bonds).
48 See Gray and Cusatis, supra note 47, at 30–31.
The Commission notes that although the use of
letters of credit and bond insurance have declined
since 2008, these forms of credit enhancement
remain an option for municipal entities to consider
when issuing municipal securities.
49 See id. at 41.
50 See id. at 49. Municipal market derivatives
must often be structured in accordance with the
provisions of the tax code and other laws that apply
to the issuance of tax-exempt financings. See David
L. Taub, Understanding Municipal Derivatives,
August 2005, Government Finance Review 21.
Therefore, the most common use for derivatives in
the municipal securities market is the execution of
interest rate swaps to hedge issuers’ interest rate
exposure for new, anticipated, or outstanding debt.
See id.
51 See Vijayakumar and Daniels, supra note 7, at
43–44.
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taken the position that financial
advisors that limit their advisory
activities to advising municipal issuers
as to the structuring of their financings
rather than providing advice for
compensation regarding the investment
of assets may not need to register as
investment advisers.52 Also, while
dealers who act as municipal financial
advisors are subject to regulation,53
those regulations apply primarily to
their business as dealers rather than
their activities as municipal financial
advisors.54 Only in limited
circumstances do those rules also apply
to their municipal advisory activities.55
Additionally, approximately fifteen
states, as well as a number of
municipalities, have rules relating to the
conduct of some municipal advisors
(generally, financial advisors and swap
advisors). For example, these
governmental entities have enacted payto-play prohibitions that range from
broad proscriptions relating to all state
and local contracts to narrowly defined
rules that only apply to specific
situations.56 Some state and local
entities also require certain types of
municipal advisors to disclose actual or
apparent conflicts of interest.57
As discussed in more detail below,
the Dodd-Frank Act amended the
Exchange Act to require municipal
advisors to register with the
Commission.58 In addition, the
Exchange Act, as amended by the DoddFrank Act, grants the MSRB regulatory
authority over municipal advisors,59
and imposes a fiduciary duty on
municipal advisors when advising
municipal entities.60
52 See Division of Investment Management: Staff
Legal Bulletin No. 11, Applicability of the Advisers
Act to Financial Advisors of Municipal Securities
Issuers (Sep. 19, 2000), available at https://
www.sec.gov/interps/legal/slbim11.htm (explaining
the staff’s views as to the circumstances under
which financial advisors (a) may be investment
advisers, and (b) may give advice to issuers of
municipal securities regarding the investment of
offering proceeds without being deemed to be
investment advisers).
53 See supra notes 43–46, and accompanying text.
54 See, e.g., 17 CFR 240.15Ba2–2.
55 For example, MSRB rule G–37 currently
prohibits a broker, dealer or municipal securities
dealer from engaging in ‘‘municipal securities
business with an issuer within two years after any
contribution to an official of such issuer * * *’’
MSRB rule G–37. The rule further defines
‘‘municipal securities business’’ to include, among
other things, underwriting and the provision of
financial advisory services. See id.
56 See MSRB study, supra note 8.
57 See id.
58 See Section 975(a)(1)(B) of the Dodd-Frank Act;
15 U.S.C. 78o–4(a)(1)(B).
59 See 15 U.S.C. 78o–4(b).
60 See 15 U.S.C. 78o–4(c). Specifically, Exchange
Act Section 15B(c)(1) provides that: ‘‘A municipal
advisor and any person associated with such
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B. Interim Final Temporary Rule 15Ba2–
6T and Form MA–T
The registration requirement for
municipal advisors became effective on
October 1, 2010.61 Consequently,
municipal advisors must now be
registered in order to continue their
municipal advisory activities. To enable
municipal advisors to temporarily
satisfy the registration requirement, and
to make relevant information available
to the public and municipal entities, the
Commission adopted interim final
temporary rule 15Ba2–6T 62 under the
Exchange Act on September 1, 2010.63
Pursuant to rule 15Ba2–6T, a municipal
advisor must temporarily satisfy the
statutory registration requirement by
submitting certain information
electronically through the Commission’s
public Web site on Form MA–T.64
Form MA–T requires a municipal
advisor to indicate the purpose for
which it is submitting the form (i.e.,
initial application, amendment or
withdrawal), provide certain basic
identifying and contact information
concerning its business, indicate the
nature of its activities, and supply
information about its disciplinary
history and the disciplinary history of
its associated municipal advisor
professionals.65
The interim final temporary rule
provides that, unless rescinded, a
municipal advisor’s temporary
registration by means of Form MA–T
will expire on the earlier of (1) the date
that the municipal advisor’s registration
is approved or disapproved by the
Commission pursuant to a final rule
establishing a permanent registration
regime; (2) the date on which the
municipal advisor’s temporary
registration is rescinded by the
Commission; or (3) December 31,
2011.66 The temporary registration
municipal advisor shall be deemed to have a
fiduciary duty to any municipal entity for whom
such municipal advisor acts as a municipal advisor,
and no municipal advisor may engage in any act,
practice, or course of business which is not
consistent with a municipal advisor’s fiduciary
duty or that is in contravention of any rule of the
Board.’’ 15 U.S.C. 78o–4(c)(1).
61 See Section 975(i) of the Dodd-Frank Act.
62 17 CFR 240.15Ba2–6T.
63 See Securities Exchange Act Release No. 62824
(September 1, 2010), 75 FR 54465 (September 8,
2010) (‘‘Temporary Registration Rule Release’’).
64 17 CFR 249.1300T. A municipal advisor that
completes the temporary registration form and
receives confirmation from the Commission that the
form was filed is temporarily registered for
purposes of Section 15B. Approximately 800 firms
and individuals have registered on Form MA–T as
municipal advisors.
65 See Temporary Registration Rule Release,
supra note 63, for a full description of the
requirements of Form MA–T.
66 See 17 CFR 240.15Ba2–6T(e).
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procedure was developed as a
transitional step toward the
implementation of a permanent
registration regime for municipal
advisors. Accordingly, as discussed in
more detail below, the Commission is
proposing rules and forms that, if
adopted, would establish a permanent
registration regime for municipal
advisors that would require registration
by all persons meeting the definition of
municipal advisor, including those
persons currently registered on Form
MA–T. In discussing the proposed
permanent registration regime, the
Commission addresses issues, concerns,
and suggestions relevant to this
proposal raised by commenters in
response to the interim final temporary
rule.67
proposing new rules and forms that, if
adopted, would establish a permanent
Commission registration regime for
municipal advisors. The Commission
believes that the information disclosed
pursuant to the proposed rules and
forms would provide significant value
to the Commission in its oversight of
municipal advisors and their activities
in the municipal securities markets. The
information provided pursuant to these
rules and forms would also aid
municipal entities and obligated
persons in choosing municipal advisors,
engaging in transactions with municipal
advisors, or participating in municipal
securities transactions in which a
municipal advisor is also engaged.
II. Discussion
Section 15B(a)(1) of the Exchange Act,
as amended by the Dodd-Frank Act,
makes it unlawful for a municipal
advisor 68 to provide advice to or on
behalf of a municipal entity or obligated
person with respect to municipal
financial products or the issuance of
municipal securities, or to undertake a
solicitation of a municipal entity or
obligated person, unless the municipal
advisor is registered with the
Commission.69 Section 15B(a)(2) of the
Exchange Act, as amended by the DoddFrank Act, provides that a municipal
advisor may be registered by filing with
the Commission an application for
registration in such form and containing
such information and documents
concerning the municipal advisor and
any person associated with the
municipal advisor as the Commission,
by rule, may prescribe as necessary or
appropriate in the public interest or for
the protection of investors.70
Consistent with the requirements of
the Dodd-Frank Act, as discussed in
detail below, the Commission is
1. Proposed Rule 15Ba1–1: Definition of
‘‘Municipal Advisor’’ and Related Terms
67 The Commission received seven comment
letters in response to the interim final temporary
rule. The comment letters are available on the
Commission’s Internet Web site at https://
www.sec.gov/comments/s7-19-10/s71910.shtml.
The Commission also received one comment letter
in response to SEC regulatory initiatives under the
Dodd-Frank Act that discussed municipal advisors
in connection with pay-to-play rules and, therefore,
is outside the scope of this release relating to the
registration of municipal advisors. This comment
letter is available on the Commission’s Internet Web
site at https://www.sec.gov/comments/df-title-ix/
municipal-securities-municipal-advisors/
municipal-securities-municipal-advisors.shtml.
68 See infra Section II.A.1. (discussing the term
‘‘municipal advisor’’).
69 See 15 U.S.C. 78o-4(a)(1)(B). For a discussion
of the terms ‘‘municipal entity,’’ ‘‘obligated person,’’
‘‘municipal financial product,’’ and ‘‘solicitation of
a municipal entity or obligated person,’’ see infra
Section II.A.1.b.
70 See 15 U.S.C. 78o–4(a)(2).
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A. Proposed Rules for the Permanent
Registration of Municipal Advisors
a. Statutory Definition of ‘‘Municipal
Advisor’’
Section 15B(e)(4)(A) of the Exchange
Act,71 as amended by the Dodd-Frank
Act, defines the term ‘‘municipal
advisor’’ to mean a person (who is not
a municipal entity 72 or an employee of
a municipal entity) (i) that provides
advice to or on behalf of a municipal
entity or obligated person 73 with
respect to municipal financial
products 74 or the issuance of municipal
securities, including advice with respect
to the structure, timing, terms, and other
similar matters concerning such
financial products or issues, or (ii) that
undertakes a solicitation of a municipal
entity.75
The statutory definition of a
‘‘municipal advisor’’ is broad and
includes persons that traditionally have
not been considered to be municipal
financial advisors. Specifically, the
definition of a ‘‘municipal advisor’’
includes ‘‘financial advisors, guaranteed
investment contract brokers, third-party
marketers, placement agents, solicitors,
finders, and swap advisors’’ that engage
in municipal advisory activities.76
These persons are included if they
provide advice to or on behalf of a
municipal entity or obligated person
with respect to municipal financial
products or the issuance of municipal
71 15
U.S.C. 78o–4(e)(4)(A).
infra note 82, and accompanying text
(discussing the term ‘‘municipal entity’’).
73 See infra note 86, and accompanying text
(discussing the term ‘‘obligated person’’).
74 See infra note 93, and accompanying text
(discussing the term ‘‘municipal financial
products’’).
75 See infra note 103, and accompanying text
(discussing the term ‘‘solicitation of a municipal
entity or obligated person’’).
76 See 15 U.S.C. 78o–4(e)(4).
72 See
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securities (including advice with respect
to the structure, timing, terms and other
similar matters concerning such
financial products or issues) or
undertake a solicitation of a municipal
entity or obligated person (i.e.,
‘‘municipal advisory activities’’).77
The definition of ‘‘municipal advisor’’
explicitly excludes ‘‘a broker, dealer, or
municipal securities dealer serving as
an underwriter,’’ 78 as well as attorneys
offering legal advice or providing
services that are of a traditional legal
nature and engineers providing
engineering advice.79 Further, the
definition of ‘‘municipal advisor’’
excludes ‘‘any investment adviser
registered under the Investment
Advisers Act of 1940, or persons
associated with such investment
advisers who are providing investment
advice’’ and ‘‘any commodity trading
advisor registered under the Commodity
Exchange Act or persons associated
with a commodity trading advisor who
are providing advice related to
swaps.’’ 80
Consequently, the statutory definition
of ‘‘municipal advisor’’ includes distinct
groups of professionals that offer
different services and compete in
distinct markets. The three principal
types of municipal advisors are:
(1) Financial advisors, including, but
not limited to, broker-dealers already
registered with the Commission, that
provide advice to municipal entities
with respect to their issuance of
municipal securities and their use of
municipal financial products;
(2) investment advisers that advise
municipal pension funds and other
municipal entities on the investment of
funds held by or on behalf of municipal
entities (subject to certain exclusions
from the definition of a ‘‘municipal
advisor’’); and (3) third-party marketers
and solicitors.
77 The proposed definition of ‘‘municipal advisory
activities’’ has the same meaning as the definition
of ‘‘municipal advisory services’’ in connection with
rule 15Ba2–6T. Thus, in proposed rule 15Ba1–1 the
Commission is proposing to define ‘‘municipal
advisory activities’’ to mean ‘‘advice to or on behalf
of a municipal entity (as defined in Section
15B(e)(8) of the Securities Exchange Act of 1934 (15
U.S.C. 78o–4(e)(8)) or obligated person (as defined
in Section 15B(e)(10) of the Securities Exchange Act
of 1934 (15 U.S.C. 78o–4(e)(10)) with respect to
municipal financial products or the issuance of
municipal securities, including advice with respect
to the structure, timing, terms, and other similar
matters concerning such financial products or
issues; or a solicitation of a municipal entity or
obligated person.’’ Proposed rule 15Ba1–1(e).
78 See infra note 105 (defining the term
‘‘underwriter’’).
79 See 15 U.S.C. 78o–4(e)(4)(C).
80 See id.
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b. Interpretation of the Term ‘‘Municipal
Advisor’’; Definition of Related Terms
As noted above, Section 15B(e)(4)
defines the term ‘‘municipal advisor’’ to
mean, in part, a person (who is not a
municipal entity or an employee of a
municipal entity) that (i) provides
advice to or on behalf of a municipal
entity or obligated person with respect
to municipal financial products or the
issuance of municipal securities, or (ii)
undertakes a solicitation of a municipal
entity or obligated person.81 The
Commission discusses below the terms
‘‘municipal entity,’’ ‘‘obligated person,’’
‘‘municipal financial products,’’ and
‘‘solicitation of a municipal entity or
obligated person’’ as well as other terms
relating to the definition of ‘‘municipal
advisor.’’
The registration requirement for
municipal advisors under Section 15B
of the Exchange Act applies to every
person, including every natural person,
who provides the types of advice
described in the definition of
‘‘municipal advisor’’—whether that
person is an organized entity, sole
proprietor, employee of a municipal
advisory firm, or otherwise. For clarity,
the Commission refers to each organized
entity that is a municipal advisor,
including sole proprietors, as a
‘‘municipal advisory firm,’’ and each
municipal advisor that is a natural
person, including sole proprietors, as a
‘‘natural person municipal advisor.’’
Municipal Entity
Exchange Act Section 15B(e)(8)
provides that the term ‘‘municipal
entity’’ means ‘‘any State, political
subdivision of a State, or municipal
corporate instrumentality of a State,
including—(A) any agency, authority, or
instrumentality of the State, political
subdivision, or municipal corporate
instrumentality; (B) any plan, program,
or pool of assets sponsored or
established by the State, political
subdivision, or municipal corporate
instrumentality or any agency,
authority, or instrumentality thereof;
and (C) any other issuer of municipal
securities.’’ 82 To provide additional
clarification with respect to clause (B) of
the definition of ‘‘municipal entity,’’ the
Commission notes that the definition
includes, but is not limited to, public
pension funds, local government
investment pools and other state and
local governmental entities or funds, as
well as participant-directed investment
programs or plans such as 529, 403(b),
and 457 plans.
81 See
82 15
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One commenter asked whether ‘‘small
issuers such as individual charter
schools (that are deemed public schools
by the state with individual charters)’’
would be included in the definition of
‘‘municipal entity.’’ 83 Charter schools
are considered to be public schools and
generally derive their charter from a
political subdivision of a state (for
example, local school boards, state
universities, community colleges or
state boards of education) 84 and,
therefore, would fall under the
definition of municipal entity.85
Obligated Person
Exchange Act Section 15B(e)(10)
provides that the term ‘‘obligated
person’’ means ‘‘any person, including
an issuer of municipal securities, who is
either generally or through an
enterprise, fund, or account of such
person, committed by contract or other
arrangement to support the payment of
all or part of the obligations on the
municipal securities to be sold in an
offering of municipal securities.’’ 86 One
commenter stated that this definition in
Exchange Act Section 15B(e)(10) is
‘‘potentially very broad’’ and asked for
clarification regarding the definition.87
In particular, the commenter
encouraged the Commission to interpret
the definition of ‘‘obligated person’’ for
purposes of the definition of ‘‘municipal
advisor’’ consistently with the definition
of ‘‘obligated person’’ for purposes of
rule 15c2–12.88
The Commission believes that the
definition of ‘‘obligated person’’ for
purposes of the definition of ‘‘municipal
advisor’’ should be consistent with the
83 See letter from Brad R. Jacobsen, dated
September 7, 2010 (‘‘Jacobsen Letter’’).
84 See, e.g., US Charter Schools, Answers to
Frequently Asked Questions, available at https://
www.uscharterschools.org/pub/uscs_docs/o/
faq.html (last visited November 2, 2010).
85 15 U.S.C. 78o-4(e)(8). Charter schools, or
persons that operate charter schools such as charter
school management organizations that are
organized as non-profit corporations, may issue
municipal securities through a municipal entity for
capital needs such as facilities that are not provided
for by state funding or other reasons. See, e.g., US
Charter Schools, Charter School Facilities: A
Resource Guide on Development and Financing,
available at https://www.uscharterschools.org/gb/
dev_fin/financing.htm (last visited November 23,
2010). In that instance, the charter school or charter
school management organization would be an
obligated person with respect to the issuance of
municipal securities and any related municipal
financial products.
86 15 U.S.C. 78o–4(e)(10). Obligated persons can
include entities acting as conduit borrowers such as
private universities, non-profit hospitals, and
private corporations.
87 See letter from John J. Wagner, Kutak Rock LLP,
to Elizabeth M. Murphy, Secretary, Securities and
Exchange Commission, dated September 28, 2010
(‘‘Kutak Rock Letter’’).
88 See id. Rule 15c2–12 relates to municipal
securities disclosures. See 17 CFR 240.15c2–12.
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definition of ‘‘obligated person’’ for
purposes of rule 15c2–12. Rule 15c2–12
defines the term ‘‘obligated person’’ to
mean ‘‘any person, including an issuer
of municipal securities, who is either
generally or through an enterprise, fund,
or account of such person committed by
contract or other arrangement to support
payment of all, or part of the obligations
on the municipal securities to be sold in
the Offering (other than providers of
municipal bond insurance, letters of
credit, or other liquidity facilities).’’ 89
Thus, pursuant to the exemptive
authority granted in Section 15B(a)(4) of
the Exchange Act, the Commission
proposes to exempt from the definition
of ‘‘obligated person’’ providers of
municipal bond insurance, letters of
credit, or other liquidity facilities.
Specifically, proposed rule 15Ba1–1(i)
provides that the term ‘‘obligated
person’’ shall not include providers of
municipal bond insurance, letters of
credit, or other liquidity facilities.90 The
Commission believes that this
interpretation does not conflict with the
goals of the Dodd-Frank Act to provide
further protections for certain entities
that participate in borrowings in the
municipal securities market and would
help ensure uniformity among rules
relating to such market. Providers of
municipal bond insurance, letters of
credit, or other liquidity facilities are
generally non-governmental providers
of credit enhancements.91 As providers
of credit enhancement, these entities are
not borrowing funds through a
municipal entity and, therefore, the
Commission believes they do not
require the type of protection that
should be applicable with respect to
those who borrow funds through
municipal entities in municipal
securities transactions. In addition, the
Commission notes that this
interpretation would further uniformity
among rules relating to the definition of
obligated persons in the municipal
securities market.92
Municipal Financial Products;
Investment Strategies
93 15
Section 15B(e)(5) provides that the
term ‘‘municipal financial product’’
means ‘‘municipal derivatives,
guaranteed investment contracts, and
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U.S.C. 78o–4(e)(5).
U.S.C. 78o–4(e)(3).
95 See letter from Carolyn Walsh, Vice President
and Senior Counsel, Center for Securities, Trust and
Investments, American Bankers Association
(‘‘ABA’’), and Deputy General Counsel, ABA
Securities Association, to Elizabeth M. Murphy,
Secretary, Commission, dated October 13, 2010
(‘‘ABA Letter’’). See also letter from Leslie M.
Norwood, Managing Director and Associate General
Counsel, Securities Industry and Financial Markets
Association (‘‘SIFMA’’), to Martha Haines, Assistant
Director and Chief, Office of Municipal Securities,
Commission, dated November 15, 2010 (‘‘SIFMA
Letter’’) (suggesting interpretations of the term
‘‘investment strategies’’).
96 Proposed rule 15Ba1–1(b).
97 15 U.S.C. 78o–4(e)(8)(B).
94 15
17 CFR 240.15c2–12(f)(10). ‘‘Offering’’ as
used in this definition is defined in rule 15c2–12(a).
See 17 CFR 240.15c2–12(a).
90 See proposed rule 15Ba1–1(i). See also
Securities Exchange Act Release No. 34961
(November 10, 1994), 59 FR 59590 (November 17,
1994).
91 The Commission notes that a municipal entity
that provides credit enhancement could be an
obligated person for purposes of the proposed rule.
92 See Kutak Rock Letter.
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investment strategies.’’ 93 Exchange Act
Section 15B(e)(3) provides that ‘‘the
term ‘investment strategies’ includes
plans or programs for the investment of
the proceeds of municipal securities
that are not municipal derivatives,
guaranteed investment contracts, and
the recommendation of and brokerage of
municipal escrow investments.’’ 94 One
commenter requested that the
Commission clarify the term
‘‘investment strategies’’ for purposes of
the definition of ‘‘municipal financial
products.’’ 95 The Commission notes that
the definition of ‘‘investment strategies’’
provides that it ‘‘includes’’ plans or
programs for the investment of the
proceeds of municipal securities and,
therefore, the Commission interprets the
definition to mean that it includes,
without limitation, the investment of
the proceeds of municipal securities.
Further, the Commission interprets this
definition to include plans, programs, or
pools of assets that invest funds held by
or on behalf of a municipal entity, and,
therefore, any person that provides
advice with respect to such funds must
register as a municipal advisor unless it
is covered by one of the exclusions
discussed below. Consistent with this
interpretation, proposed rule 15Ba1–
1(b) provides that the term ‘‘investment
strategies’’ includes ‘‘plans, programs or
pools of assets that invest funds held by
or on behalf of a municipal entity.’’ 96 In
proposing this interpretation of the term
‘‘investment strategies,’’ the Commission
considered the statutory definitions of
‘‘municipal advisor’’ and ‘‘municipal
entity.’’ Specifically, the Commission
noted that the definition of a ‘‘municipal
entity’’ includes ‘‘any plan, program, or
pool of assets sponsored or established
by the State, political subdivision, or
municipal corporate instrumentality or
any agency, authority, or
instrumentality thereof.’’ 97 Based on
these definitions, the Commission
believes it was Congress’s intent to
include in the definition of ‘‘municipal
advisor’’ persons that provide advice
with respect to plans, programs or pools
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of assets that invest funds held by, or on
behalf of, a municipal entity, such as a
529 college savings plan, LGIP or public
pension plan. Such plans, programs,
and pools of assets are generally funded
from sources other than proceeds of
municipal securities, such as families
who wish to save for a child’s college
expenses, general monies of state and
local governments being temporarily
invested prior to their budgeted
expenditure, and pension contributions
from employees and state and local
government employers. As a result, the
Commission does not believe that it was
Congress’s intent to limit the
requirement to register as a municipal
advisor only to those persons that
provide advice with respect to plans or
programs for the investment of proceeds
from municipal securities. Also, because
every bank account of a municipal
entity is comprised of funds ‘‘held by or
on behalf of a municipal entity,’’ money
managers providing advice to municipal
entities with respect to their bank
accounts could be municipal advisors.
The Commission notes, however, that to
the extent a person is providing advice
to a pooled investment vehicle in which
a municipal entity has invested funds
along with other investors that are not
municipal entities, the pooled
investment vehicle would not be
considered funds ‘‘held by or on behalf
of a municipal entity’’ and, therefore, the
person providing advice to the pooled
investment vehicle would not have to
register as a municipal advisor.98
One commenter that asked for
clarification regarding the definition of
the term ‘‘investment strategies’’ stated
that it assumes that ‘‘once the proceeds
of a municipal securities offering are
commingled with other operating funds
or the general funds of the municipal
entity that they lose their characteristic
as ‘proceeds’ under the statute, and the
provision of advice by a bank to the
municipal entity with respect to the
investment of such operating or general
funds would not make the bank a
‘municipal advisor’ under the
statute.’’ 99 Further, this commenter
stated that it assumes that ‘‘the proceeds
of a municipal securities offering that
are used to fund a municipal pension
98 To the extent that the pooled investment
vehicle is a LGIP, the pooled investment vehicle
would be considered to be funds ‘‘held by or on
behalf of’’ a municipal entity and, therefore, a
person providing advice with respect to a LGIP
would have to register as a municipal advisor. See
also supra note 36 (discussing LGIPs).
99 See ABA Letter. See also SIFMA Letter
(suggesting that moneys in a commingled account
would not be considered proceeds unless the
municipal entity specifically communicates that
such investment is being made with proceeds of an
issue of municipal securities).
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plan, once deposited in the plan and
commingled with other funds, would
likewise lose their characteristic as
proceeds under the statute; and the
provision of advice by a bank to the
municipal entity with respect to the
investment of plan assets would not
make the bank a ‘municipal advisor’
under the statute.’’ 100
As noted above, the Commission is
proposing to interpret the term
‘‘investment strategies’’ to include plans,
programs or pools of assets that invest
funds held by or on behalf of a
municipal entity, as well as plans or
programs for the investment of the
proceeds of municipal securities that are
not municipal derivatives or guaranteed
investment contracts, or the
recommendation of or brokerage of
municipal escrow investments.
Municipal entities utilizing the services
of advisors with respect to plans,
programs or pools of assets that invest
funds are subject to the same risks
regardless of whether those funds are
the proceeds of municipal securities.
The Commission does not have any
evidence that the competency of the
advisors or quality of advice needed by
municipal entities with respect to the
proceeds of municipal securities and
municipal escrow investments is any
different than with respect to the
investment of other public funds—
which may exceed the amount of
proceeds of municipal securities or
municipal escrow investments.
Furthermore, this approach avoids any
need to trace the investment of proceeds
of municipal securities commingled
with other public funds and eliminates
the potential for abuse from the artificial
commingling of the proceeds of
municipal securities with other public
funds solely to avoid registration as a
municipal advisor and compliance with
any rules or regulations relating to such
advisors.
Municipal Derivatives
The term ‘‘municipal derivatives’’ is
not defined in Section 15B of the
Exchange Act. Accordingly, the
Commission is proposing, in rule
15Ba1–1(f), that the term ‘‘municipal
derivatives’’ means ‘‘any swap (as
defined in Section 1a(47) of the
Commodity Exchange Act (7 U.S.C.
1a(47)) and Section 3(a)(69) of the
Securities Exchange Act of 1934 (15
U.S.C. 78c(a)(69)), including any rules
and regulations thereunder) or securitybased swap (as defined in Section
3(a)(68) of the Securities Exchange Act
of 1934 (15 U.S.C. 78c(a)(68)), including
any rules and regulations thereunder) to
100 See
ABA Letter.
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which a municipal entity is a
counterparty, or to which an obligated
person, acting in its capacity as an
obligated person, is a counterparty.’’ 101
Thus, the Commission is including in
the definition of ‘‘municipal derivatives’’
the definitions of ‘‘swap’’ and ‘‘securitybased swap,’’ as those terms are defined
by statute (and any rules or regulations
thereunder). The Commission believes it
is appropriate to use such definitions for
purposes of defining the term
‘‘municipal derivatives’’ where the
counterparty is a municipal entity or
obligated person.
Solicitation of a Municipal Entity or
Obligated Person
The definition of ‘‘municipal advisor’’
in Exchange Act Section 15B(e)(4)
includes a person that undertakes a
solicitation of a municipal entity or
obligated person.102 Exchange Act
Section 15B(e)(9) provides that the term
‘‘solicitation of a municipal entity or
obligated person’’ means ‘‘a direct or
indirect communication with a
municipal entity or obligated person
made by a person, for direct or indirect
compensation, on behalf of a broker,
dealer, municipal securities dealer,
municipal advisor, or investment
adviser (as defined in section 202 of the
Investment Advisers Act of 1940 [15
U.S.C. 80b-2]) that does not control, is
not controlled by, or is not under
common control with the person
undertaking such solicitation for the
purpose of obtaining or retaining an
engagement by a municipal entity or
obligated person of a broker, dealer,
municipal securities dealer, or
municipal advisor for or in connection
with municipal financial products, the
issuance of municipal securities, or of
an investment adviser to provide
investment advisory services to or on
behalf of a municipal entity.’’ 103 As a
result of this definition, the Commission
notes that, unless an exclusion applies,
any third-party solicitor that seeks
business on behalf of a broker, dealer,
municipal securities dealer, municipal
advisor or investment adviser from a
municipal entity must register as a
101 See
proposed rule 15Ba1–1(f).
15 U.S.C. 78o–4(e)(4)(A)(ii). The
Commission notes that the definition of ‘‘municipal
advisor’’ under Section 15B(e)(4)(A) means, in part,
a person that ‘‘undertakes a solicitation of a
municipal entity.’’ Id. In defining the phrase
‘‘solicitation of a municipal entity,’’ Section 15B
includes within that phrase, the words ‘‘or obligated
person.’’ See 15 U.S.C. 78o–4(e)(9). Section
15B(a)(1)(B) also includes solicitations of obligated
persons. Thus, the Commission interprets the
definition of ‘‘municipal advisor’’ to include the
solicitation of a municipal entity or obligated
person.
103 15 U.S.C. 78o–4(e)(9).
102 See
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‘‘municipal advisor.’’ For example, a
third-party solicitor that seeks business
on behalf of an investment adviser from
a municipal pension fund or a local
government investment pool must
register as a ‘‘municipal advisor.’’ In
addition, the determination regarding
whether a solicitation of a municipal
entity requires a person to register as a
municipal advisor is not based on the
number, or size, of investments that are
solicited. Thus, the Commission would
consider a solicitation of a single
investment of any amount in a
municipal entity to require the person
soliciting the municipal entity to
register as a municipal advisor.
As noted above, the definition of
‘‘solicitation of municipal entity or
obligated person’’ applies to solicitations
on behalf of a broker, dealer, municipal
securities dealer, municipal advisor, or
investment adviser that does not
control, is not controlled by, or is not
under common control with the person
undertaking such solicitation.
Accordingly, persons soliciting on
behalf of affiliated entities would not
fall within the definition of municipal
advisor and would not be required to
register pursuant to Section 15B of the
Exchange Act. The statute would not,
however, preclude such persons from
registering as municipal advisors and
being subject to the rules and
regulations applicable to registered
municipal advisors. For example, a
person that makes a direct or indirect
communication with a municipal entity
or obligated person on behalf of a
broker, dealer, municipal securities
dealer, municipal advisor, or investment
adviser that controls, is controlled by, or
is under common control with the
person undertaking such
communication, where the
communication is for the purpose of
obtaining or retaining an engagement by
a municipal entity or obligated person
of a broker, dealer, municipal securities
dealer, or municipal advisor for or in
connection with municipal financial
products, the issuance of municipal
securities, or of an investment adviser to
provide investment advisory services to
or on behalf of a municipal entity, may
voluntarily file Form MA or MA–I, as
applicable, and apply to register as a
municipal advisor. By registering as a
municipal advisor, such person must
comply with all Federal securities laws
and rules or regulations promulgated
thereunder relating to registered
municipal advisors, including the
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obligation to comply with MSRB rules
that apply to municipal advisors.104
c. Exclusions From the Definition of
‘‘Municipal Advisor’’
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Broker, Dealer, or Municipal Securities
Dealer Serving as an Underwriter
The definition of ‘‘municipal advisor’’
in proposed rule 15Ba1–1(d) would
clarify that the exclusion from the
definition for a broker, dealer, or
municipal securities dealer serving as
an underwriter 105 does not apply when
such persons are acting in a capacity
other than as an underwriter on behalf
of a municipal entity or obligated
person.106 The Commission interprets
the exclusion to apply solely to a broker,
dealer, or municipal securities dealer
serving as an underwriter on behalf of
a municipal entity or obligated person
in connection with the issuance of
municipal securities.107 Thus, a broker,
dealer or municipal securities dealer
would not be excluded from the
definition of a ‘‘municipal advisor’’ if the
broker, dealer or municipal securities
dealer engages in municipal advisory
activities when acting in a capacity
other than as an underwriter on behalf
of a municipal entity or obligated
person. For example, a broker-dealer
advising a municipal entity with respect
to the investment of bond proceeds or
the advisability of a municipal
derivative, would be a municipal
advisor with respect to those activities.
104 Recently proposed amendments to the
Investment Advisers Act seek to permit investment
advisers to pay any ‘‘regulated municipal advisor’’
to solicit government entities on its behalf. See
Investment Advisers Act Release No. IA–3110 at 69
(November 19, 2010). Such solicitors may include
affiliated entities of the investment adviser. As part
of its deliberations with respect to the Dodd-Frank
Act, Congress expressed its intent that municipal
advisors be permitted to solicit government clients
and be subject to regulation as municipal advisors.
See id. at n. 217. Allowing entities to register as
municipal advisors and subject themselves to the
regulatory regime for municipal advisors as a
condition to being paid as solicitors on behalf of
affiliated investment advisers does not contravene
this Congressional intent.
105 The term ‘‘underwriter’’ is defined in Section
2(a)(11) of the Securities Act of 1933. See 15 U.S.C.
77b(a)(11).
106 See 15 U.S.C. 78o–4(e)(4)(C) (providing that
the definition of ‘‘municipal advisor’’ does not
include a broker, dealer, or municipal securities
dealer serving as an underwriter (as defined in
section 2(a)(11) of the Securities Act of 1933)).
107 See Temporary Registration Rule Release,
supra note 63, at 54467, n.19. See also S. Rep. No.
176, 111th Cong., 2d. Sess. 148 (2010) (‘‘Senate
Report’’) (noting the need to subject activities such
as solicitation of a municipal entity to engage an
investment adviser to MSRB regulation). The
Commission believes that Congress excluded a
broker, dealer or municipal securities dealer acting
as an underwriter on behalf of a municipal entity
or obligated person in connection with the issuance
of municipal securities because such activity is
already subject to MSRB rules.
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In addition, a broker-dealer acting as a
placement agent for a private equity
fund that solicits a municipal entity or
obligated person to invest in the private
equity fund would be a municipal
advisor with respect to that activity. The
Commission notes that including such
activities within the scope of municipal
advisory activities is consistent with the
Exchange Act.108
One commenter asked for clarification
regarding whether a broker-dealer or
another entity that provides advice or
assistance to a municipal entity on an
informal non-contractual (and noncompensated) basis would have to
register as a municipal advisor.109 This
commenter believes that such persons
should not have to register as municipal
advisors.110 Another commenter,
however, stated that ‘‘[a]ny advisor who
provides ‘free’ service will be
compensated at some point for this
service. The services being rendered are
the trigger for registration and the
corresponding fiduciary duty, not the
title of the relationship, the terms of the
contract, or the compensation received.
Such advisor should not be permitted to
avoid registration and fiduciary
responsibilities.’’ 111 Similarly, another
commenter stated that individuals that
offer ‘‘‘free’ or ‘voluntary’ Municipal
Securities Advisory Services should not
be exempt from registration.’’ 112
In defining the term ‘‘municipal
advisor’’ in Exchange Act Section
15B(e)(4), Congress did not distinguish
between those municipal advisors who
are compensated for providing advice
and those who are not compensated for
providing advice. Thus, consistent with
108 See Exchange Act Section 15B(e)(4)(A) and (B)
(including placement agents and solicitors that
undertake a solicitation of a municipal entity in the
definition of municipal advisor); Senate Report;
Letter from Senator Christopher J. Dodd, U.S.
Senate Committee on Banking, Housing and Urban
Affairs, to Elizabeth M. Murphy, Secretary,
Commission, dated February 2, 2010.
109 See Kutak Rock Letter. See also letter from
Amy Natterson Kroll and W. Hardy Callcott,
Bingham McCutchen LLP, to Elizabeth M. Murphy,
Secretary, Commission, dated October 13, 2010
(‘‘Bingham Letter’’) (stating that it urges ‘‘the
Commission to clarify that providing
uncompensated introductions to potential
underwriters or other potential financing
participants does not constitute a ‘solicitation’ that
would trigger registration as a municipal advisor’’).
110 See Kutak Rock Letter.
111 See letter from Steve Apfelbacher, President,
National Association of Independent Public
Finance Advisors, to Commission, dated October 8,
2010 (‘‘NAIPFA Letter’’). See also Bingham Letter
(acknowledging that ‘‘clean energy services
companies ultimately do receive compensation for
their projects—but they do not get paid separately
(either by municipal entities, or by the firms
providing financing) for making introductions’’).
112 See letter from Joy A. Howard, Principal, WM
Financial Strategies, to Commission, dated October
5, 2010 (‘‘Howard Letter’’).
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Congress’s definition of the term
‘‘municipal advisor,’’ the Commission
does not believe the issue of whether a
municipal advisor is compensated for
providing municipal advice should
factor into the determination of whether
the municipal advisor must register
with the Commission.113
Registered Investment Advisers
Proposed rule 15Ba1–1(d)(2)(ii) would
clarify the exclusion from the definition
of ‘‘municipal advisor’’ in Exchange Act
Section 15B(e)(4)(C) for Commissionregistered investment advisers.114
Specifically, consistent with the
Commission’s interpretation in
connection with rule 15Ba2–6T,
proposed rule 15Ba1–1(d)(2)(ii) would
provide that the term ‘‘municipal
advisor’’ shall not include: ‘‘An
investment adviser registered under the
Investment Advisers Act of 1940 (15
U.S.C. 80b–1 et seq.) or a person
associated with such registered
investment adviser, unless the
registered investment adviser or person
associated with the investment adviser
engages in municipal advisory activities
other than providing investment advice
that would subject such adviser or
person associated with such adviser to
the Investment Advisers Act of
1940.’’ 115
Thus, the Commission interprets the
exclusion from the definition of
‘‘municipal advisor’’ in Exchange Act
Section 15B(4)(C) for registered
investment advisers and their associated
persons who are providing investment
advice, to mean that a registered
investment adviser or an associated
person of a registered investment
adviser would not have to register as a
‘‘municipal advisor’’ with respect to the
provision of any investment advice
subject to the Investment Advisers
113 The Commission notes that in defining the
term ‘‘solicitation of a municipal entity or obligated
person’’ Congress included language that such
solicitation means, in part, ‘‘a direct or indirect
communication with a municipal entity or
obligated person made by a person, for direct or
indirect compensation.’’ ‘‘Indirect compensation’’
has been interpreted by other regulatory agencies to
include non-monetary compensation. For example,
the Commodity Futures Trading Commission
(‘‘CFTC’’) has interpreted the term ‘‘indirect
compensation,’’ in the context of the registration
requirements and procedures for introducing
brokers, to include, among other things, soft
compensation such as research. See CFTC Release
on Introducing Brokers and Associated Persons of
Introducing Brokers, Commodity Trading Advisors
and Commodity Pool Operators; Registration and
Other Regulatory Requirements, 48 FR 35248,
35251 (August 3, 1983) (the CFTC’s definition of
‘‘introducing broker’’ excludes those persons who
are not compensated, directly or indirectly, for their
activities as introducing brokers).
114 See proposed rule 15Ba1–1(d)(2)(ii).
115 See id. See also Temporary Registration Rule
Release, supra note 63, at 54467.
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Act.116 A registered investment adviser
or an associated person of a registered
investment adviser must register with
the Commission as a municipal advisor
if the adviser or associated person
engages in any municipal advisory
activities that would not be investment
advice subject to the Investment
Advisers Act.117 For example, a
Commission-registered investment
adviser that provides advice with
respect to how a municipal entity
should structure or issue municipal
securities would be required to register
as a municipal advisor.118 A
Commission-registered investment
adviser that solicits a municipal entity
on behalf of a municipal advisor would
also be required to register as a
municipal advisor. The Commission
believes that this interpretation is in
furtherance of the goals of the DoddFrank Act to regulate persons that
engage in municipal advisory activities.
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Commodity Trading Advisors
Consistent with the Commission’s
interpretation in connection with rule
15Ba2–6T, the Commission interprets
the exclusion in the Dodd-Frank Act for
registered commodity trading advisors
and their related persons providing
advice related to swaps to apply only to
such persons when they are providing
advice related to swaps, as that term is
defined in Section 1a(47) of the
Commodity Exchange Act and Section
3(a)(69) of the Exchange Act,119 and any
rules or regulations promulgated
thereunder.120 Accordingly, proposed
116 See id. The staff interprets broadly the term
‘‘advice’’ with respect to the Investment Advisers
Act. See supra note 52 (noting the Division of
Investment Management: Staff Legal Bulletin No.
11). For purposes of the Commission’s
interpretation under proposed rule 15Ba1–
1(d)(2)(ii), the Commission interprets ‘‘advice’’ to
include any activity that constitutes ‘‘advice’’
subject to the Investment Advisers Act.
117 Similarly, a municipal advisor registered
under Section 15B of the Exchange Act may be
required to register as an investment adviser if its
business includes providing investment advice that
is subject to the Investment Advisers Act.
Commission staff has provided guidance with
respect to circumstances under which a municipal
advisor may be required to register as an investment
adviser. See Staff Legal Bulletin No. 11, supra note
52.
118 The Commission notes that a person that
provides advice as to whether and how a municipal
entity should issue municipal securities would not
have to register with the Commission as an
investment adviser. See id. (stating ‘‘[w]e would not
consider a financial advisor to be an investment
adviser if it limits its activities to providing advice
as to whether and how a municipality should issue
debt securities’’).
119 7 U.S.C. 1a(47) and 15 U.S.C. 78c(a)(69). The
exclusion would not apply when such persons are
providing advice with respect to security-based
swaps.
120 See Temporary Registration Rule Release,
supra note 63, at 54467.
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rule 15Ba1–1(d)(2)(iii) would provide
that the exclusion from the definition of
‘‘municipal advisor’’ in Exchange Act
Section 15B(e)(4)(C) for registered
commodity trading advisors, or any
person associated with a registered
commodity trading advisor, is only
available to a commodity trading
advisor or person associated with a
commodity trading advisor, to the
extent such commodity trading advisor
or associated person of the commodity
trading advisor is providing advice
related to swaps. The exclusion would
not apply to the commodity trading
advisor or associated person of the
commodity trading advisor to the extent
he or she engages in municipal advisory
activities other than the provision of
advice related to swaps.121 A
commodity trading advisor, or an
associated person of a commodity
trading advisor, must register with the
Commission as a municipal advisor if
the commodity trading advisor, or an
associated person of a commodity
trading advisor, engages in any
municipal advisory activities that do not
include advice related to swaps.122 For
example, if an advisor is providing
advice to a municipal entity with
respect to engaging in a swap
transaction and provides advice to the
municipal entity with respect to the
structure of a municipal securities
offering, the advisor would have to
register with the Commission as a
municipal advisor and would be subject
to regulation by the MSRB as a
municipal advisor. In addition, a
commodity trading advisor must register
with the Commission if the advisor
provides advice with respect to swaps
on behalf of a municipal entity or
obligated person, but is not registered as
a commodity trading advisor.
Attorneys, Engineers and Other
Professionals
The definition of municipal advisor in
Exchange Act Section 15B(e)(4)
excludes professionals such as attorneys
offering legal advice and engineers
providing engineering advice.123 One
commenter noted that the definition of
‘‘municipal advisor’’ does not
contemplate a specific exclusion for
accountants offering ‘‘traditional
accounting advice.’’ 124 In discussing
what is ‘‘traditional accounting advice,’’
the commenter noted the engagement of
accountants by municipal entities in
connection with the issuance of
municipal securities for the purpose of
121 See
proposed rule 15a1–1(d)(2)(iii).
id.
123 See 15 U.S.C. 78o–4(e)(4)(C).
124 See Kutak Rock Letter.
122 See
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833
consenting to the use of accountant
prepared or audited financial statements
and/or providing bring down or comfort
letters 125 relating to such financial
statements.126
Because accountants may provide
advice to municipal entities that
includes advice about the structure,
timing, terms, and other similar matters
concerning the issuance of municipal
securities, the Commission does not
believe it is appropriate to exclude these
professionals from the definition of
municipal advisor entirely. Accountants
may also be engaged by municipal
entities to provide other services, such
as conducting feasibility studies or
preparing financial projections.127 In
addition, as noted by this commenter, in
defining ‘‘municipal advisor’’ in
Exchange Act Section 15B(e)(4),
Congress only excluded attorneys
offering legal advice or services of a
traditional legal nature, or engineers
providing engineering advice.128 At this
time, the Commission believes that it is
not necessary or appropriate to exclude
all accountants from the definition of
‘‘municipal advisor.’’
The Commission believes, however,
that the preparation or audit of financial
statements, or the issuance of letters for
underwriters 129 by accountants would
not constitute the provision of advice
within the meaning of Exchange Act
Section 15B(e)(4)(A)(i).130 Accordingly,
in proposed rule 15Ba1–1(d)(2)(vi), the
Commission proposes to exclude from
the definition of a ‘‘municipal advisor’’
accountants preparing financial
statements, auditing financial
statements, or issuing letters for
underwriters for, or on behalf of, a
municipal entity or obligated person.131
In addition, with respect to the
exclusion from the definition of
‘‘municipal advisor’’ for attorneys
offering legal advice or services of a
traditional legal nature, the Commission
interprets this exclusion to apply only
when the legal services are to a client of
the attorney that is a municipal entity or
obligated person. Accordingly, proposed
rule 15Ba1–1(d)(2)(iv) provides that the
125 In auditing literature, bring down and comfort
letters are referred to as ‘‘letters for underwriters.’’
See AU Sec. 634, Letters for Underwriters. Thus,
the Commission is proposing to use the term ‘‘letters
for underwriters’’ for this purpose.
126 See Kutak Rock Letter.
127 See id. See also Howard Letter (stating that
certified public accountants that provide advice on
bond issues ‘‘clearly meet the definition of
‘Municipal Advisor’ under the Act and should be
subject to registration’’).
128 See Kutak Rock Letter. See also 15 U.S.C. 78o–
4(e)(4)(C).
129 See supra note 125.
130 See 15 U.S.C. 78o–4(e)(4)(A)(i).
131 See proposed rule 15Ba1–1(d)(2)(vi).
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term ‘‘municipal advisor’’ shall not
include any attorney unless the attorney
engages in municipal advisory activities
other than offering legal advice or
providing services that are of a
traditional legal nature to a client of the
attorney that is a municipal entity or
obligated person.132 Generally, the
Commission interprets advice provided
by a lawyer to its client with respect to
the structure, timing, terms and other
similar matters concerning municipal
financial products or the issuance of
municipal securities to be services of a
traditional legal nature if such advice is
provided within a lawyer-client
relationship specifically related to such
products in conjunction with related
legal advice. Thus, for example, advice
comparing the structures, terms, or
associated costs of issuance of different
types of securities or financial
instruments (such as fixed rate bonds or
variable rate demand obligations) given
by an attorney hired to advise a
municipal entity client embarking on a
bond offering, would be considered to
be services of a traditional legal nature,
as would advice concerning the tax
consequences of alternative financing
structures or advice recommending a
particular financing structure due to
legal considerations such as the
limitations included in existing
contracts and indentures to which the
issuer is a party. However, advice which
is primarily financial in nature, such as
advice concerning the financial
feasibility of a project or financing,
advice estimating or comparing the
relative cost to maturity of an issuance
depending on various interest rate
assumptions or advice recommending a
particular structure as being financially
advantageous under prevailing market
conditions, would be primarily financial
advice and not services of a traditional
legal nature.
With respect to the exclusion from the
definition of ‘‘municipal advisor’’ for
engineers providing engineering advice,
one commenter requested that the
Commission include in this exclusion
‘‘activity which is incidental to
engineering services.’’ 133 In addition,
this commenter urged the Commission
to ‘‘distinguish purely informational and
educational activities which do not rise
to the level of advice from
individualized advice about the
appropriate investment for a particular
state or local government entity.’’ 134
Moreover, this commenter stated that ‘‘a
clean energy services company should
not also be required to register as a
132 See
133 See
proposed rule 15Ba1–1(d)(2)(iv).
Bingham Letter.
134 Id.
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municipal advisor simply because it
provides cash-flow modeling and other
similar information that is inextricably
linked to the engineering analysis, even
if that modeling is individualized to the
municipal entity.’’ 135 In addition, the
commenter urged the Commission to
define ‘‘advice’’ to ‘‘exclude feasibility
studies that are a necessary part of any
engineering projects, including clean
energy services projects.’’ 136
As discussed above and below, the
exclusions from the definition of
‘‘municipal advisor’’ included by
Congress in Section 15B(e)(4) of the
Exchange Act were limited.137 With
respect to engineers, the exclusion
applies to engineers providing
‘‘engineering advice.’’ For example,
costing out engineering alternatives
would not subject an engineer to
registration as a municipal advisor
because such activity would be
considered engineering advice. The
exclusion does not include
circumstances in which the engineer is
engaging in municipal advisory
activities, including cash-flow modeling
or the provision of information and
education relating to municipal
financial products or the issuance of
municipal securities, even if those
activities are incidental to the provision
of engineering advice. In addition, the
exclusion does not include
circumstances in which the engineer is
preparing feasibility studies concerning
municipal financial products or the
issuance of municipal securities that
include analysis beyond the engineering
aspects of the project and, therefore, an
engineer preparing such studies would
be subject to registration as a municipal
advisor.138
Employees of a Municipal Entity
Exchange Act Section 15B(e)(4)(A)
provides that the term ‘‘municipal
advisor’’ excludes employees of a
municipal entity.139 One commenter
suggested that the Commission clarify
135 Id.
136 Id.
137 See
15 U.S.C. 78o–4(e)(4)(C).
‘‘feasibility study’’ is a report detailing the
economic practicality of and the need for a
proposed capital program. It frequently analyzes
demand for the product or service being sold and
forecasts financial statements or other operating
statistics. The feasibility study may include a user
or other rate analysis to provide an estimate of
revenues that will be generated for the purpose of
substantiating that debt service can be met from
pledged revenues. In addition, the feasibility study
may provide details of the physical, operating,
economic or engineering aspects of the proposed
project, including estimates of construction costs,
completion dates and drawdown schedules. See
MSRB Glossary of Municipal Securities Terms,
available at https://www.msrb.org/msrb1/glossary/
glossary_db.asp?sel=f.
139 15 U.S.C. 78o–4(e)(4)(A).
138 A
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that this exclusion from the definition of
‘‘municipal advisor’’ would include any
person serving as an appointed or
elected member of the governing body
of a municipal entity, such as a board
member, county commissioner or city
councilman.140 This commenter stated
that because these persons are not
technically ‘‘employees’’ of the
municipal entity (but rather are ‘‘unpaid
volunteers’’), these persons would not
fall within the exclusion from the
definition of ‘‘municipal advisor’’ for
‘‘employees of a municipal entity’’ and,
therefore, may have to register as
municipal advisors.141
The Commission believes that the
exclusion from the definition of a
‘‘municipal advisor’’ for ‘‘employees of a
municipal entity’’ should include any
person serving as an elected member of
the governing body of the municipal
entity to the extent that person is acting
within the scope of his or her role as an
elected member of the governing body
of the municipal entity. ‘‘Employees of
a municipal entity’’ should also include
appointed members of a governing body
to the extent such appointed members
are ex officio members of the governing
body by virtue of holding an elective
office.142 The Commission does not
believe that appointed members of a
governing body of a municipal entity
that are not elected ex officio members
should be excluded from the definition
of a ‘‘municipal advisor.’’ The
Commission believes that this
interpretation is appropriate because
employees and elected members are
accountable to the municipal entity for
their actions. In addition, the
Commission is concerned that
appointed members, unlike elected
officials and elected ex officio members,
are not directly accountable for their
performance to the citizens of the
municipal entity.
Banks
Another commenter stated that the
Commission should exempt from the
definition of a ‘‘municipal advisor’’
banks providing ‘‘traditional banking
services’’ and banks and trust companies
that provide ‘‘investment advisory
services.’’ 143 As support, this
140 See
Kutak Rock Letter.
id. See also 15 U.S.C. 78o–4(e)(4)(A).
142 This would include persons appointed to fill
the remainder of the term for an elective office.
143 See ABA Letter. In providing examples of the
types of activities in which banks and trust
companies engage, this commenter stated that: ‘‘[o]n
the commercial side of the bank, these services and
products include direct loans, checking accounts,
and CDs. Banks of all sizes also frequently are asked
to respond to RFP requests from municipal entities
regarding investment products offered by the
banking entity, such as interest-bearing bank
141 See
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commenter stated that banks are
currently well-regulated and banks that
offer trustee services are subject to
rigorous and frequent examination, as
well as extensive regulation by the
various Federal or State banking
regulators.144 The Commission notes
that Congress included in the statutory
definition of ‘‘municipal advisor’’ a
limited number of exclusions from the
definition, and such exclusions did not
include banks in any capacity. As
discussed below, under ‘‘Request for
Comment,’’ among other things, the
Commission is seeking comment on
whether the definition of a ‘‘municipal
advisor’’ should exclude banks
providing advice to a municipal entity
or obligated person concerning
transactions that involve a ‘‘deposit,’’ as
defined in Section 3(l) of the Federal
Deposit Insurance Act,145 at an ‘‘insured
depository institution,’’ as defined in
Section 3(c)(2) of the Federal Deposit
Insurance Act.146 Such an exclusion, if
adopted, would result in excluding
banks from the definition of a
‘‘municipal advisor’’ to the extent that
the bank is providing advice to a
municipal entity or obligated person
with respect to such traditional banking
products as insured checking and
savings accounts and certificates of
deposit, while not excluding from the
definition of a ‘‘municipal advisor’’ a
bank that is providing advice to a
municipal entity or obligated person
concerning other municipal advisory
activities. The Commission notes that,
similarly, banks are not excluded from
the requirement to register as municipal
securities dealers.
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Request for Comment
The Commission requests comments
generally on its proposals discussed
above and also requests comment on the
following specific issues:
• In light of our understanding of
Congressional objectives and intent, are
the Commission’s interpretations under
the definition of ‘‘municipal advisor’’
and related terms, and the exclusions
from the definition of ‘‘municipal
deposits, money market mutual funds, or other
exempt securities. Banks also are significant
investors in the securities issued by municipalities
and provide credit or, through their affiliates,
underwriting services to municipalities when the
city or township wants to buy a fire truck or build
a new school or other similar facility. Furthermore,
for over one hundred and fifty years, banks and
trust companies have provided fiduciary services to
municipal entities in the United States. In this
capacity banks often manage investment accounts
for local towns and act as trustees with respect to
bond proceeds, escrow accounts, governmental
pension plans and other similar capacities.’’ Id.
144 See id.
145 12 U.S.C. 1813(l).
146 12 U.S.C. 1813(c)(2).
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advisor’’ appropriate? Should any of
these interpretations be modified or
clarified in any way?
• The Commission notes that the
definition of ‘‘municipal entity’’
includes, but is not limited to, public
pension funds, local government
investment pools and other state and
local governmental entities or funds as
well as participant-directed investment
programs or plans such as 529, 403(b),
and 457 plans. Is the Commission’s
interpretation of ‘‘municipal entity’’ for
purposes of the proposed definition of
‘‘municipal advisor’’ appropriate? Is
additional clarification necessary? If so,
how should the Commission further
clarify this interpretation?
• In what circumstances with respect
to municipal financial products or the
issuance of municipal securities should
charter schools be considered municipal
entities? In what circumstances with
respect to municipal financial products
or the issuance of municipal securities
should charter schools be considered
obligated persons? To what extent do
state laws vary in their treatment of
charter schools in ways that would
affect their classification as municipal
entities or obligated persons?
• The Commission proposes to
exempt from the definition of ‘‘obligated
person’’ providers of municipal bond
insurance, letters of credit, or other
liquidity facilities so that the definition
of ‘‘obligated person’’ for purposes of the
proposed rules is consistent with the
definition of ‘‘obligated person’’ in rule
15c2–12 under the Exchange Act.
Should the proposed definition be
modified or clarified in any way?
Should the term ‘‘obligated person’’ for
purposes of municipal advisor
registration be consistent with the
definition of ‘‘obligated person’’ for
purposes of rule 15c2–12? If so, why? If
not, why not? Should the Commission
include additional exemptions from the
definition of ‘‘obligated person’’? If so,
please explain and provide specific
examples.
• The Commission proposes to
interpret the term ‘‘investment
strategies’’ to include plans or programs
for the investment of the proceeds of
municipal securities (other than
municipal derivatives and guaranteed
investment contracts), plans, programs
or pools of assets that invest funds held
by or on behalf of a municipal entity, or
the recommendation of or brokerage of
municipal escrow investments. Should
the Commission modify or clarify this
interpretation in any way? If so, why? If
not, why not? Please provide any
suggested alternative language. Should
the Commission exclude plans,
programs or pools of assets that invest
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835
funds held by or on behalf of a
municipal entity that are not proceeds
of the issuance of municipal securities
from the definition of investment
strategies? If so, why? If not, why not?
If the Commission were to limit
investment strategies to ‘‘plans or
programs for the investment of the
proceeds of municipal securities (other
than municipal derivatives and
guaranteed investment contracts) or the
recommendation of or brokerage of
municipal escrow investments,’’ how
should the Commission determine when
funds should no longer be considered
‘‘proceeds of municipal securities?’’
What obligations should parties other
than the municipal entity have in
determining whether funds held by or
on behalf of a municipal entity are
proceeds of municipal securities?
• As noted above, to the extent a
person is providing advice to a pooled
investment vehicle in which one or
more municipal entities are investors
along with other investors that are not
municipal entities, the pooled
investment vehicle would not be
considered funds ‘‘held by or on behalf
of a municipal entity’’ and, therefore, a
person providing advice to the pooled
investment vehicle would not be
required to register as a municipal
advisor. Should the Commission modify
or clarify this interpretation in any way?
If so, why? If not, why not? Please
provide any suggested alternative
language. Should the Commission
provide that such interpretation should
apply only if the investors that are not
municipal entities are the primary
investors in the pooled investment
vehicle? If so, how, and above what
level, should the Commission determine
that investors that are not municipal
entities are the primary investors in the
pooled investment vehicle? Should such
a determination be based on a dollar
amount or a percentage of the pooled
investment vehicle’s assets? Should the
Commission provide that this pooled
investment vehicle interpretation would
no longer apply if the municipal entity
(or municipal entities) investing in the
pooled investment vehicle becomes the
primary investor in the pooled
investment vehicle subsequent to the
initial investment? If so, above what
level of investment should a municipal
entity (or municipal entities) be
considered to be the primary investor in
the pooled investment vehicle? Should
such a determination be based on a
dollar amount or a percentage of the
pooled investment vehicle’s assets?
• As discussed above, the
Commission is proposing to interpret
the term ‘‘investment strategies’’ to
include plans, programs or pools of
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assets that invest funds held by or on
behalf of a municipal entity. Thus,
commingled proceeds, regardless of
when they lose their characteristic as
proceeds, would still constitute ‘‘funds
held by or on behalf of a municipal
entity’’ and, therefore, any advice with
respect to such funds would be
municipal advice, unless subject to an
exclusion. Is this interpretation too
broad? Please explain and include a
discussion of concerns, if any, such an
interpretation could raise.
• In interpreting the term ‘‘solicitation
of a municipal entity or obligated
person,’’ the Commission notes that,
unless an exclusion applies, any thirdparty solicitor that seeks business on
behalf of an investment adviser from a
municipal entity or obligated person,
such as a municipal pension fund or a
local government investment pool, must
register as a municipal advisor. In
addition, the Commission notes that the
determination regarding whether a
solicitation of a municipal entity or
obligated person requires a person to
register as a municipal advisor is not
based on the number, or the size, of
investments that are solicited. Thus, the
Commission would consider a
solicitation of a single investment by a
municipal entity or obligated person in
any amount to require the person
soliciting the municipal entity or
obligated person to register as a
municipal advisor. Do these
interpretations require further
clarification? If so, how? Should these
interpretations be modified in any way?
Please explain and provide suggested
alternative language, as appropriate. Is
there a de minimis number or size of
investments that should be allowed to
be solicited before a person is required
to register as a municipal advisor? If so,
what should this de minimis amount
be? Please explain the rationale for
providing for a de minimis exception.
• Should the Commission, as
proposed, permit the voluntary
registration by persons that solicit a
municipal entity or obligated person on
behalf of a broker, dealer, municipal
securities dealer, municipal advisor, or
investment adviser that controls, is
controlled by, or is under common
control with the person undertaking
such solicitation? If not, why not?
Should the Commission permit
voluntary registration by any other
group of persons? If so, which persons
and why?
• In interpreting the term ‘‘solicitation
of a municipal entity or obligated
person,’’ the Commission also notes that
such solicitation must be ‘‘for the
purpose of obtaining or retaining an
engagement * * * in connection with
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municipal financial products [or] the
issuance of municipal securities.’’ Are
there types of obligated persons to
which this definition should not apply
in connection with the issuance of
municipal securities? If so, please
identify the types of obligated persons
to which the definition should not
apply and explain why. Are there types
of municipal financial products (such as
municipal derivatives which include
swaps or security-based swaps where an
obligated person is the counterparty) to
which this definition should not apply?
If so, please identify the types of
municipal financial products to which
the definition should not apply and
explain why.
• Proposed rule 15Ba1–1(f) would
define the term ‘‘municipal derivatives’’
to mean ‘‘any swap (as defined in
Section 1a(47) of the Commodity
Exchange Act (7 U.S.C. 1a(47)) and
Section 3(a)(69) of the Securities
Exchange Act of 1934 (15 U.S.C.
78c(a)(69)), including any rules and
regulations thereunder) or securitybased swap (as defined in Section 3a(68)
of the Securities Exchange Act of 1934
(15 U.S.C. 78c(a)(68)), including any
rules and regulations thereunder) to
which a municipal entity is a
counterparty, or to which an obligated
person, acting in its capacity as an
obligated person, is a counterparty.’’
Should this definition be clarified or
modified in any way? If so, how?
Should the definition of municipal
derivatives specifically include other
financial products? For example, should
the definition specifically include
options, forwards or futures? If so,
which products and why? Should this
definition include a financial product
that is composed of multiple
components where one or more of such
components is derivative in nature,
such as a structured note or convertible
bond? 147 Should this definition include
financial products, in addition to swaps
and security-based swaps, that are based
on municipal securities that are
exempted securities under the Exchange
Act or are exempt from registration
under the Securities Act? Should it
include an over-the-counter option
contract with a municipal entity? If so,
which additional financial products
should be included in the definition and
why?
• Is our interpretation of the
exclusion from the definition of a
‘‘municipal advisor’’ for a broker, dealer,
or municipal securities dealer serving as
an underwriter appropriate?
Specifically, the Commission interprets
this exclusion to mean that a broker147 See
PO 00000
SIFMA Letter.
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dealer acting as an underwriter or
placement agent that solicits a
municipal entity to invest in a security,
or a broker-dealer acting as an
underwriter that also advises a
municipal entity with respect to the
investment of proceeds of municipal
securities or the advisability of a
municipal derivative would be a
municipal advisor. Should these
interpretations be modified in any way,
or further clarified? If so, how?
• Consistent with Congress’s
definition of the term ‘‘municipal
advisor,’’ the Commission does not
believe that whether a municipal
advisor is compensated for providing
municipal advice should factor into the
determination regarding whether the
municipal advisor must register with
the Commission. Are there any persons
who engage in uncompensated
municipal advisory activities, or
municipal advisory activities for
indirect compensation, that the
Commission should exclude from the
definition of ‘‘municipal advisor’’?
Please explain.
• The Commission would interpret
the exclusion from the definition of
‘‘municipal advisor’’ in Exchange Act
Section 15B(4)(C) for Commissionregistered investment advisers and their
associated persons who are providing
investment advice, to mean that a
Commission-registered investment
adviser or an associated person of a
Commission-registered investment
adviser would not have to register as a
‘‘municipal advisor’’ with respect to the
provision of any advice that would
subject the adviser (or associated
person) to the Investment Advisers Act.
Should this interpretation be modified
or clarified in any way? If so, how?
• As a result of the changes in the
threshold for registration as an
investment adviser,148 fewer entities
will be required to register as
investment advisers under the Federal
securities laws and will instead be
subject to state registration
requirements. Investment advisers that
are not registered with the Commission
would not be exempt from registration
as municipal advisors to the extent that
they are engaging in municipal advisory
activities. Should state-registered
investment advisers be exempt from the
definition of ‘‘municipal advisor’’ to the
extent they are providing advice that
otherwise would be subject to the
Investment Advisers Act, but for the
operation of a prohibition to, or
exemption from, Commission
registration?
148 See
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• Should the Commission’s
interpretation of the exclusion from the
definition of a ‘‘municipal advisor’’ for
registered commodity trading advisors
and their associated persons providing
advice related to swaps be modified in
any way, or further clarified? If so, how?
• The Commission proposes to
exclude from the definition of a
‘‘municipal advisor’’ persons preparing
financial statements, auditing financial
statements, or issuing letters for
underwriters for, or on behalf of, a
municipal entity or obligated person.
Should persons providing these
accounting services be excluded from
the definition of ‘‘municipal advisor’’?
Are there additional types of services
that an accountant provides that should
not require the registration of an
accountant as a municipal advisor? If so,
what additional types of accounting
services should qualify an accountant
for an exclusion from the definition of
‘‘municipal advisor’’? Are there activities
that are incidental to the provision of
accounting services or inextricably
linked to accounting services that can
only reasonably be performed by an
accountant that might otherwise
constitute advice with respect to the
issuance of municipal securities or
municipal financial products?
• Should the Commission expand the
exclusion from the definition of
‘‘municipal advisor’’ beyond engineers
providing engineering advice? If so, why
and how should such exclusion be
expanded? If not, why not? How should
the Commission interpret the term
‘‘engineering advice’’? Are there
activities that are ‘‘incidental to the
provision of engineering advice’’ or
‘‘inextricably linked to engineering
advice’’ that can only reasonably be
performed by an engineer that might
otherwise constitute advice with respect
to the issuance of municipal securities
or municipal financial products? As
discussed above, the Commission does
not interpret the exclusion of engineers
providing engineering advice to include
circumstances in which the engineer is
preparing feasibility studies concerning
municipal financial products or the
issuance of municipal securities that
include analysis beyond the engineering
aspects of the project and, therefore, an
engineer preparing such studies would
be subject to registration as a municipal
advisor. Is this an appropriate
interpretation? Please explain.
• The Commission proposes to
exclude from the definition of
municipal advisor attorneys offering
legal advice or services of a traditional
legal nature. As discussed above, the
Commission interprets this exclusion to
apply only when the legal services are
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to a client of the attorney that is a
municipal entity or obligated person. Is
this an appropriate interpretation?
Please explain. Should the Commission
provide an exclusion for all activities of
an attorney as long as that attorney has
an attorney-client relationship with the
municipal entity or obligated person?
Why or why not? Should the scope of
the exclusion for attorneys be different
for attorneys for obligated persons? Why
or why not? Neither the Dodd-Frank Act
nor the proposed rule defines the term
‘‘services of a traditional legal nature.’’ Is
the meaning of the term sufficiently
clear? If not, should the Commission
provide additional interpretive
guidance? How should the Commission
interpret the term?
• Are there other types of
professional activities that should be
excluded from the definition of a
‘‘municipal advisor’’? Please explain.
• The Commission is proposing to
exclude from the definition of
‘‘municipal entity’’ elected members of a
governing body of a municipal entity,
but to include appointed members of a
municipal entity’s governing body
unless such appointed members are ex
officio members of the governing body
by virtue of holding an elective office.
Are these distinctions appropriate?
Please explain. Are there other persons
associated with a municipal entity who
might not be ‘‘employees’’ of a
municipal entity that the Commission
should exclude from the definition of a
‘‘municipal advisor’’?
• Should employees of obligated
persons be excluded from the definition
of ‘‘municipal advisor’’ to the extent they
are providing advice to the obligated
person, acting in its capacity as an
obligated person, in connection with
municipal financial products or the
issuance of municipal securities? One
commenter 149 expressed concern that
volunteers at entities such as charter
schools could be required to register as
municipal advisors. Are there types of
persons other than employees of
obligated persons that should be
excluded from the definition of
‘‘municipal advisor?’’ If yes, please
provide examples of the specific types
of persons and the specific
circumstances under which they should
be excluded.
• Should the Commission exclude
from the definition of a ‘‘municipal
advisor’’ banks providing advice to a
municipal entity or obligated person
concerning transactions that involve a
‘‘deposit,’’ as defined in Section 3(l) of
the Federal Deposit Insurance Act 150 at
an ‘‘insured depository institution,’’ as
defined in Section 3(c)(2) of the Federal
Deposit Insurance Act,151 such as
insured checking and savings accounts
and certificates of deposit? Should the
Commission exclude from the definition
of a ‘‘municipal advisor’’ banks that
respond to requests for proposals
(‘‘RFPs’’) from municipal entities
regarding other investment products
offered by the banking entity, such as
money market mutual funds or other
exempt securities? Should the
Commission exclude from the definition
of ‘‘municipal advisor’’ a bank that
provides to a municipal entity a listing
of the options available from the bank
for the short-term investment of excess
cash (for example, interest-bearing bank
accounts and overnight or other
periodic investment sweeps) and
negotiates the terms of an investment
with the municipal entity? 152 Should
the Commission exclude from the
definition of ‘‘municipal advisor’’ a bank
that provides to a municipal entity the
terms upon which the bank would
purchase for the bank’s own account (to
be held to maturity) securities issued by
the municipal entity, such as bond
anticipation notes, tax anticipation
notes, or revenue anticipation notes? 153
Should the Commission exclude from
the definition of ‘‘municipal advisor’’ a
bank that directs or executes purchases
and sales of securities or other
instruments with respect to funds in a
trust account or other fiduciary account
in accordance with predetermined
investment criteria or guidelines,
including on a discretionary basis? 154
Should the Commission exclude from
the definition of a ‘‘municipal advisor’’
banks and trust companies that provide
other fiduciary services to municipal
entities, such as acting as trustees with
respect to governmental pension plans
and other similar capacities? Should
banks and trust companies be exempt
from the definition of ‘‘municipal
advisor’’ to the extent they are providing
advice that otherwise would subject
them to registration under the
Investment Advisers Act, but for the
operation of a prohibition to or
exemption from registration? Please
explain any response to these questions
and to the extent that an exemption is
recommended, please provide suggested
exemptive language.
• Should the Commission exclude
from the definition of ‘‘municipal
advisor’’ a broker-dealer that provides a
municipal entity with price quotations
151 See
supra note 146.
SIFMA Letter.
153 See id.
154 See id.
152 See
149 See
150 See
PO 00000
Jacobsen Letter.
supra note 145.
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with respect to particular securities (or
securities having particular
characteristics) which the broker-dealer
would be prepared to sell as principal
or acquire for the municipal entity? 155
Should the Commission exclude from
the definition of ‘‘municipal advisor’’ a
broker-dealer that provides to a
municipal entity a list of securities
meeting specified criteria that are
readily available in the marketplace, but
without making a recommendation as to
the merits of any investment
particularized to the municipal entity’s
specific circumstances or investment
objectives? 156
• Should the Commission exclude
from the definition of ‘‘municipal
advisor’’ an entity that provides to
clients investment advice, such as
research information and generic trade
ideas or commentary that does not
purport to meet the needs or objectives
of specific clients, and is provided to a
municipal entity as part of its ongoing
ordinary communications? 157
• Should the Commission permit
registration of only separately
identifiable departments or divisions of
a bank (‘‘SIDs’’)? Please explain. Would
the following suggested rule text, based
on MSRB rule G–1 relating to SIDs
engaged in municipal securities dealer
activitites, provide appropriate
conditions for determining whether and
when a SID engaged in municipal
advisory activities may register as a
municipal advisor: ‘‘(a) A separately
identifiable department or division of a
bank, as such term is used in Section
3(a)(30) of the Securities Exchange Act
of 1934, is that unit of the bank which
conducts all of the municipal advisory
activities of the bank, provided that:
(1) Such unit is under the direct
supervision of an officer or officers
designated by the board of directors of
the bank as responsible for the day-today conduct of the bank’s municipal
advisory activities, including the
supervision of all bank employees
engaged in the performance of such
activities; and (2) There are separately
maintained in or separately extractable
from such unit’s own facilities or the
facilities of the bank, all of the records
relating to the bank’s municipal
advisory activities, and further provided
that such records are so maintained or
otherwise accessible as to permit
independent examination thereof and
enforcement of applicable provisions of
the Exchange Act, the rules and
regulations thereunder and the rules of
the MSRB relating to municipal
id.
id.
157 See id.
advisors; (b) The fact that directors and
senior officers of the bank may from
time to time set broad policy guidelines
affecting the bank as a whole and which
are not directly related to the day-to-day
conduct of the bank’s municipal
advisory activities, shall not disqualify
the unit hereinbefore described as a
separately identifiable department or
division of the bank or require that such
directors or officers be considered as
part of such unit; and (c) The fact that
the bank’s municipal advisory activities
are conducted in more than one
geographic organizational or operational
unit of the bank shall not preclude a
finding that the bank has a separately
identifiable department or division for
purposes of this rule, provided,
however, that all such units are
identifiable and that the requirements of
paragraphs (1) and (2) of section (a) of
this rule are met with respect to each
such unit. All such geographic,
organizational or operational units of
the bank shall be considered in the
aggregate as the separately identifiable
department or division of the bank for
purposes of this rule.’’? Should this
language be clarified or modified in any
way? Please provide suggested
alternative language, as appropriate. Are
there reasons that the language of MSRB
rule G–1, as modified, should not be
used for SIDs engaging in municipal
advisory activities? Please explain.
• Are there other exclusions from the
definition of ‘‘municipal advisor’’ that
the Commission should consider?
Please explain.
2. Proposed Rule 15Ba1–2
a. Application for Municipal Advisor
Registration
As discussed above, the registration
requirement for municipal advisors
under Section 15B of the Exchange Act
applies to every person, including every
natural person, who provides the types
of advice described in the definition of
a ‘‘municipal advisor’’—whether that
person is an organized entity, sole
proprietor, employee of a municipal
advisory firm, or otherwise.158 The
information that is appropriate to seek
from a firm before it can be allowed to
register may be different from the
information that is appropriate to seek
from an individual. Thus, as described
in detail below, the Commission is
proposing the submission of Form MA
by municipal advisory firms and the
submission of Form MA–I by natural
person municipal advisors. A sole
proprietor is included in the definition
of ‘‘municipal advisory firm’’ and
155 See
156 See
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definition of the term ‘‘municipal advisor’’).
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‘‘natural person municipal advisor.’’ As
a result, a sole proprietor would have to
complete both Form MA and Form
MA–I.
The Commission is proposing rule
15Ba1–2, which would establish the
procedures by which a municipal
advisor may apply to the Commission
for registration. The proposed rule
provides that an application for the
registration of a municipal advisor must
be filed electronically with the
Commission on proposed new Form MA
or Form MA–I, in accordance with the
instructions to Forms MA or MA–I, as
applicable.159
Proposed rule 15Ba1–2(a) would
require a municipal advisory firm,
including those currently registered on
Form MA–T, to apply for registration
with the Commission as a municipal
advisor by completing Form MA in
accordance with the instructions to the
form, and filing Form MA electronically
with the Commission. Proposed rule
15Ba1–2(b) would require a natural
person municipal advisor, which would
include an individual employee of a
firm who meets the definition of
municipal advisor, to apply for
registration with the Commission as a
municipal advisor by completing Form
MA–I in accordance with the
instructions to the form and
electronically filing the form with the
Commission.160
Each Form MA and MA–I would be
considered filed upon acceptance by the
Commission. As noted above, proposed
rule 15Ba1–2 would require Forms
MA and MA–I to be filed electronically
with the Commission.161 Similarly, the
Commission’s registration forms for
broker-dealers and investment
advisers—Forms BD and ADV—are
currently filed electronically through
159 If the Commission adopts the registration rule
as proposed, municipal advisors may be required to
file the forms required by the proposed rule in
paper until such time as an electronic filing system
is operational and capable of receiving the forms.
Municipal advisors would be notified as soon as the
electronic system can accept filing of the forms. At
such time, the Commission may require each
municipal advisor to promptly re-file electronically
the applicable forms.
160 See infra note 233.
161 The Commission is also proposing that Forms
MA–W (relating to withdrawals from registration)
and MA–NR (relating to appointments of agent for
service of process by non-resident municipal
advisors and non-resident general partners and
managing agents of municipal advisors) be filed
electronically. Form MA–W would also constitute
a ‘‘report’’ for purposes of Sections 15B(c), 17(a),
18(a), 32(a) (15 U.S.C. 78o–4(c), 78q(a), 78r(a),
78ff(a)) and other applicable provisions of the
Exchange Act. See proposed rule 15Ba1–3(d). As a
consequence, it would also be unlawful for a
municipal advisor to willfully make or cause to be
made, a false or misleading statement of a material
fact or omit to state a material fact in Form MA–
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system? For example, should the system
have the capability to cross-check other
electronic registration systems, such as
IARD and CRD? If so, which systems
and why?
• Is EDGAR the best vehicle for filing
of the required forms with the
Commission? If not, what vehicle would
be superior and why? Should the
Commission allow the filing of
documents in electronic media other
than EDGAR? If so, please make specific
recommendations.
• Would requiring the filing of the
forms on EDGAR be an appropriate way
to make the requested information
publicly available? Should the
Commission require Web site posting of
the information instead or in addition?
What advantages, if any, would Web site
posting have over requiring that the
information be filed, and made publicly
available, on EDGAR?
• Does the method for submitting
documents in electronic format as
opposed to paper format create any
issues or hardships for any group of
potentially affected firms?
Request for Comment
The Commission requests comments
generally on the proposed registration
procedures and also requests comment
on the following specific issues:
• Forms MA and MA–I would have to
be filed electronically for purposes of
registering with the Commission.
Should the proposed rule include an
option for the forms to be filed in paper
rather than electronically? If so, please
explain under what circumstances it
would be appropriate for allowing paper
filings of the forms.
• Are there any other issues
concerning the filing of forms
electronically about which the
Commission should be made aware? If
so, what are they?
• Are there specific capabilities that
the Commission should consider in
developing an electronic registration
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the Central Registration Depositary
(‘‘CRD’’) system operated by FINRA and
the Investment Adviser Registration
Depository (‘‘IARD’’) system operated by
FINRA, respectively. The Commission is
considering whether forms for the
permanent registration as a municipal
advisor should be submitted through the
Commission’s Electronic Data
Gathering, Analysis, and Retrieval
System (‘‘EDGAR’’), or otherwise.162
Filings required to be made on a day
that the Commission’s electronic filing
system is closed would be considered
timely filed, if filed electronically no
later than the following business day.163
Information required by the forms
would be made publicly available
unless otherwise noted below. In
addition, Forms MA and MA–I would
constitute ‘‘reports’’ for purposes of
Sections 15B(c), 17(a), 18(a), 32(a) (15
U.S.C. 78o–4(c), 78q(a), 78r(a), 78ff(a))
and other applicable provisions of the
Exchange Act.164 As a consequence, it
would be unlawful for a municipal
advisor to willfully make or cause to be
made, a false or misleading statement of
a material fact or omit to state a material
fact in Form MA or Form MA–I.
The Commission is proposing a set of
instructions (‘‘Instructions’’), which
include general instructions for proper
completion and submission of each of
the proposed Forms MA, MA–I, MA–W
and MA–NR (‘‘General Instructions’’),
specific instructions for the completion
of Form MA and Form MA–I
(‘‘Instructions to Form MA’’ and
‘‘Instructions to Form MA–I’’,
respectively), and a glossary of terms
(‘‘Glossary’’) intended to help municipal
advisors complete the forms for
registration. These Instructions and
Glossary are attached to this release,
together with proposed Forms MA,
MA–I, MA–W and MA–NR.165 The
instructions are intended to answer
basic questions concerning completion
of the forms. Generally, the definitions
in the Glossary are derived from Form
ADV,166 the terms in Exchange Act
Section 15B(e),167 and the definitions in
proposed rule 15Ba1–1.168 For ease of
reference, we are proposing one
Glossary that would apply to all of the
proposed forms. All terms in the forms
162 If the registration forms are required to be
submitted through EDGAR, the electronic filing
requirements of Regulation S–T would apply. See
generally 17 CFR 232 (governing the electronic
submission of documents filed with the
Commission). In addition, the Commission is
considering whether a fee would be charged for
filing Forms MA, MA–I, MA–NR or MA–W. For
example, the MSRB, in conjunction with or on
behalf of the Commission, has the authority to
charge reasonable fees for the submission of
information to information systems developed for
the purpose of serving as a repository of
information from municipal market participants.
See Section 15B(b)(3) of the Exchange Act (15
U.S.C. 78o–4(b)(3)).
163 See proposed rule 15Ba1–2(c).
164 See proposed rule 15Ba1–2(d).
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b. Instructions and Glossary
165 Proposed Form MA–W would be used for
withdrawal from registration as a municipal
advisor, and proposed Form MA–NR would be used
for the appointment of an agent for service of
process by a non-resident municipal advisor or a
non-resident general partner or managing agent of
a municipal advisor. See infra Sections II.A.3.b. and
II.A.5. (discussing Forms MA–W and MA–NR,
respectively).
166 See 17 CFR 279.1.
167 See 15 U.S.C. 78o–4(e).
168 See proposed rule 15Ba1–1.
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839
that appear in italics are defined or
described in the Glossary.169
General Instruction 1 would direct an
applicant looking for more information
about the Commission’s rules with
respect to municipal advisors and the
Exchange Act to the Commission’s Web
site. General Instruction 2 explains who
should file Forms MA, MA–I, MA–NR
and MA–W, including who may
voluntarily register as a municipal
advisor. General Instruction 3 would
instruct an applicant with respect to the
organization of Form MA (for example,
that Form MA also includes Schedules
A, B, C, and D, as well as Criminal
Action, Regulatory Action, and Civil
Judicial Action Disclosure Pages, as
described further below), and would
require that an applicant complete all
items in Form MA. General Instruction
4 would provide comparable
instructions as to the organization and
completion of Form MA–I and the
schedules and disclosure pages required
by that form. General Instruction 5
would instruct that domestic municipal
advisors would be required to execute
the Domestic Execution Page to Form
MA, while non-resident municipal
advisors would be required to execute
the Non-Resident Municipal Advisor
Execution Page. General Instruction 6
would provide that with respect to Form
MA–I, a municipal advisor would sign
Item 7 of that form. General Instruction
7 would set forth the applicable person
to sign Form MA or MA–I on behalf of
the applicant, and that such person
would be the sole proprietor (in the case
of a sole proprietorship), a general
partner (in the case of a partnership), an
authorized principal (in the case of a
corporation), and for all others, an
authorized individual who participates
in managing or directing the municipal
advisor’s affairs, or in the case of a
natural person, the natural person filing
the form on its own behalf, and that in
all cases the signature should be a typed
name. General Instructions 8 and 9
discuss when to update Forms MA and
MA–I respectively, as discussed further
herein.170 General Instruction 10 would
provide that an applicant would
complete and file all of the forms
electronically, and would provide the
Web site for the electronic filing system
once the appropriate web address has
169 There are a number of terms in the Glossary.
In addition to those described elsewhere in this
release, the Glossary also includes definitions or
descriptions of the following terms: charged, Chief
Compliance Officer, contingent fees, discretionary
authority, enjoined, Federal banking agency, felony,
foreign financial regulatory authority, found,
investigation, investment-related, involved, minor
rule violation, misdemeanor, order, person,
proceeding, resign, and supervised person.
170 See infra Section II.A.4.
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been confirmed. General Instruction 11
would provide the instructions for
electronic filing with the Commission.
General Instructions 12 and 13 would
provide instructions for how and when
an applicant would complete a selfcertification as to its qualifications as a
municipal advisor and ability to comply
with Federal securities laws. General
Instruction 14 would discuss the
requirement for a non-resident
municipal advisor to attach a legal
opinion to its Non-Resident Municipal
Advisor Execution Page to Form MA.
The General Instructions would also
inform an applicant that the
Commission collects information for
regulatory purposes, that filing the Form
MA or MA–I is mandatory for municipal
advisors that are required to register
with the Commission, that the
Commission will not accept forms that
do not include the required information,
and that the Commission will maintain
and make publicly available the
information submitted on the forms.
The Instructions also would provide
some instructions specific to each of
Form MA and Form MA–I. Instruction
1 to Form MA would explain that a
municipal advisor that has taken over
the business of another municipal
advisor or has changed its structure or
legal status would be a new organization
with registration obligations under the
Exchange Act. A municipal advisor that
is acquiring or assuming substantially
all of the assets and liabilities of the
advisory business of a registered
municipal advisor would file a new
application for registration on Form MA
within 30 calendar days of the
succession, and once the new
registration is effective, Form MA–W (as
described below) must be filed to
withdraw the registration of the
acquired municipal advisor. If a new
municipal advisor is formed solely as a
result of a change in form of
organization, a reorganization, or a
change in the composition of a
partnership, and there has been no
practical change in control or
management, the applicant may amend
the existing registration to reflect the
changes by filing an amendment within
30 calendar days after the change or
reorganization. Instruction 2 to Form
MA would explain that the response to
Item 4 of Form MA (described below)
should reflect the applicant’s current
municipal advisory activities, except
with respect to its responses regarding
the types of compensation the applicant
expects to accept, or the types of
municipal advisory activities in which
the applicant expects to engage, during
the next year. Instruction 3 to Form MA
would explain that Schedule D is to be
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completed if any response to Form MA
requires further explanation, or if the
applicant wishes to provide additional
information.
Instruction 1 to Form MA–I would
explain that the applicant must enter its
CRD number (if assigned), his or her
social security number,171 and the
addresses of all offices at which he or
she will be physically located or
supervised, in Item 1 of the form.
Instruction 2 to Form MA–I would
clarify that for purposes of completing
Item 2 to Form MA–I, the applicant
must enter all the other names that the
applicant is using, has used, is known,
or has been known, other than the
applicant’s legal name, since the age of
18, which would include nicknames,
aliases, and names used before and after
marriage. Instruction 3 to Form MA–I
would make clear that for purposes of
Item 3, with respect to the applicant’s
residential history for the past 5 years,
post office boxes may not be used to
complete the response and the applicant
may not leave any gaps in residential
history greater than 3 months.
Instruction 4 to Form MA–I would
provide that with respect to Item 4 of
Form MA–I, the applicant’s
employment history for the past 10
years must be provided with no gaps
greater than 3 months, and that the
history should account for full-time and
part-time employment, selfemployment, military service and
homemaking, and that unemployment,
full-time education, extended travel,
and other similar statuses should be
included. Instruction 5 to Form MA–I
for Item 5 of the form would explain
that with respect to other businesses in
which the applicant is engaged, the
following information would be
required: the name and address of the
other business; nature of the business;
position, title, or relationship with the
other business, including duties; start
date of the relationship with the other
business; and the approximate number
of hours per month devoted to the other
business. Instruction 6 to Form MA–I
for Item 6 would also make clear that
responses to certain disclosure
questions (discussed further below)
could make the individual applicant
subject to a statutory disqualification.
As with Form MA, Instruction 7 to Form
MA–I would indicate that the form
would be signed (in Item 7 of Form
MA–I) by typing a signature in the
designated field, and would make clear
171 An applicant’s social security number would
not be made publicly available. This information is
necessary in connection with the Commission’s
enforcement and examination functions pursuant to
Section 15B(c) of the Exchange Act (15 U.S.C. 78o–
4(c)).
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that by typing a name, the signatory
acknowledges and represents that the
entry constitutes in every way, use, or
aspect, his or her legally binding
signature.
Request for Comment
The Commission requests comment
generally on the proposed Instructions
and Glossary and also requests comment
on the following specific issues:
• Are the proposed General
Instructions to Forms MA, MA–I,
MA–W and MA–NR, and the specific
Instructions to Forms MA and MA–I,
sufficiently clear? If not, identify any
instructions that should be clarified
and, if possible, offer alternatives.
• Are the proposed definitions in the
Glossary appropriate and sufficiently
clear? If not, why not and how should
they be modified or clarified? Please
suggest alternate language, as
applicable.
• Would it be useful if the
Commission were to provide any
additional instructions or define any
additional terms in the Glossary? If so,
what are they?
• Are there alternatives to requiring
applicants to provide their social
security number that the Commission
should consider? If so, what are they?
c. Information Requested in Form MA
Proposed Form MA, which would be
the form submitted by municipal
advisors that are municipal advisory
firms, is modeled primarily on Form
ADV (Part 1) 172 used for the registration
of investment advisers with the
Commission, with appropriate changes
made to reflect the differences in the
activities of municipal advisors and the
markets that they serve. More
specifically, applicants would be
required to provide the information
described below. The items are drafted
broadly to apply to the different types
of municipal advisors that may register
with the Commission. If adopted, the
contents of the proposed form (unless
otherwise specified) would be publicly
available.
Form MA would ask for information
about the municipal advisor and
persons associated with the advisor. The
Commission believes it is necessary to
obtain the requested information to
decide whether to grant or deny an
application for registration, to manage
the Commission’s regulatory and
examination programs, and to make
such information available to the MSRB
to better inform its regulation of
municipal advisors. Specifically, the
information would assist the
172 See
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Commission in identifying municipal
advisors, their owners, and their
business models, and in determining
whether a municipal advisor might
present sufficient concerns as to warrant
the Commission’s further attention in
order to protect their clients. In
addition, the information would assist
the Commission in understanding the
kinds of activities in which the
applicant participates that form the
basis for registration. The information
would also be useful to the Commission
in tailoring any requests for additional
information that the Commission may
send to a municipal advisor.
Furthermore, the required information
would assist the Commission in the
preparation of the Commission’s
inspection and examination of
municipal advisors and the MSRB in
determining what regulations for
municipal advisors may be necessary or
appropriate and how such regulations
might be best accomplished. In
determining what information to
propose to be disclosed, the
Commission has also considered the
broader public interest in the
availability of information about
municipal advisors to the public
(including clients and prospective
clients).
Form MA would require the applicant
to provide information describing itself
and its business through a series of fillin-the-blank, multiple choice, and
check-the-box questions. Form MA
would first require a municipal advisor
to indicate whether it is submitting the
form for initial registration as a
municipal advisor, submitting an
annual update to a registration as a
municipal advisor, or submitting an
amendment (other than an annual
update) to a registration as a municipal
advisor.173
Request for Comment
The Commission requests comment
generally on proposed Form MA and
also requests comment on the following
specific issues:
• The Commission requests comment
generally on the organization of the
form and the clarity of the language it
has used.
• Is the use of Form MA for purposes
of registration, submitting an annual
update, and submitting an amendment
(other than an annual update)
appropriate? Would the use of the same
form for multiple purposes be confusing
for applicants? Would it be preferable to
have a separate form for each of these
purposes? Would these requirements be
173 Amendments to Form MA are discussed
further below. See infra Section II.A.4.
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confusing or otherwise difficult for a
municipal advisor to comply with?
• Are there any issues concerning the
public availability of information
provided on Forms MA and MA–I about
which the Commission should be made
aware? If so, what are they and how
might they be addressed?
Item 1: Identifying Information
Proposed Form MA would require a
municipal advisor to indicate the full
legal name of the municipal advisor
and, if different, the name under which
it primarily conducts its municipal
advisor-related business; the address of
its principal office and place of
business; 174 the telephone and fax
numbers at that location; and any Web
site addresses.175 In addition, the
municipal advisor would be required to
supply the name of its Chief
Compliance Officer, if any, and title of
any other person whom the municipal
advisor has authorized to receive
information and respond to questions
about the registration (the ‘‘contact
person’’), as well as the address,
telephone number and fax number, if
any, and e-mail address, if any, of the
Chief Compliance Officer and any other
contact person. Further, Item 1 of Form
MA would require an applicant to list
on Schedule D any additional names
under which it conducts municipal
advisor-related business and the offices
at which such business is conducted.
The Commission is requesting this
identifying and contact information to
assist the Commission and the staff in
evaluating applications for registration
and overseeing registered municipal
advisors.
Form MA would also require a
municipal advisor to provide its
Employer Identification Number (used
with respect to Internal Revenue Service
matters), or, if a sole proprietor, a social
security number.176 If the municipal
174 Proposed rule 15Ba1–1(j) would define
principal office and place of business to mean: ‘‘the
executive office of the municipal advisor from
which the officers, partners, or managers of the
municipal advisor direct, control, and coordinate
the activities of the municipal advisor.’’ See also
Glossary.
In addition, the municipal advisor must supply
its mailing address, if it is different from its
principal office and place of business.
175 If the applicant has more than one Web site,
it would be required to list all its Web site
addresses on Schedule D.
176 We are proposing to ask for the social security
number of sole proprietors to permit the electronic
filing system to distinguish between persons who
share the same name. This information is necessary
in connection with the Commission’s enforcement
and examinations functions pursuant to Section
15B(c) of the Exchange Act (15 U.S.C. 78o–4(c)). To
protect the privacy of these persons, the social
security numbers would not be available on the
public disclosure system. Similarly, the public
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841
advisor is also registered with the
Commission as an investment adviser,
broker, dealer, or municipal securities
dealer, or if it has previously registered
with the Commission as a municipal
advisor on Form MA–T, it would be
required to provide its related SEC file
number or numbers. In addition, if the
municipal advisor has a number (a ‘‘CRD
Number’’) assigned to it either under the
CRD system or the IARD system, it
would be required to provide its CRD
Number. If it is otherwise registered
with the Commission, it would also be
required to disclose its other SEC file
numbers.177
This information would allow the
Commission to more effectively crossreference those entities applying for
registration as municipal advisors to
those who are registered as brokers,
dealers, municipal securities dealers,
investment advisers, or otherwise
registered 178 with the Commission. The
ability to cross-reference would allow
the Commission to assemble more
complete information concerning a
municipal advisor who is also registered
as a broker, dealer, municipal securities
dealer, investment adviser, or otherwise
registered with the Commission to
inform the Commission’s decision as to
whether to approve an application for
registration as a municipal advisor. The
ability to cross-reference would also
permit the Commission to plan for and
carry out efficient and effective
examinations of registered municipal
advisors that are also otherwise
registered.179 In addition, by obtaining
all of an applicant’s regulatory file
numbers, the Commission would be
able to cross-reference disciplinary
information that is submitted to the CRD
or IARD systems with that submitted on
Form MA, and would be able to gain a
more complete understanding of a
municipal advisor’s structure and
business.
Item 1 of Form MA would also require
the applicant to state whether it
maintains, or intends to maintain some
or all of its books and records required
to be kept under MSRB or Commission
rules somewhere other than at its
principal office and place of business,
disclosure system would not report the home
address of a sole proprietor who reports its home
address as its principal office and place of business.
177 The Commission is also proposing that
applicants would be required to disclose any state
registration numbers.
178 For example, the Commission notes that
pursuant to Section 764 of the Dodd-Frank Act,
security-based swap dealers will be required to
register with the Commission. See Section 764(a) of
the Dodd-Frank Act; 15 U.S.C. 78oF(a).
179 See 15 U.S.C. 78o–4(c)(7) (providing that
examinations shall be conducted by the
Commission).
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and if so to provide (on Schedule D)
information about the other location.
Form MA would also require an
applicant to disclose on Schedule D all
of the entities with which it is affiliated,
and whether it is affiliated with a
business that is registered with a foreign
financial regulatory authority, and if so
to provide (on Schedule D) the name, in
English, of each foreign financial
regulatory authority and country with
which the affiliated person is registered.
This information would help inform the
Commission as to the structure of the
municipal advisor’s business, which
would help staff prepare for
examinations of the municipal advisor.
Request for Comment
The Commission requests comment
generally on Item 1 of proposed Form
MA and also requests comment on the
following specific issues:
• Is the identifying and contact
information requested under Item 1 of
Form MA appropriate? Should the
Commission request disclosure of
additional or different information?
• Would any of the information
required to be disclosed under Item 1 be
difficult for a municipal advisor to
provide?
• Would the use of other identifying
numbers be more useful or appropriate?
Please explain.
• Is there information requested
under Item 1 that should not be publicly
disclosed? Please explain.
• Would information as to an
applicant’s affiliated entities be useful
for gaining an understanding of a
municipal advisor’s relationship with
other entities? Would it be useful to
prospective municipal advisory clients?
Is there different information that would
provide a better understanding of a
municipal advisor’s relationship with
other entities? If so, what information?
Is providing the information requested
overly burdensome? If so, why? Should
the disclosure required by Item 1–K be
limited to affiliates that engage in
financial activities?
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Item 2: Form of Organization
Item 2 of proposed Form MA would
require a municipal advisor to specify
whether it is organized as a corporation,
partnership, sole proprietorship, limited
liability company, limited liability
partnership, limited partnership, or
other; the month of its annual fiscal year
end; the date on which it was organized;
and state where it was organized (either
the U.S. state or the country outside the
U.S.). This information would assist the
Commission in evaluating the
applications for registration and
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overseeing registered municipal
advisors.
Item 2 would also require an
applicant to specify whether it is a
public reporting company under Section
12 or 15(d) of the Exchange Act, and if
so, provide its Commission assigned
Central Index Key (‘‘CIK’’) number. This
information would provide a signal that
additional public information is
available about the municipal advisor
and/or its control persons.
Request for Comment
The Commission requests comment
generally on Item 2 of proposed Form
MA and also requests comment on the
following specific issues:
• Would the information requested to
be disclosed in Item 2 be useful in
evaluating a municipal advisor? Is there
additional information under Item 2 that
should be disclosed? Please explain.
• Are the forms of organization listed
under Item 2–A appropriate? Are there
additional forms of organization that
should be listed?
• To what extent would it be
beneficial to require disclosure of
whether a municipal advisor is a public
reporting company? If a municipal
advisor is a public reporting company,
is there additional information on Form
MA that should be disclosed about the
advisor?
• In addition to providing a current
CIK number, should municipal advisors
be required to disclose all previously
issued CIK numbers for that municipal
advisor? Would such historical CIK
numbers be helpful in accessing the
information filed with regulators
relating to a municipal advisor? Would
SEC and CRD numbers be sufficient for
tracking all regulatory filings by a
municipal advisor? Please explain.
Item 3: Successions
Item 3 of Form MA would require
applicants to disclose whether they are
succeeding to the business of a
registered municipal advisor, the date of
succession, and disclose on Schedule D
the name of, and registration
information for, the firm they are
succeeding. As discussed below,
depending on whether the succession is
a result of a merger or acquisition, or a
reorganization, the succeeding firm
would be able to register by either
submitting a new Form MA or
amending the Form MA of its
predecessor.180 This information would
assist the Commission, among other
things, in overseeing registered
municipal advisors and in determining
whether there has been a change in
control of a municipal advisor.181
Request for Comment
The Commission requests comment
generally on Item 3 of proposed Form
MA and also requests comment on the
following specific issues:
• Would the information requested to
be disclosed in Item 3 provide
information that would help inform an
understanding of the relationship
between a municipal advisor and its
successor, and whether the succession
involves a change of control or a change
of corporate form? Is there additional
information under Item 3 that should be
disclosed? Please explain.
• Is there additional information
about a succession that would be useful
to have disclosed on the Form MA? For
example, should the applicant disclose
the reason for the succession?
Item 4: Information About Applicant’s
Business
Item 4 would require an applicant to
provide information regarding the
approximate number of employees it
has, approximately how many of those
employees engage in municipal
advisory activities, approximately how
many of those employees are registered
representatives of a broker-dealer or an
investment adviser, approximately how
many firms or other persons that are not
employees or associated persons of the
applicant solicit municipal advisory
clients on the applicant’s behalf (if the
number entered includes firms, the
names of such firms would be required
to be disclosed on Schedule D), and
approximately how many employees
also do business independently on the
applicant’s behalf as affiliates of the
applicant (the names of these employees
would be required to be disclosed on
Schedule D).182
Item 4 would also require the
applicant to approximate the number of
clients with whom it engaged in
municipal advisory activities in the past
fiscal year, and to specify by checking
the appropriate box(es) whether its
clients include: Municipal entities, nonprofit organizations (e.g., 501(c)(3)
organizations) who are obligated
persons, corporations or other
businesses not listed who are obligated
persons, other types of entities, or
whether the applicant only engages in
solicitation and does not serve clients in
the context of its municipal advisory
181 See
180 See
infra Section II.A.6. (discussing proposed
rule 15Ba1–6 regarding registration of a successor
to a municipal advisor).
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id.
182 Instruction
2 to Form MA would provide
guidance to newly-formed municipal advisors for
completing Item 4.
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activities. Applicants would also have
to specify approximately the number of
municipal entities or obligated persons
that were solicited by the applicant on
behalf of a third-party during its most
recently completed fiscal year,
including any clients that it both solicits
and with which it engages in other
municipal advisory activities; and
whether it solicits public pension funds,
529 plans, local or state government
investment pools, hospitals, colleges, or
other types of municipal entities or
obligated persons (and which other
types of municipal entities or obligated
persons), as well as whether the
applicant only serves clients and does
not engage in solicitation at all in the
context of its municipal advisory
activities.
Applicants would also be required to
disclose whether they are compensated
by hourly charges, fixed fees (not
contingent on the issuance of municipal
securities), contingent fees, subscription
fees (for a newsletter or other
publications), or otherwise. If the
applicant receives compensation from
anyone other than clients, the applicant
would be required to provide an
explanation of such arrangement.
Disclosure of information relating to
the number of a municipal advisor’s
employees and compensation
arrangements would provide the
Commission with a clearer
understanding of the business structure
of registered municipal advisors,
including the size of the advisors, the
number of its employees that engage in
municipal advisory activities, and in
what capacity these employees engage
in such activities. Information about
compensation arrangements also would
identify possible conflicts of interest
that the municipal advisor may have
with its clients.
Item 4 would also require the
municipal advisor to indicate the
general types of municipal advisory
activities in which it engages. The
following eleven activities are listed:
(1) Advice concerning the issuance of
municipal securities (including, without
limitation, advice concerning the
structure, timing, terms and other
similar matters, such as the preparation
of feasibility studies, tax rate studies,
appraisals and similar documents,
related to an offering of municipal
securities), (2) advice concerning the
investment of the proceeds of municipal
securities (including, without
limitation, advice concerning the
structure, timing, terms and other
similar matters concerning such
investments), (3) advice concerning
municipal escrow investments
(including, without limitation, advice
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concerning their structure, timing, terms
and other similar matters), (4) advice
concerning the investment of other
funds of a municipal entity or obligated
person (including, without limitation,
advice concerning the structure, timing,
terms and other similar matters
concerning such investments), (5)
advice concerning guaranteed
investment contracts (including,
without limitation, advice concerning
their structure, timing, terms and other
similar matters), (6) advice concerning
the use of municipal derivatives
(including, without limitation, advice
concerning their structure, timing, terms
and other similar matters), (7)
solicitation of investment advisory
business from a municipal entity or
obligated person (including, without
limitation, municipal pension plans) on
behalf of an unaffiliated person or firm
(e.g., third party marketers, placement
agents, solicitors and finders), (8)
solicitation of business other than
investment advisory business from a
municipal entity or obligated person on
behalf of an unaffiliated broker, dealer,
municipal securities dealer, municipal
advisor or investment adviser (e.g., third
party marketers, placement agents,
solicitors and finders), (9) advice or
recommendations concerning the
selection of other municipal advisors or
underwriters with respect to municipal
financial products or the issuance of
municipal securities, (10) brokerage of
municipal escrow investments, or (11)
other (specify). Applicants who check
‘‘other’’ activities would be required to
provide a narrative description of such
activities. The listed activities are those
in which the Commission understands
that municipal advisors engage, and are
derived from the definition of municipal
advisor in Exchange Act Section
15B(e)(4).183 This information would
assist the Commission in understanding
the scope of activities in which a
municipal advisor engages, in
identifying possible conflicts of interest,
in preparing for on-site inspections and
examinations, and would provide the
Commission with data useful to making
regulatory policy.
Request for Comment
The Commission requests comment
generally on Item 4 of proposed Form
MA and also requests comment on the
following specific issues:
• Is the information requested to be
disclosed in Item 4 information that
would best help inform an
understanding of the scope of a
municipal advisor’s business? Is there
additional information under Item 4 that
183 See
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843
should be disclosed? Please explain. Is
any of the requested information
unnecessary or not useful? Please
explain.
• Is there other information that
would be helpful to request regarding
the structure of a municipal advisor, in
addition to the number of employees, to
help provide a clear understanding of
the municipal advisor’s business
structure?
• Are there other types of
compensation arrangements for
municipal advisors that should be listed
under Item 4?
• Are there additional types of
municipal advisory activities that
should be included in the list of
activities provided to municipal entities
and obligated persons under Item 4?
Please explain, and provide suggested
language, as appropriate.
Item 5: Other Business Activities
Item 5 would require applicants to
provide information about their other
business activities. Specifically, an
applicant would be asked whether it is
actively engaged in business as a (1)
broker-dealer, municipal securities
dealer or government securities broker
or dealer, (2) registered representative of
a broker-dealer, (3) commodity pool
operator (whether registered or exempt
from registration), (4) commodity
trading advisor (whether registered or
exempt from registration), (5) futures
commission merchant, (6) major swap
participant,184 (7) major security-based
swap participant,185 (8) swap dealer 186
or security-based swap dealer,187 (9)
trust company, (10) real estate broker,
dealer, or agent, (11) insurance
company, broker, or agent, (12) banking
or thrift institution (including a
separately identifiable department or
division of a bank), (13) investment
adviser (including financial planners),
(14) lawyer or law firm,188 (15)
184 See Exchange Act Rule 3(a)(66) (15 U.S.C.
78c(a)(66)), as amended by Section 761(a) of the
Dodd-Frank Act, and the rules and regulations
thereunder.
185 See Exchange Act Rule 3(a)(67) (15 U.S.C.
78c(a)(67)), as amended by Section 761(a) of the
Dodd-Frank Act, and the rules and regulations
thereunder.
186 See Exchange Act Rule 3(a)(76) (15 U.S.C.
78c(a)(76)), as amended by Section 761(a) of the
Dodd-Frank Act, and the rules and regulations
thereunder.
187 See Exchange Act Rule 3(a)(71) (15 U.S.C.
78c(a)(71)), as amended by Section 761(a) of the
Dodd-Frank Act, and the rules and regulations
thereunder.
188 See supra section II.A.1.c. (discussing the
definition of ‘‘municipal advisor’’ and under what
circumstances attorneys would be excluded from
such definition). Lawyer and law firm applicants
would also be required to disclose the jurisdictions
where licensed.
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accountant or accounting firm,189 (16)
engineering firm,190 or (17) other
financial product advisor and if so, to
specify. An applicant would also be
asked to state whether it is actively
engaged in any other business, and if
such other business is its primary
business. If an applicant’s primary
business is not one of those enumerated
above, it would be required to describe
the other business on proposed
Schedule D to Form MA. This
information would assist the
Commission, among other things, in
identifying conflicts of interests for
municipal advisors, preparing for
inspections and examinations of
municipal advisors, and would assist
the Commission and the MSRB in
understanding municipal advisors in
the context of their activities for
regulatory purposes.
Request for Comment
The Commission requests comment
generally on proposed Item 5 of Form
MA and also requests comment on the
following specific issues:
• Would the information requested to
be disclosed in Item 5 help inform an
understanding of the other business
activities in which a municipal advisor
engages? Is there additional information
under Item 5 that should be disclosed?
Please explain.
• Are there additional categories of
other business activities that should be
listed under Item 5? Please explain, and
provide examples, as appropriate. Is any
of the requested information
unnecessary or not useful? Please
explain.
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Item 6: Financial Industry Affiliations of
Associated Persons
Item 6 would require an applicant to
provide information about its associated
persons (i.e., any person associated with
a municipal advisor) and the types of
activities in which the associated
persons are engaged.191 The proposed
189 See supra section II.A.1.c. (discussing the
definition of ‘‘municipal advisor’’ and under what
circumstances accountants would be excluded from
such definition). Accountant and accounting firm
applicants would also be required to disclose the
jurisdictions where licensed.
190 See supra section II.A.1.c. (discussing the
definition of ‘‘municipal advisor’’ and under what
circumstances engineers would be excluded from
such definition).
191 Section 15B(e)(7) provides that the term
‘‘person associated with a municipal advisor’’ or
‘‘associated person of an advisor’’ means ‘‘(A) any
partner, officer, director, or branch manager of such
municipal advisor (or any person occupying a
similar status or performing similar functions); (B)
any other employee of such municipal advisor who
is engaged in the management, direction,
supervision, or performance of any activities
relating to the provision of advice to or on behalf
of a municipal entity or obligated person with
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list of activities under Item 6 is broader
than that in Item 5, which allows the
Commission to elicit more complete
information about the associated
persons of a municipal advisor who are
actually providing advice or are
controlling the firm, which would
inform the Commission’s regulatory and
examination programs. Specifically,
under Item 6, a municipal advisor
would have to disclose if an associated
person is a (1) broker-dealer, municipal
securities dealer, or government
securities broker or dealer; (2)
investment company (including mutual
funds), (3) investment adviser
(including financial planners), (4) swap
dealer, (5) security-based swap dealer,
(6) major swap participant, (7) major
security-based swap participant, (8)
commodity pool operator (whether
registered or exempt from registration),
(9) commodity trading advisor (whether
registered or exempt from registration),
(10) futures commission merchant, (11)
banking or thrift institution, (12) trust
company, (13) accountant or accounting
firm, (14) lawyer or law firm, (15)
insurance company or agency, (16)
pension consultant, (17) real estate
broker or dealer, (18) sponsor or
syndicator of limited partnerships, (19)
engineer or engineering firm, (20) other
municipal advisor. Also, an applicant
would need to disclose on Schedule D
of proposed Form MA each associated
person, including any foreign associated
persons, that is a municipal advisor,
broker-dealer, municipal securities
dealer, government securities broker or
dealer, investment adviser, registered
swap dealer, banking or thrift
institution, or trust company. For each
associated person identified on
Schedule D, the applicant would be
required to provide information
regarding the nature of the affiliation
between the municipal advisor and the
associated person, as well as any foreign
registrations of the associated person.
The information provided would assist
the Commission in having a clearer
understanding of the types of business
activities in which associated persons
are engaged and the possible conflicts of
interest those activities may create.
respect to municipal financial products or the
issuance of municipal securities; and (C) any person
directly or indirectly controlling, controlled by, or
under common control with such municipal
advisor.’’ 15 U.S.C. 78o–4(e)(7). For purposes of
Form MA, the Glossary would define ‘‘associated
person or associated person of a municipal advisor’’
to have the same meaning as in Exchange Act
Section 15B(e)(7) (15 U.S.C. 78o–4(e)(7)), but would
exclude employees that are solely clerical or
administrative.
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Request for Comment
The Commission requests comment
generally on Item 6 of proposed Form
MA and also requests comment on the
following specific issues:
• Would the information requested to
be disclosed in Item 6 inform a
meaningful understanding of the
relationship between a municipal
advisor and its associated persons and
the kinds of activities in which they
engage? If not, why not? Is there
additional information under Item 6 that
should be disclosed, such as additional
categories of activities in which an
associated person might be engaged?
Please explain. Should any of the
categories be deleted?
Item 7: Participation or Interest in
Municipal Advisory Client Transactions
Item 7 would require applicants to
disclose information about participation
and interest of the municipal advisor or
its associated persons in the
transactions of its municipal advisory
clients. The purpose of Item 7 is to
identify possible conflicts of interest
that the municipal advisor and its
associated persons may have with the
municipal advisor’s clients. For
example, a municipal advisor that
receives commissions or other payments
for sales of securities to clients may
have a conflict of interest with its
clients. This type of practice gives the
municipal advisor and its personnel an
incentive to base investment
recommendations on the amount of
compensation they will receive rather
than on the client’s best interests.
Specifically, Item 7 would require an
applicant to disclose whether it, or any
of its associated persons, have a
proprietary interest in the securities or
other investment or derivative product
transactions of its clients, such as
whether it buys securities or other
investment or derivative products from,
or sells them to, its clients. An applicant
would also be asked to disclose whether
it or its associated persons recommend
purchases or sales of securities or other
investment or derivative products to
clients for which the municipal advisor
or its associated persons serve as
underwriter or purchaser representative,
or have any other sales interest; whether
it or its associated persons have certain
discretionary authority over securities
or other investment transactions for its
clients; and whether it or its associated
persons recommend brokers, dealers, or
investment advisers to its clients, and if
so, whether those brokers, dealers, or
investment advisers are associated
persons of the municipal advisor. Item
7 would also require the municipal
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advisor to disclose whether it or its
associated persons give or receive
compensation for municipal advisory
client referrals.
Request for Comment
The Commission requests comment
generally on Item 7 of proposed Form
MA and also requests comment on the
following specific issues:
• Would the information requested to
be disclosed in Item 7 be appropriate for
identifying potential conflicts of interest
between municipal advisors and/or
associated persons and the municipal
advisors’ clients? Should any be
deleted? Why?
• Is there additional information
under Item 7 that should be disclosed to
provide a clearer understanding of
potential conflicts of interest? Please
explain.
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Item 8: Control Persons
In Item 8, applicants would be asked
to identify on Schedules A and B every
person that directly or indirectly
controls the applicant, or that the
applicant directly or indirectly
controls.192 An initial applicant would
be required to complete proposed
Schedules A and B. Schedule A would
require information about the
applicant’s executive officers and
persons that directly own 5% or more
of the applicant. Schedule B would
request information about persons that
indirectly own 25% or more of the
applicant. Schedule C would be used to
amend information previously reported
on Schedules A and B. Applicants
would also be asked to identify, on
Schedule D, any person that controls the
applicant’s management or policies if
not otherwise identified. Further
192 The term ‘‘control’’ is defined in the Glossary
to mean ‘‘the power, directly or indirectly, to direct
the management or policies of a person, whether
through ownership of securities, by contract, or
otherwise.’’ Further, the Glossary provides that:
(a) Each of the municipal advisor’s officers,
partners, or directors exercising executive
responsibility (or persons having similar status or
functions) is presumed to control the municipal
advisor; (b) a person is presumed to control a
corporation if the person:
(i) Directly or indirectly has the right to vote 25
percent or more of a class of the corporation’s
voting securities; or (ii) has the power to sell or
direct the sale of 25 percent or more of a class of
the corporation’s voting securities; (c) a person is
presumed to control a partnership if the person has
the right to receive upon dissolution, or has
contributed, 25 percent or more of the capital of the
partnership; (d) a person is presumed to control a
limited liability company (‘‘LLC’’) if the person: (i)
Directly or indirectly has the right to vote 25
percent or more of a class of the interests of the
LLC; (ii) has the right to receive upon dissolution,
or has contributed, 25 percent or more of the capital
of the LLC; or (iii) is an elected manager of the LLC;
and (e) a person is presumed to control a trust if
the person is a trustee or managing agent of the
trust. See Glossary.
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information would be requested with
respect to control persons that are
public reporting companies under
Sections 12 or 15(d) of the Exchange
Act.193 For control persons that do not
have a CRD number, Schedules A, B,
and C would require disclosure of their
social security number and date of birth,
IRS tax number or employer ID
number.194 The proposed information
that would be requested and the
proposed definition of control are
consistent with that requested and used
by the Commission in other contexts.195
This information would help to inform
the Commission’s understanding of the
ownership structure of the municipal
advisor and in identifying who
ultimately controls the municipal
advisor, including its policies and
procedures, which would provide
useful information in preparing for
examinations and also in identifying
potential conflicts of interest. The
information requested also would
inform the Commission about changes
in control of the municipal advisor.
Request for Comment
The Commission requests comment
generally on Item 8 of proposed Form
MA and also requests comment on the
following specific issues:
• Would the information requested to
be disclosed in Item 8 be appropriate for
understanding the ownership structure
of a municipal advisor and identifying
possible conflicts of interest? Is there
additional information under Item 8 that
should be disclosed? Please explain.
Should any be deleted? Why?
• Is the proposed definition of
‘‘control’’ broad enough to elicit
information that would provide an
understanding of a municipal advisor’s
structure and its control persons?
Should additional or different
information be requested? If so, what
information?
Item 9: Disclosure Information
Section 975(c)(3) of the Dodd-Frank
Act amended Section 15B of the
Exchange Act to direct the Commission,
by order, to censure, place limitations
on the activities, functions, or
operations, suspend for a period not
exceeding twelve months, or revoke the
registration of any municipal advisor, if
193 Section 8–B of proposed Schedule D to Form
MA would require the name and CIK number of
each control person listed on Schedule A, B, C or
Section 8–A of Schedule D.
194 The Commission would not make this
information publicly available.
195 The proposed requested information and
definition of ‘‘control’’ are consistent with the
information requested and definition used for
investment advisers required to register on Form
ADV. See 17 CFR 279.1.
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845
it finds 196 that such municipal advisor
has committed or omitted any act, or is
subject to an order or finding,
enumerated in subparagraph (A),197
(D),198 (E),199 (G) 200 or (H),201 of
paragraph (4) of Section 15(b) of the
Exchange Act; has been convicted of
any offense specified in Section
15(b)(4)(B) 202 of the Exchange Act
within ten years of the commencement
of the proceedings under Section 15B(c);
or is enjoined from any action, conduct,
or practice specified in Section
15(b)(4)(C) 203 of the Exchange Act.204
Item 9 of Form MA includes questions
intended to solicit information from a
municipal advisor concerning certain of
its activities or activities of its
associated persons that could subject
the municipal advisor to disciplinary
actions by the Commission under such
subparagraphs of Section 15(b)(4) of the
Exchange Act.
The information proposed to be
required by Item 9 would be used to
196 Such findings must be on the record after
notice and opportunity for hearing and include a
finding that the particular disciplinary action is in
the public interest. See 15 U.S.C. 78o–4(c)(2).
197 See 15 U.S.C. 78o(b)(4)(A) (e.g., making false
or misleading statements of a material fact in a
report filed with, or preceding before, the
Commission).
198 See 15 U.S.C. 78o(b)(4)(D) (e.g., violating or
being unable to comply with the Securities Act, the
Investment Advisers Act, the Investment Company
Act, the Commodity Exchange Act, the Exchange
Act, the rules or regulations under any of such
statutes, or the rules of the MSRB).
199 See 15 U.S.C. 78o(b)(4)(E) (e.g, aiding and
abetting violations of, or failing to supervise to
prevent violations of, the Securities Act, the
Investment Advisers Act, the Investment Company
Act, the Commodity Exchange Act, the Exchange
Act, the rules or regulations under any of such
statutes, or the rules of the MSRB).
200 See 15 U.S.C. 78o(b)(4)(G) (e.g., being found by
a foreign financial regulatory authority to have
made false or misleading statements of material
facts; violated or been unable to comply with
foreign regulations; or aided and abetted violations
of, or failed to supervise to prevent violations of,
foreign regulations).
201 See 15 U.S.C. 78o(b)(4)(H) (e.g., being subject
to a final order of a State securities commission, an
appropriate Federal banking agency, or the National
Credit Union Administration that bars such person
from associating with an entity regulated by such
authority or agency, or prohibits such person from
engaging in the business of securities, insurance,
banking, savings association activities, or credit
union activities).
202 See 15 U.S.C. 78o(b)(4)(B) (e.g., being
convicted within the ten years preceding
application for registration of certain felonies or
misdemeanors, including felonies and
misdemeanors involving the purchase and sale of
securities or arising out of the conduct of the
business of a broker, dealer, municipal securities
dealer, or municipal advisor).
203 See 15 U.S.C. 78o(b)(4)(C) (e.g, being enjoined
by order from acting as an investment adviser,
underwriter, broker, dealer, municipal securities
dealer or municipal advisor).
204 The Commission has the same authority with
respect to municipal securities dealers. See 15
U.S.C. 78o–4(c).
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determine whether to grant the
applicant’s application for registration,
institute proceedings to determine
whether registration should be denied,
place limitations on the applicant’s
activities as a municipal advisor, and to
focus on-site examinations.205 Also, in
addition to its value for the
Commission’s oversight of the
municipal securities markets generally,
the Commission proposes to seek this
information because it may indicate that
a municipal advisor could be statutorily
disqualified from acting as a municipal
advisor.206 In addition, the Commission
would make this information available
to municipal entities and obligated
persons who engage municipal advisors,
to investors who may purchase
securities from offerings in which
municipal advisors have participated,
and to other regulators.
The disciplinary information to be
disclosed is substantially similar to the
information required to be disclosed in
Form BD 207 for broker-dealers and in
Form ADV 208 for investment advisers.
The requested information is also
consistent with the disclosure
requirements of Form MA–T.209 In
addition to information with respect to
investment-related activities, Form MA
would additionally request parallel
information for municipal advisory
activities. Specifically, as discussed
below, Form MA asks questions
concerning the disciplinary history of
the municipal advisor and of its
associated persons.210
In Form MA–T, the Commission
limited the disciplinary history
disclosure requirements to ‘‘associated
municipal advisor professionals.’’ 211
205 See also supra Section II.B. (discussing
approval or denial of registration).
206 See id.
207 See 17 CFR 249.501.
208 See 17 CFR 279.1.
209 On Form MA–T, the disclosure required with
respect to orders entered against the municipal
advisor by regulatory authorities, and whether any
court has enjoined the municipal advisor or
associated person in connection with investment
related activities are limited to the past 10 years. On
Form MA, the Commission is not proposing any
time limitation on this disclosure for the reasons
discussed in this Section II.A.2.c.
210 See supra note 191 (discussing the definition
of ‘‘person associated with a municipal advisor’’ or
‘‘associated person of a municipal advisor’’).
211 The Commission defined the term ‘‘associated
municipal advisor professional’’ in the glossary
section of Form MA–T to mean: (A) Any associated
person of a municipal advisor primarily engaged in
municipal advisory activities; (B) any associated
person of a municipal advisor who is engaged in the
solicitation of municipal entities or obligated
persons; (C) any associated person who is a
supervisor of any persons described in
subparagraphs (A) or (B); (D) any associated person
who is a supervisor of any person described in
subparagraph (C) up through and including, the
Chief Executive Officer or similarly situated official
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The Commission limited the disclosure
requirements to this subgroup of
associated persons to obtain information
about those associated persons who are
closely associated with an advisor’s
municipal advisory activities, i.e., those
who are primarily engaged in an
advisor’s municipal advisory activities,
have supervisory responsibilities over
those primarily engaged in municipal
advisory activities, are engaged in dayto-day management of the conduct of an
advisor’s municipal advisory activities,
or are responsible for executive
management of the advisor.212 Due to
the short time-frame between the
passage of the Dodd-Frank Act and the
deadline for registration of municipal
advisors on October 1, 2010, the
Commission believed it was appropriate
to limit the disclosure requirement to
this subgroup of associated persons. In
connection with the proposed
permanent registration regime, however,
the Commission believes it is
appropriate to propose in Item 9 that a
municipal advisor disclose the
disciplinary history, as applicable, of all
its associated persons, as that term is
defined in Exchange Act Section
15B(e)(7).213 Specifically, Item 9 would
require disclosure with respect to any
partner, officer, director or branch
manager of a municipal advisor, and
any other employee who is engaged in
the management, direction, supervision,
or performance of any municipal
advisory activities relating to the
provision of advice to or on behalf of a
municipal entity or obligated person
with respect to municipal financial
products or the issuance of municipal
securities; and any person that directly
or indirectly controls, is controlled by,
or under common control with the
municipal advisor. As a result, Form
MA would capture information with
respect to employees that engage in
municipal advisory activities, even if
that is not their primary activity. Form
MA also would require disclosure with
respect to controlling persons and other
affiliates of the municipal advisor.
The Commission believes that
‘‘associated person’’ as defined in
Exchange Act Section 15B(e)(7) (15
U.S.C. 78o–4(e)(7)) (and as it is
proposed to be defined) is an
designated as responsible for the day-to-day
conduct of the municipal advisor’s municipal
advisory activities; and (E) any associated person
who is a member of the executive or management
committee of the municipal advisor or a similarly
situated official, if any; and excludes any associated
person whose functions are solely clerical or
ministerial.
212 See Temporary Registration Rule Release,
supra note 63, at 54469.
213 See 15 U.S.C. 78o–4(e)(7).
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appropriate definition to use 214 because
it would allow the Commission to
obtain, and municipal entities, obligated
persons, investors and other regulators
to have access to, information about the
municipal advisor’s supervisory and
management personnel, employees
engaged in the management, direction,
supervision, or performance of activities
relating to the provision of advice to or
on behalf of a municipal entity or
obligated person with respect to
municipal financial products or the
issuance of municipal securities, and
control persons. This information would
help provide a clear understanding
regarding the persons associated with
municipal advisors.
In addition, the Commission notes
that the time-period limits proposed for
disclosure on Form MA are consistent
with the disclosure reporting
requirements on Form BD, adopted
pursuant to Section 15(b)(1) of the
Exchange Act. Specifically, with respect
to felonies and misdemeanors involving
municipal advisor-related business,215
investments or an investment-related
business, Form MA would require
disclosures of matters within the last ten
years.216 With respect to all other
matters proposed to be identified on
Form MA (including Federal, state, and
foreign regulatory actions and actions
taken by SROs), no time limit is placed
on disclosure. For example, a municipal
advisor would be required to disclose
whether the municipal advisor or any
associated person was ever enjoined by
any domestic or foreign court in
connection with any municipal advisorrelated or investment-related activity.
Disclosure would also be required
concerning any orders entered against
the municipal advisor or any associated
person of the municipal advisor by any
Federal or state regulatory agency other
214 The definition of ‘‘associated person of a
municipal advisor’’ in the Glossary would be
consistent with the definition of ‘‘associated person’’
in Exchange Act Section 15B(e)(7) (15 U.S.C. 78o–
4(e)(7)). The definition would exclude, however,
employees who are solely clerical or administrative.
This exclusion would be consistent with the
comparable term on Form ADV, which also
excludes employees who are solely clerical or
administrative.
215 The Commission proposes that the term
‘‘municipal advisor-related’’ would mean ‘‘[c]onduct
that pertains to municipal advisory activities
(including, but not limited to, acting as, or being an
associated person of, a municipal advisor).’’
Glossary.
216 As is the case with respect to brokers and
dealers pursuant to Section 15(b)(4) of the Exchange
Act (15 U.S.C. 78o(b)(4)), Section 15B(c)(2) of the
Exchange Act (15 U.S.C. 78o–4(c)(2)), as amended
by the Dodd-Frank Act, limits the Commission’s
ability to impose sanctions on municipal advisors
for conviction of felonies and misdemeanors to
convictions occurring within ten years preceding
the filing of any application for registration.
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than the SEC and Commodity Futures
Trading Commission (‘‘CFTC’’) or by any
foreign financial regulatory authority.
The Commission believes that, for
purposes of the permanent registration
regime, it is important to collect
information about matters within these
timeframes because, under the Exchange
Act, the Commission could use such
matters to form the basis for an action
to suspend or revoke a municipal
advisor’s registration.217
The questions asked in Item 9 are
generally consistent with the
disciplinary disclosure questions asked
on Form BD. Unlike on Form BD, Item
9 asks for information regarding actions
relating to municipal advisor-related
business, in addition to investmentrelated business. Specifically, Item 9 of
the proposed form would ask for
information regarding convictions,
pleading and charges related to felonies
and certain misdemeanors. It would ask
for information regarding whether the
SEC or the CFTC has ever: found the
municipal advisor or any associated
person to have made a false statement
or omission; found the municipal
advisor or any associated person to have
been involved in a violation of its
regulations or statutes; found the
municipal advisor or any associated
person to have been a cause of a
municipal advisor- or investmentrelated business having its authorization
to do business denied, suspended,
revoked, or restricted; entered an order
against the municipal advisor or any
associated person in connection with
municipal advisor- or investmentrelated activity; or, imposed a civil
money penalty on the municipal advisor
or any associated person, or ordered the
municipal advisor or any associated
person to cease and desist from any
activity. Item 9 of the form would also
ask for similar information with respect
to other Federal regulatory agencies, any
state regulatory agency, or any foreign
financial regulatory authority. Item 9
would ask for information regarding
whether any SRO or commodity
exchange ever found the municipal
advisor or any associated person to have
made a false statement or omission;
found the municipal advisor or any
associated person to have been involved
in a violation of its rules (other than a
violation designated as a ‘‘minor rule
violation’’ under a plan approved by the
SEC); found the municipal advisor or
any associated person to have been the
cause of a municipal advisor- or
investment-related business having its
authorization to do business denied,
suspended, revoked, or restricted, or
disciplined the municipal advisor or
any associated person by expelling or
suspending it from membership, barring
or suspending its association with other
members, or otherwise restricting its
activities. It would also ask whether the
municipal advisor or its associated
persons have had authorization to do
business or to act as an advisor,
attorney, or Federal contractor revoked
or suspended. In addition, Item 9 would
ask for information about pending
regulatory proceedings; and civil
proceedings related to municipal
advisor- or investment-related activities,
including pending proceedings.
These questions are designed to elicit
responses that would enable the
Commission to institute proceedings
against the municipal advisor, if
appropriate, and also to make the
information available to the public.
Section 15B(c)(2) of the Exchange Act
provides that the Commission shall
censure, place limitations on the
activities, functions and operations of,
suspend, or revoke the registration of a
municipal securities dealer or
municipal advisor if it finds that doing
so is in the public interest and that the
municipal advisor has committed the
kinds of acts, is subject to the kinds of
orders or findings, has been convicted of
the kinds of offenses, or is enjoined
from the kinds of actions, conduct and
practices enumerated in Section 15(b)(4)
of the Exchange Act.218 Section 15(b)(4)
of the Exchange Act 219 provides that the
Commission shall censure, place
limitations on the activities, functions
and operations of, suspend, or revoke
the registration of a broker or dealer if
it finds that doing so is in the public
interest and that the broker or dealer, or
any person associated with the broker or
dealer, has made false or misleading
statements with respect to material facts
in any registration or report filed with
the Commission; has been convicted in
the ten years preceding any application
for registration or any time thereafter of
any felony or misdemeanor or of a
substantially equivalent crime by a
foreign court of competent jurisdiction
which the Commission finds involves or
arises out of certain activities, including
conduct of the business of a municipal
advisor; or is permanently or
temporarily enjoined by order,
judgment, or decree of any court of
competent jurisdiction from acting as,
among other things, a municipal
advisor, or from engaging in or
continuing any conduct or practice in
connection with any such activity, or in
connection with the purchase or sale of
218 See
217 See
Section 15B(c)(2) of the Exchange Act.
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219 See
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15 U.S.C. 78o(b)(4).
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847
any security. If a municipal advisor
answers ‘‘yes’’ to any of the disciplinary
history questions in Item 9, the
municipal advisor would be required to
complete a Disclosure Reporting Page
(‘‘DRP’’) to Form MA.
Proposed Form MA includes separate
DRPs to report information relating to
criminal, regulatory, and civil actions
involving the municipal advisor or its
associated persons. Each would require
detailed information about the action,
such as the entities or regulatory
authorities involved, where the charges
were filed and when, a description of
the charge and the circumstances
related to it, in the case of municipal
advisor- and investment-related
charges—the product type, and the
status of the charge, including
resolution details as appropriate.
Consistent with the limitations set forth
in Section 15(b)(4)(B) 220 of the
Exchange Act, however, information on
the criminal DRP would be limited to
matters within the last ten years. If a
municipal advisor or associated person
that is registered through the investment
adviser or broker-dealer registration
systems (the ‘‘IARD’’ or ‘‘CRD’’,
respectively) has submitted a DRP with
Forms ADV, BD, or U4 to the IARD or
CRD, or a municipal advisor has
previously submitted disclosure to the
Commission with a prior registration on
Form MA–T, for the matter that reports
the information required by a DRP to
Form MA, information included with
respect to Forms MA–T, ADV, BD, or U4
as applicable, could be incorporated by
reference (to the extent possible,
depending on the technical capabilities
of the electronic filing system).
The Commission believes that it is
important to collect the information that
would be required by the DRPs to assist
it in deciding whether to grant or
institute proceedings to deny an
application for registration, to revoke a
registration, to manage the
Commission’s regulatory and
examination programs, and to make
such information available to the MSRB
to better inform its regulation of
municipal advisors and the municipal
securities market generally.
Request for Comment
The Commission requests comment
generally on Item 9 of proposed Form
MA and also requests comment on the
following specific issues:
• How might the disclosures
regarding associated persons whose
actions are covered by Item 9 of Form
MA be improved?
220 15 U.S.C. 78o(b)(4)(B). See also 15 U.S.C. 78o–
4(c)(2).
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• Are the questions in Item 9
sufficient for providing information to
investors, municipal entities, obligated
persons, and regulators regarding the
disciplinary history of municipal
advisors and associated persons?
• Should additional or other
questions be included? Please provide
examples of any additional questions
that should be included.
• Would the questions in Item 9
impose an excessive burden on
municipal advisors to answer?
• Does expanding the disciplinary
history disclosure requirement in Item 9
of Form MA to associated persons of
municipal advisors, rather than limiting
it to associated municipal advisor
professionals (as in Form MA–T),
include persons whose disciplinary
history is sufficiently relevant to a
municipal advisor’s activities to warrant
disclosure?
• Are the timeframes to the questions
in Item 9 appropriate? Would the public
and municipal entities find the full
history of disciplinary information
important and useful rather than putting
time limitations on disclosure of
criminal information? Are the
timeframes too long, such that they
would require disclosure of information
that is no longer useful or relevant, or
such that they would impose an undue
burden on applicants for registration?
• Would including the disciplinary
questions in Form MA impose undue
hardship on, or have other
consequences for, small municipal
advisors?
• Would the ability to incorporate by
reference to disciplinary disclosures on
Form BD and Form ADV for registered
broker-dealers and investment advisers,
respectively, or to disclosures made
with a previous registration on Form
MA–T, make it more difficult for
municipal entities, obligated persons,
investors and others to obtain this
information than if it were included in
Form MA itself?
• Would the ability of municipal
advisors to incorporate by reference
such disclosures on Forms MA–T, BD,
ADV, and U4 significantly reduce the
burden on municipal advisors, and
particularly small municipal advisors,
to complete Form MA?
Item 10: Small Businesses
As described further in Section VII
below, the Commission is required by
the Regulatory Flexibility Act
(‘‘RFA’’) 221 to consider the effect of its
regulations on small entities. The
Commission’s rules do not define ‘‘small
business’’ or ‘‘small organization’’ for
221 5
U.S.C. 601 et seq.
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purposes of municipal advisors. The
Small Business Administration (‘‘SBA’’)
defines small business for purposes of
entities that provide financial
investment and related activities as a
business that had annual receipts of less
than $7 million during the preceding
fiscal year and is not affiliated with any
person that is not a small business or
small organization.222 The Commission
is using the SBA’s definition of small
business to define municipal advisors
that are small entities for purposes of
the RFA.
Item 10 of Form MA would enable the
Commission to determine how many
applicants meet the SBA’s definition of
‘‘small business’’ or ‘‘small organization’’
as applied to municipal advisors, by
requiring each applicant to disclose
whether it had annual receipts of less
than $7 million during its most recent
fiscal year (or the time it has been in
business, if it has not completed its first
fiscal year in business). The applicant
would also be required to disclose
whether any business or organization
with which it is affiliated had annual
receipts of more than $7 million in its
most recent fiscal year (or the time it has
been in business, if it has not completed
its first fiscal year in business).
Request for Comment
The Commission requests comment
generally on Item 10 of proposed Form
MA and also requests comment on the
following specific issues: 223
• Are the questions asked in Item 10
sufficiently clear? If not, please explain.
• Should the Commission request any
other information to make its
determination?
Execution and Self-Certification
Proposed Form MA would include an
execution page that must be signed and
attached to any initial application for
registration, as well as to any
amendments to Form MA. The proposed
execution page is similar in purpose to
the execution page of Form ADV,224 but
deletes references to state registration,
bonding requirements and other
inapplicable components, and would
require a non-resident municipal
advisor to execute a separate form (Form
MA–NR) to designate agent for service
of process.
Form MA would be electronically
‘‘signed’’ by an authorized person of the
advisor before the form could be
electronically submitted. The
authorized person would sign the form
222 See
13 CFR 121.201.
also infra Section VII (discussing the
impact of the proposed rules on municipal advisors
that are small entities).
224 See 17 CFR 279.1.
223 See
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by typing his or her name and
submitting the form on behalf of the
advisor. An authorized person would
sign one of two different execution
pages, depending on whether the
advisor is resident in the United States
or a ‘‘non-resident’’ municipal
advisor.225 By signing the domestic
municipal advisor execution page, the
authorized person would affirm that the
information in Form MA is true and
correct, and would appoint certain
officials as agents for service of process
in states where the advisor maintains its
principal office or place of business.
Specifically, a domestic municipal
advisor would appoint an official in the
state where it maintains its principal
office and place of business. This
appointment would allow private
parties and the Commission to bring
actions against the municipal advisor by
delivering necessary papers to the
appointed agent.226 The agent would be
able to receive any process, pleadings,
or other papers in any action that arises
out of or relates to or concerns
municipal advisory activities of the
municipal advisor. As proposed, the
agent also could receive service for
investigation and administrative
proceedings.
The execution page for resident and
non-resident municipal advisors would
require certification that the books and
records of the municipal advisor will be
preserved and available for inspection
and would authorize any person with
custody of the books and records to
make them available to Federal
representatives. With respect to nonresident municipal advisors, the
execution page also provides that by
signing the Form MA, the non-resident
municipal advisor agrees to provide, at
its own expense, to the Commission,
copies of all books and records that the
225 Proposed rule 15Ba1–1(h) defines a ‘‘nonresident’’ as: ‘‘(1) [I]n the case of an individual, one
who resides in or has his principal office and place
of business in any place not in the United States;
(2) [i]n the case of a corporation, one incorporated
in or having its principal office and place of
business in any place not in the United States; and
(3) [i]n the case of a partnership or other
unincorporated organization or association, one
having its principal office and place of business in
any place not in the United States.’’ This definition
is consistent with the definition of ‘‘non-resident
broker-dealer’’ in rule 15b1–5 under the Exchange
Act. See 17 CFR 240.15b1–5. See also 17 CFR
275.0–2 (defining the term ‘‘non-resident’’ for
purposes of serving non-residents in connection
with Form ADV). In addition, non-resident
municipal advisors and non-resident general
partners and managing agents of municipal advisors
would submit Form MA–NR. See infra Section
II.A.5. (discussing proposed Form MA–NR).
226 Appointment of agent for service of process for
non-resident municipal advisors is discussed
further below. See infra Section II.A.5. (discussing
proposed Form MA–NR).
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municipal advisor is required to
maintain by law. The Commission
believes that before granting registration
to a domestic or non-resident municipal
advisor, it is appropriate to obtain
assurance that such person has taken
the necessary steps to be in the position
to provide the Commission with prompt
access to its books and records and to
be subject to inspection and
examination by the Commission.
The authorized person of a municipal
advisor completing the execution pages
and the municipal advisor would also
be required to certify that the municipal
advisor and every natural person
associated with it has met, or within any
applicable required timeframes will
meet, such standards of training,
experience, and competence, and such
other qualifications, including testing,
for a municipal advisor and natural
persons associated with it, required by
the Commission, the MSRB, or any
other relevant SRO. The authorized
person and municipal advisor would
also be required to certify that the
municipal advisor has conducted an
initial or annual review, as applicable,
of the municipal advisor’s business and
has reasonably determined that the
municipal advisor: (1) Can carry out the
activities described in the items that are
checked in Item 4.K (Applicant’s
Business Relating to Municipal
Securities) of Form MA; 227 (2) can
comply with all applicable regulatory
obligations; and (3) has met such
regulatory obligations during the last
year (or such shorter period if the
application is an initial application for
registration). For these purposes, such
applicable regulatory obligations are
obligations under the Federal securities
laws and rules promulgated thereunder
and applicable rules promulgated by the
MSRB, or any other relevant SRO. The
authorized person and the municipal
advisor would also be required to certify
that the municipal advisor has
documented this review process and
will maintain all documents relating to
such review in accordance with
proposed rule 15Ba1–7 under the
Exchange Act.228 Proposed rule 15Ba1–
227 Factors that should be considered in
determining whether a municipal advisor can carry
out the described activities would include, but not
be limited to, whether the municipal advisor has,
with respect to the described activities: The
appropriate technology systems and equipment; the
appropriate financial resources; adequate staffing
with appropriate skill sets, training, and expertise;
and adequate facilities, such as office space, as
appropriate.
228 Proposed rule 15Ba1–7(a)(8) would require a
municipal advisory firm to make and keep true,
accurate, and current, a record of the initial or
annual review, as applicable, conducted by the
municipal advisor of such municipal advisor’s
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4(e) would require such certification in
conjunction with filing of an initial
application for registration as a
municipal advisor and annually
thereafter.229
Failure to make the certifications
required by the execution pages would
be a basis for the Commission to
commence proceedings to deny an
application for registration.230 In
addition, if an applicant becomes
unable to comply with the certifications,
this would be a basis for the
Commission to commence proceedings
to revoke a municipal advisor’s
registration.231
Additionally, proposed rule 15Ba1–5
would require a non-resident municipal
advisor, other than a natural person,
including non-resident sole proprietors
(i.e., non-resident municipal advisory
firms) to provide an opinion of counsel
that the municipal advisor can, as a
matter of law, provide the Commission
with access to the books and records of
the municipal advisor, as required by
law, and that the municipal advisor can,
as a matter of law, submit to onsite
inspection and examination by the
Commission. General Instruction 14
would provide that a non-resident
municipal advisor filing Form MA must
attach the opinion as an Exhibit to its
execution page. Each jurisdiction may
have a different legal framework with
respect to its laws (e.g., privacy laws)
that may limit or restrict the
Commission’s ability to receive
information from a municipal advisor.
Providing an opinion of counsel that a
municipal advisor can provide access to
its books and records and can be subject
to onsite inspection and examination
would allow the Commission to better
evaluate a municipal advisor’s ability to
meet the requirements of registration
and ongoing supervision. Failure to
provide an opinion of counsel may be
a basis for the Commission to deny an
application for registration.
business in connection with its self-certification on
Form MA.
229 See proposed rule 15Ba1–4(e). The proposed
rule would require the annual self-certification to
be filed by municipal advisory firms within 90 days
of the end of a municipal advisor’s fiscal year, or
of the end of the calendar year for municipal
advisors that are sole proprietors.
230 See infra Section II.B. (discussing grounds for
denial of registration of a municipal advisor’s
registration). The Commission also notes that if the
execution page to Form MA is not completed, the
Form MA would be incomplete and the electronic
filing system would not permit the Form MA to be
filed.
231 See supra notes 218 and 219, and
accompanying text (discussing grounds for
revocation of registration of a municipal advisor’s
registration and other sanctions).
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849
Request for Comment
The Commission requests comment
generally on the execution pages of
proposed Form MA and also requests
comment on the following specific
issues:
• Are the instructions relating to
execution sufficiently clear? If not,
please explain and suggest additional or
alternative language.
• Should there be additional or
alternative representations required of a
person who executes Form MA?
• Are there alternative methods to
obtain consent to service of process?
• Are the requirements for domestic
municipal advisors, as set forth on the
execution page for domestic municipal
advisors appropriate? Should these
requirements be changed in any way?
Please explain.
• Are the requirements for nonresident municipal advisors, as set forth
on the execution page for non-resident
municipal advisors appropriate? Should
these requirements be changed in any
way? Please explain.
• Should the Commission’s definition
of ‘‘non-resident’’ be modified in any
way?
• Does requiring a non-resident
municipal advisor to certify that it will
provide the Commission with access to
the municipal advisor’s books and
records and submit to onsite inspection
and examination by the Commission,
ensure that the Commission can legally,
under applicable foreign law, obtain
prompt access to a non-resident
municipal advisor’s books and records
and examine a non-resident municipal
advisor onsite? Are there other factors or
alternatives that are relevant to ensure
that the Commission can legally, under
applicable foreign law, obtain prompt
access and examine a non-resident
municipal advisor onsite?
• Are there any factors that the
Commission should take into
consideration to ensure that a nonresident municipal advisor seeking to
register as a municipal advisor can, in
compliance with applicable foreign
laws, provide the Commission with
access to its books and records and can
submit to inspection and examination
by the Commission?
• Should the Commission require
non-resident municipal advisors seeking
to register as municipal advisors to
certify to anything else on the execution
page for non-resident municipal
advisors?
• Should non-resident municipal
advisors be required to provide any
additional information or documents?
• Is the proposed self-certification
broad enough in scope or too broad? If
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not, what additional factors should be
included or excluded and why? Should
the self-certification be required more or
less frequently? If so, how often and
why? Are there other alternatives the
Commission should consider? If so,
what alternatives and why?
• In connection with the proposed
initial and annual review requirement
for the self-certification, would
municipal advisors undertake a
meaningful review absent a minimum
review standard?
• Should the Commission instead
mandate a minimum level of review that
must be performed of a municipal
advisor’s business? If so, what level of
review would be appropriate?
• Is there a minimum level of review
that would be appropriate without
imposing impracticable burdens or costs
on municipal advisors?
• Should the self-certification
requirement further specify the types of
business activities that should be
covered by the initial and annual
review?
• Should a municipal advisor be
required to disclose publicly, such as on
Form MA, the nature of its review and
its findings and conclusions?
• Should the Commission specify the
types of review that should be
performed? If so, what types of review
would be appropriate for municipal
advisors? Should the type of review
differ depending on the type of
municipal advisory activities in which
the advisor engages and/or the size of
the advisor? Please explain.
• As an alternative to the proposed
self-certification requirement, should
the Commission require an independent
third party review of the municipal
advisor as part of, or prior to, the
advisor’s application for registration and
then annually thereafter? Should the
Commission require that the municipal
advisor name any such third party
reviewer on the Form MA? Should the
findings and conclusions of the third
party reviewer be made publicly
available?
• Is there any other party that a
municipal advisor should be allowed to
rely upon in order to satisfy an initial
and annual review requirement? Please
explain. Would an accountant or
attorney be an appropriate third party
reviewer?
• If the Commission were to permit or
require third party reviews, how would
the Commission encourage the quality
of third party reviews? Should a third
party be required to be independent? If
so, should the Commission define
‘‘independence’’ for this purpose? If so,
how should ‘‘independence’’ be defined?
Should the Commission require
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disclosure of affiliates related to third
parties?
• Should the Commission undertake
a review of all municipal advisors as
part of the registration and examination
process? If so, what should be the scope
and frequency of the examination
process? Should the Commission
provide municipal advisors a choice
between independent third party review
and Commission review, or a
combination thereof? In order to make
the most efficient use of the
Commission’s resources, should the
Commission rely on an SRO or other
third party to undertake such review?
• Are there other factors that the
Commission should consider, in
addition to an opinion of counsel, that
address whether the Commission can
legally, under applicable foreign law,
obtain the required access to a
municipal advisor’s books and records
and conduct onsite inspection or
examination of the municipal advisor?
d. Information Requested in Form
MA–I
The Commission is proposing to
require natural person municipal
advisors, which would include sole
proprietors and certain individual
employees of municipal advisory firms,
to register on proposed Form MA–I. As
a result, individual employees who
meet the definition of a ‘‘municipal
advisor’’ would be required to register
independently, apart from the firm at
which they are employed, on proposed
Form MA–I.232 Requirements for
registration on proposed Form MA–I of
individuals who are sole proprietors
that meet the definition of ‘‘municipal
advisor’’ are also discussed below.
The Commission believes that the
registration of natural person municipal
advisors, including employees
separately from their firms, would help
the Commission better manage its
regulatory and examination programs by
assisting the Commission in identifying
municipal advisors and better
understanding their business structures.
The required information also would
assist the Commission in the
preparation of its inspection and
examination of municipal advisors, and
in overseeing the municipal securities
market and investigating instances of
232 To date, in somewhat analogous registration
contexts, the Commission has not required
associated persons to register with the Commission.
In the broker-dealer context, associated persons
must register with FINRA. In the investment adviser
context, associated persons of investment advisers
generally must register with the states. For the
reasons set forth below, in the context of municipal
advisors, the Commission believes that registration
of each natural person municipal advisor separately
is the appropriate approach.
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possible wrongdoing. In determining
what information to propose to be
disclosed, the Commission has also
considered the broader public interest
in availability of information about
employees of municipal advisors to the
public. The Commission believes that
the required disclosures would provide
municipal entities, obligated persons,
investors, and other regulators with
information that would inform them as
to the relevant municipal advisory
experience and history of such natural
person municipal advisors. Moreover, a
separate registration application form
for natural person municipal advisors
could enable municipal entities,
investors, obligated persons, and
regulators to obtain certain additional
information regarding a natural person
municipal advisor (as detailed below)
directly from that individual, including
the kind of information that would not
be realistic or desirable to obtain
through the firm’s Form MA.233
For these reasons, the Commission is
proposing to require natural person
municipal advisors, including
individual employees of firms, to
register separately with the
Commission, and is proposing new
Form MA–I as the application form for
such registration. As discussed above, a
municipal advisory firm that registers
by filing proposed Form MA must
already provide information on that
form concerning the disciplinary history
(over specified time spans) for each of
its associated persons—a term that
includes employees who are ‘‘engaged in
the management, direction, supervision,
or performance of any activities relating
to the provision of advice to or on behalf
of a municipal entity or obligated
person with respect to municipal
financial products or the issuance of
municipal securities.’’ 234 Thus, some
information that could be valuable to
municipal entities, obligated persons,
investors, and regulators regarding
individual employees who provide
advice on behalf of a firm (and are
natural person municipal advisors)
would already be available through the
municipal advisory firm’s Form MA. As
detailed below, Form MA–I would,
however, elicit additional information
233 Section 975(c)(5) of the Dodd-Frank Act
provides the Commission with authority to censure
or place limitations on the activities or functions of
any person associated with a municipal advisor or
to suspend or bar any such person from being
associated with a municipal advisor, but it appears
Congress made a technical error in drafting this
provision. To address any ambiguity in Section
975(c), the Commission intends to recommend a
technical amendment to Section 975(c)(5) of the
Dodd-Frank Act.
234 See Section 15B(e)(7) of the Exchange Act. 15
U.S.C. 78o–4(e)(7).
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that would not be provided by the firm
with which the natural person
municipal advisor is employed.235 In
addition, to obtain the same additional
information from sole proprietors as
obtained from natural person municipal
advisors who are employees of firms,
the Commission is proposing that sole
proprietors, since they are also natural
persons, be required to complete both
Forms MA and MA–I. However, some
information that a sole proprietor has
already provided in his or her Form MA
would not need to be provided a second
time. Form MA–I would permit
information required by a DRP to the
form to be incorporated by reference, if
the information has been previously
disclosed on a DRP to his or her Form
MA, ADV, BD, or U4, as applicable, or
has been previously disclosed on his or
her Form MA–T.236 Thus, the
information required by Form MA–I, as
proposed, would supplement, rather
than duplicate, the information
provided by a sole proprietor on Form
MA.
The Commission notes that the
information requested on proposed
Form MA–I is similar to information
requested on FINRA’s Form U4.237 Form
U4 is used, among other things, to
register associated persons of brokerdealers with FINRA, and associated
persons of state-registered investment
advisers with the states. Some questions
on Form U4, however, have been
adapted for purposes of proposed Form
MA–I to relate specifically to municipal
advisors, or have been omitted as not
necessary or appropriate in the
municipal advisor context.
235 Under the proposal, however, to the extent
that the required information regarding an
employee’s disciplinary history has already been
provided on Forms MA, MA–T, BD, ADV, or U4,
the employee would be permitted to incorporate
such information by reference in completing Form
MA–I.
236 If the sole proprietor is also registered through
the IARD system or CRD system, registered with the
SEC as a municipal advisor on Form MA, or
previously registered with the SEC on Form MA–
T, or is an associated person of a municipal advisor
that is registered with the SEC on Form MA or that
previously registered with the SEC on Form MA–
T, and the applicant or municipal advisor with
which it is associated previously submitted a DRP
(with Form ADV, BD, or U4) to the IARD or CRD,
or submitted to the SEC disclosure on Form MA–
T or a DRP with Form MA, for the event that
contains the information required by the
comparable DRP to Form MA–I, such information
may be incorporated by reference, to the extent
applicable.
237 See Form U4, Uniform Application for
Securities Industry Registration or Transfer,
available at: https://www.finra.org/web/groups/
industry/@ip/@comp/@regis/documents/
appsupportdocs/p015112.pdf.
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Request for Comment
The Commission requests comment
generally on proposed Form MA–I and
also requests comment on the following
specific issues:
• What effects would a separate
registration requirement have on natural
persons and on firms from the
standpoint of compliance? What would
be the relative advantages and
disadvantages for firms, municipal
advisor employees, municipal entities,
obligated persons, investors, and
regulators, of requiring separate
registration for natural person
municipal advisors? How, if at all, does
the moving of an employee from one
firm to another bear on the issue of
separate registration?
• Would the existence of a separate
registration requirement and registration
form for natural person municipal
advisors cause confusion among
municipal advisors such as to outweigh
its benefits? If the Commission were to
only require registration of municipal
advisory firms, would inclusion of
information regarding the firm’s
employees on the firm’s Form MA cause
confusion for municipal entities,
obligated persons, and investors?
• What, if any, legal ramifications
may result for firms and/or for natural
persons based on a registration regime
that allows natural person municipal
advisors that are employees of a
municipal advisory firm to be registered
by their firms as opposed to separate
registration? What, if any, interpretive
issues are raised with respect to the
application of the statutory registration
requirements?
• What would be the advantages and/
or disadvantages of requiring a sole
proprietor to complete two separate
registration forms, and to keep both
updated and to amend each form as the
occasion arises? Should a separate form
be adopted for the registration of sole
proprietors?
Items 1 and 2: Identifying Information
and Other Names
In addition to requesting basic
identifying information about a natural
person municipal advisor, and in the
case of a natural person municipal
advisor that is an employee 238 and the
firm with which he or she currently is
associated,239 Item 1 of Form MA–I, as
238 This would include, for example, the
individual’s full legal name.
239 Such identifying information would include,
if any, the CRD number assigned to the firm and
any file number assigned to the firm by the
Commission. The Commission believes that
requiring individuals to provide these numbers
would make it easier for municipal entities and
investors to gather the information they need,
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851
proposed, would require each such
individual to disclose additional
identifying information that would not
be contained in his or her firm’s Form
MA, including:
• The individual’s CRD number, if he
or she has one;
• The individual’s social security
number; 240
• The date of the individual’s
employment or contract with the firm;
• Whether the individual has an
independent contractor relationship
with the firm;
• The firm’s registration status;
• All the offices of the firm where the
individual may be physically located
and all the offices from which the
individual will be supervised; and
• Whether any of these offices are
located in a private residence.
Item 2 would require a natural person
municipal advisor to disclose all other
names that he or she is using or has
been known by since the age of 18, such
as nicknames, aliases, and names before
and after marriage.
The Commission believes that the
information above would be useful to
municipal entities and obligated
persons in exploring the background,
credentials, reliability, and
trustworthiness of an individual in the
course of making a decision whether to
engage that natural person or his or her
firm as a municipal advisor. The same
information would be valuable to
regulators in overseeing the market and
investigating possible instances of
wrongdoing.
Request for Comment
The Commission requests comment
generally on Items 1 and 2 of proposed
Form MA–I and also requests comment
on the following specific issues:
• Do all these data elements serve the
purposes of registration? Are all these
facts helpful to municipal entities,
obligated persons, and regulators in
searching for information about
municipal advisors? If not, which
should be eliminated and why?
• Is the additional identification
information required of individuals
registered as representatives of
investment advisers and/or brokerdealers on FINRA’s Form U4 a useful
model for the disclosures that should be
required of municipal advisors—i.e., are
natural person municipal advisors
would facilitate regulatory oversight and
surveillance of municipal advisory activities, and
would be valuable for investigative purposes.
240 This information would not be made publicly
available. This information is necessary in
connection with the Commission’s enforcement and
examination functions pursuant to Section 15B(c) of
the Exchange Act (15 U.S.C. 78o–4(c)).
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distinguishable from representatives of
investment advisers and/or brokerdealers in this regard? If so, how?
• Are there any additional data
elements that would be useful to
municipal entities, obligated persons,
and regulators that should be required
to be provided? If so, what are they?
• Are there other data elements that
should not be made available to the
public? If so, which should not be made
available?
• Would a requirement to provide
any of the information described raise
any privacy issues, even if not made
available to the public?
Item 3: Residential History
Form MA–I, as proposed, also would
require a natural person municipal
advisor to disclose each location where
he or she has resided for the past five
years, including the time period at each
residence. Natural person municipal
advisors would be required to report
changes in residence (via an
amendment) as they occur. In addition,
the applicant must not leave any gaps
greater than three months between
addresses.
The Commission believes that a
natural person municipal advisor’s
residential history, like the additional
identifying information the proposed
Form MA–I would seek, would be
useful for interested parties in exploring
the background, credentials, reliability,
and trustworthiness of an individual
and be valuable to regulators in
overseeing the market and investigating
possible instances of wrongdoing. The
Commission notes that the information
proposed to be required regarding
residential history is similar to the
information requested on Form U4.241
Item 4: Employment History
Form MA–I, as proposed, would
require natural person municipal
advisors to provide their complete
employment history for the past ten
years, including full and part-time
employment, self-employment, military
service, and homemaking. All statuses
during the ten-year period, such as
unemployed, full-time education,
extended travel, and other similar
circumstances would be required to be
included. In addition, the applicant
must not leave a gap longer than three
months between entries. The
information that the Commission
proposes to be required is similar to the
information requested on Form U4,242
and would help inform an
understanding of an employee’s
business experience and provide useful
information in preparing for regulatory
examinations.
Request for Comments
The Commission requests comment
generally on Item 3 of proposed Form
MA–I and also requests comment on the
following specific issues:
• Would a list of all the locations at
which a natural person municipal
advisor has resided for the past five
years be necessary or useful in searching
for information about municipal
advisors to the extent that municipal
advisors must be required to reveal
them? If not, which should be
eliminated?
• Are the disclosures concerning
residential history required on FINRA’s
Form U4 a useful model for the
disclosures that should be required of
municipal advisors—i.e., are natural
person municipal advisors
The Commission requests comment
generally on Item 4 of proposed Form
MA–I and also requests comment on the
following specific issues:
• Would requiring a natural person to
provide his or her employment history
serve a purpose essential enough to be
included in the disclosures required of
a natural person in registering as a
municipal advisor?
• Is a list of all the places of
employment and all the gaps in
employment of a natural person
municipal advisor over the past ten
years necessary or useful for municipal
entities, obligated persons, and
regulators in searching for information
about municipal advisors to the extent
that municipal advisors must be
required to reveal them? If not, should
a less comprehensive employment
history be required to be disclosed?
• Would ten years be an appropriate
time span for which to require
employment history? If not, what time
span, if any, would be appropriate?
• If the employment history of a
natural person municipal advisor is
required for purposes of registration,
should it be made available to the
public? If so, why? If not, why not?
241 The Commission does not intend to make the
information required by Item 3 publicly available.
242 The Commission intends to make this
information publicly available.
Request for Comments
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distinguishable from individuals that
are representatives of investment
advisers and/or broker-dealers in this
regard? If so, how?
• Would five years be an appropriate
time span for which to require
residential history? If not, what time
span, if any, would be appropriate?
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• To the extent that the employment
history of a natural person municipal
advisor must be disclosed on Form MA–
I, should it be limited to employment
relating to securities, or, more narrowly,
to municipal securities or investment
advice?
Item 5: Other Business
Form MA–I, as proposed, also would
require a natural person municipal
advisor to provide information about
other business activities, if any, in
which he or she is currently engaged—
either as a proprietor, partner, officer,
director, employee, trustee, agent or
otherwise. The form would ask for the
name of the other business, its address,
whether it is municipal advisor-related,
and, if not, the nature of the business in
which it is engaged.
The natural person filing Form MA–
I would be required to provide his or
her position, title, or relationship with
the other business, the start date of the
relationship, the approximate number of
hours per month the applicant devotes
to the other business, and a brief
description of his or her duties relating
to the other business. The information
sought in this section of the form is
similar to the information sought by the
equivalent section in Form U4, and
would help the Commission understand
a natural person municipal advisor’s
business activities and would help staff
prepare for examinations.
Request for Comments
The Commission requests comment
generally on Item 5 of proposed Form
MA–I and also requests comment on the
following specific issues:
• Does extensive information about a
natural person municipal advisor’s
other current business activities, or any
information at all, serve a purpose
essential enough to be included in the
disclosures required of a natural person
in registering as a municipal advisor?
• Is information about a municipal
advisor’s other current business
necessary or useful for municipal
entities, obligated persons, and
regulators searching for information
about municipal advisors to the extent
that municipal advisors must be
required to reveal them?
• Are any additional points of
information about a natural person
municipal advisor’s other business
activities relevant and, therefore,
appropriate to require a natural person
municipal advisor to disclose?
• Should required information about
other business activities be limited to
current activities? If not, over how long
a time span should other business
activities be reported?
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• If the history of other business
activities of a natural person municipal
advisor is required for purposes of
registration, should it be made available
to the public?
• To the extent that the history of
other business activities of a natural
person municipal advisor must be
disclosed, should it be limited to other
business activities relating to securities,
or, more narrowly, to municipal
securities or investment advice?
Item 6: Criminal Action, Regulatory
Action, and Civil Judicial History,
Customer Complaint/Arbitration/Civil
Litigation, Termination, and Financial
Disclosure
Proposed Form MA–I would include
sections that require a natural person
municipal advisor to provide the same
general types of information regarding
his or her criminal, regulatory, and civil
judicial history, if any, as provided by
municipal advisory firms, including
sole proprietors, in corresponding
sections in Form MA.243 As in Form
MA, certain responses would require
disclosure of complete details of all
events or proceedings on the DRPs
attached to the form. However, a natural
person completing Form MA–I would
need to make certain additional
disclosures, as specified below, and the
DRPs would require details relating to
these additional disclosures of the
natural person’s history.
The Commission believes that these
additional disclosures, which are also
required of individuals associated with
broker-dealers and investment advisers
on Form U4, would be appropriate to
require of municipal advisors, both to
aid municipal entities, obligated
persons, and other members of the
public in researching the background of
municipal advisors, and to aid
regulators in enhancing their oversight
of municipal advisors.
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Criminal Action Disclosure
With respect to felonies, Form MA–I,
in contrast to the disclosures required
by Item 9A of Form MA, would require
disclosure of:
• Any past conviction of, or plea of
guilty or nolo contendere to, a felony by
the natural person municipal advisor,
rather than limiting the disclosure to the
243 See supra Section II.A.2.c. As previously
discussed, a sole proprietor who has already filed
a Form MA, and an employee whose employer has
already filed a Form MA including information
relating to that employee, would be permitted to
incorporate by reference certain information in the
Form MA into his or her Form MA–I, to the extent
that providing the information in Form MA–I
would duplicate the information already provided
in the Form MA. See supra notes 235 and 236 and
accompanying text.
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past ten years, as in a firm’s or solo
practitioner’s Form MA.
• Any charges of felony against the
natural person municipal advisor in the
past, rather than limiting disclosure to
currently pending charges, as in a firm’s
or solo practitioner’s Form MA.
• Any convictions of, or plea of guilty
or nolo contendere to, a felony by an
organization based on activities that
occurred when the natural person
municipal advisor exercised control
over the organization—a disclosure not
required in Form MA.
Similarly, with respect to
misdemeanors, in instances where Form
MA would require only disclosures of
convictions and pleas concerning a
natural person municipal advisor
looking back ten years, and require only
disclosures of charges against the
natural person that are currently
pending, Form MA–I would require
disclosure of such convictions, pleas,
and charges that occurred at anytime in
the individual’s past. Misdemeanors,
convictions, pleas, and charges of
misdemeanor against an organization
based on activities while the individual
exercised control over it would also be
required to be disclosed.
These additional disclosures would
be consistent with the disclosure
requirements on Form U4. In addition,
these disclosures would provide
additional information with respect to
natural person municipal advisors that
would be useful to the Commission’s
regulatory and examination programs,
and may be useful to municipal entities
and obligated persons who are clients or
prospective clients of the municipal
advisor.
As would be required for firms with
respect to proposed Form MA, the DRP
for criminal disclosure on Form MA–I,
as proposed, would similarly require a
natural person municipal advisor to
include certain details regarding events
noted in the first section of the form.
These additional disclosure details
would include, among others: Status of
the event; details of its disposition; and
the date of amended charges, if any. The
DRP for Form MA–I would also provide
an option and space for the individual
to comment with a brief summary of the
circumstances leading to the charge(s)
as well as the current status or final
disposition of the charge(s).
Request for Comment
The Commission requests comment
generally on the criminal action
disclosure requirements of proposed
Form MA–I and also requests comment
generally on the following specific
issues:
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853
• In addition to the questions posed
above regarding the appropriateness of
the criminal history disclosures
proposed in Form MA,244 the
Commission seeks comment on whether
the broadened scope of these
disclosures required of natural person
municipal advisors in proposed Form
MA–I would be warranted. If so, why?
If not, why not? Would additional
disclosure to those outlined above be
appropriate? To the extent that
additional disclosure regarding the
criminal action history for a natural
person municipal advisor would be
appropriate, please provide details
regarding what those disclosures should
require.
Regulatory Actions Relating to the
Individual
With respect to regulatory actions, in
addition to the disclosures required in
Form MA, Form MA–I, similar to Form
U4, would require a natural person
municipal advisor to disclose whether
the Commission or the CFTC has ever
found the natural person to have:
• Willfully violated, or been unable to
comply with, any provision of the
Federal securities laws, the Commodity
Exchange Act, and the rules thereunder,
and any rule of the MSRB;
• Willfully aided, abetted,
commanded, induced, or procured the
violation by any other person of these
laws and rules; and
• Failed reasonably to supervise
another person subject to his or her
supervision with a view to preventing
violation of these laws and rules.
The disclosures that would be
required by proposed Form MA–I with
respect to findings and actions relating
to the natural person municipal advisor
by other Federal regulatory agencies,
state regulatory agencies, and foreign
financial regulatory authorities, would
be the same as disclosures required on
Form MA. Proposed Form MA–I would
also require a natural person municipal
advisor to disclose whether he or she
has ever been subject to a final order of
a state securities commission or similar
agency or office; state authority that
supervises or examines banks, savings
associations, or credit unions; state
insurance commission; an appropriate
Federal banking agency; or the National
Credit Union Administration that: Bars
the natural person municipal advisor
from association with an entity
regulated by such commission, agency,
authority or office, or from engaging in
the business of securities, insurance,
banking, savings association activities,
or credit union activities; or constitutes
244 See
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supra Section II.A.2.c.
06JAP2
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a final order based on violations of laws
or regulations that prohibit fraudulent,
manipulative, or deceptive conduct.
With respect to SRO actions, in
addition to the disclosures required of a
municipal advisory firm, including sole
proprietors, regarding its individual
associated persons on Form MA, Form
MA–I would require a natural person
municipal advisor to disclose any
finding by an SRO that the natural
person municipal advisor:
• Willfully violated, or is unable to
comply with, any provision of the
Federal securities laws, the Commodity
Exchange Act and the rules thereunder,
or the rules of the MSRB;
• Willfully aided, abetted, counseled,
commanded, induced, or procured the
violation of any of these laws or rules;
or
• Failed reasonably to supervise
another person subject to his or her
supervision, with a view to preventing
such violations.
Like Form MA, Form MA–I would
require a natural person municipal
advisor to disclose whether he or she
has ever had an authorization to act as
an attorney, accountant or Federal
contractor that was revoked or
suspended. Also, as on Form MA, Form
MA–I would also require a natural
person municipal advisor to disclose
whether he or she ever was notified, in
writing, that he or she is currently the
subject of any regulatory complaint or
proceeding by a regulatory body relating
to any occurrence of the kind that could
trigger a disclosure requirement relating
to regulatory history of the natural
person municipal advisor with the
Commission, the CFTC, other
governmental regulators, or SROs as
described above. Form MA–I would also
require disclosure of whether the
natural person municipal advisor was
ever notified, in writing, that he or she
is currently the subject of an
investigation that could result in any
occurrence of the kind that could trigger
a disclosure requirement relating to the
criminal or regulatory history of the
natural person municipal advisor as
described above.245 Form MA would not
require such disclosure.
The Commission believes that the
additional disclosure items described
above would be helpful to municipal
entities and obligated persons as clients
or prospective clients of municipal
advisors. The information could also
serve as the basis for granting or
instituting proceedings to deny a
registration, or for revoking a
registration or imposing other sanctions
245 A
related DRP would be required to disclose
details of any pending investigation.
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by the Commission with respect to a
natural person municipal advisor.246
The DRP for regulatory action
disclosure in Form MA–I, as proposed,
would require a natural person
municipal advisor to include certain
details regarding events noted in the
main body of the form that are similar
to the information that would be
required in the corresponding DRP in a
firm’s Form MA, including: If
requalification was a condition of any
sanction reported, whether it was by
exam, retraining, or other process; the
length of time given to requalify; and
whether the requalification condition
was satisfied.
The additional disclosures required
by the DRP would also include details
of any monetary sanction imposed,
including amount; portion levied
against the natural person municipal
advisor; payment plan; whether such
plan was current; date paid; and
whether the sanction was a civil or
administrative penalty or fine, a
monetary penalty other than a fine,
disgorgement, or restitution.
Consistent with Form MA, Form MA–
I would also include a DRP requiring a
natural person municipal advisor to
provide details of any investigation
reported in the main body of the form,
including the date the investigation was
initiated, and indicate whether it was
initiated by an SRO, a foreign financial
regulatory authority (giving the specific
jurisdiction), the Commission, or other
Federal agency. Space would be
provided for the natural person
municipal advisor to briefly describe the
nature of the investigation, if known;
whether it was pending or resolved; and
details of any resolution. A space for
optional comment would also be
provided for the natural person
municipal advisor to present a brief
summary of the circumstances leading
to the investigation, and its current
status or final disposition and/or
findings.
Request for Comment
The Commission requests comment
generally on the regulatory action
disclosure requirements of proposed
Form MA–I, and also requests comment
on the following specific issues:
• In addition to the questions posed
above regarding the disclosures with
respect to regulatory history proposed in
Form MA,247 the Commission seeks
comment on whether the broadened
scope of the disclosures required of
natural person municipal advisors in
246 See supra note 218 (discussing grounds for
revocation of a municipal advisor’s registration).
247 See supra Section II.A.2.c.
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proposed Form MA–I would elicit
information that would be valuable to
the public, and in particular municipal
entities or obligated persons. If so, in
what way? Is there information
proposed to be requested that would not
be useful? If so, why? Is there additional
information that should be requested
with respect to regulatory actions
relating to natural person municipal
advisors? If so, what information and
why?
Civil Judicial Action Disclosure
The disclosures that would be
required by proposed Form MA–I with
respect to certain matters relating to a
natural person municipal advisor’s civil
judicial history would be the same as
disclosures required on Form MA. Thus,
a natural person municipal advisor
would be required to disclose on Form
MA–I whether he or she was ever:
• Enjoined by a domestic or foreign
court in connection with any
investment-related or municipal
advisor-related activity;
• Found by a domestic or foreign
court to be involved in a violation of
any investment-related or municipal
advisor-related statute or regulation; or
• Had an investment-related or
municipal advisor-related civil action
brought against him or her dismissed,
pursuant to a settlement agreement, by
a state or foreign financial regulatory
authority; or
• Named in any such pending action.
A DRP would be required for
affirmative responses to questions under
this item. Specifically, the DRP would
require, among other things, information
regarding by whom the court action was
initiated; the name of the party
initiating the proceeding; information
about the relief sought; the date on
which the action was filed and notice or
process was served; the types of
financial products involved; a
description of the allegations relating to
the civil action; the current status,
including whether the action is on
appeal and details relating to any such
appeal; sanction details; and if the
disposition resulted in a fine,
disgorgement, restitution or monetary
compensation, or information relating
thereto. The DRP would also provide
the opportunity for an applicant to
provide additional comment, including
a summary of the circumstances leading
to the action and current status. The
Commission believes that it is
appropriate to seek information from
natural person municipal advisors
regarding investment-related activities
as well as municipal advisor-related
activities due to the significant
similarities that exist between the two
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advisory functions, and because such
information could serve as a basis to
institute proceedings to deny
registration of a municipal advisor or to
impose other sanctions on the
municipal advisor’s activities.
Request for Comment
The Commission requests comment
generally on the civil action disclosure
requirements of proposed Form MA–I
and also requests comment on the
following specific issues:
• Are these additional disclosure
requirements for natural person
municipal advisors regarding civil
judicial history warranted?
• Would it be useful to municipal
entities and obligated persons to require
natural persons registering as municipal
advisors to provide information
regarding past investment-related
activities as well as past municipal
advisor-related activities? If so, why? If
not, why not?
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Customer Complaints/Arbitration/Civil
Litigation
Form MA does not require a
municipal advisory firm or a sole
proprietor to disclose any customer
complaints, arbitration matters, and
civil litigation concerning natural
person municipal advisors. Form MA–I,
however, would require a natural
person municipal advisor to disclose
whether he or she has ever been:
• The subject of a complaint initiated
by a consumer, whether written or oral,
regarding investment-related or
municipal advisor-related matters,
which alleged that he or she was
involved in fraud, false statements,
omissions, theft, embezzlement,
wrongful taking of property, bribery,
forgery, counterfeiting, extortion, and
dishonest, unfair or unethical practices;
or
• The subject of an arbitration or civil
litigation initiated by a consumer
regarding investment-related or
municipal advisor-related matters,
which alleged that he or she was
involved in fraud, false statements,
omissions, theft, embezzlement,
wrongful taking of property, bribery,
forgery, counterfeiting, extortion, and
dishonest, unfair or unethical practices.
In the case of a complaint, the natural
person municipal advisor would be
required to indicate whether the
complaint is still pending or was
settled. In the case of arbitration or civil
litigation, the natural person municipal
advisor would be required to indicate
whether the arbitration or litigation is
still pending; resulted in an arbitration
award or civil judgment against the
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natural person municipal advisor in any
amount; or was settled.
A DRP would be required for
affirmative responses to questions under
this item. Specifically, the related DRP
would require the municipal advisor to
disclose the customer’s name; the
customer’s state of residence and other
states of residence; the employing firm
of the municipal advisor when the
activities occurred that led to the
complaint, arbitration, CFTC reparation
or civil litigation; and the allegations
and brief summary of events related to
the allegations, including the dates
when they occurred; the product type;
and the alleged compensatory damage
amount. For customer complaints,
arbitration, CFTC reparation, or civil
litigation in which the municipal
advisor is not a named party, the DRP
would require disclosure of whether the
complaint is oral or written, or whether
it is an arbitration, CFTC reparation or
civil litigation (and the arbitration or
reparation forum, docket or case
number, and the filing date); whether
the complaint, arbitration, CFTC
reparation or civil litigations is pending,
and if not, the status. The DRP would
require disclosure of the status date, and
the settlement award amount, including
the municipal advisor’s contribution
amount. If the matter involves an
arbitration or CFTC reparation in which
the municipal advisor is a named
respondent, the DRP would require
disclosure of the entity with which the
claim was filed; the docket or case
number; the date process was served;
whether the arbitration of CFTC
reparation is pending, and if not
pending the form of disposition; the
disposition date; and the amount of the
monetary award, settlement or
reparation (including the municipal
advisor’s contribution). If the matter
involves a civil litigation, the DRP
would require disclosure of the court in
which the case was filed; the location of
the court; the docket or case number;
the date the complaint was served on or
received by the municipal advisor;
whether the litigation is still pending; if
not still pending the form of its
disposition; the disposition date; the
judgment, restitution or settlement
amount, including the municipal
advisor’s contribution amount; whether
the action is currently on appeal, and if
so, the date the appeal was filed, the
court in which the appeal was filed, the
location of the court, and the docket or
case number for the appeal. The DRP
would also provide for optional
additional comment, such as a summary
of the circumstances leading to the
complaint.
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855
These disclosures, too, would mirror
similar disclosures in Form U4, and
would provide additional information
about natural person municipal advisors
that may be useful to municipal entities
or obligated persons as clients or
prospective clients. The information
would also help the Commission
prepare for and plan examinations.
Request for Comment
The Commission requests comment
generally on the customer complaint/
arbitration/civil litigation disclosure
requirements of proposed Form MA–I
and also requests comment on the
following specific issues:
• Would these additional disclosure
requirements for natural person
municipal advisors provide information
that would be useful in the context of
natural person municipal advisors but
that would not be useful in the context
of firms? If so, to whom would the
information be useful, and why?
• Would municipal entities and
obligated persons find it useful for Form
MA–I to require municipal advisors to
disclose customer complaints,
arbitration, and civil litigation with
respect to investment-related matters, in
addition to complaints, arbitration, and
civil litigation with respect to municipal
advisor-related matters? Is this
information they would access and use
if available? If so, how?
• Should Form MA also require
similar disclosure with respect to
associated persons of municipal
advisory firms? If so, which additional
information would be useful and why?
Termination Disclosure
Unlike in Form MA, Form MA–I
would require disclosure regarding the
termination of a natural person
municipal advisor’s employment.
Specifically, consistent with Form U4,
Form MA–I would ask the natural
person municipal advisor to indicate
whether he or she ever voluntarily
resigned, or was discharged or
permitted to resign after allegations
were made that accused him or her of:
• Violating investment-related or
municipal advisor-related statutes,
regulations, rules, or industry standards
of conduct;
• Fraud or the wrongful taking of
property; or
• Failure to supervise in connection
with investment-related or municipal
advisor-related statutes, regulations,
rules or industry standards of conduct.
An affirmative response to the
disclosures described above would
require the municipal advisor to
disclose additional information on a
related DRP. Specifically, the DRP
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would require the municipal advisor to
disclose the name of the firm, the type
of termination (whether discharged,
permitted to resign, or voluntary
resignation), the termination date, the
allegations, and the product types. The
DRP would also provide for optional
additional comment, such as a summary
of the circumstances leading to the
termination. This disclosure would
provide information that would be
useful to the Commission in planning
and preparing for inspections and
examinations, and would be useful to
the public generally (including
municipal entities and obligated
persons, as clients or prospective
clients).
kgrant on DSKGBLS3C1PROD with BILLS
Request for Comment
The Commission requests comment
generally on the termination disclosure
requirements of proposed Form MA–I
and also requests comment on the
following specific issues:
• Would the requirement for the
above-listed additional disclosures by
natural person municipal advisors
regarding their municipal advisory
activities elicit information that would
be useful to the public (including
municipal entities and obligated
persons, as clients or prospective
clients) and that would be relevant in
the context of natural person municipal
advisors that is not relevant in the
context of firms? If not, what additional
information should be requested and
why?
• Would requiring municipal
advisors to disclose violations of
investment-related statutes, regulations,
rules, and industry standards, in
addition to violations of municipal
advisor-related statutes, regulations,
rules, and industry standards on Form
MA–I elicit information that would be
useful to the public (including
municipal entities and obligated
persons, as clients or prospective
clients)?
Financial Disclosures
Form MA–I also would require
natural persons who are municipal
advisors to make financial disclosures
that are not required to be made by
municipal advisory firms regarding their
associated persons or by sole proprietors
regarding themselves on Form MA.
Specifically, the form would ask a
natural person municipal advisor
whether, within the past ten years:
• He or she has made a compromise
with creditors, filed a bankruptcy
petition, or been the subject of an
involuntary bankruptcy petition;
• An organization controlled by the
natural person municipal advisor has
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made a compromise with creditors, filed
a bankruptcy petition, or been the
subject of an involuntary bankruptcy
petition based upon events that
occurred while he or she exercised
control over it; or
• A broker or dealer controlled by the
natural person municipal advisor has
been the subject of an involuntary
bankruptcy petition, had a trustee
appointed, or had a direct payment
procedure initiated under the Securities
Investor Protection Act based upon
events that occurred while he or she
exercised control over it.
In addition, a natural person who is
a municipal advisor would be required
to disclose whether:
• A bonding company ever denied,
paid out on, or revoked a bond for him
or her; or
• The natural person municipal
advisor has any unsatisfied judgments
or liens against him or her.
An affirmative response to the
disclosure items described above would
require the municipal advisor to provide
additional disclosure on a DRP.
Specifically, the municipal advisor
would be required to disclose the
judgment or lien amount, the judgment
or lien holder, the judgment or lien type
(whether civil or tax), the date filed, the
court in which the action was brought,
the name of the court, the location of the
court, the docket or case number (and
whether the docket or case number is
the municipal advisor’s social security
number, bank card number, or personal
identification number), whether the
judgment or lien is outstanding, and if
the judgment or lien is not outstanding,
the status date and how the matter was
resolved. The DRP would also provide
for optional comment, such as a brief
summary of the circumstances leading
to the action.
The Commission believes that the
information that would be required,
which is consistent with that required
by Form U4, would be useful for its
regulatory purposes, including planning
and preparing for inspections and
examinations, and to the public
generally (including municipal entities
and obligated persons, as clients or
prospective clients).
Request for Comment
The Commission requests comment
generally on the financial disclosure
requirements of proposed Form MA–I
and also requests comment on the
following specific issues:
• Would financial disclosure
requirements be necessary, useful, or
relevant in connection with natural
person municipal advisors in a way that
it would not be useful with respect to
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municipal advisors that are firms? If so,
how? If not, why not?
Item 7: Execution and Self-Certification
With respect to execution of Form
MA–I, the natural person municipal
advisor who signs the form would be
required to represent that the
information and statements made in
Form MA–I are true and correct. The
municipal advisor also would be
required to consent to service of any
civil action or notice of any proceeding
before the Commission or an SRO
regarding its municipal advisory
activities via registered or certified mail.
The proposed requirements for
execution of Form MA–I would be
consistent with and serve the same
purposes as the execution provisions of
proposed Form MA, with modifications
to reflect that Form MA–I would apply
to municipal advisors that are natural
persons rather than firms and that,
unlike municipal advisory firms, natural
person municipal advisors would not be
subject to the books and records
requirements of proposed rule 15Ba1–7.
A natural person municipal advisor
would also be required to certify that he
or she has: (1) Sufficient qualifications,
training, experience, and competence to
effectively carry out his or her
designated functions; (2) met, or within
any applicable required timeframes will
meet, such standards of training,
experience, and competence, and such
other qualifications, including testing,
for a municipal advisor, required by the
Commission, the MSRB or any other
relevant SRO; and (3) the necessary
understanding of and ability to comply
with, all applicable regulatory
obligations. For these purposes, such
applicable regulatory obligations are
obligations under the Federal securities
laws and rules promulgated thereunder
and applicable rules promulgated by the
MSRB, or any other relevant SRO.
Proposed rule 15Ba1–4(e) would require
such certification at the time an initial
application for registration as a
municipal advisor is filed and annually
thereafter.248
Request for Comment
The Commission requests comment
generally on the execution requirements
of proposed Form MA–I and also
requests comment on the following
specific issues:
248 See proposed rule 15Ba1–4(e). The proposed
rule would require the annual self-certification to
be filed by natural person municipal advisors,
including sole proprietors, within 90 days of the
end of the calendar year. General Instruction 13
would require that a natural person municipal
advisor filing an annual self-certification on Form
MA–I check the appropriate box to indicate as such
and complete the certification included in Item 7.
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• Should there be additional or
alternative representations to those
proposed for Item 7 of Form MA–I? If
so, what representations and why?
• Would there be alternative methods
to obtain consent to service of process
or should such consent not be obtained?
• Is the proposed self-certification
broad enough in scope or too broad? If
not, what additional factors should be
included or excluded and why? Should
the self-certification be required more or
less frequently? If so, how often and
why? Are there other alternatives the
Commission should consider? If so,
what alternatives and why?
• Should the self-certification
required of natural person municipal
advisors include additional factors? If
so, what would they be and why?
Should the Commission require an
independent third party review of the
municipal advisor? What are examples
of such a review? Should the
Commission undertake a review of all
municipal advisors as part of the
registration and examination process? If
so, what should be the scope and
frequency of the examination process?
Should the Commission provide
municipal advisors a choice between
independent third party review and
Commission review, or a combination
thereof?
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3. Proposed Rule 15Ba1–3
a. Withdrawal From Municipal Advisor
Registration
Pursuant to proposed rule 15Ba1–3,
all municipal advisors, whether
registered on Form MA or MA–I, would
be required to file Form MA–W to
withdraw from registration with the
Commission as a municipal advisor.249
As would be the case with Forms MA
and MA–I, Form MA–W would be
required to be filed electronically with
the Commission.250
A notice of withdrawal from
registration would become effective on
the 60th day after electronically filing
the Form MA–W with the Commission,
or within a longer time period if the
municipal advisor consents, or the
Commission by order determines as
necessary or appropriate in the public
interest, for the protection of investors,
or within such shorter time as the
Commission may determine.251 Under
the proposed rule, if a municipal
advisor electronically filed a notice of
withdrawal from registration with the
Commission at any time subsequent to
the date of issuance of a Commission
order instituting proceedings pursuant
249 See
proposed rule 15Ba1–3(a).
proposed rule 15Ba1–3(b).
251 See proposed rule 15Ba1–3(c).
to Section 15B(c) of the Exchange
Act 252 to censure, place limitations on
the activities, functions or operations of,
or suspend or revoke the registration of
the municipal advisor, or if the
Commission institutes such a
proceeding or a proceeding to impose
terms and conditions upon the
withdrawal, the notice of withdrawal
would not become effective except at
the time and upon the terms and
conditions as deemed by the
Commission as necessary or appropriate
in the public interest or for the
protection of investors.
b. Form MA–W
Consistent with the requirements of
withdrawal of a registration on Form
ADV, Form MA–W would require a
municipal advisor, whether a firm, sole
proprietor, or associated person of a
municipal advisor (that falls within the
definition of a ‘‘municipal advisor’’) to
provide identifying information keyed
to the identifying information on, and
the file number of, the municipal
advisor’s Form MA or Form MA–I. In
the case of a firm, the municipal advisor
would be required to provide on the
form the name of an employee (or
principal) of the firm who is authorized
to receive information and respond to
questions about the Form MA–W.
Contact information for outside counsel
for the firm would not suffice.
A municipal advisor filing to
withdraw registration would be required
to indicate on Form MA–W whether it
has received any pre-paid fees for
municipal advisory services that have
not been delivered, including
subscription fees for publications, and
to specify the amount. In addition, the
withdrawing registrant would be
required to indicate how much money,
if any, it has borrowed from clients that
it has not repaid. The municipal advisor
that is filing to withdraw its registration
also would be required to indicate
whether there were any unsatisfied liens
or judgments against it. If the filer
responded affirmatively that it owed
money or had any liens or judgments
against it, it would be required to
disclose on a schedule attached to Form
MA–W, Schedule W2, the nature and
amount of its assets and liabilities and
its net worth on the last day of the
month prior to the filing of the form.
The Commission believes that
requiring such information from a
municipal advisor that is withdrawing
its registration is appropriate for the
protection of investors and of those who
do business with municipal advisors
because it would put them on notice
250 See
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857
that the municipal advisor would no
longer be registered and, therefore,
would not be able to engage in
municipal advisory activities without
violating Federal securities laws. Such
information would also alert clients and
prospective clients as to the financial
stability of the municipal advisor. In
addition, the information would help
investigative and enforcement efforts on
the part of regulators. The Commission
notes that an investment adviser that
withdraws from registration must
supply similar information on its Form
ADV–W.253
Because proposed rule 15Ba1–7(b)
under the Exchange Act requires a
municipal advisor withdrawing from
registration to nonetheless preserve its
books and records, a filer of Form MA–
W would be required to list the name
and address of each person who has, or
will have, custody or possession of its
books and records and the location at
which such books and records will be
kept. A withdrawing municipal advisor
would be required to identify, in an
additional schedule attached to Form
MA–W, Schedule W1, each person to
which it has assigned any of its
contracts. The Commission believes that
such a requirement—which also exists
for investment advisers—is important
for the protection of participants in the
municipal securities markets.
The signatory to the Form MA–W
would be required to certify, under
penalty of perjury, that the information
and statements made in the form,
including any exhibits or other
information provided, are true. If the
form is being filed on behalf of a
municipal advisory firm,254 the
signature would constitute such
certification by both the firm and the
signatory. Similarly, the signatory (and
the municipal advisory firm, if the
municipal advisor is a firm) would be
required to certify that the advisor’s
books and records will be preserved and
available for inspection as required by
law, and to authorize any person having
custody or possession of these books
and records to make them available to
authorized regulatory representatives.
The certification would include a
statement that all information
previously submitted on the municipal
advisor’s most recent Form MA, Form
MA–I, or both, as applicable, was
accurate and complete as of the date of
the signing of the Form MA–W. It would
also include an understanding by the
253 See
17 CFR 279.2.
the case of a firm, the signatory’s
certification includes a statement that he or she has
signed on behalf of the firm and that he or she has
the authority to do so.
254 In
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signatory that if any information
contained in items on the Form MA–W
is different from the information
contained on the most recent Form MA,
MA–I, or both, as applicable, the
information on the Form MA–W would
replace the corresponding entry on the
municipal advisor’s Form MA or MA–
I available through the Commission’s
electronic system.
The Commission believes that the
certification requirement should serve
as an effective means to assure that the
information supplied in Form MA–W is
correct.
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Request for Comment
The Commission requests comment
generally on proposed Form MA–W and
also requests comment on the following
specific issues:
• Form MA–W would have to be filed
electronically for purposes of
withdrawing from registration with the
Commission. Should the proposed rule
include an option for the form to be
filed in paper rather than electronically?
If so, please explain under what
circumstances it would be appropriate
to allow paper filings of the form.
• How much identifying information
should be required of the municipal
advisor filing to withdraw its
registration? Is the information required
in the proposed form too much or too
little?
• What are the relative benefits and
disadvantages of requiring the contact
person for a withdrawal of registration
to be an employee or principal of the
firm that is withdrawing? Considering
these factors, should a firm be permitted
to name outside counsel as the contact?
• Do the proposed disclosures require
more, or less, information than
necessary from municipal advisors that
are withdrawing from registration? To
the extent additional disclosures should
be required, please provide specific
examples of the types of additional
disclosures that would be valuable, to
whom they would be valuable, and
why.
4. Proposed Rule 15Ba1–4: Amendment
to Application for Registration and SelfCertification
Proposed rule 15Ba1–4 sets forth the
timeframes within which a municipal
advisor must amend its Forms MA and
MA–I. Proposed rule 15Ba1–4(a)(1)
would require that a municipal advisor
amend its Form MA at least annually,
within 90 days of the end of the
applicant’s fiscal year in the case of
applicants that are firms, or within 90
days of the end of the calendar year in
the case of sole proprietors. In addition,
proposed rule 15Ba1–4(a)(2) would
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require that a municipal advisor amend
its Form MA more frequently than
annually if required by the instructions
to Form MA.255
Consistent with the requirement of
Form ADV, proposed rule 15Ba1–4(a)
would require a firm to amend its Form
MA promptly if information provided in
response to Item 1 (Identifying
Information), 2 (Form of Organization),
or 9 (Disclosure Information) becomes
inaccurate in any way; or if information
provided in response to Items 3
(Succession), 7 (Participation or Interest
of Applicant, or of Associated Persons
of Applicant, in Municipal Advisory
Client Transactions), or 8 (Control
Persons) becomes materially
inaccurate.256 Proposed rule 15Ba1–4(b)
would require that a natural person
municipal advisor promptly amend its
Form MA–I if any information provided
previously becomes inaccurate.257 This
requirement for natural person
municipal advisors would be consistent
with the requirement for updating Form
U4.
A non-resident municipal advisory
firm would be required to file an
amendment to Form MA promptly after
any changes in the legal or regulatory
framework that would impact its ability
or the manner in which it provides the
Commission with the required access to
its books and records or impacts the
Commission’s ability to inspect to
examine the municipal advisor
onsite.258 The amendment should
include a revised opinion of counsel
describing how, as a matter of law, the
municipal advisor will continue to meet
its obligations to provide the
Commission with the required access to
the municipal advisor’s books and
records and to be subject to the
Commission’s onsite inspection and
examination under the new regulatory
regime. As noted in Section II.a.2.c.
above, if a registered non-resident
municipal advisory firm becomes
unable to comply with this requirement,
because of legal or regulatory changes,
or otherwise, then this may be a basis
for the Commission to revoke the
municipal advisor’s registration.
The Commission is not proposing to
require natural person municipal
advisors to annually update their Forms
MA–I, as it is proposing to require
municipal advisors registered on Form
MA to do. In the case of firms, changes
commonly occur over the course of a
255 See proposed rule 15Ba1–4(a)(2). See also
General Instruction 8.
256 See proposed rule 15Ba1–4(a). See also
General Instruction 8.
257 See proposed rule 15Ba1–4(b). See also
General Instruction 9.
258 See General Instruction 8.
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year, and a wide range of changes is
possible—e.g., changes in control
persons and personnel, number of
employees, nature of services provided,
types of clients, and compensation
arrangements, among others, as well as
new disclosures that may be necessary
for all of the firm’s associated persons,
rather than just one natural person.
Accordingly, the Commission believes it
is appropriate to require a firm to
confirm through an annual update that
its registration is up-to-date. With
respect to natural person municipal
advisors, however, because an
amendment to Form MA–I would be
promptly required whenever
information previously provided
becomes inaccurate, the Commission
believes that the gains to be had by
requiring the extra confirmation of an
annual update are outweighed by the
burden such a requirement would
impose on natural person municipal
advisors that are employees of
municipal advisory firms.
All amendments to Form MA and
Form MA–I would be required to be
filed electronically with the
Commission.259 In addition,
amendments to Form MA and Form
MA–I would be ‘‘reports’’ for purposes of
Sections 15B(c), 17(a), 18(a), 32(a) (15
U.S.C. 78oF(b), 78q(a), 78r(a), 78ff(a))
and other applicable provisions of the
Exchange Act.260
These proposed rules are consistent
with the Commission’s requirements for
other registrants (e.g., national securities
exchanges, SIPs, broker-dealers) to file
updated and annual amendments with
the Commission.261 The Commission
believes that such amendments are
important for obtaining updated
information on each municipal advisor
so that the Commission would be able
to assess whether each municipal
advisor continues to be in compliance
with the Federal securities laws and the
rules and regulations thereunder.
Obtaining updated information would
also assist the Commission in its
inspection and examination of a
municipal advisor, and better inform the
MSRB’s regulation of municipal
advisors. In addition, the Commission
believes it is important for municipal
entities and obligated persons, as well
259 See
proposed rule 15Ba1–4(c).
proposed rule 15Ba1–4(d). As a
consequence, it would be unlawful for a municipal
advisor to willfully make or cause to be made, a
false or misleading statement of a material fact or
omit to state a material fact in an amendment to
Form MA or Form MA–I.
261 See e.g., rules 6a–2 and 15b3–1 under the
Exchange Act. 17 CFR 240.6a–2 and 240.15b3–1.
See also 17 CFR 249.1001 (Form SIP, application for
registration as a securities information processor or
to amend such an application or registration).
260 See
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as the public generally, to have access
to current information regarding
advisors registered with the
Commission.
Request for Comment
The Commission requests comment
generally on the proposed requirement
for amendments to Forms MA and MA–
I, and also requests comment on the
following specific issues:
• Should the events triggering
amendment of Form MA be reduced or
expanded? If so, which events should be
added or removed and why?
• Is there any information that would
be required by Form MA–I that should
not trigger an amendment if it becomes
inaccurate? If so, which information and
why? Should the deadline by which a
natural person municipal advisor must
file an amendment to Form MA–I upon
the occurrence of a material change be
different from the deadline by which a
firm must file an amendment to a Form
MA? If so, what should be the deadline,
and why?
• Should the requirements for
amending or updating Forms MA and
MA–I be the same? If so, why? If not,
why not?
5. Proposed Rule 15Ba1–5: General
Procedures for Serving Non-Residents
and Form MA–NR
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The Commission is proposing rule
15Ba1–5 to set forth the general
procedures for serving non-residents
under Form MA–NR. Proposed rule
15Ba1–5 would require that nonresident municipal advisors and nonresident general partners and managing
agents 262 of municipal advisors must
furnish the Commission with a written
irrevocable consent and power of
attorney on Form MA–NR to appoint an
agent in the United States, other than a
Commission member, official, or
employee, upon whom may be served
any process, pleadings, or other papers
in any action brought against the nonresident municipal advisor, general
partner or managing agent that arises
out of or relates to or concerns the
262 Proposed rule 15Ba1–1(c) defines a ‘‘managing
agent’’ as ‘‘any person, including a trustee, who
directs or manages, or who participates in directing
or managing, the affairs of any unincorporated
organization or association other than a
partnership.’’ This definition is consistent with the
definition of a ‘‘managing agent’’ as used in rule
15b1–5 under the Exchange Act relating to consent
to service of process to be furnished by non-resident
brokers or dealers and by non-resident general
partners or managing agents of brokers or dealers.
See 17 CFR 240.15b1–5. See also 17 CFR 275.0–2
(discussing general procedures for serving nonresident investment advisers in connection with
Form ADV).
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municipal advisory activities of the
municipal advisor.
This proposed requirement is
designed to allow the Commission and
others to provide service of process to
a non-resident municipal advisor,
general partner or managing agent to
enforce the provisions of new Exchange
Act Section 15B. Proposed rule 15Ba1–
5 also would require that non-resident
municipal advisors, general partners
and managing agents update the
information on the Form MA–NR if it
becomes inaccurate. Further, the
proposed rule would require that the
non-resident municipal advisor, general
partner or managing agent appoint a
successor agent and file an updated
Form MA–NR if the non-resident
municipal advisor, general partner or
managing agent discharges its agent or
if the agent becomes unwilling or
unable to accept service on behalf of the
municipal advisor, general partner or
managing agent. Finally, proposed rule
15Ba1–1(h) would define the term ‘‘nonresident,’’ to mean: ‘‘(i) [i]n the case of
an individual, one who resides in or has
his principal office and place of
business in any place not in the United
States; (ii) [i]n the case of a corporation,
one incorporated in or having its
principal office and place of business in
any place not in the United States; (iii)
[i]n the case of a partnership or other
unincorporated organization or
association, one having its principal
office and place of business in any place
not in the United States.’’Pursuant to
proposed General Instruction 2, and
consistent with the proposed rule, every
non-resident municipal advisor and
every non-resident general partner and
managing agent of a municipal advisor,
whether or not the municipal advisor is
resident in the United States, must file
Form MA–NR in connection with the
municipal advisor’s initial
application.263
Request for Comments
The Commission requests comment
generally on the proposed general
procedures for serving non-residents
and proposed Form MA–NR, and also
requests comment on the following
specific issues:
• Is the Commission’s proposed rule
regarding service of process on nonresidents appropriate and sufficiently
263 See General Instruction 2. Failure to file Form
MA–NR promptly may delay SEC consideration of
the initial application. Additionally, a municipal
advisor or general partner or managing agent of an
SEC-registered municipal advisor who becomes a
non-resident after the initial application has been
submitted must file Form MA–NR within 30 days.
Id.
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859
clear? If not, why not and what would
be a better alternative?
• Are there any factors that the
Commission should take into
consideration to ensure effective service
of process on a non-resident municipal
advisor or a non-resident general
partner or managing agent?
• Should the Commission require
non-resident municipal advisors and
non-resident managing agents and
general partners to certify to anything
else on Form MA–NR?
6. Proposed Rule 15Ba1–6: Registration
of Successor to Municipal Advisor
Proposed rule 15Ba1–6 would govern
the registration of a successor to a
registered municipal advisor. This
proposed rule is substantially similar to
rule 15b1–3 under the Exchange Act,
which governs the registration of a
successor to a registered brokerdealer.264
Succession by Application
Specifically, proposed rule 15Ba1–
6(a) provides that in the event that a
municipal advisor succeeds to and
continues the business of a municipal
advisor registered pursuant to Exchange
Act Section 15B(a), the registration of
the predecessor shall be deemed to
remain effective as the registration of
the successor if the successor, within 30
days after such succession, files an
application for registration on Form
MA, and the predecessor files a notice
of withdrawal from registration with the
Commission on Form MA–W.
This proposed rule further provides
that the registration of the predecessor
municipal advisor shall cease to be
effective 45 days after the application
for registration on Form MA is filed by
the successor municipal advisor.265 In
other words, the 45-day period would
not begin to run until a complete Form
MA has been filed by the successor with
the Commission. This 45-day period is
consistent with Exchange Act Section
15B(a)(2), pursuant to which the
Commission has 45 days to grant a
registration or institute proceedings to
determine if a registration should be
denied.266
Succession by Amendment
Proposed rule 15Ba1–6(b) further
provides that notwithstanding rule
15Ba1–6(a), if a municipal advisor
264 See 17 CFR 240.15b1–3. See also Registration
of Successors to Broker-Dealers and Investment
Advisers, Exchange Act Release No. 31661
(December 28, 1992), 58 FR 7 (January 4, 1993)
(providing interpretive guidance regarding
amendments to rule 15b1–3).
265 See proposed rule 15Ba1–6(a).
266 See 15 U.S.C. 78o–4(a)(2).
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succeeds to and continues the business
of a registered predecessor municipal
advisor, and the succession is based
solely on a change in the predecessor’s
date or state of incorporation, form of
organization, or composition of a
partnership, the successor may, within
30 days after the succession, amend the
registration of the predecessor
municipal advisor on Form MA to
reflect these changes. Such amendment
shall be deemed an application for
registration filed by the predecessor and
adopted by the successor. In all three
types of successions that are specified in
proposed rule 15Ba1–6(b) (change in the
date or state of incorporation, change in
form of organization, and change in
composition of a partnership), the
predecessor must cease operating as a
municipal advisor. The Commission
believes that it is appropriate to allow
a successor to file an amendment to the
predecessor’s Form MA in these types of
successions because such successions
do not typically result in a change of
control of the municipal advisor.
Scope and Applicability of Proposed
Rule 15Ba1–6
The purpose of proposed rule 15Ba1–
6 is to enable a successor municipal
advisor to operate without an
interruption of business by relying for a
limited period of time on the
registration of the predecessor
municipal advisor until the successor’s
own registration becomes effective. The
proposed rule is intended to facilitate
the legitimate transfer of business
between two or more municipal
advisors and to be used only where
there is a direct and substantial business
nexus between the predecessor and the
successor municipal advisor. The
proposed rule is not designed to allow
a registered municipal advisor to sell its
registration, eliminate substantial
liabilities, spin off personnel, or
facilitate the transfer of the registration
of a ‘‘shell’’ organization that does not
conduct any business. No entity would
be permitted to rely on proposed rule
15Ba1–6 unless it is acquiring or
assuming substantially all of the assets
and liabilities of the predecessor’s
municipal advisor business, or there has
been no practical change of control.267
The Commission would not apply
proposed rule 15Ba1–6 to a
reorganization that involves only
registered municipal advisors. In those
situations, the registered municipal
advisors need not rely on the proposed
rule because they can continue to rely
on their existing registrations. The
proposed rule would also not apply to
267 See
Instruction 1 to Form MA.
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situations in which the predecessor
intends to continue to engage in
municipal advisory activities.
Otherwise, confusion may result as to
the identities and registration statuses of
the parties.
Request for Comments
The Commission requests comment
generally on the proposed requirement
for registration of a successor to a
municipal advisor and also requests
comment on the following specific
issues:
• Is the Commission’s proposed
successor rule sufficiently clear? If not,
why not and what would be a better
alternative?
• Are the 30-day and 45-day
timeframes in the proposed successor
rule too short or too long? If so, what
would be more appropriate timeframes
and why?
• Are there any other instances not
specified in the proposed rule in which
a successor should be permitted to file
an amendment to the predecessor’s
Form MA for registration?
• Are there any downsides to
allowing a successor to rely on its
predecessor’s registration by filing an
amendment to the predecessor’s Form
MA?
B. Approval or Denial of Registration
Exchange Act Section 15B(a)(2)
provides that within forty-five days of
the filing of an application to register as
a municipal advisor,268 the Commission
must either: (a) By order grant
registration, or (b) institute proceedings
to determine whether registration
should be denied. Such proceedings
shall include notice of the grounds for
denial under consideration and
opportunity for hearing and shall be
concluded within one hundred twenty
days of the date of the filing of the
application for registration. At the
conclusion of such proceedings, the
Commission, by order, shall grant or
deny such registration. The Commission
may extend the time for the conclusion
of such proceedings for up to ninety
days if it finds good cause for such
extension and publishes its reasons for
so finding or for such longer period as
to which the applicant consents.
In accordance with Exchange Act
Section 15B(a)(2), the Commission shall
grant the registration of a municipal
advisor if the Commission finds that the
requirements of Section 15B of the
Exchange Act are satisfied.269 The
Commission shall deny the registration
268 The statute allows for a longer period if the
applicant consents. See 15 U.S.C. 78o–4(a)(2).
269 See 15 U.S.C. 78o–4(a)(2).
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of a municipal advisor if the
Commission does not make any such
finding, or if it finds that if the applicant
were registered, its registration would
be subject to suspension or revocation
under Section 15B(c) of the Exchange
Act.270
The information currently required by
temporary Form MA–T is not reviewed
by the Commission prior to registration,
although the Commission retains full
authority to review such information
and examine any registered municipal
advisor at any time. The Commission
intends that the permanent registration
process would entail a review of each
Form MA and Form MA–I filed. In
approving or denying an application for
registration as a municipal advisor, the
Commission would review the
information provided on Form MA or
Form MA–I as applicable. For example,
the Commission may perform cross
checks of applicants through the use of
the applicant’s other registration
numbers, such as its CRD or other SEC
registration numbers, to the extent
available. Also, the Commission may
review the disclosures required by Item
9 of Form MA and Item 6 of Form MA–
I discussed above, including the
disciplinary history of an applicant. In
order to form a more complete and
informed basis on which to determine
whether to grant, institute proceedings
to deny, or revoke a municipal advisor’s
registration, the Commission is also
proposing to adopt a requirement that a
municipal advisor file with the
Commission an annual self-certification
relating to its ability to meet its
regulatory obligations.
The benefit of the proposed municipal
advisor registration process is that it
would allow the Commission and staff
to ask questions and, as needed, to
require amendments, before approving
an application for registration. The
procedural process for reviewing
applications for registration as a
municipal advisor would be
substantially similar to the procedural
process for reviewing applications of
other registrants with the Commission
(e.g., SIPs, broker-dealers, national
securities exchanges, registered
securities associations, clearing
agencies, and investment advisers).271
C. Proposed Rule 15Ba1–7: Books and
Records To Be Made and Maintained by
Municipal Advisors
Section 17(a)(1) under the Exchange
Act provides, in pertinent part, that all
registered municipal advisors other than
270 See
271 See
id.
15 U.S.C. 78k–1(b)(3), 78o(b), 78s(a), and
80b–3(c).
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natural persons (i.e., municipal advisory
firms, including sole proprietors) shall
make and keep for prescribed periods
such records, furnish such copies
thereof, and make and disseminate such
reports as the Commission, by rule,
prescribes as necessary or appropriate in
the public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act.272 The
Commission is proposing rule 15Ba1–7
under the Exchange Act to specify books
and records requirements applicable to
municipal advisors.273 Proposed rule
15Ba1–7’s requirements are discussed
below.
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Records to be Made by Municipal
Advisors
Proposed rule 15Ba1–7(a) would
require municipal advisory firms to
make and keep true, accurate, and
current, certain books and records
relating to its municipal advisory
activities. These proposed books and
records requirements are based
generally on Exchange Act rules 17a–3
and 17a–4, and Investment Advisers Act
rule 204–2, which set forth books and
records requirements with respect to
broker-dealers and investment advisers,
respectively, with appropriate revisions
to reflect the activities of municipal
advisors.274
Proposed rule 15Ba1–7(a) would
require municipal advisory firms to
make and keep current originals or
copies of all communications received,
and originals or copies of all
communications sent, by such
municipal advisor (including interoffice memoranda and communications)
relating to municipal advisory activities,
regardless of the format of the
communications.275 Municipal advisory
firms would also have to keep all check
books, bank statements, cancelled
checks and cash reconciliations; a copy
of each version of the municipal
advisor’s policies and procedures, if
any, in effect at any time within the last
five years; and a copy of any document
created by the municipal advisor that
was material to making a
recommendation to a municipal
advisory client or that memorializes the
basis for that recommendation. A
272 See Exchange Act Section 17(a)(1). 15 U.S.C.
78q(a)(1).
273 In addition, Section 15B(b)(2)(G) provides that
the rules of the MSRB shall ‘‘prescribe records to
be made and kept by * * * municipal advisors and
the periods for which such records shall be
preserved.’’ 15 U.S.C. 78o–4(b)(2)(G).
274 See 17 CFR 240.17a–3 and 17a–4, and 17 CFR
275.204–2.
275 Materials posted on a municipal advisor’s Web
site relating to municipal advisory activities would
be written communications sent by the municipal
advisor for purposes of this provision.
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municipal advisory firm would also be
required to keep copies of all written
agreements entered into by the
municipal advisor with any municipal
entity, employee of a municipal entity
or an obligated person or otherwise
relating to the business of the municipal
advisor. A municipal advisory firm
would also be required to keep a record
of the names of persons who are, or
have been in the past five years,
associated persons of the municipal
advisor; names, titles and addresses of
persons associated with the municipal
advisor; municipal entities or obligated
persons with whom the municipal
advisor has engaged in municipal
advisory activities in the past five years;
the names and business addresses of
persons to whom the municipal advisor
agrees to provide payment to solicit
municipal entities on its behalf; and the
names and business addresses of
persons that agree to provide payment
to the municipal advisor to make
solicitations on their behalf. The
purpose of these rules is to assist the
Commission in its inspection and
examination function. Based on the
Commission’s experience in conducting
examinations of broker-dealers and
investment advisers, the Commission
believes that requiring municipal
advisory firms to comply with these
rules would facilitate the Commission’s
inspections and examinations of
municipal advisors.
Proposed rule 15Ba1–7(b)(1) would
require municipal advisory firms to
maintain and preserve all books and
records required to be made under this
proposed rule for a period of not less
than five years, the first two years in an
easily accessible place. Corporate
governance documents, such as articles
of incorporation and stock certificate
books of the municipal advisor and
including those of any predecessor,
would be required to be maintained in
the principal office of the municipal
advisor and preserved for three years
after termination of the business or
withdrawal from registration as a
municipal advisor.
Proposed rule 15Ba1–7(d) is modeled
on rule 204–2 under the Investment
Advisers Act,276 and permits, and sets
forth the requirements for, electronic
storage of the records required to be
maintained by this proposed rule. Also,
proposed rule 15Ba1–7(e) provides that
any book or record made, kept,
maintained and preserved in
compliance with rules 17a–3 and 17a–
4 of the Exchange Act, rules of the
MSRB, or rule 204–2 under the
Investment Advisers Act, which is
276 See
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861
substantially the same as a book or
record required to be made, kept,
maintained and preserved under rule
15Ba1–7, would satisfy these proposed
record-keeping requirements.277
Subparagraph (e) of proposed rule
15Ba1–7 is designed to minimize the
record-keeping burden for municipal
advisory firms that are otherwise subject
to similar record-keeping requirements.
Record-keeping After a Municipal
Advisor Ceases To Do Business
Proposed rule 15Ba1–7(c) would
require a municipal advisory firm, if it
ceases doing business as a municipal
advisor, to arrange for and be
responsible for the continued
preservation of the books and records
required by the rule for the remainder
of the period required by the rule, and
would require the municipal advisor to
notify the Commission of where such
books and records will be maintained.
This proposed requirement is necessary
for the Commission to perform effective
inspections and examinations of
municipal advisory firms.
Requirements for Non-Residents
Proposed rule 15Ba1–7(f), which is
modeled on rule 204–2(j) under the
Investment Advisers Act,278 sets forth
the books and records requirements for
non-resident municipal advisory firms,
including requirements for making,
keeping current, maintaining, and
preserving copies of books and records
required to be made, kept current,
maintained, and preserved under any
rule or regulation adopted under the
Exchange Act, as well as the
requirements for providing notice to the
Commission regarding the location of
such books and records.279 Specifically,
proposed rule 15Ba1–7(f) would require
non-resident municipal advisors, other
than natural persons, including nonresident sole proprietors (i.e., nonresident municipal advisor firms) to
maintain all such books and records in
the United States,280 and provide notice
to the Commission of such location
within 30 days after the proposed rule
becomes effective (in the case of
municipal advisory firms that are
already registered or in the process of
applying for registration when, and if,
the rule becomes effective), or when
filing an application for registration (in
the case of municipal advisory firms
that have not yet applied for registration
when, and if, the rule becomes
277 See
proposed rule 15Ba1–7(e).
CFR 275.204–2(j).
279 See proposed rule 15Ba1–7(f).
280 See proposed rule 15Ba1–7(f)(2).
278 17
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effective).281 A non-resident municipal
advisory firm would not be required to
keep such books and records in the
United States if the municipal advisor
files with the Commission an
undertaking to furnish the Commission,
upon demand, copies of any or all of
such books and records at the municipal
advisor’s expense to the Commission’s
principal or regional office (as specified
by the Commission),282 provided the
municipal advisor furnishes the
requested books and records within 14
days of the Commission’s written
demand to the offices of the
Commission specified in the written
demand.283
The proposed requirements for nonresident municipal advisory firms are
designed to ensure that the Commission
has access to the books and records of
municipal advisors located outside of
the United States to enable it to perform
effective examinations and inspections.
The proposed requirements would also
serve to mitigate the time and cost
burdens the Commission may otherwise
face in attempting to gain access to
books and records located outside of the
United States, for example in the case of
any jurisdictional dispute relating to
such access.
Request for Comments
The Commission requests comment
generally on the proposed books and
records requirements and also requests
comment on the following specific
issues:
• What types of documents and data
should be retained by municipal
advisory firms pursuant to the proposed
rules? What burdens or costs would the
retention of such information entail?
• Is it appropriate to base the books
and records requirements for municipal
advisory firms on the books and records
requirements for broker-dealers and
investment advisers? Are there books
and records requirements for brokerdealers and investment advisers not
included in proposed rule 15Ba1–7 that
should be included? Please provide
examples of any such requirements.
• Should the proposed periods for
maintaining and preserving books and
records for municipal advisory firms be
lengthened or shortened? If so, by how
much and why?
281 See
id.
proposed rule 15Ba1–7(f)(3)(i). The
proposed rule sets forth the form of undertaking the
municipal advisor would be required to file. See id.
283 See proposed Rule 15Ba1–7(f)(3)(ii). The rule
would require that any written demand would be
forwarded by the Commission to the municipal
advisor by registered mail at the municipal
advisor’s last address of record filed with the
Commission. See id.
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282 See
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• Should the Commission impose
other requirements that might be
necessary or useful in protecting the
records of a municipal advisory firm
upon the failure of such entity?
• What documents and data typically
are kept by municipal advisory firms? In
what format? How long are such records
currently maintained by municipal
advisors?
• What are the technological or
administrative burdens of maintaining
the information specified in the
proposed rules?
• Is there an industry standard format
for information and records regarding
municipal advisory firms? Are there
different standard formats depending on
the type of municipal advisor? Please
answer with specificity.
• Should the Commission require
records retained under this section to be
retained electronically or furnished to
the Commission electronically? If so,
should any particular electronic format
be mandated?
• Are the proposed requirements for
non-resident municipal advisory firms
overly burdensome? Are they sufficient
to ensure that the Commission would
have adequate access to the municipal
advisor’s books and records in a timely
manner?
• Should the proposed books and
records requirements include a
requirement that municipal advisory
firms must keep all bills or statements
(or copies thereof), paid or unpaid,
relating to the business of the municipal
advisor? Would such a requirement be
overly burdensome? If so, how should
such a requirement be modified to make
the information provided useful for
examination, enforcement, or any other
purpose? Please provide suggested
alternatives for any such books and
records requirement.
III. General Request for Comment
The Commission is requesting
comments from all members of the
public. The Commission particularly
requests comment from the point of
view of persons who must register as
municipal advisors, municipal entities,
obligated persons, investors, and other
regulators. The Commission seeks
comments on all aspects of the proposed
rules and forms. The Commission will
carefully consider the comments that it
receives. In addition, the Commission
seeks comment on the following:
• Should the Commission clarify or
modify any of the definitions included
in the proposed rules? If so, which
definitions and what specific
modifications would be appropriate or
necessary?
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• Are the proposed rules sufficiently
clear? Is additional guidance from the
Commission necessary?
• Are there additional disclosures
that would be useful to require on
Forms MA and MA–I?
• Are the burdens of any of the
requirements in the proposed rule
greater than the benefits that would be
attained by such requirement?
• Exchange Act rule 15b1–4 provides
that the registration of a broker or dealer
shall be deemed to be the registration of
any executor, administrator, guardian,
conservator, assignee for the benefit of
creditors, receiver, trustee in insolvency
or bankruptcy, or other fiduciary,
appointed or qualified by order,
judgment, or decree of a court of
competent jurisdiction to continue the
business of such broker or dealer,
provided that the fiduciary files with
the Commission, within 30 days after
entering upon the performance of his
duties, a statement setting forth as to
such fiduciary substantially the
information required by Form BD.284
Should rules relating to the registration
of municipal advisors similarly include
a process through which an executor,
administrator, guardian, conservator,
assignee for the benefit of creditors,
receiver, trustee in insolvency or
bankruptcy, or other fiduciary,
appointed or qualified by order,
judgment, or decree of a court of
competent jurisdiction could continue
the business of a municipal advisor?
• Form ADV 285 and related rules
under the Investment Advisers Act
require investment advisers registered
with the Commission to provide new
and prospective clients with a brochure
and brochure supplements written in
plain English and to send an updated
brochure or a summary of material
changes to existing clients at least
annually. These brochures are intended
to provide advisory clients with clearly
written, meaningful, current disclosure
of the business practices, conflicts of
interest and background of the
investment adviser and its advisory
personnel.286 Would such a brochure
delivery requirement be necessary or
useful to municipal entities and
obligated persons? If so, what
information would it be helpful to
include in such brochures? If the
Commission were to adopt a brochure
delivery requirement, should it be in
substantially the same form as the
brochure delivery requirement relating
284 See
15 U.S.C. 240.15b1–4.
17 CFR 279.1.
286 See Investment Advisers Act Release No. IA–
3060 (July 28, 2010), 75 FR 49234 (August 12,
2010).
285 See
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to investment advisers, including with
respect to content, amendments to the
content, and time periods for delivery?
What aspects of the brochure delivery
requirement for investment advisers
would it be appropriate to apply to
municipal advisors and what aspects of
the brochure delivery requirement for
investments advisers would it not be
appropriate to apply to municipal
advisors? Is there a category of
municipal advisors that should be
excluded from any such brochure
delivery requirement, if the Commission
were to adopt such a requirement? If so,
how should such a category be
described and what would be the reason
for the exclusion? If such an exclusion
were created, how would the
Commission ensure that the clients of
excluded advisors received adequate
disclosures and protection? Is there a
category of clients as to whom the
brochure delivery requirement should
not, or need not, apply? If so, how
should such a category be described and
what would be the reason for the
exclusion? What would be the costs and
benefits of any such brochure delivery
requirement to municipal advisors?
What would be the costs and benefits of
any such brochure delivery requirement
to the clients of municipal advisors?
The Commission seeks comments
generally concerning the requirement
for a municipal advisor to supply
information in Forms MA and MA–I
concerning the general types of
municipal advisory activities in which
it engages. In particular, would it be
confusing or otherwise difficult for a
municipal advisor to provide this
information? Are there considerations
relating to the business of municipal
advisors, or of some types of municipal
advisors, that the Commission may not
have taken into account in connection
with the proposed information
disclosure requirements of Forms MA
and MA–I?
In addition, the Commission seeks
comments on the proposals as a whole,
including their interaction with the
other provisions of the Dodd-Frank Act.
The Commission seeks comments on
whether the proposals would help
achieve the broader goals of increasing
transparency and accountability in the
municipal securities markets.
The Commission requests comment
generally on whether its proposed
actions to govern the municipal advisor
registration process are necessary or
appropriate. If commenters do not
believe one or all such actions are
necessary and appropriate, why not?
What would be the preferred action?
Commenters should, when possible,
provide the Commission with empirical
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data to support their views. Commenters
suggesting alternative approaches
should provide comprehensive
proposals, including any conditions or
limitations that they believe should
apply, the reasons for their suggested
approaches, and their analysis regarding
why their suggested approaches would
satisfy the statutory mandate contained
in Section 975 of the Dodd-Frank Act
governing municipal advisors.
IV. Paperwork Reduction Act
Certain provisions of the Dodd-Frank
Act and the rules and forms the
Commission is proposing thereunder
relating to the permanent registration of
municipal advisors would impose new
‘‘collection of information’’ requirements
within the meaning of the Paperwork
Reduction Act of 1995 (‘‘Paperwork
Reduction Act’’ or ‘‘PRA’’).287
The Commission is submitting these
collections of information to the Office
of Management and Budget (‘‘OMB’’) for
review and approval in accordance with
44 U.S.C. 3507(d) and 5 CFR 1320.11.
The proposed titles for these collections
of information are ‘‘Form MA:
Application for Municipal Advisor
Registration’’; ‘‘Form MA–I: Application
for Municipal Advisor Registration for
Natural Persons’’; ‘‘Rule 15Ba1–4:
Amendments to Application for
Registration and Self-Certification’’;
‘‘Form MA–W: Notice of Withdrawal
from Registration as a Municipal
Advisor’’; ‘‘Form MA–NR: Designation of
U.S. Agent for Service of Process’’; and
‘‘Rule 15Ba1–7: Books and Records to be
Maintained by Municipal Advisors.’’
An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
unless it displays a currently valid OMB
control number. Section 15B of the
Exchange Act, as amended by the DoddFrank Act, requires municipal advisors
(as defined in Section 15B(e)(4) of the
Exchange Act 288) to register with the
Commission.289 As a transitional step to
the implementation of a permanent
registration program, the Commission
adopted, on an interim final basis, Rule
15Ba2–6T, which permitted municipal
advisors to temporarily satisfy the
registration requirement by filing Form
MA–T, effective October 1, 2010. The
interim final temporary rule provides
that, unless rescinded, a municipal
advisor’s temporary registration by
means of Form MA–T will expire on the
earlier of (1) the date that the municipal
advisor’s registration is approved or
287 44
U.S.C. 3501 et seq.
15 U.S.C. 78o–4(e)(4). See also supra
Section II.A.1.
289 See 15 U.S.C. 78o–4(a).
288 See
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863
disapproved by the Commission
pursuant to a final rule establishing a
permanent registration regime; (2) the
date on which the municipal advisor’s
temporary registration is rescinded by
the Commission; or (3) December 31,
2011.290 Pursuant to the Dodd-Frank
Act, the Commission is proposing new
rules that would establish a permanent
municipal advisor registration regime
and would impose certain recordkeeping requirements on municipal
advisors.
A. Summary of Collection of
Information
Section 15B(a)(2) of the Exchange Act,
as amended by the Dodd-Frank Act,
provides that a municipal advisor may
be registered by filing with the
Commission an application for
registration in such form and containing
such information and documents
concerning the municipal advisor and
any persons associated with the
municipal advisor as the Commission,
by rule, may prescribe as necessary or
appropriate in the public interest or for
the protection of investors.291
Under the proposed rules, the
permanent registration regime for
municipal advisors would be more
comprehensive than the temporary one.
The proposed regime would require
more detailed disclosures, and entail a
review of a respondent’s registration
form. Under proposed rule 15Ba1–2(a),
a municipal advisory firm would be
required to apply for registration with
the Commission by completing and
electronically filing Form MA. Under
proposed rule 15Ba1–2(b), a natural
person municipal advisor would be
required to apply for registration with
the Commission by completing and
electronically filing Form MA–I. A sole
proprietor would have to complete both
Form MA and Form MA–I. The
Commission anticipates developing an
online filing system, where a municipal
advisor would be able to file a
completed Form MA and/or MA–I and
the information filed would be publicly
available. In addition, under proposed
rule 15Ba1–7, registered municipal
advisors other than natural persons (i.e.,
municipal advisory firms, including
sole proprietors) would be required to
maintain books and records relating to
their municipal advisory activities.
Under the proposed permanent
registration regime, municipal advisors
290 See 17 CFR 240.15Ba2–6T(e). The OMB
approved the collection of information for Form
MA–T and Rule 15Ba2–6T (‘‘Temporary
Registration of Municipal Advisors—Form MA–T’’)
(OMB Control No. 3235–0659) on an emergency
basis for six months.
291 See 15 U.S.C. 78o–4(a)(2).
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would include sole proprietorships,
individual employees of municipal
advisors, and firms of varying sizes. In
addition, municipal advisors would
include firms that engage in municipal
advisory activities as part of a broader
array of financial services serving many
types of clients, and may have many
associated persons. Thus, the paperwork
burden would reflect these differences
in size and types of other financial
services in which the municipal
advisors engage.
Pursuant to proposed rule 15Ba1–
4(a)(1), a municipal advisory firm that
registers on Form MA would have to
amend its Form MA at least annually,
within 90 days of the end of the
applicant’s fiscal year in the case of
applicants that are firms, or within 90
days of the end of the calendar year in
the case of sole proprietors. Proposed
rule 15Ba1–4(a)(2) would require a
municipal advisory firm to amend its
Form MA more frequently than
annually as required by the General
Instructions. Pursuant to proposed rule
15Ba1–4(b), a natural person municipal
advisor who registers on Form MA–I
would have to amend his or her Form
MA–I whenever any information
previously provided in Form MA–I
becomes inaccurate. Pursuant to
proposed rule 15Ba1–4(e), a registered
municipal advisor would have to
complete the self-certification on Form
MA or Form MA–I, as applicable, both
at the time the municipal advisor
initially files its application for
registration, and also on an ongoing
annual basis. Municipal advisors
registered on Form MA would have to
complete the Form MA self-certification
within 90 days of the end of a municipal
advisor’s fiscal year, or for municipal
advisors that are sole proprietors, within
90 days of the end of the calendar year.
Municipal advisors registered on Form
MA–I would have to complete the Form
MA–I self-certification within 90 days of
the end of the calendar year.
Pursuant to proposed rule 15Ba1–3,
all municipal advisors, whether
registered on Form MA or MA–I, would
be required to file Form MA–W to
withdraw from registration with the
Commission as a municipal advisor. As
would be the case with Form MA and
MA–I, Form MA–W would be required
to be filed electronically with the
Commission.
Proposed rule 15Ba1–5 sets forth the
general procedures for serving nonresidents on Form MA–NR. Pursuant to
the instructions to Form MA–NR, and
consistent with proposed rule 15Ba1–5,
non-resident municipal advisors other
than natural persons, but including sole
proprietors (‘‘non-resident municipal
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advisory firms’’), and non-resident
general partners and non-resident
managing agents of municipal advisors
must file Form MA–NR to furnish the
Commission with a written irrevocable
consent and power of attorney to
appoint an agent in the United States,
other than a Commission member,
official, or employee, upon whom may
be served any process, pleadings, or
other papers in any action brought
against the non-resident municipal
advisory firm, non-resident general
partner or non-resident managing agent
that arises out of or relates to the
municipal advisory activities of the
municipal advisor. In addition,
proposed rule 15Ba1–5(d) would require
each non-resident municipal advisory
firm to provide an opinion of counsel
that the advisory firm can, as a matter
of law, provide the Commission with
prompt access to the advisory firm’s
books and records and that the advisory
firm can, as a matter of law, submit to
onsite inspection and examination by
the Commission.
Proposed rule 15Ba1–7 would require
all registered municipal advisors other
than natural persons (i.e., municipal
advisory firms, including sole
proprietors) to maintain books and
records relating to their municipal
advisory activities. Generally, proposed
rule 15Ba1–7 would require such books
and records to be maintained and
preserved for a period of not less than
five years, the first two years in an
easily accessible place.
B. Proposed Use of Information
The proposed requirement that a
municipal advisor must register with
the Commission on Forms MA and MA–
I to continue to engage in municipal
advisory activities would help ensure
that the Commission has information to
effectively oversee respondents and
their activities in the municipal
securities market. In particular, the
information provided in Forms MA and
MA–I would be used to determine
whether to grant the applicant’s
application for registration, institute
proceedings to determine whether
registration should be denied, and place
limitations on the applicant’s activities
as a municipal advisor. The information
would also be used to focus on-site
examinations and aid in risk-based
examination targeting. It would enable
the Commission to obtain an accurate
estimate of the number of municipal
advisors, by size and by municipal
advisory activity; analyze data regarding
the various types of municipal advisory
activities in which advisors engage; and
evaluate the disciplinary history of all
advisors and associated persons,
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including all regulatory, civil, and
criminal proceedings. The proposed
registration requirement would also
help to ensure that the Commission can
make such information transparent and
easily accessible to the investing public,
including municipal entities and
obligated persons who engage
municipal advisors, investors who may
purchase securities from offerings in
which municipal advisors participated,
and other regulators.
The proposed requirement that a
municipal advisory firm must make and
keep books and records, including
written communications and records of
associated persons, would help to
ensure that records exist of the
respondent’s primary municipal
advisory activities and of its associated
persons, and could potentially be
requested by Commission staff during
an examination to evaluate the
municipal advisory firm’s compliance
with the proposed rules. In particular,
the proposed requirement that a
municipal advisory firm must keep a
record of the initial or annual review, as
applicable, conducted by the municipal
advisory firm of such municipal
advisory firm’s business in connection
with its self-certification on Form MA,
would help ensure, among other things,
that the municipal advisory firm and
every natural person associated with it
has met certain standards of training,
experience, and competence required by
the Commission, the MSRB, or any
other relevant SROs.
The proposed requirement that a nonresident municipal advisor, or a nonresident general partner or non-resident
managing agent of a municipal advisor,
file Form MA–NR in connection with
the municipal advisor’s initial
application would help minimize legal
or logistical obstacles that the
Commission may encounter when
attempting to effect service, to conserve
Commission resources, and to avoid
potential conflicts of law. The proposed
requirement that a non-resident
municipal advisory firm provide an
opinion of counsel on Form MA would
help ensure that such non-resident
municipal advisory firm could provide
access to its books and records and
submit to onsite inspection and
examination by the Commission.
C. Respondents
The Commission estimates that the
proposed ‘‘collections of information’’
would initially apply to approximately
1,000 municipal advisory firms,
including sole proprietors. This estimate
is based partly on the number of
municipal advisors that have registered
with the Commission under rule 15Ba2–
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6T. As of October 2010, there were
approximately 800 total unique
electronic registrations where Form
MA–T was completed and not
withdrawn. The Commission believes
that this number of Form MA–T
registrants would likely increase,
because numerous applicants that
would be required to register may have
missed the October 1, 2010 deadline for
a variety of reasons, such as concluding,
based on their interpretation of the
Dodd-Frank Act, that they were not
required to register as municipal
advisors. For the PRA analysis of the
interim final temporary rule,
Commission staff estimated that
approximately 1,000 applicants would
be required to complete Form MA–T.292
Commission staff believes that this
remains an appropriate estimate for the
total number of municipal advisory
firms that would be required to register
on Form MA under the proposed
permanent registration regime.293
The proposed ‘‘collections of
information’’ would also apply to
natural person municipal advisors. For
purposes of estimating the paperwork
burden, the Commission notes that the
number of Form MA–I applicants may
be divided into three main categories:
(1) Individuals who are currently also
registered as investment advisers,
broker-dealers, or both, and who are
employed at investment advisory firms,
broker-dealer firms, or banks; (2)
individuals who are employed at
financial advisor firms that are not
registered as broker-dealers or
investment advisers; and (3) individual
solicitors who are employed at thirdparty marketing and solicitor firms. To
calculate the total number of likely
292 See Temporary Registration Rule Release,
supra note 63, at 54473.
293 The Commission notes that a person that
solicits a municipal entity or obligated person on
behalf of a broker, dealer, municipal securities
dealer, municipal advisor, or investment adviser
that controls, is controlled by, or is under common
control with the person undertaking such
solicitation, may voluntarily apply to register as a
municipal advisor. See supra Section II.A.2.a.
Based on investment adviser registration data,
Commission staff estimates that out of
approximately 12,000 investment advisers currently
registered with the Commission, only 385, or
approximately 3%, (1) have municipal clients; (2)
use firms or persons to solicit advisory clients on
the adviser’s behalf; and (3) compensate persons for
client referrals. The Commission expects that of
these 385 investment advisers, a significantly
smaller subset would have the specific
circumstances where voluntary municipal advisor
registration would be applicable, i.e., they use
affiliates that exclusively solicit municipal entities
for them (or other affiliates), and not for third
parties. For purposes of this analysis, the
Commission’s estimate of the number of potential
voluntary municipal advisor applicants is included
as part of the total estimate of 1,000 applicants
noted above.
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Form MA–I applicants, the Commission
estimates the number of respondents in
each of these categories.
First, the Commission estimates the
number of individuals who are
currently registered as investment
advisers, broker-dealers, or both, and
would register on Form MA–I. To
calculate this estimate, the Commission
compares the proportion of FINRA Form
U4 filers (i.e., individuals who are
registered representatives of investment
advisers and/or broker-dealers) to the
sum of all investment advisers
registered on Form ADV and all brokerdealers registered on Form BD. FINRA
estimates that as of October 2010,
637,000 individuals had registered as
representatives of broker-dealers and/or
investment advisers on Form U4.294 The
Commission estimates that as of October
2010, 11,888 investment advisers had
registered on Form ADV, while as of
March 2010, 5,163 broker-dealers had
registered on Form BD. The proportion
of Form U4 registrants to the sum of
Form ADV and Form BD registrants is
approximately 37.36 to 1.295 According
to Form MA–T data collected to date,
the Commission estimates that
approximately 450 of 1,000 MA–T
registrants would be investment adviser
and/or broker-dealer firms. Thus, the
Commission estimates that
approximately 16,800 individuals who
are registered as investment advisers,
broker-dealers, or both, would be
required to register on Form MA–I.296
Second, the Commission estimates the
number of individuals who are
employed at financial advisor firms and
would register on Form MA–I.
Commission staff understands from
discussions with industry and market
participants that it is reasonable to
estimate that there is an average of
approximately 10 professional
employees per financial advisor firm.
According to Form MA–T data collected
to date, the Commission estimates that
approximately 450 of 1,000 MA–T
registrants would be financial advisor
firms. Thus, the Commission estimates
that approximately 4,500 individuals
who are employed at financial advisor
firms would be required to register on
Form MA–I.297
294 See October 2010 ‘‘Registered Reps’’ in ‘‘FINRA
Statistics,’’ available at https://www.finra.org/
Newsroom/Statistics.
295 637,000 (estimated number of Form U4
registrants)/(11,888 (estimated number of Form
ADV registrants) + 5,163 (estimated number of
Form BD registrants)) = 37.36.
296 450 (total number of investment adviser and
broker-dealer firms registered as municipal
advisors) × 37.36 (proportion of Form U4 registrants
to all Form ADV and Form BD registrants) = 16,812.
297 450 (total number of independent financial
advisor firms registered as municipal advisors) × 10
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865
Third, the Commission estimates the
number of individual solicitors who
would register on Form MA–I.
Commission staff examined the data of
all MA–T registrants as of October 2010,
and estimates that approximately 100
out of 1,000 registrants are exclusively
focused on third-party marketing and
solicitation. For purposes of this PRA,
the Commission assumes that there are
five individual solicitors who would
register on Form MA–I for every
solicitor firm that would register on
Form MA.298 Thus, the Commission
estimates that approximately 500
individual solicitors would be required
to register on Form MA–I.299
The Commission estimates that the
total number of Form MA–I applicants
would be approximately 21,800 natural
persons.300 The Commission recognizes
that, based on a number of factors, the
actual total number of respondents may
differ from this estimate. For example,
the current estimate does not include
Form MA–I applicants who might be
employed at banks, but are not
registered as either investment advisers
or broker-dealers. Thus, the actual total
number of respondents could be higher.
Under the proposed rules, sole
proprietors would be required to
complete both Form MA and Form MA–
I. The respondent estimates presented
here likely include some overlap, but
the actual total number of respondents
could be slightly lower depending on
(estimated average number of professional
employees per independent financial advisor firm)
= 4,500.
298 See Letter from Donna DiMaria, President,
Third Party Marketers Association, dated August
27, 2009, available at https://www.sec.gov/
comments/s7-18-09/s71809-36.pdf (commenting on
the Commission’s proposal to adopt a rule
addressing ‘‘pay to play’’ practices by investment
advisers and estimating that the typical solicitor
firm consists of 2 to 5 professionals).
299 100 (estimated number of solicitor firms) × 5
(estimated number of Form MA–I applicants per
solicitor firm) = 500. The Commission notes that a
person that solicits a municipal entity or obligated
person on behalf of a broker, dealer, municipal
securities dealer, municipal advisor, or investment
adviser that controls, is controlled by, or is under
common control with the person undertaking such
solicitation, may voluntarily apply to register as a
municipal advisor. See supra Section II.A.2.a.
Based on investment adviser registration data,
Commission staff expects that only a small number
of registered investment advisers that are natural
persons would have the specific circumstances
where voluntary municipal advisor registration
would be applicable. See supra note 293. For
purposes of this analysis, the Commission’s
estimate of the number of potential voluntary
natural person municipal advisor applicants is
included as part of the total estimate of 500
individual solicitors noted above.
300 16,800 (estimated number of individual
investment advisers and/or broker-dealers) + 4,500
(estimated number of individuals who are
employed at financial advisor firms) + 500
(estimated number of individuals who are
employed at solicitation firms) = 21,800.
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the overall percentage of sole
proprietors among all municipal
advisory firms.
To estimate the average annual
number of new Form MA applicants,
the Commission relies on investment
adviser registration data, which
indicates that new investment adviser
applicants comprise, on average,
approximately 10.4% of the total
number of registered investment
advisers.301 The Commission expects
the proportion of new municipal
advisory firm applicants to all
municipal advisory firm applicants may
be similar. Accordingly, the
Commission estimates that the average
number of new Form MA applicants per
year would be 100.302 To estimate the
average annual number of new Form
MA–I applicants, the Commission relies
on FINRA registration data, which
indicates that new Form U4 applicants
that are new to the industry comprise,
on average, approximately 8.39% of the
total number of Form U4 applicants.303
The Commission expects the proportion
of new natural person municipal
advisor registrants to all natural person
municipal advisor registrants may be
similar. Accordingly, the Commission
estimates that the average number of
new Form MA–I applicants per year
would be 1,800.304
D. Total Initial and Annual Reporting
and Record-Keeping Burdens
The estimated burdens on
respondents to complete and submit
Forms MA, MA–I, MA–W, and MA–
NR,305 amend Forms MA and MA–I,
consult with outside counsel, and
maintain books and records related to
municipal advisory activities, are
described below.
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1. Form MA
Form MA, which is to be completed
by municipal advisory firms (including
sole proprietors) registering under the
proposed permanent registration regime,
301 According to the Commission’s Division of
Investment Management, as of October 2010, there
were 11,888 investment advisers registered with the
Commission. From 2002 to 2009, there was an
average of 1,237 new investment adviser
registrations per year. (1,237/11,888) = 10.4%.
302 1,000 (all Form MA applicants) × 10.4% = 104
new Form MA applicants per year.
303 According to FINRA, as of October 2010, there
were approximately 637,000 individuals registered
on Form U4. See supra note 295. FINRA has
notified the Commission that from October 2008 to
the present, there was an average of 53,474 Form
U4 registrants that were new to the industry per
year. (53,474/637,000) = 8.39%.
304 21,800 (all Form MA–I applicants) × 8.39% =
1,829 new Form MA–I applicants per year.
305 See infra Sections IV.D.4 and IV.D.5
(discussing the number of respondents relating to
filing Form MA–W and Form MA–NR,
respectively).
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would require more comprehensive
disclosure in addition to the
information already collected and
submitted on Form MA–T. As discussed
in detail above, municipal advisory
firms that would be required to register
with the Commission by filing Form MA
would have to provide, among other
things:
1. Identifying information;
2. Information regarding the
municipal advisor’s form of
organization;
3. Whether the advisor is succeeding
to the business of a registered municipal
advisor;
4. Information about the municipal
advisor’s business and business
structure;
5. Information regarding the
municipal advisor’s other business
activities;
6. Financial industry affiliations of
associated persons of the municipal
advisor;
7. The municipal advisor’s interest in
municipal advisory client transactions;
8. Information related to control
persons of the municipal advisor;
9. Disclosures relating to regulatory,
civil, and criminal disciplinary
history; 306
10. Information regarding whether the
municipal advisor is a ‘‘small business;’’
and
11. A self-certification, filed on an
initial and annual basis, regarding the
municipal advisor’s qualifications as a
municipal advisor and its ability to
comply with its obligations under the
Federal securities laws.
The Commission has previously
estimated that, in the case of Form
ADV—a similar form to Form MA,
which must be completed for the
registration of investment advisers with
the Commission—the average time
necessary to complete the form is
approximately 36.24 hours.307 Form
ADV, however, is significantly longer
than Form MA and contains sections
that are not required for Form MA
registration, such as Part 2A, which
requires the applicant to create narrative
brochures containing information about
the advisory firm. Thus, the
Commission expects the hourly burden
for Form MA to be considerably less
than 36.24 hours.
In contrast, the Commission
previously estimated that the average
306 See
supra Section II.A.2.c.
Release No. IA–3060, supra note 286, at
49256. Additionally, the Commission notes that the
average time necessary to complete Part IA of Form
ADV is approximately 4.32 hours. See Form ADV,
Part 1A (Paper Version), at 1 (under ‘‘OMB
Approval,’’ estimated average burden hours per
response is 4.32 hours).
307 See
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amount of time for a municipal advisor
to complete Form MA–T, regardless of
advisor size, is approximately 2.5
hours.308 This estimate for completion
of Form MA–T includes all of the time
necessary to research, evaluate, and
gather all of the information that is
requested in the form and all of the time
necessary to complete and submit the
form.309
The Commission believes that the
paperwork burden of completing Form
MA would be greater than the amount
of time required to complete Form MA–
T, because Form MA is longer and more
comprehensive than Form MA–T.
Nevertheless, the Commission believes
that the estimated time to complete
Form MA–T, rather than Form ADV, is
the more appropriate basis to estimate
the time to complete Form MA.
Accordingly, the Commission estimates
that the average amount of time for a
municipal advisory firm to complete
Form MA would be 3.5 hours. This
estimate would apply to all municipal
advisory firms, because even those that
had already completed Form MA–T
under the temporary registration regime
must register anew.
In addition, pursuant to proposed rule
15Ba1–4(e)(1), a municipal advisory
firm would be required at the time it
initially files Form MA to conduct an
initial review of its business and certify
that, among other things, it and every
natural person associated with the
municipal advisory firm meet standards
required by the Commission, the MSRB,
or any other relevant SRO to engage in
municipal advisory activities. To
estimate the initial burden for this selfcertification, the Commission examined
burden estimates for Form N–CSR
(‘‘Certified Shareholder Report of
Registered Management Investment
Companies’’) and Form N–Q (‘‘Quarterly
Schedule of Portfolio Holdings of
Registered Management Investment
Company’’), which include similar selfcertification requirements.310 Based on
its prior burden estimates, Commission
staff estimates that the initial burden to
308 See Temporary Registration Rule Release,
supra note 63, at 54473.
309 The Commission notes that some municipal
advisors that would be required to register under
the proposed permanent registration regime would
also be registered with the Commission as brokerdealers and/or investment advisers. The
Commission believes that these persons could
require less time to research and complete the
proposed permanent registration forms to the extent
information contained in those other registration(s)
could be incorporated by reference, avoiding the
need to repeat the information on Form MA. See
supra note 220, and accompanying text.
310 See Exchange Act Release No. 34–47262
(January 27, 2003), 68 FR 5348 (February 3, 2003);
Exchange Act Release No. 34–49333 (February 27,
2004), 69 FR 11244 (March 9, 2004).
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comply with the Form MA selfcertification requirement would be, on
average, approximately 3.0 hours per
applicant. Thus, the total average initial
burden for Form MA would be 6.5 hours
per applicant.311
The Commission recognizes that
depending on the specific
circumstances of the municipal advisory
firm, the initial burden to complete
Form MA may vary from respondent to
respondent. For example, as discussed
above, a non-resident municipal advisor
would be required to attach a legal
opinion to its Non-Resident Municipal
Advisor Execution Page to Form MA.312
As discussed above, Commission staff
estimates that approximately 1,000
municipal advisory firms would be
required to fill out Form MA. Thus, the
Commission estimates that the total
initial paperwork burden for completion
and submission of Form MA would be
6,500 hours.313 The Commission notes
that respondents may have potential
one-time burdens associated with Form
MA. For example, respondents may
need to develop internal controls
associated with procedures for obtaining
the information required by Form MA,
and they would need to familiarize
themselves with the proposed rules and
the form. For purposes of this analysis,
these potential one-time burdens are
included in the estimates noted above.
The Commission estimates that the
average number of new Form MA
applicants per year would be 100,314
and the annual paperwork burden for
new completions and submissions of
Form MA would be 650 hours.315 The
Commission notes that respondents may
have potential recurring burdens
associated with Form MA, such as
systemic ongoing monitoring and
maintenance of the information required
by the form. For the purposes of this
analysis, these potential recurring
burdens are included in the estimates
with respect to amendments to Form
MA.316
The collection of information made
pursuant to Form MA would not be
311 3.5 hours (average time required to complete
Form MA) + 3.0 hours (average time required to
complete self-certification) = 6.5 hours per
applicant.
312 See supra Section II.A.2.b. For a discussion of
the estimated burden for a non-resident municipal
advisor to provide opinion of counsel, see infra
Section IV.D.5.
313 1,000 (persons required to submit Form MA)
× 6.5 hours (average estimated time required to
complete Form MA and initial self-certification) =
6,500 hours.
314 See supra Section IV.C.
315 100 (new Form MA applicants per year) × 6.5
hours (average estimated time required to complete
Form MA and initial self-certification) = 650 hours.
316 See infra Section IV.D.3.
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confidential and would be made
publicly available. Some information,
such as social security numbers, would
be kept confidential to the extent
permitted by law.
2. Form MA–I
Form MA–I, which is to be completed
by natural persons (including sole
proprietors) registering under the
proposed permanent registration regime,
would require more comprehensive
disclosure compared to the information
already collected and submitted on
Form MA–T. As discussed above,
natural person municipal advisors
required to register with the
Commission by filing Form MA–I would
be required to provide, among other
things:
1. Identifying information;
2. Residential history for the five
years preceding filing of the application;
3. Employment history for the ten
years preceding filing of the application;
4. Any other businesses in which the
advisor is currently engaged;
5. Disclosures relating to regulatory,
civil, and criminal disciplinary history;
and
6. A self-certification, filed on an
initial and annual basis, indicating,
among other things, that the municipal
advisor has met or will meet
qualification standards required by the
Commission, the MSRB, or any other
relevant SRO for municipal advisors.
Moreover, Form MA–I would require
disclosure forms for reporting
disciplinary proceedings, including
criminal, regulatory, and civil judicial
actions.
To estimate the average amount of
time required to complete Form MA–I,
the Commission compares the average
amount of time required for an
applicant to complete Form MA–T. As
described above, the Commission
previously estimated that the average
amount of time for a municipal advisor
to complete Form MA–T would be
approximately 2.5 hours.317 This
estimate includes all of the time
necessary to research, evaluate, and
gather all of the information that is
requested in Form MA–T and all of the
time necessary to complete and submit
the form. The Commission believes that
the paperwork burden of completing
Form MA–I would not be significantly
greater than the amount of time required
to complete Form MA–T, because some
of the information required for Form
MA–I would have already been gathered
for completing Form MA–T. The
Commission anticipates that the most
burdensome portion of the form would
317 See
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867
be the disclosure of the advisor’s
disciplinary history, but the
Commission believes that this burden
should only be substantial for a small
number of applicants. Overall, the
Commission estimates that the average
amount of time for a natural person
municipal advisor to complete Form
MA–I would be 3.0 hours.318 This
estimate would apply to all natural
person municipal advisors, because
even those who had already completed
Form MA–T under the temporary
registration regime must register anew.
The Commission estimates that
approximately 21,800 natural person
municipal advisors would be required
to register on Form
MA–I.319 Thus, the Commission
estimates that the total paperwork
burden for completion and submission
of Form MA–I would be 65,400
hours.320 The Commission notes that
respondents may have potential onetime burdens associated with Form
MA–I. For example, respondents may
need to locate information not
previously required for other
registrations, but required by Form MA–
I, and they would need to familiarize
themselves with the proposed rules and
the form. For purposes of this analysis,
these potential one-time burdens are
included in the estimates noted above.
The Commission estimates that the
average number of new Form MA–I
applicants per year would be 1,800,321
and the annual paperwork burden for
new completions and submissions of
Form MA–I would be 5,400 hours.322
The Commission notes that respondents
may have potential recurring burdens
associated with Form MA–I, such as
tracking ongoing updates to the
information required by the form. For
318 The Commission notes that pursuant to
proposed rule 15Ba1–4(e)(1), a natural person
municipal advisor would also be required at the
time he or she initially files Form MA–I to certify
that, among other things, he or she meets standards
required by the Commission, the MSRB, or any
other self-regulatory organization to engage in
municipal advisory activities. For purposes of this
analysis, the Commission believes that the initial
burden for a natural person to complete Form MA–
I self-certification would be minimal, because it
would not require the more burdensome initial
review of a municipal advisory firm. Thus, the
Commission includes the average amount of time
for initial self-certification as part of its estimate of
the average amount of time for a natural person
municipal advisor to initially complete Form MA–
I.
319 See supra Section IV.C.
320 21,800 (persons required to submit Form MA–
I) × 3.0 hours (average estimated time required to
complete Form
MA–I and initial self-certification) = 65,400 hours.
321 See supra Section IV.C.
322 1,800 (new Form MA–I registrants per year) ×
3.0 hours (average estimated time required to
complete Form MA–I and initial self-certification)
= 5,400 hours.
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the purposes of this analysis, these
potential recurring burdens are included
in the estimates with respect to
amendments to Form MA–I.323
The collection of information made
pursuant to Form MA–I would not be
confidential and would be made
publicly available. Some information,
such as social security numbers, would
be kept confidential to the extent
permitted by law.
3. Amendments to Form MA and Form
MA–I
Under proposed rule 15Ba1–4, once a
municipal advisor is registered on Form
MA, the municipal advisor would be
required to electronically amend Form
MA at least annually, within 90 days of
the end of the advisor’s fiscal year, if a
firm, or within 90 days of the end of the
calendar year, if a sole proprietor; and
more frequently, as set forth in the
General Instructions to Form MA, as
applicable. A natural person municipal
advisor registered on Form MA–I would
be required to electronically amend
Form MA–I whenever the information
previously provided in Form MA–I
becomes inaccurate.
The Commission notes that in
addition to preparing amendments for
Form MA and/or Form MA–I as
described above, a respondent would
also be required to certify annually that,
among other things, it meets
qualification standards required by the
Commission, the MSRB, or any other
relevant SRO to engage in municipal
advisory activities. For purposes of this
analysis, the Commission includes the
annual self-certification as part of the
amendment requirements, and the
Commission addresses their associated
burdens together below.
The Commission estimates that the
average time necessary to prepare an
annual amendment for Form MA would
be approximately 1.5 hours because
only certain parts of Form MA would
need to be completed for amendments.
The Commission recognizes that
depending on the extent of the
amendments, the burden to complete
the annual amendment may vary greatly
from respondent to respondent, and that
some would require significantly more
time than 1.5 hours to submit annual
amendments while others would require
significantly less time than 1.5 hours.
For example, as discussed above, a nonresident municipal advisory firm would
be required to file an amendment to
Form MA promptly and include a
revised opinion of counsel after any
changes in the legal or regulatory
framework that would impact its ability
323 See
infra Section IV.D.3.
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or the manner in which it provides the
Commission with the required access to
its books and records or impacts the
Commission’s ability to inspect to
examine the municipal advisory firm
onsite.324
In addition, pursuant to proposed rule
15Ba1–4(e)(2), a municipal advisory
firm would be required to conduct an
annual review of its business and certify
that, among other things, it and every
natural person associated with the
municipal advisory firm has met, or will
meet, qualification standards required
by the Commission, the MSRB, or any
other relevant SRO to engage in
municipal advisory activities. To
estimate the annual burden, the
Commission examined burden estimates
for Form N–CSR and Form N–Q.325
Based on its prior burden estimates,
Commission staff estimates that the
annual burden to comply with the Form
MA self-certification requirement would
be, on average, approximately one hour
per respondent. Therefore, the total
average annual burden for Form MA
amendments would be 2.5 hours per
respondent.326
To estimate the average amount of
time necessary to prepare an additional
updating amendment for Form MA (i.e.,
any additional amendment other than
the required annual amendment), the
Commission relies on its estimate for
the amount of time required to prepare
an interim updating amendment for
Form ADV. The Commission estimated
that an updating amendment for Form
ADV would require 0.5 hours per
amendment, because interim
amendments typically only amend one
or two items in Form ADV and thus
should not require as much time to
prepare as an annual amendment.327 For
the purposes of this PRA analysis, the
Commission believes that the amount of
time to complete an updating
amendment for Form MA would also be
0.5 hours.
Under proposed rule 15Ba1–4(a)(1),
all 1,000 municipal advisory firms
registered on Form MA would be
required to amend their Form MA once
every fiscal or calendar year, as
applicable. It is also possible that some
of these 1,000 municipal advisory firms
would have to submit more than one
324 See supra Section II.A.4. For a discussion of
the estimated burden for a non-resident municipal
advisor to provide opinion of counsel, see infra
Section IV.D.5.
325 See supra note 310.
326 1.5 hours (average time required to amend
Form MA) + 1.0 hour (average time required to
complete annual self-certification) = 2.5 hours per
respondent.
327 See Release No. IA–3060, supra note 286, at
49257.
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amendment. To estimate the average
number of amendments in addition to
the annual amendment, the Commission
relies on its prior estimate for the
average number of additional
amendments for Form ADV. The
Commission estimated that, on average,
each adviser filing Form ADV would
likely amend its form two times during
the year—one annual amendment, and
one interim updating amendment.328
For the purposes of this PRA analysis,
the Commission believes that the same
estimate of two Form MA amendments
per year on average—one annual
amendment and one interim updating
amendment—would be appropriate,
although the Commission recognizes
that the actual number of amendments
per advisor might be higher or lower,
depending on how frequently
respondents must amend Form MA for
material changes. The total estimated
burden for updates to Form MA per
year, including compliance with the
annual self-certification requirement,
would be 3,000 hours.329
To estimate the average amount of
time necessary to prepare an updating
amendment for Form MA–I (i.e., a
required amendment whenever any
information previously provided
becomes inaccurate), the Commission
relies on its estimate for the amount of
time required to prepare an interim
updating amendment for Form ADV. As
noted above, the Commission estimated
that an updating amendment for Form
ADV would require 0.5 hours per
amendment, because interim
amendments typically only amend one
or two items in Form ADV and thus
should not require as much time to
prepare as an annual amendment.330 For
the purposes of this PRA analysis, the
Commission believes that the amount of
time to complete an updating
amendment for Form MA–I would also
be 0.5 hours.
The Commission estimates that the
time required to complete the Form
MA–I annual self-certification
requirement would be approximately
five minutes, or 0.1 hours. The
Commission believes that, given the
short time required to read and review
the self-certification statement and sign
the section, this estimate is appropriate.
328 Id.
329 1,000 (persons required to amend Form MA)
× 2.5 (average estimated time to amend Form MA
and complete self-certification annually) × 1.0
(number of annual amendments per year) + 1,000
(persons required to amend Form MA) × 0.5
(average estimated time to prepare an interim
updating amendment for Form MA) × 1.0 (number
of interim updating amendments per year) = 3,000
hours per year.
330 See supra note 327.
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To estimate the average number of
Form MA–I amendments per
respondent per year, the Commission
relies on FINRA Form U4 registration
data. FINRA estimates that from October
2008 to the present, there was an
average of 1,088,637 Form U4
amendment filings per year, regardless
of the information updated. For
purposes of estimating the paperwork
burden, the Commission believes that
the proportion of Form U4 amendment
filings compared to all Form U4
registrants may be similar to the
proportion of Form MA–I amendments
compared to all Form MA–I
respondents. Thus, the Commission
estimates that the average number of
amendments that a Form MA–I
respondent would submit would be 1.7
per year.331 The Commission
recognizes, however, that because Form
U4 is significantly longer than Form
MA–I and contains sections that are not
required for Form MA–I registration, the
actual number of Form MA–I
amendments per applicant may be less
than 1.7 per year.332 The total burden
for these Form MA–I amendments per
year would be 18,500 hours.333
The Commission estimates that the
annual burden attributable to the
requirement to certify on Form MA–I
would equal approximately 2,200
hours.334 The total burden associated
with updates to Form MA–I, including
compliance with the annual selfcertification requirement, would be
approximately 20,700 hours.335
The collection of information made
pursuant to amendments to Forms MA
and MA–I would not be confidential
and would be made publicly available.
Some information, such as social
security numbers, would be kept
confidential to the extent permitted by
law.
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4. Withdrawal From Municipal Advisor
Registration
Pursuant to proposed rule 15Ba1–3,
municipal advisors that withdraw from
municipal advisor registration with the
331 (1,088,637/637,000) (proportion of Form U4
amendment filings to all Form U4 registrants) = 1.7.
332 Information requested in Form U4 that is not
requested in Form MA–I include fingerprint
information, SRO registration requests, jurisdictions
for broker-dealer agent and/or investment adviser
representative registration requests, and FINRA
examination requests.
333 21,800 (persons required to amend Form MA–
I during any given year) × 0.5 (average estimated
time to prepare any updating amendment for Form
MA–I) × 1.7 (average number of amendments per
year) = 18,530 hours per year.
334 21,800 (persons required to complete annual
self-certification on Form MA–I) × 0.1 (average
estimated time to complete self-certification) =
2,180 hours per year.
335 18,530 + 2,180 = 20,710 hours per year.
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Commission would be required to
electronically file Form MA–W. The
Commission has previously estimated
that, in the case of Form ADV–W—a
similar form to Form MA–W—the
average time necessary to complete the
form is approximately 0.5 hours.336
Based on this prior estimate, the
Commission estimates that the average
time necessary to complete Form MA–
W would be approximately 0.5 hours.
To estimate the annual number of
withdrawals for Form MA registrants,
the Commission relies on investment
adviser registration data, which
indicates that annually, investment
adviser withdrawals comprise, on
average, approximately 6.4% of the total
number of registered investment
advisers.337 The Commission expects
the proportion of Form MA withdrawals
compared to all Form MA registrants
would be similar. Thus, the average
number of withdrawals from Form MA
registration per year would be 60,338
and the total burden would be
approximately 30 hours.339
Meanwhile, to estimate the number of
Form MA–I withdrawals per year, the
Commission relies on FINRA Form U4
registration data. FINRA estimates that
from October 2008 to the present, there
was an average of 79,722 individuals
per year who fully terminated FINRA
registration and had not returned to the
industry. For purposes of establishing
the paperwork burden, the Commission
believes that the proportion of
individuals who fully terminated
FINRA registration compared to all
Form U4 registrants may be similar to
the proportion of Form MA–I
withdrawals compared to all Form MA–
I registrants. Thus, the average number
of withdrawals from Form MA–I
registration per year would be 2,700,340
and the total burden would be 1,350
hours.341
The collection of information made
pursuant to Form MA–W would not be
336 See Form ADV–W (Paper Version), at 1 (under
‘‘OMB Approval,’’ estimated average burden hours
per response is 0.5 hours).
337 As of October 2010, there were 11,888
investment advisers registered with the
Commission. From 2002 to 2009, there was an
average of 760 investment adviser withdrawals per
year. (760/11,888) = 6.4%.
338 1,000 (all Form MA applicants) × 6.4% = 64
Form MA withdrawals per year.
339 60 (estimated number of persons withdrawing
from Form MA registration each year) × 0.5 hours
(average estimated time to complete Form MA–W)
= 30 hours per year.
340 21,800 (all Form MA–I applicants) × (79,722/
637,000) (proportion of individuals who fully
terminated FINRA registration to all Form U4
registrants) = 2,728.
341 2,700 (estimated number of persons
withdrawing from Form MA–I registration each
year) × 0.5 hours (average estimated time to
complete Form MA–W) = 1,350 hours per year.
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confidential and would be made
publicly available.
5. Non-Resident Municipal Advisors
As discussed above, proposed rule
15Ba1–5 sets forth the general
procedures for serving non-resident
municipal advisors, non-resident
general partners and non-resident
managing agents. A non-resident
municipal advisor, or a non-resident
general partner or non-resident
managing agent of a municipal advisor
must, among other things, furnish to the
Commission a written irrevocable
consent and power of attorney on Form
MA–NR to appoint an agent in the
United States, other than a Commission
member, official, or employee, upon
whom may be served any process,
pleadings, or other papers in any action
brought against the non-resident
municipal advisor, non-resident general
partner, or non-resident managing
agent.342 In addition, proposed rule
15Ba1–5(d) would require each nonresident municipal advisory firm to
provide an opinion of counsel that the
non-resident municipal advisory firm
can, as a matter of law, provide the
Commission with access to the advisory
firm’s books and records and that the
advisory firm can, as a matter of law,
submit to onsite inspection and
examination by the Commission.
The Commission has previously
estimated that, in the case of Form
ADV–NR—a form with a similar
purpose to Form MA–NR—the average
time necessary to complete the form is
approximately one hour.343 The
Commission estimates that, because of
the additional time required to find and
designate an agent, the process to
complete Form MA–NR would take
longer, or approximately 1.5 hours on
average. The burden associated with
this process would primarily involve
the designation and authorization of a
342 See supra Section II.A.5, and accompanying
text (discussing proposed rule 15Ba1–5 and Form
MA–NR).
343 See Form ADV–NR (Paper Version), at 1
(under ‘‘OMB Approval,’’ estimated average burden
hours per response is 1 hour). The Commission
notes that for Form ADV–NR, the non-resident
general partner or non-resident managing agent
must appoint each of the Secretary of the
Commission, and the Secretary of State, or
equivalent officer, of the state in which the
investment adviser maintains its principal office
and place of business, if applicable, and any other
state in which the adviser is applying for
registration, amending its registration, or submitting
a notice filing, as agents to receive service. In
contrast, Form MA–NR would require the
respondent to find and designate a United States
person (and not currently the Secretary of the
Commission) to be an agent, which the Commission
expects would require additional time.
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United States person as agent for service
of process.
To estimate the average time
necessary to provide an opinion of
counsel, Commission staff relies on its
burden estimates for Form 20–F, a form
submitted by certain foreign private
issuers, which has a similar opinion of
counsel requirement to proposed rule
15Ba1–5(d). The Commission estimates
that this additional burden would add
approximately three hours and $900 in
outside legal costs per respondent.344
The Commission notes that proposed
Form MA–NR would have one
additional type of respondent (i.e., nonresident municipal advisory firms)
compared to the types of respondents
that must file Form ADV–NR. Thus, to
estimate the total number of Form MA–
NR respondents, Commission staff has
combined two different estimates—one
for the number of non-resident general
partners or non-resident managing
agents, and another for the number of
non-resident municipal advisory firms.
To estimate the number of non-resident
general partners or non-resident
managing agents that would have to file
Form MA–NR, the Commission relies on
investment adviser registration data,
which indicates that the percentage of
Form MA–NR filings to total number of
investment adviser applicants is
1.64%.345 The Commission expects the
proportion of non-resident general
partners or non-resident managing
agents compared to all Form MA
applicants would be similar. Based on
this estimate, the Commission
anticipates that there would be 16 nonresident general partner or non-resident
managing agent applicants on Form
MA–NR.346
To estimate the number of nonresident municipal advisory firms that
would have to file Form MA–NR, the
Commission relies on Form MA–T
registrant data, which indicate that as of
October 2010, two of 800 Form MA–T
registrants had non-U.S.-based
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344 See
Exchange Act Release No. 49616 (April 26,
2004); 69 FR 24016 (April 30, 2004). The $900
figure is based on an hourly cost estimate of $400
on average for an outside attorney, which is based
on Commission staff conversations with law firms
that regularly assist regulated financial firms with
compliance matters. Based on previous burden
estimates, the Commission estimates that outside
counsel would take, on average, 2.25 hours to assist
in preparation of the opinion of counsel, for an
average cost of $900 per respondent.
345 The Commission’s Division of Investment
Management indicates that 195 Form ADV–NRs
have been filed since January 1, 2003. The
proportion of filed forms to the total number of
investment adviser registrants is 195/11,888 =
1.64%.
346 1,000 (all Form MA applicants) × 1.64% = 16
Form MA–NR filers that are non-resident general
partners or non-resident managing agents.
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addresses. The Commission expects that
the proportion of non-resident
municipal advisory firms compared to
all Form MA applicants would be
similar. Based on this estimate, the
Commission anticipates that three
respondents would be non-resident
municipal advisory firms that would be
required to complete Form MA–NR.347
Thus, the total number of Form MA–NR
filers would be approximately 20, and
the total initial burden for completion of
Form MA–NR would be 30 hours.348
The three non-resident municipal
advisory firms that would be required to
complete Form MA–NR would be the
respondents required to provide an
opinion of counsel. The total initial
burden for providing an opinion of
counsel would be approximately 9
hours.349 Thus, the total initial burden
for non-resident municipal advisors to
complete Form MA–NR and provide an
opinion of counsel would be 39 hours.
The Commission estimates that the total
initial cost for all non-resident
municipal advisory firms to hire outside
counsel as part of providing an opinion
of counsel would be approximately
$2,700.350
The Commission notes that filers may
have potential one-time burdens
associated with Form MA–NR. For
example, filers may need to locate
information required by Form MA–NR,
or they may need to familiarize
themselves with the proposed rules and
the form. For purposes of this analysis,
these potential one-time burdens are
included in the estimates noted above.
To estimate the ongoing annual
number of new Form MA–NR filers that
are non-resident general partners or
non-resident managing agents, the
Commission relies on investment
adviser registration data, which indicate
that yearly filings of Form ADV–NR
comprise, on average, approximately
0.09% of the total number of registered
investment advisers.351 The
347 1,000 (all Form MA applicants) × (2/800)
(proportion of non-U.S.-based Form MA–T
registrants compared to all Form MA–T registrants)
= 2.5 Form MA–NR filers that are non-resident
municipal advisors.
348 20 (persons expected to file Form MA–NR for
the first time) × 1.5 hours (average estimated time
to complete Form MA–NR) = 30 hours.
349 3 (non-resident municipal advisory firms
expected to provide opinion of counsel) × 3.0 hours
(average estimated time to provide an opinion of
counsel) = 9 hours.
350 3 (non-resident municipal advisory firms
expected to provide opinion of counsel) × $900
(average estimated cost to hire outside counsel for
providing an opinion of counsel) = $2,700.
351 As of October 2010, there were 11,888
investment advisers registered with the
Commission. For the years 2003–2004 and 2007–
2010, there was an average of 11 new Form ADV–
NR filings per year. (11/11,888) = 0.09%.
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Commission expects the proportion of
Form MA–NR filers that are nonresident general partners or nonresident managing agents compared to
all Form MA applicants would be
similar. Based on the above estimate,
the Commission anticipates that only
one municipal advisor respondent per
year would have a non-resident general
partner or non-resident managing agent
that would be required to complete
Form MA–NR.352 This estimate includes
the ongoing annual number of new
Form MA–NR filers that are nonresident municipal advisors, because
the small initial number of non-resident
municipal advisors suggests that, at
most, there would be only one new nonresident municipal advisor every several
years. Thus, the total burden per year
for completion of Form MA–NR would
be approximately two hours.353 For the
purposes of this analysis, the
Commission assumes that the one new
non-resident municipal advisor per year
would not be a natural person, and
would thus be required to provide
opinion of counsel. The total burden per
year for providing opinion of counsel
would be approximately three hours.354
The Commission estimates that the
ongoing annual cost for non-resident
municipal advisors to hire outside
counsel as part of providing opinion of
counsel would be approximately
$900.355
The Commission notes that filers may
have potential recurring burdens
associated with Form MA–NR, such as
monitoring and maintaining the
information required by the form. For
the purposes of this analysis, these
potential recurring burdens are included
in the estimates noted above.
Proposed rule 15Ba1–5 also would
require that non-resident municipal
advisors, general partners and managing
agents update the information on Form
MA–NR if it becomes inaccurate.
Commission staff believes that the
burdens associated with these updates
are accounted for in the above estimates
because, given the small number of
Form MA–NR filers, the burden for
Form MA–NR updates would likely be
negligible.
352 1,000 (all Form MA applicants) × 0.09% = 0.9
Form MA–NR filers per year; this number was
rounded up to 1.
353 1 (persons expected to file Form MA–NR each
year) × 1.5 (average estimated time to complete
Form MA–NR) = 1.5 hours per year.
354 1 (municipal advisory firms expected to
provide an opinion of counsel) × 3.0 (average
estimated time to provide opinion of counsel) = 3.0
hours per year.
355 1 (persons expected to file Form MA–NR each
year) × $900 (average estimated cost to hire outside
counsel for providing opinion of counsel) = $900.
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The collection of information made
pursuant to Form MA–NR would not be
confidential and would be made
publicly available.
6. Outside Counsel
The Commission believes that some
municipal advisory firms would seek
outside counsel to help them comply
with the requirements of the proposed
rules, and complete Form MA.356 The
Commission believes that it is unlikely
that natural person municipal advisors
would obtain and consult counsel for
purposes of completing Form MA–I. For
PRA purposes, the Commission assumes
that all 1,000 municipal advisory firms
registering on Form MA would, on
average, consult outside counsel for one
hour to help them comply with the
requirements. The Commission believes
that the estimate of the number of
municipal advisory firms that would
consult outside counsel is likely to be
lower than 1,000 because some
municipal advisory firms, especially
those that are sole proprietors, would
choose not to seek outside counsel. The
Commission also recognizes that some
municipal advisory firms would hire
outside counsel for more than one hour
and others may hire outside counsel for
less than one hour. On balance, the
Commission believes that its estimate
that, on average, each municipal
advisory firm would hire outside
counsel for one hour is appropriate. The
Commission estimates that the total cost
for all municipal advisory firms to hire
outside counsel to review their
compliance with the requirements of the
proposed rules and forms would be
approximately $400,000.357
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7. Maintenance of Books and Records
As described in detail above, all
municipal advisory firms would be
required to maintain books and records
relating to their municipal advisory
activities.358 These proposed books and
records requirements are based
generally on Exchange Act rules 17a–3
and 17a–4, and Investment Advisers Act
rule 204–2, which set forth books and
356 The collection of information relating to
outside counsel will be included as part of the
collection of information ‘‘Form MA: Application
for Municipal Advisor Registration.’’
357 1,000 (estimated number of municipal
advisory firms that would hire outside counsel) ×
1 hour (average estimated time spent by outside
counsel to help municipal advisory firms comply
with the rule) × $400 (hourly rate for an attorney,
outside counsel) = $400,000. The hourly cost
estimate of $400 on average for an attorney is based
on Commission staff conversations with law firms
that regularly assist regulated financial firms with
compliance matters.
358 See supra Section II.C. (discussing the books
and records requirements under proposed rule
15Ba1–7).
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records requirements with respect to
broker-dealers and investment advisers,
respectively.359 In addition, proposed
rule 15Ba1–7 would require all
municipal advisory firms to keep a
record of the initial and annual review,
as applicable, conducted by the
municipal advisory firm of such
municipal advisory firm’s business in
connection with its self-certification on
Form MA.360
To estimate the annual books and
records burden for municipal advisory
firms, the Commission examined the
current annual burdens and number of
respondents to rules 17a–3 and 17a–4 of
the Exchange Act (‘‘Rule 17a–3; Records
to be Made by Certain Exchange
Members, Brokers and Dealers’’ and
‘‘Rule 17a–4; Records to be Preserved by
Certain Exchange Members, Brokers and
Dealers’’),361 and rule 204–2 of the
Investment Advisers Act (‘‘Books and
Records To Be Maintained by
Investment Advisers’’).362 The most
recently approved annual aggregate
burden for broker-dealer compliance
with rule 17a–3 is currently 2,835 hours
based on an estimate of 105
respondents, or 27 hours per
respondent,363 while the most recently
approved annual aggregate burden for
broker-dealer compliance with rule 17a–
4 is currently 1,752,600 hours based on
an estimate of 6,900 respondents, or 254
hours per respondent.364 The most
recently approved annual aggregate
burden for rule 204–2 is currently
2,106,046 hours based on an estimate of
11,607 registered advisers, or 181 hours
per registered adviser.365
The Commission anticipates that,
given the relatively smaller size of
municipal advisory firms compared to
investment adviser and broker-dealer
firms and the fewer books and records
requirements imposed by proposed rule
15Ba1–7 than by rules 17a–3 or 17a–4,
or by rule 204–2, the hourly burden per
registered municipal advisory firm
359 See 17 CFR 240.17a–3 and 17a–4, and 17 CFR
275.204–2.
360 See supra Section II.C. (discussing the books
and records requirements under proposed rule
15Ba1–7).
361 See Collections of Information for Rules 17a–
3 and 17a–4 (OMB Control Nos. 3235–0508 and
3235–0279), Office of Information and Regulatory
Affairs, Office of Management and Budget, available
at https://www.reginfo.gov/public/do/PRAMain.
362 See Collection of Information for Rule 204–2
of the Investment Advisers Act (OMB Control No.
3235–0278), Office of Information and Regulatory
Affairs, Office of Management and Budget, available
at https://www.reginfo.gov/public/do/PRAMain.
363 2,835 hours/105 respondents = 27 hours per
respondent.
364 1,752,600 hours/6,900 respondents = 254 per
respondent.
365 2,106,046 hours/11,607 registered advisers =
181 hours per adviser.
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Sfmt 4702
871
would likely be lower than the hourly
burden estimates per broker-dealer and
per investment adviser. For the
purposes of this analysis, the
Commission estimates that the annual
books and records burden on average for
a municipal advisory firm to comply
with the proposed books and records
requirements would be similar to that of
an investment adviser, or 181 hours.
The Commission staff recognizes that
the proposed books and records
requirements would likely impose
initial burdens on respondents in
connection with necessary updates to
their record-keeping systems, such as
systems development or modifications.
For the purposes of this analysis, these
initial burdens are included in the
estimate of 181 burden hours per
respondent per year. Thus, the total
compliance burden is about 181,000
hours per year.366
Based on discussions with industry
participants and the Commission’s prior
experience with broker-dealers and
investment advisers, the Commission
believes that the ongoing books and
records obligations under the proposed
rule would be handled internally
because compliance with these
obligations is consistent with the type of
work that a market participant would
typically handle internally. The
Commission does not believe that a
municipal advisory firm would have
any recurring external costs associated
with books and records obligations.
The Commission staff would use the
collection of information for
maintenance of books and records in its
examinations and oversight program,
and the information would be generally
kept confidential to the extent permitted
by law.
8. Total Burden
Under the proposed rules and forms,
the total initial one-time burden for all
respondents would be approximately
71,939 hours,367 while the total ongoing
annual burden for all respondents
would be approximately 212,135
hours.368 The total initial outside cost
366 1,000 (estimated number municipal advisors)
× 181 hours (estimated time spent by municipal
advisors to ensure annual compliance with the
books and records requirement) = 181,000 hours.
367 6,500 hours (initial burden for Form MA
applicants) + 65,400 hours (initial burden for Form
MA–I applicants) + 39 hours (initial burden for
Form MA–NR filers) = 71,939 hours.
368 650 hours (annual burden for new Form MA
applicants) + 5,400 hours (annual burden for new
Form MA–I applicants) + 3,000 hours (annual
burden for Form MA amendments) + 20,700 hours
(annual burden for Form MA–I amendments) + 30
hours (annual burden for Form MA withdrawal) +
1,350 hours (annual burden for Form MA–I
withdrawal) + 5 hours (annual burden for Form
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for all respondents would be
$402,700,369 while the total ongoing
outside cost for all respondents would
be $900 per year.370
The Commission seeks comment on
the reporting and record-keeping
collection of information burdens
associated with the proposed rules and
forms. In particular:
• How many municipal advisors
would incur collection of information
burdens if the proposed rules and forms
were adopted by the Commission?
• Would there be additional or
alternative burdens associated with the
collection of information under the
proposed rules and forms?
• How much work would it take for
municipal advisory firms with existing
books and records to comply with the
books and records requirements of the
proposed rules?
• Would municipal advisory firms
generally perform the work internally or
outsource the work?
E. Collections of Information Are
Mandatory
The collections of information would
be mandatory.
F. Request for Comment
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Pursuant to 44 U.S.C. 3506(c)(2)(B),
the Commission solicits comment to:
• Evaluate whether the proposed
collections of information are necessary
for the proper performance of the
functions of the Commission, including
whether the information would have
practical utility;
• Evaluate the accuracy of the
Commission’s estimate of the burden of
the proposed collections of information;
• Enhance the quality, utility, and
clarity of the information to be
collected; and
• Minimize the burden of collections
of information on those who are to
respond, including through the use of
automated collection techniques or
other forms of information technology.
Persons wishing to submit comments
on the collection of information
requirements should direct them to the
Office of Management and Budget,
Attention: Desk Officer for the Securities
and Exchange Commission, Office of
Information and Regulatory Affairs,
Room 10102, New Executive Office
Building, Washington, DC 20503; and
should send a copy to Elizabeth M.
MA–NR filers) + 181,000 hours (annual burden for
books and records requirement) = 212,135 hours.
369 $2,700 (estimated initial cost to hire outside
counsel for providing opinion of counsel) +
$400,000 (initial cost for review by outside counsel)
= $402,700.
370 $900 = estimated ongoing cost to hire outside
counsel for providing opinion of counsel.
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Murphy, Secretary, Securities and
Exchange Commission, 100 F Street,
NE., Washington, DC 20549–1090 with
reference to File No. S7–45–10. OMB is
required to make a decision concerning
the collection of information between 30
and 60 days after publication, so a
comment to OMB is best assured of
having its full effect if OMB receives it
within 30 days of publication of this
release. Requests for the materials
submitted to OMB by the Commission
with regard to these collections of
information should be in writing, refer
to File No. S7–45–10, and be submitted
to the Securities and Exchange
Commission, Office of Investor
Education and Advocacy, 100 F Street,
NE., Washington, DC 20549–0213.
V. Economic Analysis
As discussed above, the Dodd-Frank
Act added provisions to the Exchange
Act that, among other things, require
municipal advisors to register with the
Commission and authorize the
Commission to impose certain recordkeeping requirements on municipal
advisors.371 In enacting Section 975 of
the Dodd-Frank Act, Congress
established a mandatory registration
regime for municipal advisors but left
the form and content of such
registration within the discretion of the
Commission.372 In determining the form
and content of such registration, the
Commission may require ‘‘such
information and documents’’ as it
considers ‘‘necessary or appropriate in
the public interest or for the protection
of investors.’’ 373 Congress also granted
the Commission exemptive authority to
exclude certain persons from the
definition of municipal advisor.374
The Commission is proposing new
rules and forms that, if adopted, would
provide for a permanent registration
regime for municipal advisors. The
proposed rules and forms would
include the submission of Form MA by
municipal advisory firms (including
sole proprietors) seeking registration,
the submission of Form MA–I by natural
person municipal advisors (including
sole proprietors) seeking registration,
the completion of a self-certification as
to the municipal advisors’ qualifications
and ability to comply with applicable
regulatory obligations, and the
submission of Form MA–W by
municipal advisors seeking to withdraw
from registration. The Commission is
also proposing rule 15Ba1–5, which
would require certain non-resident
371 See
15 U.S.C. 78o–4.
15 U.S.C. 78o–4(a)(2).
373 See id.
374 See 15 U.S.C. 78o–4(a)(4).
372 See
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Sfmt 4702
persons to submit Form MA–NR in
certain circumstances, relating to
consent to service of process, and would
require non-resident municipal advisory
firms to provide an opinion of counsel
that the non-resident municipal
advisory firms can provide the
Commission with access to their books
and records and submit to onsite
inspection and examination by the
Commission. In addition, proposed rule
15Ba1–7 would require certain books
and records to be maintained by
municipal advisory firms in connection
with their municipal advisory
activities.375
The Commission is sensitive to the
costs and benefits imposed by its rules.
The discussion below focuses on the
costs and benefits of the decisions made
by the Commission to fulfill the
mandates of the Dodd-Frank Act within
its permitted discretion, rather than the
costs and benefits of the mandates of the
Dodd-Frank Act itself. However, to the
extent that the Commission’s discretion
is exercised to realize the benefits
intended by the Dodd-Frank Act or to
impose the costs associated with the
Dodd-Frank Act, the two types of
benefits and costs are not entirely
separable. Accordingly, the PRA hourly
burden estimates made in accordance
with the requirements of the PRA, and
their corresponding dollar cost
estimates, are included in full below,
although a portion of the cost to register
is attributable to the requirements of the
Dodd-Frank Act and not to the specific
rules proposed by the Commission.
Section 3(f) of the Exchange Act
requires the Commission, whenever it
engages in rulemaking and is required to
consider or determine whether an action
is necessary or appropriate in the public
interest, to consider, in addition to the
protection of investors, whether the
action would promote efficiency,
competition and capital formation.376 In
addition, Section 23(a)(2) of the
Exchange Act requires the Commission,
when making rules under the Exchange
Act, to consider the impact such rules
would have on competition.377
Exchange Act Section 23(a)(2) prohibits
the Commission from adopting any rule
that would impose a burden on
competition not necessary or
appropriate in furtherance of the
purposes of the Exchange Act.378 The
Commission’s consideration of these
matters is set forth below. In
375 See supra Section II.C (discussing the books
and records requirements under proposed rule
15Ba1–7).
376 See 15 U.S.C. 78c(f).
377 See 15 U.S.C. 78w(a)(2).
378 See id.
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considering these matters, the
Commission is mindful of the industry
background described above in Sections
I.A.1.a and I.A.1.b. The Commission
requests comment on those Sections
I.A.1.a and I.A.1.b in connection with
comments requested below.
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A. Proposed Rule 15Ba1–1: Definition of
‘‘Municipal Advisor’’ and Related Terms
Proposed rule 15Ba1–1(d) would
clarify that the exclusion from the
definition of ‘‘municipal advisor’’ for a
broker, dealer or municipal securities
dealer serving as an underwriter shall
not apply when such persons are acting
in a capacity other than as underwriters
on behalf of a municipal entity or
obligated person.379 The proposed rule
also would clarify that the exclusion
from the definition of ‘‘municipal
advisor’’ for a Commission-registered
investment adviser and its associated
persons applies only to advice that
‘‘would subject such adviser or person
associated with such adviser to the
Investment Advisers Act of 1940.’’ 380
The proposed rule also would interpret
the exclusion from the definition of
‘‘municipal advisor’’ for any registered
commodity trading advisors and their
associated persons to apply only to such
persons when they are providing advice
related to swaps on behalf of a
municipal entity or obligated person.381
In addition, the proposed rule provides
that the definition of ‘‘municipal
advisor’’ shall not include attorneys
offering legal advice or providing
services that are of a traditional legal
nature,382 or engineers providing
engineering advice.383
As discussed above, the Commission
is proposing to exclude from the
definition of ‘‘municipal advisor’’
accountants preparing financial
statements, auditing financial
statements, or issuing letters for
underwriters for, or on behalf of, a
municipal entity or obligated person.384
The Commission is also proposing to
exclude ‘‘providers of municipal bond
insurance, letters of credit, or other
liquidity facilities’’ from the definition
of ‘‘obligated persons.’’ 385 Excluding
such persons from the definition of
379 See proposed rule 15Ba1–1(d)(2)(i). See also
supra notes 105–106, and accompanying text.
380 See proposed rule 15Ba1–1(d)(2)(ii). See also
supra notes 114–117, and accompanying text.
381 See proposed rule 15Ba1–1(d)(2)(iii). See also
supra notes 121–122, and accompanying text.
382 See proposed rule 15Ba1–1(d)(2)(iv). See also
supra note 132, and accompanying text.
383 See proposed rule 15Ba1–1(d)(2)(v). See also
supra note 133–138, and accompanying text.
384 See proposed rule 15Ba1–1(d)(2)(vi). See also
supra note 124–131, and accompanying text.
385 See proposed rule 15Ba1–1(i). See also supra
note 90, and accompanying text.
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‘‘obligated persons’’ would, among other
things, help reduce market confusion
because the exclusion would further
uniformity among rules relating to the
definition of ‘‘obligated person’’ in the
municipal securities market.386
These proposed interpretations and
exclusions would mean that certain
persons who are currently regulated
(such as broker-dealers serving as
underwriters or investment advisers
providing advice which would subject
them to the Investment Advisers Act) or
that are governed by other professional
codes of conduct (such as attorneys
providing traditional legal services)
would not be required to register as
municipal advisors.
The Dodd-Frank Act includes distinct
groups of professionals within its
definition of ‘‘municipal advisor’’ that
offer different services and compete in
distinct markets. The three principal
types of municipal advisors are:
(1) Financial advisors, including, but
not limited to, broker-dealers already
registered with the Commission, that
provide advice to municipal entities
with respect to their issuance of
municipal securities and their use of
municipal financial products (‘‘financial
advisors’’ or ‘‘municipal financial
advisors’’); (2) investment advisers that
advise municipal pension funds and
other municipal entities on the
investment of funds held by or on behalf
of municipal entities (subject to certain
exclusions from the definition of a
‘‘municipal advisor’’) (‘‘municipal
investment advisers’’); and (3) thirdparty marketers and solicitors
(‘‘solicitors’’). As discussed above in
Sections I.A.1.a and I.A.1.b, these
different types of municipal advisors
operate in different markets. These
markets have distinct competitive
structures. Within each of these
markets, different participants are
subject to different regulatory regimes.
For purposes of this Economic Analysis,
the Commission uses the above-defined
terms to describe these distinct types of
professionals separately, while using the
term ‘‘municipal advisors’’ to describe
all municipal advisors generally.
The Commission believes that the
proposed interpretations and
exemptions contained in proposed rule
15Ba1–1(d) would not impose a burden
on competition and would have
minimal, if any, impact on the
promotion of efficiency and capital
formation except to the extent that they
reduce market confusion with respect to
which persons would be required to
register as municipal advisors under the
proposed permanent registration regime.
386 See
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873
Finally, the Commission believes that
the direct costs for respondents to read
and apply the definitions in proposed
rule 15Ba1–1(d) would be minimal.
B. Registration System
The Commission is proposing rules to
create a permanent registration regime
that would consist of the following
forms: Form MA, Form MA–I, and Form
MA–W. Municipal advisors would
complete these forms to register with
the Commission, to amend information
previously reported to the Commission,
to report the succession of registration
of a municipal advisor, and to withdraw
from registration. Under proposed rule
15Ba1–4, amendments to Form MA
must be filed annually and in the event
of certain material changes to the
information previously provided, and to
Form MA–I whenever the information
previously provided becomes
inaccurate. Municipal advisors would
also be required to provide, on both an
initial and annual basis, a selfcertification as to their qualifications as
municipal advisors and ability to
comply with applicable regulatory
obligations.
1. Benefits
The proposed permanent registration
regime is designed to allow the
Commission and other regulators to
oversee the conduct of municipal
financial advisors, municipal
investment advisers, and solicitors in
the municipal securities market, as
contemplated by the Dodd-Frank Act.
Forms MA and MA–I have been
designed to provide information that the
Commission believes would be helpful
for municipal entities to have in a
standard format, because it would lower
the costs of information gathering for
municipal entities 387 in comparing
municipal advisors. The Commission
believes that a municipal advisor’s
knowledge of the Commission’s
authority to examine the municipal
advisor and its authority to sanction the
municipal advisor for false and
misleading statements is likely to result
in increased reliability of the
information submitted by municipal
advisors under the proposed permanent
registration regime.
The proposed forms would require
municipal advisors to provide
information about their disciplinary
histories and potential conflicts of
interest (and information that may be
useful in assessing potential conflicts of
387 For the purposes of this Economic Analysis,
references to municipal entities include obligated
persons where the context requires.
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interest).388 Municipal entities and
obligated persons would have ready
access to this information and thus
would be in a position to become more
fully informed about more municipal
financial advisor candidates at lower
cost when choosing those who would
provide advice to them. Research has
shown that most municipal entities do
not utilize a formalized selection
process when they choose their
municipal financial advisors 389 and,
therefore, might not have disciplinary
information about the advisors they
hire. To the extent that municipal
entities or obligated persons consider
such information important in the
selection of municipal advisors, the
proposed permanent registration regime
may reduce municipal entities’ or
obligated persons’ reliance on
municipal advisors that have been the
subject of disciplinary actions, or whose
activities or affiliations create or have
the potential to create conflicts of
interest. In addition, municipal
advisors, knowing that conflicts of
interest must be disclosed, may be more
likely to avoid associations that could
be perceived as creating conflicts of
interest, or would more likely avoid
recommending financial intermediaries
or investments for which conflicts of
interest might be present.
While much of this information is
already publicly available with respect
to municipal financial advisors that are
already registered with the Commission
as broker-dealers, disclosure of potential
conflicts of interest specific to their
municipal financial advisory role could
be valuable to potential municipal
clients. Many municipal financial
advisors that are not registered as
broker-dealers would make this sort of
information publicly available for the
first time.
Similar benefits would be expected to
accrue from the public disclosure of the
disciplinary history and potential
conflicts of interest of municipal
investment advisers not registered with
the Commission. Congress determined
that investment advisers to municipal
entities that are already registered with
the Commission as investment advisers
would not be required to register again
as municipal advisors, to the extent the
advice provided would subject the
investment adviser to the Investment
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388 See
supra Sections II.A.2.c and II.A.2.d.
to Mark D. Robbins and Bill
Simonsen, 2003, Financial Advisor Independence
and the Choice of Municipal Bond Sale Type,
Municipal Finance Journal 24: 42 (‘‘Robbins and
Simonsen’’), an RFP had been used only 22.6% of
the time by governments in selecting the financial
advisor for their last bond sale. See also Allen &
Dudney, supra note 11.
389 According
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Advisers Act. Many, if not most, of the
investment advisers that would be
required to register as municipal
advisors may be registered as
investment advisers under state laws,
and any incremental benefit in requiring
disciplinary and conflict disclosure
would vary from state to state,
depending on how that disciplinary and
conflict disclosure is required by or
applied to different state legal regimes.
Nevertheless, the availability of
important information in a uniform,
standardized format may prove
beneficial by reducing the cost of
collecting information and comparing it
across municipal investment
advisers.390
Solicitors are a group of municipal
advisors about whom relatively little is
known, and the benefits of registering
this group may prove to be substantial,
to the extent that disciplinary records
and conflicts of interest are revealed.391
Public disclosure of the disciplinary
history of municipal advisors, and their
associated persons, would make this
information available not only to
regulators, but also to all interested
persons.392 This disclosure would
benefit municipal entities and the
general public. Even if the municipal
entity does not otherwise seek to obtain
this disciplinary information as part of
its selection process, the information
would be available to interested persons
(e.g., the press and concerned citizens)
who might directly or indirectly
influence the selection of the municipal
advisor.
In addition, such public disclosure
may deter municipal advisors that have
disclosable disciplinary events from
entering the market. Thus, this proposed
requirement (as well as the ability to
regulate municipal advisors going
forward) could help discourage entities
with disclosable disciplinary histories
from entering the pool of potential
municipal advisors and reduce the
390 Unless registered with the Commission as
municipal advisors, state-registered investment
advisers that advise municipal entities would not
be subject to ‘‘pay-to-play’’ rules, as contemplated in
the Commission’s recent releases. See Political
Contributions Final Rule, supra note 31 and IA–
3110, supra note 104 (proposing rules
implementing amendments to the Investment
Advisers Act, and, among other things, modifying
the Commission’s ‘‘pay-to-play’’ rule).
391 The Commission’s recent proposed
amendments to the ‘‘pay-to-play’’ rules for
investment advisers contemplate that, if adopted,
certain solicitors for municipal investment advisers
would be registered as municipal advisors and
potentially subject to ‘‘pay-to-play’’ rules. See IA–
3110, supra note 104, at 69–70. Other solicitors for
municipal investment advisers may voluntarily
register as municipal advisors in order to continue
in the business of soliciting on behalf of municipal
investment advisers. See supra Section II.A.2.a.
392 See supra Sections II.A.2.c and II.A.2.d.
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potential for corruption in the
municipal market.
To the extent that municipal entities
or obligated persons have been deterred
from engaging a municipal advisor
because they were not familiar with the
municipal advisor population and were
unsure whether they could identify a
trustworthy advisor (including fear of
hiring someone tainted with conflicts or
violations too expensive to uncover), the
proposed permanent registration regime
might increase the use of municipal
advisors generally. As such, there could
be an increased likelihood of using a
municipal advisor when a municipal
entity or obligated person makes
issuance or investment decisions.
With respect to the issuance of
municipal securities, this increased
likelihood of using a municipal
financial advisor could in turn reduce
issuance costs and may produce
savings. One empirical study suggests
that the use of municipal financial
advisors is associated with better
borrowing terms, lower reoffering yields
and narrower underwriter gross
spreads,393 particularly where the
advisors are of a higher quality.394 The
small average size of publicly offered
municipal issues, as compared, for
example, to publicly offered corporate
issues,395 makes municipal securities
issuers particularly sensitive to issuance
costs. This sensitivity may create a
demand for advisors that can
successfully negotiate to lower these
costs. Municipal financial advisors that
provide advice with respect to the
issuance of municipal securities and are
continually active in the municipal
securities market may help to reduce the
information asymmetry gap between
municipal entities and underwriters,
swap dealers, bond insurers, letter of
credit providers and other financial
intermediaries.396 Thus, municipal
issuers and obligated persons should
benefit from having municipal financial
advisors compete in a more
informationally efficient market that
may result from the proposed
permanent registration regime. In
addition, reducing the cost of
identifying a high-quality municipal
financial advisor may be expected to
393 See generally Vijayakumar and Daniels, supra
note 7.
394 See generally Allen & Dudney, supra note 11.
395 See Testimony of Christopher M. Ryon,
Principal and Senior Municipal Bond Portfolio
Manager, the Vanguard Group, before the Senate
Committee on Banking, Housing, and Urban Affairs,
June 17, 2004, at 4, available at https://
banking.senate.gov/public/
index.cfm?FuseAction=Files.View&FileStore_id
=2474c4c6-d0ed-4a44-a9c8–6376484a4cde.
396 See generally Vijayakumar and Daniels, supra
note 7.
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increase the use of such advisors, who
may be in a position to obtain better
financing terms for their municipal
entity clients and, indirectly, for
taxpayers, than those that could be
negotiated by lesser-quality municipal
financial advisors. Higher-quality
municipal financial advisors have been
shown to be associated with more
efficient capital formation (i.e., lower
interest costs).397
With the readily available information
on municipal advisor disciplinary
histories and conflicts of interest,
municipal entities would be able to
more easily set objective criteria for the
municipal advisors hired by decisionmaking officials. The ease of setting
such criteria and verifying compliance
with such criteria might reduce the
likelihood that municipal advisors are
hired because of their political or
personal connections to decisionmaking officials, rather than because of
their qualifications.
The collection of this information
pursuant to the proposed permanent
registration regime, and the fact that, if
adopted, the information would be
available directly to regulators, would
also facilitate enforcement against
municipal advisors by allowing the
available information to be used for
identifying trends and risky firms and
natural persons, among other uses. If
such information were requested
directly from applicants as
contemplated in the proposed
permanent registration regime,
regulators would not have to rely on
other sources to obtain this disciplinary
history information.
The combined effect of increasing the
likelihood of using municipal advisors
and improving the average quality of the
municipal advisor selection pool (as
described above) may improve
allocative efficiency, since municipal
entities may benefit from better advice
in their consideration of issuance or
investment alternatives. Such
improvements in allocative efficiency
may also promote more efficient capital
formation. In addition, the improvement
in disclosure about, and average quality
of, municipal advisors, and the more
frequent use of municipal advisors by
municipal entities or obligated persons,
may also increase competition among
municipal advisors of all types—
municipal financial advisors, municipal
investment advisers, and solicitors. As
noted above, however, the benefits in
the case of municipal investment
advisers would be limited, to the extent
that the same or similar information is
397 See generally Allen & Dudney, supra note 11,
at 412.
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publicly available under an applicable
state law regime.
2. Costs
The establishment of a permanent
registration regime would impose costs
on persons registering as municipal
advisors on Form MA and/or Form
MA–I. In particular, the Commission
anticipates the following one-time costs
for the proposed rules:
• The Commission believes that the
total initial labor cost for all municipal
advisory firms to complete Form MA
would be approximately $1,105,000,398
while the total initial labor cost for all
natural person municipal advisors to
complete Form MA–I would be
approximately $11,118,000.399
• If adopted, municipal advisors
would incur one-time costs in
familiarizing themselves with the
proposed rules and the relevant
proposed forms. The Commission notes,
however, that such a familiarization
period is an inevitable necessity for any
newly-introduced registration regime.
As noted in the PRA section above, the
paperwork burden of gathering
information for the purpose of
completing Forms MA and MA–I would
be reduced because some of the
information required by Form MA and
Form MA–I would have already been
gathered for Form MA–T. For municipal
advisors that are either municipal
financial advisors or municipal
investment advisers, to the extent that
the disclosures that would be required
on Form MA or Form MA–I have been
disclosed on Form ADV, BD or U4, the
employees would be permitted to
398 6,500 hours (total estimated hourly burden
under the proposed rules for all municipal advisors
to complete a Form MA) × $170 (combined hourly
rate for a Compliance Manager and Compliance
Clerk) = $1,105,000. The Commission expects that
Form MA completion would most likely be
performed equally by compliance managers and
compliance clerks. Dividing the hourly rate evenly
between a compliance manager of $273 per hour
and a compliance clerk of $67 per hour results in
a cost per hour of $170. ($273 × 0.5) + ($67 × 0.5)
= $177. The $273 per hour figure for a Compliance
Manager and the $67 per hour figure for a
Compliance Clerk are from the SIFMA publication
titled Management & Professional Earnings in the
Securities Industry 2010, as modified by
Commission staff to account for an 1,800 hour work
year and multiplied by 5.35 to account for bonuses,
firm size, employee benefits and overhead.
399 65,400 hours (total estimated hourly burden
under the proposed rules for all municipal advisors
to complete a Form MA–I) × $170 (combined hourly
rate for a Compliance Manager and Compliance
Clerk) = $11,118,000. See id. The Commission
recognizes that instead of using a Compliance
Manager or Compliance Clerk, most Form MA–I
registrants would fill out the form themselves. The
Commission believes, however, that the average
compliance rate used to calculate the labor cost for
Form MA would be a reasonable proxy for the
compliance rate used to calculate the labor cost for
Form MA–I.
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875
incorporate such information by
reference in completing Form MA or
Form MA–I, further reducing the costs
to complete the form. The one-time
costs for familiarizing themselves with
the proposed rules and the relevant
proposed forms would likely be higher
for municipal financial advisors or
solicitors that are not broker-dealers or
investment advisers, because they may
need to gather information required by
Form MA and Form MA–I for the first
time. For the purposes of this analysis,
this one-time cost is included in the cost
estimates noted above.
• If adopted, municipal advisors
might incur one-time costs in
establishing new internal controls such
as procedures for obtaining the
information required by Form MA and
Form MA–I, as applicable. The
Commission believes that these costs
would be limited for municipal advisors
that are financial advisors or investment
advisers and are currently regulated
with respect to their other activities or
have voluntarily adopted such practices.
These costs would be higher for
municipal financial advisors or
solicitors that are not broker-dealers or
investment advisers, are not otherwise
regulated, or have not voluntarily
adopted such practices.400 For the
purposes of this analysis, this one-time
cost is included in the cost estimates
noted above.
The Commission also anticipates the
following recurring costs for compliance
with the proposed permanent
registration regime, which would likely
be similar across all municipal advisor
types—municipal financial advisors,
municipal investment advisers, and
solicitors:
• The Commission believes that the
ongoing annual labor cost for new
municipal advisory firms to complete
Form MA would be approximately
$110,500,401 while the ongoing annual
labor cost for new natural person
municipal advisors to complete Form
MA–I would be approximately
$918,000.402
400 Some unregulated groups that engage in
municipal advisory activities have formed
professional associations that have implemented
their own voluntary best practices with respect to
conflicts of interest, educational standards, and
other disclosure of note to their clients. See, e.g.,
National Association of Independent Public
Finance Advisors, https://www.naipfa.com.
401 650 hours (total estimated hourly burden
under the proposed rules for new municipal
advisors to complete a Form MA) × $170 (combined
hourly rate for a Compliance Manager and
Compliance Clerk) = $110,500. See supra note 398
for the calculation of the combined hourly rate.
402 5,400 hours (total estimated hourly burden
under the proposed rules for new municipal
advisors to complete a Form MA–I) × $170
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• The Commission believes that the
ongoing annual labor cost for all
municipal advisory firms to amend
Form MA and complete the annual selfcertification would be approximately
$510,000,403 while the ongoing annual
labor cost for all natural person
municipal advisors to amend Form MA–
I and complete the annual selfcertification would be approximately
$3,519,000.404
• The Commission believes that the
ongoing annual labor cost for all
municipal advisory firms to complete
Form MA–W to withdraw from Form
MA registration would be
approximately $5,100,405 while the
ongoing annual labor cost for all natural
person municipal advisors to complete
Form MA–W to withdraw from Form
MA–I registration would be
approximately $229,500.406
• If adopted, municipal advisors
would incur recurring costs for
monitoring and/or maintaining the
information required by the registration
forms and providing updates to the
registration forms. For the purposes of
this analysis, this recurring cost is
included in the cost estimates noted
above.
In addition to the direct, out-of-pocket
costs estimated for PRA purposes, the
Commission considered the economic
costs of the proposed permanent
registration regime. The Commission
recognizes that the cost of becoming
subject to registration for the first time
may lead some municipal advisors that
are not particularly active to leave the
business, to the extent they presume
that the additional costs associated with
registration would negatively impact
potential revenues to such a degree that
(combined hourly rate for a Compliance Manager
and Compliance Clerk) = $918,000. See supra note
399 for the calculation of the combined hourly rate.
403 3,000 hours (total estimated hourly burden
under the proposed rules for all municipal advisors
to amend a Form MA and complete annual selfcertification) × $170 (combined hourly rate for a
Compliance Manager and Compliance Clerk) =
$510,000. See supra note 398 for the calculation of
the combined hourly rate.
404 20,700 hours (total estimated hourly burden
under the proposed rules for all municipal advisors
to amend a Form MA–I and complete annual selfcertification) × $170 (combined hourly rate for a
Compliance Manager and Compliance Clerk) =
$3,519,000. See supra note 399 for the calculation
of the combined hourly rate.
405 30 hours (total estimated hourly burden under
the proposed rules for all municipal advisors to
withdraw from Form MA registration) × $170
(combined hourly rate for a Compliance Manager
and Compliance Clerk) = $5,100. See supra note
398 for the calculation of the combined hourly rate.
406 1,350 hours (total estimated hourly burden
under the proposed rules for all municipal advisors
to withdraw from Form MA–I registration) × $170
(combined hourly rate for a Compliance Manager
and Compliance Clerk) = $229,500. See supra note
399 for the calculation of the combined hourly rate.
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the best economic choice for them
would be to suspend operating their
business or, at least, the municipal
advisory portion of their business.
Moreover, if the proposed permanent
registration regime is adopted,
municipal entities may also incur costs
from decisions based on the incorrect
perception that registration as a
municipal advisor is a stamp of quality.
Furthermore, as noted above, the
additional costs associated with
registration may impact those municipal
advisors that are not already registered
as either investment advisers or brokerdealers to a greater degree than they
would impact municipal advisors that
have previously registered under
another regulatory regime. To the extent
that municipal advisors that have not
previously registered under another
regime provide greater positive value to
their advisees,407 their disproportionate
exit from the market, compared to
municipal advisors that have previously
registered under another regulatory
regime, would negatively impact the
value of advice provided to municipal
entities. In the case of solicitors for
investment advisers to municipal
pension funds, however, few are
currently registered as either brokerdealers or investment advisers. The
registration requirement under the
proposed permanent registration regime
may cause some of these solicitors to
exit the market to avoid the cost and
scrutiny that would accompany
registration. To the extent that the
solicitors that would exit this market
would disproportionately include those
that provide less value to municipal
entities, their exit from the market
would be a benefit that may mitigate
these costs.
Because the existing markets for all
three municipal advisor types—
municipal financial advisors, municipal
investment advisers, and solicitors—
appear to be competitive, exits from
such markets are not expected to lead to
market concentration levels at which
economic inefficiency (monopoly
profits for the few surviving municipal
advisors) would result. Moreover, given
the content of the proposed forms, those
municipal advisors that may exit such
markets may include disproportionately
more municipal advisors with
disciplinary records or other negative
histories.
The Commission further recognizes
that some state-registered investment
advisers that manage municipal pension
407 See, e.g., Robbins and Simonsen, supra note
389, at 55 (finding that financial advisors that are
not broker-dealers are more likely to recommend a
competitive sale, which generally results in lower
borrowing costs for the issuer).
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investments may have the incentive to
exit these investments to avoid Federal
registration under the proposed
permanent registration regime. These
investment advisers may perceive the
costs of the required Federal
registration, in addition to one or more
state registrations, to outweigh the
benefits of managing such municipal
pension investments.
The Commission believes that few of
these initial and recurring costs, if any,
would be passed on to municipal
entities or obligated persons in the form
of higher fees. To the extent that costs
are passed on, the financial advisor and
solicitor markets may be impacted to a
greater degree than the investment
adviser market, which would be more
likely to keep fees relatively fixed for
investment adviser services.
The Commission has considered the
effects on competition, efficiency and
capital formation of the proposed rule
regarding the proposed permanent
registration regime as a whole, as noted
above.
C. Non-Resident Municipal Advisors
The Commission is proposing rule
15Ba1–5 to set forth the general
procedures for serving non-residents on
Form MA and Form MA–NR. Pursuant
to the instructions to Form MA–NR, and
consistent with proposed rule 15Ba1–5,
non-resident municipal advisory firms,
non-resident general partners and nonresident managing agents of municipal
advisors must file Form MA–NR to
furnish the Commission with a written
irrevocable consent and power of
attorney to appoint an agent in the
United States, other than a Commission
member, official, or employee, upon
whom may be served any process,
pleadings, or other papers in any action
brought against the non-resident
municipal advisory firm, non-resident
general partner or non-resident
managing agent. Proposed rule 15Ba1–
5(e) would also require each nonresident municipal advisory firm to
provide an opinion of counsel that the
non-resident municipal advisory firm
can, as a matter of law, provide the
Commission with prompt access to its
books and records and can, as a matter
of law, submit to onsite and inspection
and examination by the Commission.
1. Benefits
The proposed requirement that a nonresident municipal advisor or a nonresident general partner or non-resident
managing agent of a municipal advisor
file Form MA–NR in connection with
the municipal advisor’s initial
application would help minimize any
legal or logistical obstacles that the
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Commission may encounter when
attempting to effect service, to conserve
Commission resources, and to avoid
potential conflicts of law. The proposed
requirement that a non-resident
municipal advisory firm must obtain an
opinion of counsel that the municipal
advisory firm can provide access to
books and records and can be subject to
onsite inspection and examination
would allow the Commission to better
evaluate a municipal advisory firm’s
ability to meet the requirements of
registration and ongoing supervision.
These benefits would be the same across
all municipal advisor types—municipal
financial advisors, municipal
investment advisers, and solicitors. In
addition, the requirements to file Form
MA–NR and provide an opinion of
counsel are expected to have minimal,
if any, effect on competition, efficiency
and capital formation.
2. Costs
The filing of proposed Form MA–NR
and the obtaining of an opinion of
counsel would impose compliance
burdens on municipal advisors. In
particular, the Commission anticipates
the following one-time costs:
• The Commission believes that the
initial labor cost for non-resident
municipal advisory firms, non-resident
general partners or non-resident
managing agents to complete the Form
MA–NR would be approximately
$5,100.408
• The Commission believes that the
initial labor cost for non-resident
municipal advisory firms to obtain an
opinion of counsel that the municipal
advisor can provide access to books and
records and can be subject to onsite
inspection and examination would be
approximately $3,200.409
• If adopted, non-resident municipal
advisory firms and non-resident general
partners and non-resident managing
agents of municipal advisors may incur
one-time costs in establishing new
internal controls such as procedures for
obtaining the information required by
Form MA–NR. For the purposes of this
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408 30
hours (estimated initial hourly burden
under the proposed rules for all respondents to
complete a Form MA–NR) × $170 (combined hourly
rate for a Compliance Manager and Compliance
Clerk) = $5,100. See supra note 398 for the
calculation of the combined hourly rate.
409 9 hours (estimated initial hourly burden under
the proposed rules for all respondents to obtain
opinion of counsel) × $354 (hourly rate for an
internal attorney) = $3,186. The $354 per hour
figure for an Attorney is from the SIFMA
publication titled Management & Professional
Earnings in the Securities Industry 2010, as
modified by Commission staff to account for an
1,800 hour work year and multiplied by 5.35 to
account for bonuses, firm size, employee benefits
and overhead.
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analysis, this one-time cost is included
in the cost estimate noted above.
The Commission also anticipates the
following recurring costs:
• The Commission believes that the
ongoing annual labor cost for nonresident advisory firms, non-resident
general partners or non-resident
managing agents to complete the Form
MA–NR would be approximately
$340.410
• The Commission believes that the
ongoing annual labor cost for nonresident municipal advisory firms to
obtain opinion of counsel that the
municipal advisory firm can provide
prompt access to books and records and
can be subject to onsite inspection and
examination would be approximately
$1,100.411
• If adopted, non-resident municipal
advisory firms or non-resident general
partners and non-resident managing
agents of municipal advisors would
incur recurring costs for monitoring and
maintaining the information required by
Form MA–NR. This cost would likely be
similar across all municipal advisor
types—municipal financial advisors,
municipal investment advisers, and
solicitors. For the purposes of this
analysis, this recurring cost is included
in the cost estimate noted above.
D. Record-Keeping
Proposed rule 15Ba1–7 sets forth
requirements relating to the
maintenance and retention of certain
records relating to the business of
municipal advisors and the forms
required for the proposed permanent
registration regime. The proposed rule
would require, among other things, that
municipal advisory firms maintain and
preserve all books and records required
to be made under the proposed rule for
a period of not less than five years, the
first two years in an easily accessible
place.412 Record-keeping requirements
are a familiar and important element of
the Commission’s approach to
investment adviser and broker-dealer
regulation, and are designed to maintain
410 2 hours (estimated ongoing annual hourly
burden under the proposed rules for respondents to
complete a Form MA–NR) × $170 (combined hourly
rate for a Compliance Manager and Compliance
Clerk) = $340. See supra note 398 for the
calculation of the combined hourly rate.
411 3 hours (estimated ongoing annual hourly
burden under the proposed rules for all respondents
to obtain opinion of counsel) × $354 (hourly rate for
an internal attorney) = $1,062. The $354 per hour
figure for an Attorney is from the SIFMA
publication titled Management & Professional
Earnings in the Securities Industry 2010, as
modified by Commission staff to account for an
1,800 hour work year and multiplied by 5.35 to
account for bonuses, firm size, employee benefits
and overhead.
412 See supra Section II.C.
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877
the efficiency and effectiveness of the
Commission’s inspection program for
regulated entities, which facilitates the
Commission’s review for their
compliance with statutory mandates
and with the Commission’s rules.
1. Benefits
The proposed rule would assist the
Commission in evaluating a municipal
advisory firm’s compliance with Section
15B of the Exchange Act 413 and rules
and regulations promulgated
thereunder. Regulators would benefit
from standardized record-keeping
practices for municipal advisory firms
because they would be able to perform
more efficient, targeted inspections and
examinations, and have an increased
likelihood of identifying improper
conduct at earlier stages in the
inspection or examination. In addition,
municipal advisory firms should benefit
from standardized record-keeping
practices by having their operations
interrupted for shorter time periods in
response to inspections or examinations
than if their record-keeping practices
were not standardized. Both regulators
and municipal advisory firms should
benefit from standardized recordkeeping requirements to the extent that
uniform records would identify for
regulators and municipal advisory firms
the records that municipal advisory
firms should have on hand.
The record-keeping practices
proposed in rule 15Ba1–7 would also
help regulators perform their
supervisory functions in an effective
manner. To the extent that more
effective supervision results in greater
market integrity, municipal entities may
make better use of municipal advisory
firms in a way that should positively
affect their capital formation activities.
2. Costs
The books and records requirements
of proposed rule 15Ba1–7 would impose
compliance burdens on municipal
advisory firms. In particular, the
Commission anticipates the following
one-time costs:
• If adopted, municipal advisory
firms may incur one-time costs in
establishing the new internal controls
and systems necessary to comply with
the record-keeping requirements of the
proposed rule. The Commission
believes that for municipal advisory
firms that are municipal financial
advisors or municipal investment
advisers and are currently regulated
with respect to their other activities,
these costs would be limited because
the proposed rule allows some records
413 See
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to be maintained in compliance with
those other rules.414 The Commission
believes that these costs would also be
limited for municipal advisory firms
that have voluntarily adopted similar
record-keeping practices. Commission
staff anticipates that these costs may be
higher for solicitors and for municipal
advisory firms that are not otherwise
regulated or have not voluntarily
adopted similar record-keeping
practices.
The Commission also anticipates the
following recurring costs:
• The Commission believes that the
ongoing annual labor cost for all
municipal advisory firms to comply
with the proposed requirement would
be approximately $9,050,000.415
• If adopted, municipal advisory
firms would also incur recurring costs
related to the maintenance of books and
records and the storage of such books
and records, as required by the
proposed rule. For the purposes of this
analysis, these recurring costs are
included in the cost estimate noted
above.
• If adopted, municipal advisory
firms would also need to provide
applicable training to ensure
compliance with the proposed recordkeeping requirements. For the purposes
of this analysis, this recurring cost is
included in the cost estimate noted
above.
The Commission does not believe that
currently-operating municipal advisory
firms would be subject to significant
additional record-keeping costs as a
result of the proposed rule because such
municipal advisory firms already
maintain books and records as part of
their day-to-day operations. The
proposed rule, however, provides
specific parameters relating to the
retention and maintenance of certain
books and records and the proposed
requirements may be more extensive
than current market practices.
Moreover, the Commission recognizes
that these costs may impact those
municipal advisory firms that are not
already registered as either investment
advisers or broker-dealers to a greater
degree than they would impact
municipal advisory firms that have
414 See
supra Section II.C.
hours (total estimated hourly burden
under the proposed rules for all municipal advisory
firms to annually comply with the books and
records requirement) × $50 (hourly rate for a
General Clerk) = $9,050,000. The $50 per hour
figure for a General Clerk is from the SIFMA
publication titled Management & Professional
Earnings in the Securities Industry 2010, as
modified by Commission staff to account for an
1,800 hour work year and multiplied by 5.35 to
account for bonuses, firm size, employee benefits
and overhead.
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previously registered under another
regulatory regime. Based on discussions
with industry participants, however,
Commission staff believes that some
unregistered municipal advisory firms
may already keep business records
similar to those required by the
Commission’s proposal. The proposed
record-keeping requirements would
reinforce improvements in disclosure
about, and the average quality of,
municipal advisors.
The Commission has considered the
effects on competition, efficiency and
capital formation of the proposed rule
regarding initial and ongoing recordkeeping in the context of the proposed
permanent registration regime as a
whole, as noted above.
E. Request for Comment on Economic
Analysis
The Commission seeks estimates of
the costs and benefits identified in this
Economic Analysis section, as well as
any costs and benefits not already
discussed, which may result from the
adoption of the proposed rules and
forms. In connection with the comments
requested below, the Commission
requests comment on its understanding
of the municipal advisor markets
reflected in Sections I.A.1.a and I.A.1.b
above. The Commission also requests
comment on the potential costs and
benefits of alternatives suggested by
commenters. The Commission
specifically requests comments with
respect to the following:
• Would the availability of
disciplinary information and conflict of
interest information, along with the
other information required by Form MA
and Form MA–I, assist municipal
entities or obligated persons in making
hiring decisions with respect to
municipal advisors?
The Commission solicits comments
on the costs associated with the
registration-related rules and new forms.
The Commission specifically requests
comment on the following:
• Would additional benefits accrue if
the Commission required different or
additional information on the proposed
forms and, if so, what would these
requirements entail?
• Are there additional costs or
benefits related to registration that the
Commission should consider? In
particular, are there any outside costs
associated with Form MA–NR that the
Commission has not identified and
should consider?
The Commission solicits comments
on the costs and benefits related to the
proposed record-keeping requirements.
The Commission specifically requests
comment on the following:
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• Would additional benefits accrue if
the Commission imposed different or
additional record-keeping requirements
and, if so, what would these
requirements entail?
• The Commission specifically
requests comments on the initial and
ongoing costs associated with
establishing and maintaining the recordkeeping systems and related policies
and procedures, including whether
municipal advisory firms that are
otherwise currently regulated would
incur different record-keeping costs.
• Are there additional costs or
benefits related to record-keeping that
the Commission should consider? If so,
please explain.
The Commission generally requests
comment on the competitive or
anticompetitive effects, as well as
efficiency and capital formation effects,
of the proposed rules and forms on any
market participants if the proposals are
adopted as proposed. Commenters
should provide analysis and empirical
data to support their views on the costs
and benefits associated with the
proposed rules and forms.
VI. Consideration of Impact on the
Economy
For purposes of the Small Business
Regulatory Enforcement Fairness Act of
1996, or ‘‘SBREFA,’’ 416 the Commission
must advise OMB as to whether the
proposed regulation constitutes a
‘‘major’’ rule. Under SBREFA, a rule is
considered ‘‘major’’ where, if adopted, it
results or is likely to result in: (1) An
annual effect on the economy of $100
million or more (either in the form of an
increase or a decrease); (2) a major
increase in costs or prices for consumers
or individual industries; or (3)
significant adverse effect on
competition, investment or innovation.
If a rule is ‘‘major,’’ its effectiveness will
generally be delayed for 60 days
pending Congressional review.
The Commission requests comment
on the potential impact of the proposed
rules and forms on the economy on an
annual basis, on the costs or prices for
consumers or individual industries, and
on competition, investment or
innovation. Commenters are requested
to provide empirical data and other
factual support for their view to the
extent possible.
VII. Initial Regulatory Flexibility
Analysis
The Commission has prepared this
Initial Regulatory Flexibility Analysis
416 Public Law 104–121, Title II, 110 Stat. 857
(1996) (codified in various sections of 5 U.S.C., 15
U.S.C. and as a note to 5 U.S.C. 601).
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(IRFA) in accordance with Section
603(a) of the Regulatory Flexibility Act
(RFA).417 This IRFA relates to proposed
rules 240.15Ba1–1 through 240.15Ba1–7
under the Exchange Act, which sets
forth the requirements for municipal
advisors to register with the
Commission and the books and records
that registered municipal advisory firms
must make and keep.
Section 15B, as amended by the
Dodd-Frank Act, generally is intended
to strengthen oversight of the municipal
securities markets and broaden current
municipal securities market protections
to cover, among other things, previously
unregulated market participants. The
proposed rules and forms are designed
to meet this mandate by requiring each
municipal advisor, whether a firm or a
natural person, to provide basic
identifying information about itself, a
description of its activities, and facts
regarding its disciplinary history, if any.
A. Reasons and Objectives for the
Proposed Rules
Sections I and II of this Release
describe the reasons for and objectives
of the proposed rules and forms. Many
market professionals are involved in
issuing municipal securities and
advising municipal entities and
obligated persons with respect to
municipal financial products.
Historically, however, municipal
advisors have been largely unregulated.
Consistent with the requirements of the
Dodd-Frank Act, the Commission is
proposing new rules and forms that, if
adopted, would establish a permanent
registration regime for municipal
advisors. The Commission believes that
the information disclosed pursuant to
the proposed rules and forms would
provide significant value to the
Commission in its oversight of
municipal advisors and their activities
in the municipal securities markets. The
information provided pursuant to these
proposed rules and forms would also
aid municipal entities, obligated
persons, and others in choosing
municipal advisors, engaging in
transactions with municipal advisors, or
participating in transactions in
municipal securities issued in offerings
in which a municipal advisor provided
municipal advisory services.
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B. Legal Basis
5 U.S.C. 603(a).
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C. Small Entities Subject to the
Proposed Rules
Under section 601(3) of the RFA, the
term ‘‘small business’’ is defined as
having ‘‘the same meaning as the term
‘small business concern’ under section 3
of the Small Business Act, unless an
agency, after consultation with the
Office of Advocacy of the Small
Business Administration and after
opportunity for public comment,
establishes one or more definitions of
such term which are appropriate to the
activities of the agency and publishes
such definition(s) in the Federal
Register.’’ 418 The Commission’s rules
do not define ‘‘small business’’ or ‘‘small
organization’’ for purposes of municipal
advisors. The SBA defines small
business, for purposes of entities that
provide financial investments and
related activities, as a business that had
annual receipts of less than $7 million
during the preceding fiscal year and is
not affiliated with any person that is not
a small business or small
organization.419 Therefore, the
Commission is using the SBA’s
definition of small businesses to define
municipal advisors that are small
entities for purposes of the RFA.
In developing the proposed rules and
forms, the Commission has considered
their potential impact on the small
entities that would be subject to the
proposed rules and would be required
to complete the proposed forms. All
municipal advisors must register with
the Commission, including small
entities, and would be subject to the
proposed rules.
Based on the number of municipal
advisors who have already registered
with the Commission by completing
Form MA–T, the Commission estimates
that approximately 1,000 municipal
advisory firms, including sole
proprietors, would be required to
complete Form MA.420 In connection
with the promulgation of rule 15Ba2–
6T, industry sources were unable to
provide an estimate, based on the
definitions discussed above, of how
many of these municipal advisory firms
would be small businesses or small
organizations.421 However, for purposes
418 5
Pursuant to the Exchange Act, and
particularly Sections 15B, 17, and 36 (15
U.S.C. 78o–4, 78q, and 78mm,
respectively), the Commission is
proposing to adopt §§ 240.15Ba1–1
417 See
through 240.15Ba1–7, Form MA, Form
MA–I, Form MA–W, and Form MA–NR.
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U.S.C. 601(3).
13 CFR 121.201.
420 See supra Section IV.C.
421 Proposed Form MA, Item 10, would ask
municipal advisors to indicate whether they meet
the definition of ‘‘small business’’ or ‘‘small
organization.’’ As a result, if adopted, in the future
the Commission would have information on which
to base estimates of the number of small municipal
advisors subject to its rules.
419 See
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879
of this IRFA, the Commission believes
that the proportion of small municipal
advisory firms subject to the proposed
rules compared to all Form MA
applicants subject to the proposed rules
may be similar to the proportion of
small registered broker-dealers
compared to all registered brokerdealers. The Commission has previously
estimated that approximately 17% of all
broker-dealers are ‘‘small’’ for the
purposes of the RFA.422 Thus, the
Commission estimates that
approximately 170 municipal advisory
firms that would be required to register
with the Commission by filing Form MA
would be small entities subject to the
proposed rules.423
The Commission estimates that
approximately 21,800 natural persons
must complete Form MA–I.424 Of these
Form MA–I applicants, only those that
are sole proprietors and meet the annual
receipts threshold would be considered
small entities subject to the proposed
rules.425 Because all sole proprietors
would be required to complete Form
MA in addition to Form MA–I, the
Commission believes that sole
proprietors that would be small entities
subject to the proposed rules, i.e., that
are under the ‘‘small entities’’ annual
receipts thresholds, are already counted
among the estimate of 170 small entities
calculated above. Thus, for the purposes
of this IRFA, the Commission does not
believe that it would be necessary to
further estimate the number of small
entities among Form MA–I applicants,
because such an estimate would result
in the double-counting of respondents.
The Commission estimates that a total of
170 municipal advisors would be small
entities subject to the proposed rules.
The Commission requests comment
on its estimate of how many municipal
advisors would be small entities for
purposes of the IRFA. Specifically, the
Commission seeks comment on whether
there are alternative ways to estimate
the number of municipal advisors that
are small entities. Is the proportion of
422 See Securities Exchange Act Release No.
61908 (April 14, 2010), 75 FR 21456, 21483 (April
23, 2010). The Commission received no comments
on its estimate of the percentage of all brokerdealers that are considered ‘‘small’’ for RFA
purposes.
423 1,000 (estimated number of municipal
advisors subject to the Rule) × .17 (estimated
percentage of municipal advisors that are small
entities) = 170 small entity municipal advisors.
424 See supra Section IV.C.
425 Individuals who are not sole proprietors, i.e.,
employees of municipal advisors, and must register
on Form MA–I would not fall within the definitions
of ‘‘small business’’ or ‘‘small organization,’’ because
only those businesses and organizations that are
‘‘independently owned’’ may qualify as small
entities pursuant to the definitions contained in the
RFA. See 5 U.S.C. 601(4) and 15 U.S.C. 632(a)(1).
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small registered municipal advisors to
all registered municipal advisors for
purposes of the IRFA similar to the
proportion of small registered brokerdealers to all registered broker-dealers?
Municipal advisors would also incur
costs when they need to withdraw their
registration. The Commission estimates
that the cost per registrant to complete
Form MA–W would be approximately
$85.430 In addition, non-resident
D. Reporting, Record-keeping, and Other
municipal advisors and non-resident
Compliance Requirements
general partners and managing agents of
The proposed rules and forms would
municipal advisors would incur costs to
impose certain reporting and recordfile Form MA–NR. The Commission
keeping requirements on small
estimates that the cost per filer to
municipal advisors. For example, under complete Form MA–NR would be
the proposed rules, municipal advisors
approximately $255.431 Non-resident
would be required to complete the
municipal advisory firms would also
information disclosure requirements on incur costs to obtain an opinion of
Forms MA and MA–I, as applicable.
counsel. The Commission estimates that
Moreover, municipal advisory firms
the cost per non-resident municipal
would be required to maintain books
advisory firm to obtain an opinion of
and records relating to their municipal
counsel, including the cost to hire
advisory activities in which they
outside counsel, would be
engage.
approximately $1,960.432
As discussed above, under the
The Commission also believes that
proposed rules, municipal advisors are
some municipal advisory firms would
required by statute to register with the
incur costs associated with hiring
Commission. The Commission is
outside counsel to determine the need
proposing a permanent registration
to file and to comply with the
regime for municipal advisors that
requirements of the proposed rules and
would require completion of Form MA
forms. The Commission estimates that
and/or Form MA–I, as applicable.
the total cost per municipal advisory
The Commission estimates that the
firm to hire outside counsel would be
initial cost per applicant to complete
approximately $400.433
Form MA and the initial selfBased on discussions with various
certification would be approximately
industry participants and the
$1,110,426 and the initial reporting cost
Commission’s prior experience with
per applicant to complete Form MA–I
broker-dealers and investment advisers,
and the initial self-certification would
the Commission estimates that the
be approximately $510.427 The
average cost per municipal advisory
Commission also estimates that the
firm to comply with the proposed
ongoing annual cost per applicant to
requirement to maintain annual books
amend Form MA and complete selfand records would be approximately
certification would be approximately
$9,050.434 The Commission requests
$510,428 and the ongoing annual cost
comment on these estimates.
per applicant to amend Form MA–I and
amendments per year) × $170 (combined hourly
complete self-certification would be
rate for a Compliance Manager and Compliance
approximately $160.429
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426 6.5
hours (total estimated hourly burden under
the proposed rules for one municipal advisor to
complete a Form MA and complete initial selfcertification) × $170 (combined hourly rate for a
Compliance Manager and Compliance Clerk) =
$1,110. See supra note 398 for the calculation of the
combined hourly rate.
427 3.0 hours (total estimated hourly burden under
the proposed rules for one municipal advisor to
complete a Form MA–I and complete initial selfcertification) × $170 (combined hourly rate for a
Compliance Manager and Compliance Clerk) =
$510. See supra note 399 for the calculation of the
combined hourly rate.
428 2.5 hours (estimated time to prepare one
annual amendment and complete annual selfcertification for Form MA) × 1.0 (number of annual
amendments per year) × $170 (combined hourly
rate for a Compliance Manager and Compliance
Clerk) + 0.5 hours (estimated time to prepare one
interim updating amendment per year for Form
MA) × 1.0 (average number of interim updating
amendments per year) × $170 (combined hourly
rate for a Compliance Manager and Compliance
Clerk) = $510. See supra note 398 for the
calculation of the combined hourly rate.
429 0.5 hours (estimated time to complete
amended Form MA–I) × 1.7 (average number of
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Clerk) = $145; 0.1 hours (estimated time to
complete annual self-certification on Form MA–I) ×
$170 (combined hourly rate for a Compliance
Manager and Compliance Clerk) = $17; $145 + $17
= $162. See supra note 399 for the calculation of
the combined hourly rate.
430 0.5 hours (estimated time to complete Form
MA–W) × $170 (combined hourly rate for a
Compliance Manager and Compliance Clerk) = $85.
See supra note 398 for the calculation of the
combined hourly rate.
431 1.5 hours (estimated time to complete Form
MA–NR) × $170 (combined hourly rate for a
Compliance Manager and Compliance Clerk) =
$255. See supra note 398 for the calculation of the
combined hourly rate.
432 3.0 hours (estimated time to obtain opinion of
counsel) × $354 (hourly rate for an internal
attorney) = $1,062. See supra note 411 regarding the
hourly rate. $900 = estimated cost to hire outside
counsel. See supra note 344 for an explanation of
the outside counsel cost estimate. $1,062 + $900 =
$1,962.
433 1 hour (estimated time spent by outside
counsel to help municipal advisor comply with
rule) × $400 (hourly rate for an attorney) = $400.
See supra note 357 for the calculation of the hourly
rate.
434 181 hours (estimated time spent by municipal
advisors to ensure annual compliance with the
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The Commission believes that these
compliance burdens would not
disproportionately affect small entities.
The Commission notes that the
proposed rules and forms strike the
appropriate balance between
minimizing the burden on small
municipal advisors and allowing the
Commission to meet its mandate under
Section 15B of the Exchange Act to
establish a permanent registration
regime for municipal advisors.
Moreover, the Commission believes that
completing and submitting Forms MA
and MA–I electronically should not be
unduly burdensome or costly for
municipal advisors, including small
municipal advisors.
E. Duplicative, Overlapping, or
Conflicting Federal Rules
As discussed in Section I.B, a
temporary registration procedure was
developed as a transitional step toward
the implementation of a permanent
registration regime for municipal
advisors. Rule 15Ba2–6T provides that,
unless rescinded, a municipal advisor’s
temporary registration by means of
Form MA–T will expire on the earlier of
(1) the date that the municipal advisor’s
registration is approved or disapproved
by the Commission pursuant to a final
rule rescinded by the Commission or (2)
December 31, 2011.435
The Commission is proposing rules
and forms to establish a permanent
municipal advisors registration regime.
Under the permanent registration
regime, all municipal advisors,
including those who had previously
registered on Form MA–T, would be
required to register anew on Form MA
and/or on Form MA–I. Thus, the
Commission believes that current rules
do not generally duplicate, overlap, or
conflict with the proposed rules.
The Commission recognizes, however,
that some of the information that
respondents would collect for purposes
of the proposed record-keeping rules
and the relevant proposed registration
forms would overlap with information
previously collected for other
registration regimes or record-keeping
rules. As acknowledged above, the
Commission recognizes that persons
who have registered on Form MA–T
under the temporary registration regime
or that have completed a Form BD, ADV
or U4, could require less time to
research and complete the proposed
permanent registration forms to the
extent information contained in those
books and records requirement) × $50 (hourly rate
for a General Clerk) = $9,050. See supra note 415
for the calculation of the hourly rate.
435 See 17 CFR 240.15Ba2–6T(e).
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other forms can be incorporated by
reference or used to assist in completing
information on Forms MA or MA–I.
Persons who are Commission-registered
investment advisers or broker-dealers
may also require less time to comply
with the proposed rule 15Ba1–7 books
and records requirements, to the extent
that the proposed books and records
requirements overlap with those
required to be kept and maintained in
accordance with investment adviser
and/or broker-dealer books and records
requirements.
F. Significant Alternatives
Pursuant to Section 3(a) of the
RFA,436 the Commission must consider
certain types of alternatives, including:
(1) The establishment of differing
compliance or recording requirements
or timetables that take into account the
resources available to small entities;
(2) the clarification, consolidation, or
simplification of compliance and
reporting requirements under the
proposed rules for small entities; (3) the
use of performance rather than design
standards; and (4) an exemption from
coverage of the proposed rules, or any
part of the proposed rules, for small
entities.
The Commission believes that the
proposed rules and forms strike the
appropriate balance between
minimizing the burden on small
municipal advisors and allowing the
Commission to meet its mandate under
Section 15B of the Exchange Act to
establish a registration regime for
municipal advisors. The Commission
does not believe that establishing
different compliance or reporting
standards is necessary because the
information requested in Forms MA and
MA–I would be accessible to municipal
advisors regardless of whether the
municipal advisor is a small entity.
Moreover, the Commission believes that
completing and submitting Forms MA
and MA–I electronically should not be
unduly burdensome or costly for
municipal advisors, including small
municipal advisors. In developing the
proposed rules and forms, the
Commission considered requiring
additional information from municipal
advisors and using different submission
mechanisms. The Commission decided
that the information in the proposed
forms and the submission requirements
would be simple, straightforward, and
take into account the resources available
to all municipal advisors, including
small municipal advisors. The
Commission believes that it is
inconsistent with the goals of a uniform
436 5
U.S.C. 603(c).
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registration system to use performance
standards rather than design standards.
Further, the Commission believes that it
would be inconsistent with the
purposes of the Exchange Act to exempt
small entities from compliance with the
proposed rules.
G. General Request for Comment
The Commission is soliciting
comments regarding its analysis. The
Commission requests comment on the
number of small entities that would be
subject to the proposed rules and forms
and whether the proposed rules and
forms would have any effects that have
not been discussed. The Commission
requests that commenters describe the
nature of any effects on small entities
subject to the rule and provide
empirical data to support the nature and
extent of such effects. The Commission
also requests comment on the
compliance burdens and how they
would affect small entities. Does the
proposed permanent registration regime
create an undue burden on small
entities? Are there any additional
compliance burdens that would affect
small entities in particular, compared to
larger entities?
1350; and 12 U.S.C. 5221(e)(3), unless
otherwise noted.
*
*
*
*
*
Sections 240.15Ba1–1 through 240.15Ba1–
7 are also issued under Pub. L. 111–203,
§ 975, 124 Stat. 1376, 1915–1923 (2010).
*
*
*
*
*
2. Section 240.15Ba1–1 through
240.15Ba1–7 are added to read as
follows:
Sec.
*
*
*
*
*
240.15Ba1–1 Definitions.
240.15Ba1–2 Application for municipal
advisor registration.
240.15Ba1–3 Withdrawal from municipal
advisor registration.
240.15Ba1–4 Amendments to application
for registration and self-certification.
240.15Ba1–5 Consent to service of process
to be furnished by non-resident
municipal advisors, general partners and
managing agents; legal opinion to be
furnished by non-resident municipal
advisors.
240.15Ba1–6 Registration of successor to
municipal advisor.
240.15Ba1–7 Books and records to be
maintained by municipal advisor.
§ 240.15Ba1–1
Definitions.
As used in the rules and regulations
prescribed by the Commission pursuant
to Section 15B of the Securities
VIII. Statutory Basis and Text of
Exchange Act of 1934 (15 U.S.C. 78o–4):
Proposed Amendments
(a) Guaranteed investment contract
Pursuant to the Exchange Act, and
has the same meaning as in Section
particularly Sections 15B, 17, and 36 (15 15B(e)(2) of the Securities Exchange Act
U.S.C. 78o–4, 78q, and 78mm,
of 1934 (15 U.S.C. 78o–4(e)(2)).
respectively), the Commission is
(b) The term investment strategies, as
proposing to adopt §§ 240.15Ba1–1
defined in Section 15B(e)(3) of the
through 240.15Ba1–7, Form MA, Form
Securities Exchange Act of 1934 (15
MA–I, Form MA–W, and Form MA–NR. U.S.C. 78o–4(e)(3)), includes plans,
List of Subjects in 17 CFR Parts 240 and programs or pools of assets that invest
funds held by or on behalf of a
249
municipal entity.
Municipal advisors, Registration
(c) Managing agent means any person,
requirements, Reporting and recordincluding a trustee, who directs or
keeping requirements.
manages, or who participates in
directing or managing, the affairs of any
Text of Proposed Rules and Forms
unincorporated organization or
For the reasons set out above, Title 17, association other than a partnership.
Chapter II of the Code of Federal
(d)(1) Municipal Advisor has the same
Regulations, is proposed to be amended meaning as in Section 15B(e)(4) of the
as follows:
Securities Exchange Act of 1934 (15
U.S.C. 78o–4(e)(4)).
PART 240—GENERAL RULES AND
(2) The term Municipal Advisor shall
REGULATIONS, SECURITIES
not include:
EXCHANGE ACT OF 1934
(i) A broker, dealer, or municipal
securities dealer serving as an
1. The general authority citation for
underwriter (as that term is defined in
part 240 is amended by adding the
following citation in numerical order to Section 2(a)(11) of the Securities Act of
1933 (15 U.S.C. 77b(a)(11))) on behalf of
read as follows:
a municipal entity or obligated person,
Authority: 15 U.S.C. 77c, 77d, 77g, 77j,
unless the broker, dealer or municipal
77s, 77z–2, 77z–3, 77eee, 77ggg, 77nnn,
securities dealer engages in municipal
77sss, 77ttt, 78c, 78d, 78e, 78f, 78g, 78i, 78j,
advisory activities while acting in a
78j–1, 78k, 78k–1, 78l, 78m, 78n, 78o, 78o–
capacity other than as an underwriter on
4, 78p, 78q, 78s, 78u–5, 78w, 78x, 78ll,
78mm, 80a–20, 80a–23, 80a–29, 80a–37, 80b– behalf of a municipal entity or obligated
person.
3, 80b–4, 80b–11, and 7201 et seq.; 18 U.S.C.
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(ii) An investment adviser registered
under the Investment Advisers Act of
1940 (15 U.S.C. 80b–1 et seq.) or a
person associated with such registered
investment adviser, unless the
registered investment adviser or person
associated with the investment adviser
engages in municipal advisory activities
other than providing investment advice
that would subject such adviser or
person associated with such adviser to
the Investment Advisers Act of 1940.
(iii) Any commodity trading advisor
registered under the Commodity
Exchange Act or persons associated
with a commodity trading advisor,
unless the registered commodity trading
advisor or persons associated with the
registered commodity trading advisor
engages in municipal advisory activities
other than advice related to swaps (as
defined in Section 1a(47) of the
Commodity Exchange Act (7 U.S.C.
1a(47)) and Section 3(a)(69) of the
Securities Exchange Act of 1934 (15
U.S.C. 78c(a)(69)), including any rules
and regulations thereunder).
(iv) Any attorney, unless the attorney
engages in municipal advisory activities
other than the offer of legal advice or the
provision of services that are of a
traditional legal nature to a client of the
attorney that is a municipal entity or
obligated person.
(v) Any engineer, unless the engineer
engages in municipal advisory activities
other than providing engineering
advice.
(vi) Any accountant, unless the
accountant engages in municipal
advisory activities other than preparing
financial statements, auditing financial
statements, or issuing letters for
underwriters for, or on behalf of, a
municipal entity or obligated person.
(e) Municipal advisory activities
means providing advice to or on behalf
of a municipal entity (as defined in
Section 15B(e)(8) of the Securities
Exchange Act of 1934 (15 U.S.C. 78o–
4(e)(8)) or obligated person (as defined
in Section 15B(e)(10) of the Securities
Exchange Act of 1934 (15 U.S.C. 78o–
4(e)(10))) with respect to municipal
financial products or the issuance of
municipal securities, including advice
with respect to the structure, timing,
terms, and other similar matters
concerning such financial products or
issues; or solicitation of a municipal
entity or obligated person.
(f) Municipal derivatives means any
swap (as defined in Section 1a(47) of the
Commodity Exchange Act (7 U.S.C.
1a(47)) and Section 3(a)(69) of the
Securities Exchange Act of 1934 (15
U.S.C. 78c(a)(69)), including any rules
and regulations thereunder) or securitybased swap (as defined in Section
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3(a)(68) of the Securities Exchange Act
of 1934 (15 U.S.C. 78c(a)(68)), including
any rules and regulations thereunder) to
which a municipal entity is a
counterparty, or to which an obligated
person, acting in its capacity as an
obligated person, is a counterparty.
(g) Municipal financial product has
the same meaning as in Section
15B(e)(5) of the Securities Exchange Act
of 1934 (15 U.S.C. 78o–4(e)(5)).
(h) Non-resident means:
(1) In the case of an individual, one
who resides in or has his principal
office and place of business in any place
not in the United States;
(2) In the case of a corporation, one
incorporated in or having its principal
office and place of business in any place
not in the United States; and
(3) In the case of a partnership or
other unincorporated organization or
association, one having its principal
office and place of business in any place
not in the United States.
(i) The term obligated person, as
defined in Section 15B(e)(10) of the
Securities Exchange Act of 1934 (15
U.S.C. 78o–4(e)(10)), shall not include
providers of municipal bond insurance,
letters of credit, or other liquidity
facilities.
(j) Principal office and place of
business means the executive office of
the municipal advisor from which the
officers, partners, or managers of the
municipal advisor direct, control, and
coordinate the activities of the
municipal advisor.
§ 240.15Ba1–2 Application for municipal
advisor registration.
(a) Form MA. A person, other than a
natural person, including a sole
proprietor, applying for registration
with the Commission as a municipal
advisor pursuant to Section 15B of the
Securities Exchange Act of 1934 (15
U.S.C. 78o–4) must complete Form MA
(17 CFR 249.1300) in accordance with
the instructions in such Form and file
such Form electronically with the
Commission.
(b) Form MA–I. A natural person
(including a sole proprietor) applying
for registration with the Commission as
a municipal advisor pursuant to Section
15B of the Securities Exchange Act of
1934 (15 U.S.C. 78o–4) must complete
Form MA–I (17 CFR 249.1310) in
accordance with the instructions in the
Form and file such Form electronically
with the Commission.
(c) When filed. Each Form MA (17
CFR 249.1300) and Form MA–I (17 CFR
249.1310) shall be considered filed with
the Commission upon acceptance by the
[applicable electronic system]. Filings
required to be made on a day that the
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[applicable electronic system] is closed
shall be considered timely filed with the
Commission if filed electronically no
later than the following business day.
(d) Form MA and Form MA–I are
reports. Each Form MA (17 CFR
249.1300) and Form MA–I (17 CFR
249.1310) required to be filed under this
section shall constitute a ‘‘report’’ within
the meaning of Sections 15B(c), 17(a),
18(a), 32(a) of the Securities Exchange
Act of 1934 (15 U.S.C. 78o–4(c), 78q(a),
78r(a), 78ff(a)) and other applicable
provisions of the Exchange Act.
§ 240.15Ba1–3 Withdrawal from municipal
advisor registration.
(a) Form MA–W. Notice of withdrawal
from registration as a municipal advisor
shall be filed on Form MA–W (17 CFR
249.1320) in accordance with the
instructions to the Form.
(b) Electronic filing. Any notice of
withdrawal on Form MA–W (17 CFR
249.1320) must be filed electronically.
(c) Effective date. A notice of
withdrawal from registration shall
become effective for all matters on the
60th day after the filing thereof, within
such longer period of time as to which
such municipal advisor consents or
which the Commission by order may
determine as necessary or appropriate in
the public interest or for the protection
of investors, or within such shorter
period of time as the Commission may
determine. If a notice of withdrawal
from registration is filed at any time
subsequent to the date of the issuance
of a Commission order instituting
proceedings pursuant to Section 15B(c)
of the Securities Exchange Act of 1934
(15 U.S.C. 78o–4(c)) to censure, place
limitations on the activities, functions
or operations of, or suspend or revoke
the registration of, such municipal
advisor, or if prior to the effective date
of the notice of withdrawal pursuant to
this paragraph (c), the Commission
institutes such a proceeding or a
proceeding to impose terms or
conditions upon such withdrawal, the
notice of withdrawal shall not become
effective pursuant to this paragraph (c)
except at such time and upon such
terms and conditions as the Commission
deems necessary or appropriate in the
public interest or for the protection of
investors.
(d) Form MA–W is a report. Each
Form MA–W (17 CFR 249.1320)
required to be filed under this section
shall constitute a ‘‘report’’ within the
meaning of Sections 15B(c), 17(a), 18(a),
32(a) of the Securities Exchange Act of
1934 (15 U.S.C. 78o–4(c), 78q(a), 78r(a),
78ff(a)) and other applicable provisions
of the Exchange Act.
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§ 240.15Ba1–4 Amendments to application
for registration and self-certification.
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(a) When amendment is required—
Form MA. A registered municipal
advisor shall promptly amend the
information contained in its Form MA
(17 CFR 249.1300):
(1) At least annually, within 90 days
of the end of a municipal advisor’s fiscal
year, or of the end of the calendar year
for municipal advisors that are sole
proprietors; and
(2) More frequently, if required by the
General Instructions to Form MA (17
CFR 249.1300), as applicable.
(b) When amendment is required—
Form MA–I. A registered municipal
advisor shall promptly amend the
information contained in its Form
MA–I (17 CFR 249.1310) by filing an
amended Form MA–I whenever the
information contained in the Form MA–
I becomes inaccurate for any reason.
(c) Electronic filing of amendments. A
registered municipal advisor shall file
all amendments to Form MA (17 CFR
249.1300) and Form MA–I (17 CFR
249.1310) electronically.
(d) Amendments to Form MA and
Form MA–I are reports. Each
amendment required to be filed under
this section shall constitute a ‘‘report’’
within the meaning of Sections 15B(c),
17(a), 18(a), 32(a) of the Securities
Exchange Act of 1934 (15 U.S.C. 78o–
4(c), 78q(a), 78r(a), 78ff(a)) and other
applicable provisions of the Exchange
Act.
(e) Self-certification. A registered
municipal advisor shall complete the
self-certification contained in Form MA
(17 CFR 249.1300) or Form MA–I (17
CFR 249.1310), as applicable:
(1) At the time the municipal advisor
initially files its application for
registration as a municipal advisor on
Form MA (17 CFR 249.1300) or Form
MA–I (17 CFR 249.1310), as applicable;
and
(2) In the case of a municipal advisor
registered on Form MA (17 CFR
249.1300), annually, within 90 days of
the end of a municipal advisor’s fiscal
year, or of the end of the calendar year
for municipal advisors that are sole
proprietors; and in the case of a
municipal advisor registered on Form
MA–I (17 CFR 249.1310), annually
within 90 days of the end of the
calendar year.
§ 240.15Ba1–5 Consent to service of
process to be furnished by non-resident
municipal advisors, general partners and
managing agents; legal opinion to be
furnished by non-resident municipal
advisors.
(a) Each non-resident municipal
advisor, and each non-resident general
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partner or managing agent of a
municipal advisor, applying for
registration pursuant to Section 15B(a)
of the Securities Exchange Act of 1934
(15 U.S.C. 78o–4(a)) shall, at the time of
filing of the municipal advisor’s
application on Form MA (17 CFR
249.1300) or MA–I (17 CFR 249.1310),
furnish to the Commission a written
irrevocable consent and power of
attorney on Form MA–NR (17 CFR
249.1330) to appoint an agent in the
United States, other than a Commission
member, official, or employee, upon
whom may be served any process,
pleadings, or other papers in any action
brought against the non-resident
municipal advisor, or non-resident
general partner or non-resident
managing agent of a municipal advisor,
to enforce this Title.
(b) Any change to the name or address
of each non-resident municipal
advisor’s, general partner’s or managing
agent’s agent for service of process shall
be communicated promptly to the
Commission through amendment of the
Form MA–NR (17 CFR 249.1330).
(c) Each non-resident municipal
advisor, general partner and managing
agent must promptly appoint a
successor agent for service of process
and file an amended Form MA–NR (17
CFR 249.1330) if the non-resident
municipal advisor, general partner or
managing agent discharges its identified
agent for service of process or if its agent
for service of process is unwilling or
unable to accept service on behalf of the
non-resident municipal advisor, general
partner or managing agent.
(d) Each non-resident municipal
advisor, other than a natural person,
including non-resident sole proprietors,
applying for registration pursuant to this
section shall provide an opinion of
counsel on Form MA (17 CFR 249.1300)
that the municipal advisor can, as a
matter of law, provide the Commission
with access to the books and records of
such municipal advisor as required by
law and that the municipal advisor can,
as a matter of law, submit to onsite
inspection and examination by the
Commission.
§ 240.15Ba1–6 Registration of successor
to municipal advisor.
(a) In the event that a municipal
advisor succeeds to and continues the
business of a municipal advisor
registered pursuant to Section 15B(a) of
the Securities Exchange Act of 1934 (15
U.S.C. 78o–4(a)), the registration of the
predecessor shall be deemed to remain
effective as the registration of the
successor if the successor, within 30
days after such succession, files an
application for registration on Form MA
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883
(17 CFR 249.1300), and the predecessor
files a notice of withdrawal from
registration on Form MA–W (17 CFR
249.1320); provided, however, that the
registration of the predecessor
municipal advisor will cease to be
effective as the registration of the
successor municipal advisor 45 days
after the application for registration on
Form MA is filed by such successor.
(b) Notwithstanding paragraph (a) of
this section, if a municipal advisor
succeeds to and continues the business
of a registered predecessor municipal
advisor, and the succession is based
solely on a change in the predecessor’s
date or state of incorporation, form of
organization, or composition of a
partnership, the successor may, within
30 days after the succession, amend the
registration of the predecessor
municipal advisor on Form MA (17 CFR
249.1300) to reflect these changes. This
amendment shall be deemed an
application for registration filed by the
predecessor and adopted by the
successor.
§ 240.15Ba1–7 Books and records to be
maintained by municipal advisors.
(a) Every person, other than a natural
person, including sole proprietors,
registered or required to be registered
under Section 15B of the Securities
Exchange Act of 1934 (15 U.S.C. 78o–4)
shall make and keep true, accurate, and
current the following books and records
relating to its municipal advisory
activities:
(1) Originals or copies of all written
communications received, and originals
or copies of all written communications
sent, by such municipal advisor
(including inter-office memoranda and
communications) relating to municipal
advisory activities, regardless of the
format of such communications;
(2) All check books, bank statements,
cancelled checks and cash
reconciliations of the municipal advisor;
(3) A copy of each version of the
municipal advisor’s policies and
procedures, if any, that are in effect or
at any time within the last five years
were in effect;
(4) A copy of any document created
by the municipal advisor that was
material to making a recommendation to
a municipal entity or obligated person
or that memorializes the basis for that
recommendation;
(5) All written agreements (or copies
thereof) entered into by the municipal
advisor with any municipal entity,
employee of a municipal entity, or an
obligated person or otherwise relating to
the business of such municipal advisor
as such;
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(6) A record of the names of persons
who are currently, or within the past
five years were, associated with the
municipal advisor; and
(7) Books and records containing a list
or other record of:
(i) The names, titles, and business and
residence addresses of all persons
associated with the municipal advisor;
(ii) All municipal entities or obligated
persons with which the municipal
advisor is engaging or has engaged in
municipal advisory activities in the past
five years;
(iii) The name and business address of
each person to whom the municipal
advisor provides or agrees to provide,
directly or indirectly, payment to solicit
a municipal entity, an employee of a
municipal entity, or an obligated person
on its behalf; and
(iv) The name and business address of
each person that provides or agrees to
provide, directly or indirectly, payment
to the municipal advisor to solicit a
municipal entity, an employee of a
municipal entity or an obligated person
on its behalf.
(8) A record of the initial or annual
review, as applicable, conducted by the
municipal advisor of such municipal
advisor’s business in connection with
its self-certification on Form MA (17
CFR 249.1300).
(b)(1) All books and records required
to be made under this section shall be
maintained and preserved for a period
of not less than five years, the first two
years in an easily accessible place.
(2) Partnership articles and any
amendments thereto, articles of
incorporation, charters, minute books,
and stock certificate books of the
municipal advisor and of any
predecessor shall be maintained in the
principal office of the municipal advisor
and preserved until at least three years
after termination of the business or
withdrawal from registration as a
municipal advisor.
(c) A municipal advisor subject to
paragraph (a) of this section, before
ceasing to conduct or discontinuing
business as a municipal advisor, shall
arrange for and be responsible for the
preservation of the books and records
required to be maintained and preserved
under this section for the remainder of
the period specified in this section, and
shall notify the Commission in writing,
at its principal office, Washington, DC,
of the exact address where such books
and records will be maintained during
such period.
(d) Electronic storage permitted. (1)
General. The records required to be
maintained and preserved pursuant to
this part may be maintained and
preserved for the required time on:
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(i) Electronic storage media, including
any digital storage medium or system
that meets the terms of this section; or
(ii) Paper documents.
(2) General requirements. The
municipal advisor must:
(i) Arrange and index the records in
a way that permits easy location, access,
and retrieval of any particular record;
(ii) Provide promptly any of the
following that the Commission (by its
examiners or other representatives) may
request:
(A) A legible, true, and complete copy
of the record in the medium and format
in which it is stored;
(B) A legible, true, and complete
printout of the record; and
(C) Means to access, view, and print
the records; and
(iii) Separately store, for the time
required for preservation of the record,
a duplicate copy of the record on any
medium allowed by this section.
(3) Special requirements for electronic
storage media. In the case of records on
electronic storage media, the municipal
advisor must establish and maintain
procedures:
(i) to maintain and preserve the
records, so as to reasonably safeguard
them from loss, alteration, or
destruction;
(ii) to limit access to the records to
properly authorized personnel and the
Commission (including its examiners
and other representatives); and
(iii) to reasonably ensure that any
reproduction of a non-electronic record
on electronic storage media is complete,
true, and legible when retrieved.
(e)(1) Any book or other record made,
kept, maintained, and preserved in
compliance with §§ 240.17a–3 and
240.17a–4 of this chapter, rules of the
Municipal Securities Rulemaking Board,
or § 275.204–2 under the Investment
Advisers Act of 1940 (15 U.S.C. 80b–1),
which is substantially the same as a
book or other record required to be
made, kept, maintained and preserved
under this section, shall satisfy the
requirements of this section.
(2) A record made and kept pursuant
to any provision of paragraph (a) of this
section that contains all the information
required under any other provision of
paragraph (a) of this section, need not be
maintained in duplicate in order to meet
the requirements of the other provisions
of paragraph (a) of this section.
(f)(1) Except as provided in paragraph
(f)(3) of this section, each non-resident
municipal advisor, other than a natural
person, including sole proprietors,
registered or applying for registration
pursuant to Section 15B of the
Securities Exchange Act of 1934 (15
U.S.C. 78o–4) shall keep, maintain, and
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preserve, at a place within the United
States designated in a notice from such
municipal advisor as provided in
paragraph (f)(2) of this section, true,
correct, complete, and current copies of
books and records which such
municipal advisor is required to make,
keep current, maintain or preserve
pursuant to any provisions of any rule
or regulation of the Commission
adopted under the Securities Exchange
Act of 1934.
(2) Except as provided in paragraph
(f)(3) of this section, each non-resident
municipal advisor subject to paragraph
(f)(1) of this section shall furnish to the
Commission a written notice specifying
the address of the place within the
United States where the copies of the
books and records required to be kept
and preserved by such municipal
advisor pursuant to paragraph (f)(1) of
this section are located. Each nonresident municipal advisor registered or
applying for registration when this
paragraph becomes effective shall file
such notice within 30 days after this
paragraph becomes effective. Each nonresident municipal advisor that files an
application for registration after this
paragraph becomes effective shall file
such notice with such application for
registration.
(3) Notwithstanding the provisions of
paragraphs (f)(1) and (2) of this section,
a non-resident municipal advisor need
not keep or preserve within the United
States copies of the books and records
referred to in paragraphs (f)(1) and (2) of
this section, if:
(i) Such non-resident municipal
advisor files with the Commission, at
the time or within the period provided
by paragraph (f)(2) of this section, a
written undertaking, in a form
acceptable to the Commission and
signed by a duly authorized person, to
furnish to the Commission, upon
demand, at the Commission’s principal
office in Washington, DC, or at any
Regional Office of the Commission
designated in such demand, true,
correct, complete, and current copies of
any or all of the books and records
which such municipal advisor is
required to make, keep current,
maintain, or preserve pursuant to any
provision of any rule or regulation of the
Commission adopted under the
Securities Exchange Act of 1934 (15
U.S.C. 78a et seq.), or any part of such
books and records that may be specified
in such demand. Such undertaking shall
be in substantially the following form:
The undersigned hereby undertakes to
furnish at its own expense to the
Securities and Exchange Commission at
the Commission’s principal office in
Washington, DC or at any Regional
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Office of the Commission specified in a
demand for copies of books and records
made by or on behalf of the
Commission, true, correct, complete,
and current copies of any or all, or any
part, of the books and records that the
undersigned is required to make, keep
current, or preserve pursuant to any
provision of any rule or regulation of the
Securities and Exchange Commission
under the Securities Exchange Act of
1934. This undertaking shall be
suspended during any period when the
undersigned is making, keeping current,
and preserving copies of all of said
books and records at a place within the
United States in compliance with 17
CFR 240.15Ba1–7(f)(1). This
undertaking shall be binding upon the
undersigned and the heirs, successors
and assigns of the undersigned, and the
written irrevocable consents and powers
of attorney of the undersigned, its
general partners, and managing agents
filed with the Securities and Exchange
Commission shall extend to and cover
any action to enforce the same.
and
(ii) Such non-resident municipal
advisor furnishes to the Commission, at
such municipal advisor’s own expense
14 days after written demand therefor
forwarded to such municipal advisor by
registered mail at such municipal
advisor’s last address of record filed
with the Commission and signed by the
Secretary of the Commission or such
person as the Commission may
authorize to act in its behalf, true,
correct, complete, and current copies of
any or all books and records which such
municipal advisor is required to make,
keep current, or preserve pursuant to
any provision of any rule or regulation
of the Commission adopted under the
Securities and Exchange Act of 1934, or
any part of such books and records that
may be specified in said written
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demand. Such copies shall be furnished
to the Commission at the Commission’s
principal office in Washington, DC, or at
any Regional Office of the Commission
which may be specified in said written
demand.
than natural persons, and by sole
proprietors, and for amendments to
registrations pursuant to Section 15B of
the Securities Exchange Act of 1934 (15
U.S.C. 78o-4).
PART 249—FORMS, SECURITIES
EXCHANGE ACT OF 1934
§ 249.1310 Form MA–I, for registration as a
municipal advisor, and for amendments to
registration.
3. The general authority citation for
part 249 is amended by adding the
following citation in numerical order to
read as follows:
Authority: 15 U.S.C. 78a et seq. and 7201
et seq.; and 18 U.S.C. 1350, unless otherwise
noted.
*
*
*
*
*
Sections 249.1300, 1310, 1320 and 1330
are also issued under Pub. L. 111–203, § 975,
124 Stat. 1376, 1915–1923 (2010).
*
*
*
*
*
4. Subpart N is amended by removing
§ 249.1300T and adding §§ 249.1300,
249.1310, 249.1320, and 249.1330 to
read as follows:
Subpart N—Forms for Registration of
Municipal Advisors
Sec.
249.1300 Form MA, for registration as a
municipal advisor, and for amendments
to registration.
249.1310 Form MA–I, for registration as a
municipal advisor, and for amendments
to registration.
249.1320 Form MA–W, for withdrawal from
registration as a municipal advisor.
249.1330 Form MA–NR, for appointment of
agent for service of process by nonresident municipal advisor, and nonresident general partner and nonresident managing agent of a municipal
advisor.
§ 249.1300 Form MA, for registration as a
municipal advisor, and for amendments to
registration.
The form shall be used for registration
as municipal advisors by persons other
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The form shall be used for registration
as municipal advisors by natural
persons, and for amendments to
registrations, pursuant to Section 15B of
the Securities Exchange Act of 1934 (15
U.S.C. 78o–4).
§ 249.1320 Form MA–W, for withdrawal
from registration as a municipal advisor.
The form shall be used for filing a
notice of withdrawal from registration
as a municipal advisor pursuant to
Section 15B of the Securities Exchange
Act of 1934 (15 U.S.C. 78o–4).
§ 249.1330 Form MA–NR, for appointment
of agent for service of process by nonresident municipal advisor, and nonresident general partner and non-resident
managing agent of a municipal advisor.
The form shall be used for
appointment of agent for service of
process by a non-resident general
partner and non-resident managing
agent of a municipal advisor pursuant to
Section 15B of the Securities Exchange
Act of 1934 (15 U.S.C. 78o–4).
By the Commission.
Dated: December 20, 2010.
Elizabeth M. Murphy,
Secretary.
Note: The following Forms will not
appear in the Code of Federal
Regulations:
BILLING CODE 8011–01–P
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]]>Agencies
[Federal Register Volume 76, Number 4 (Thursday, January 6, 2011)]
[Proposed Rules]
[Pages 824-969]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-32445]
[[Page 823]]
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Part II
Securities and Exchange Commission
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17 CFR Parts 240 and 249
Registration of Municipal Advisors; Proposed Rule
Federal Register / Vol. 76, No. 4 / Thursday, January 6, 2011 /
Proposed Rules
[[Page 824]]
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SECURITIES AND EXCHANGE COMMISSION
17 CFR Parts 240 and 249
[Release No. 34-63576; File No. S7-45-10]
RIN 3235-AK86
Registration of Municipal Advisors
AGENCY: Securities and Exchange Commission.
ACTION: Proposed rule.
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SUMMARY: Section 975 of Title IX of the Dodd-Frank Wall Street Reform
and Consumer Protection Act (``Dodd-Frank Act'') amended Section 15B of
the Securities Exchange Act of 1934 (as amended, the ``Exchange Act'')
to require municipal advisors, as defined below, to register with the
Securities and Exchange Commission (``Commission'' or ``SEC'')
effective October 1, 2010. To enable municipal advisors to temporarily
satisfy this requirement, the Commission adopted an interim final
temporary rule and form, Exchange Act rule 15Ba2-6T and Form MA-T,
effective October 1, 2010. Rule 15Ba2-6T will expire on December 31,
2011.
The Commission is proposing new rules 15Ba1-1 through 15Ba1-7 and
new Forms MA, MA-I, MA-W, and MA-NR under the Exchange Act. These
proposed rules and forms are designed to give effect to provisions of
Title IX of the Dodd-Frank Act that, among other things, would
establish a permanent registration regime with the Commission for
municipal advisors and would impose certain record-keeping requirements
on such advisors.
DATES: Comments should be received on or before February 22, 2011.
ADDRESSES: Comments may be submitted by any of the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/proposed); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number S7-45-10 on the subject line; or
Use the Federal eRulemaking Portal (https://www.regulations.gov). Follow the instructions for submitting comments.
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 S7-45-10. 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/proposed.shtml). Comments will also 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. 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.
FOR FURTHER INFORMATION CONTACT: Martha Haines, Assistant Director and
Chief, Office of Municipal Securities, at (202) 551-5681; Dave Sanchez,
Attorney Fellow, Office of Municipal Securities, at (202) 551-5540;
Victoria Crane, Assistant Director, Office of Market Supervision, at
(202) 551-5744; Ira Brandriss, Special Counsel, Office of Market
Supervision, at (202) 551-5651; Jennifer Dodd, Special Counsel, Office
of Market Supervision, at (202) 551-5653; Steve Kuan, Special Counsel,
Office of Market Supervision, at (202) 551-5624; Daniel Gien, Attorney-
Adviser, Office of Market Supervision, at (202) 551-5747; Yue Ding, Law
Clerk, Office of Market Supervision, at (202) 551-5842; or any of the
above at Division of Trading and Markets, Securities and Exchange
Commission, 100 F Street, NE., Washington, DC 20549-6628.
SUPPLEMENTARY INFORMATION: The Commission is proposing rules 15Ba1-1 to
15Ba1-7 [17 CFR 240.15Ba1-1 to 240.15Ba1-7] under the Exchange Act, and
Forms MA, MA-I, MA-W, and MA-NR [17 CFR 249.1300, 1310, 1320, and
1330].
Table of Contents
I. Introduction
A. Background
1. Overview of Municipal Securities Market
a. Municipal Advisors
b. Municipal Entities and Municipal Financial Products
2. Historical Regulation of Municipal Securities and Municipal
Advisors
a. Municipal Securities Market
b. Municipal Advisors
B. Interim Final Temporary Rule 15Ba2-6T and Form MA-T
II. Discussion
A. Proposed Rules for the Permanent Registration of Municipal
Advisors
1. Proposed Rule 15Ba1-1: Definition of ``Municipal Advisor''
and Related Terms
a. Statutory Definition of ``Municipal Advisor''
b. Interpretation of the Term ``Municipal Advisor''; Definition
of Related Terms
c. Exclusions From the Definition of ``Municipal Advisor''
2. Proposed Rule 15Ba1-2
a. Application for Municipal Advisor Registration
b. Instructions and Glossary
c. Information Requested in Form MA
d. Information Requested in Form MA-I
3. Proposed Rule 15Ba1-3
a. Withdrawal From Municipal Advisor Registration
b. Form MA-W
4. Proposed Rule 15Ba1-4: Amendment to Application for
Registration and Self-Certification
5. Proposed Rule 15Ba1-5: General Procedures for Serving Non-
Residents and Form MA-NR
6. Proposed Rule 15Ba1-6: Registration of Successor to Municipal
Advisor
B. Approval or Denial of Registration
C. Proposed Rule 15Ba1-7: Books and Records to be Made and
Maintained by Municipal Advisors
III. General Request for Comment
IV. Paperwork Reduction Act
A. Summary of Collection of Information
B. Proposed Use of Information
C. Respondents
D. Total Initial and Annual Reporting and Record-Keeping Burdens
1. Form MA
2. Form MA-I
3. Amendments to Form MA and Form MA-I
4. Withdrawal From Municipal Advisor Registration
5. Non-Resident Municipal Advisors
6. Outside Counsel
7. Maintenance of Books and Records
8. Total Burden
E. Collections of Information Are Mandatory
F. Request for Comment
V. Economic Analysis
A. Proposed Rule 15Ba1-1: Definition of ``Municipal Advisor''
and Related Terms
B. Registration System
1. Benefits
2. Costs
C. Non-Resident Municipal Advisors
1. Benefits
2. Costs
D. Record keeping
1. Benefits
2. Costs
E. Request for Comment on Economic Analysis
VI. Consideration of Impact on the Economy
VII. Initial Regulatory Flexibility Analysis
A. Reasons and Objectives for the Proposed Rules
B. Legal Basis
C. Small Entities Subject to the Proposed Rules
D. Reporting, Record keeping, and Other Compliance Requirements
E. Duplicative, Overlapping, or Conflicting Federal Rules
F. Significant Alternatives
G. General Request for Comment
VIII. Statutory Basis and Text of Proposed Amendments
[[Page 825]]
I. Introduction
A. Background
On July 21, 2010, President Obama signed into law the Dodd-Frank
Act.\1\ The Dodd-Frank Act was enacted, among other things, to promote
the financial stability of the United States by improving
accountability and transparency in the financial system.\2\ With
Section 975 of Title IX of the Dodd-Frank Act, Congress amended Section
15B of the Exchange Act \3\ to, among other things, make it unlawful
for municipal advisors \4\ to provide certain advice to, or solicit,
municipal entities \5\ or certain other persons without registering
with the Commission.\6\
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\1\ The Dodd-Frank Wall Street Reform and Consumer Protection
Act, Public Law 111-203, 124 Stat. 1376 (2010).
\2\ See Public Law 111-203 Preamble.
\3\ 15 U.S.C. 78o-4. All references in this Release to the
Exchange Act refer to the Exchange Act as amended by the Dodd-Frank
Act.
\4\ See infra Section II.A.1. (discussing the term ``municipal
advisor'').
\5\ See infra note 82, and accompanying text (discussing the
term ``municipal entity'').
\6\ See Section 975(a)(1)(B) of the Dodd-Frank Act; 15 U.S.C.
78o-4(a)(1)(B).
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1. Overview of Municipal Securities Market
a. Municipal Advisors
Until the passage of the Dodd-Frank Act, the activities of
municipal advisors were largely unregulated and municipal advisors were
generally not required to register with the Commission or any other
Federal, State or self-regulatory entity with respect to their
municipal advisory activities. As discussed below in this section, some
entities that are now subject to registration as municipal advisors
pursuant to Section 15B of the Exchange Act, and rules or regulations
promulgated thereunder, currently are subject to regulation by various
Federal and State regulators in other capacities. These entities
include brokers, dealers, municipal securities dealers, investment
advisers, and banks. Such regulations, however, generally do not apply
to their activities as municipal advisors.
Municipal advisors engage in municipal advisory activities in a
variety of contexts. For example, municipal advisors participate in the
majority of issuances of municipal securities.\7\ According to the
Municipal Securities Rulemaking Board (``MSRB'' or ``Board''),
approximately $315 billion (70%) \8\ of the municipal debt issued in
2008 was issued with the participation of municipal advisors commonly
referred to as ``financial advisors.'' \9\ Research also suggests that
participation by municipal advisory firms in the issuance of municipal
securities is rising, with the MSRB noting a 63% participation rate in
2006, a 66% participation rate in 2007, and a 70% participation rate in
2008.\10\ A study that looked at historical involvement by ``financial
advisors'' identified participation rates of approximately 50% in a
nearly twenty-year period ending in 2002.\11\
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\7\ With respect to the issuance of municipal securities,
municipal advisors (which may include entities registered as broker-
dealers acting as municipal advisors) engage in such activities as
assisting municipal entities in developing a financing plan,
assisting in the selection of other parties to the financing such as
bond counsel and underwriters, coordinating the rating process,
ensuring adequate disclosure, and evaluating and negotiating the
financing terms. See JayaramanVijayakumar and Kenneth N. Daniels,
2006, The Role and Impact of Financial Advisors in the Market for
Municipal Bonds (``Vijayakumar and Daniels''), Journal of Financial
Services Research, 30:43, at 46.
\8\ See Municipal Securities Rulemaking Board, ``Unregulated
Municipal Market Participants: A Case for Reform'' (Apr. 2009),
available at https://www.msrb.org/News-and-Events/Press-Releases/
Press-Releases/~/media/Files/Special-Publications/
MSRBReportonUnregulatedMarketParticipants--April09.ashx (``MSRB
Study'').
\9\ See id. (referring to municipal advisors as ``financial
advisors''). Approximately 43% of the $453 billion of municipal debt
issued in 2008 (by par amount of bonds) (or 62% of the $315 billion
of municipal debt issued with financial advisors) was issued with
the assistance of ``financial advisors'' that were not part of
dealer firms regulated by the MSRB. Id.
\10\ See id.
\11\ See Arthur Allen and Donna Dudney, May 2010, Does the
Quality of Financial Advice Affect Prices? The Financial Review 45:
389 (``Allen and Dudney'') (analyzing data from 1984 to 2002).
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Municipal advisors also engage in municipal advisory activities
with respect to municipal financial products.\12\ For example, as
derivatives have developed in the municipal securities market, some
municipal advisory firms developed expertise in that area. These
municipal advisory firms are generally referred to as ``swap
advisors.'' \13\ Swap advisors may provide advice solely with respect
to a municipal derivative transaction or may provide such advice in
connection with other types of municipal advisory activities.
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\12\ See infra note 93 and accompanying text (discussing the
term ``municipal financial products'').
\13\ See MSRB study, supra note 8.
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In addition, municipal advisors may provide advice to municipal
entities concerning investment strategies. These advisory firms assist
in investing proceeds from bond offerings as well as manage other
public monies. Such public monies include, for example, the general
funds of states and local governments, public pension plans and funds
dedicated to other public programs, such as public transportation,
police and fire protection, public health, and public education. In
addition, municipal advisors provide risk management, asset allocation,
financial planning and cash management services and help State and
local governments find and evaluate other advisors that manage public
funds and provide other types of services.\14\ As discussed in more
detail below, unless excluded, these firms generally will have to
register as municipal advisors under Section 15B of the Exchange
Act.\15\ Municipal advisors subject to registration may include Federal
and State registered investment advisers, depending on the activities
in which they are engaged.\16\
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\14\ See Investment Advisers Act Release No. IA-2910 (August 3,
2009), 74 FR 39840, 39840-41 (August 7, 2009) (``Political
Contributions Proposed Rule'').
\15\ See infra Section II.A.1. (discussing the term ``municipal
advisor'').
\16\ See id.
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Depending on their role with respect to investment strategies for
municipal entities, commercial banks subject to regulation by various
Federal and State regulators may also engage in activities that would
subject them to registration as municipal advisors. Such commercial
banks may act as trustees with respect to an issuance of municipal
securities or otherwise provide advice with respect to municipal
financial products. Other persons that are subject to registration as
municipal advisors include those who solicit municipal entities on
behalf of the types of municipal advisors discussed above, as well as
on behalf of brokers, dealers, municipal securities dealers and other
parties.
b. Municipal Entities and Municipal Financial Products
The municipal securities market consists of over 51,000
issuers,\17\ a diverse group that includes states, their political
subdivisions such as cities, towns and counties, and their
instrumentalities such as school districts or port authorities. These
public bodies are governed by State and local laws, including State
constitutions, statutes, city charters, and municipal codes.\18\ Such
constitutions, statutes, charters, and codes impose on municipal
issuers a vast and varied multiplicity of requirements relating to
[[Page 826]]
governance, budgeting, accounting, and other financial matters.\19\ The
governing bodies of municipal issuers are as varied as the types of
issuers, ranging from State governments, cities, towns, and counties
with elected officials to commissions and other special purpose
enterprises having appointed members.\20\ Municipal securities are
issued by government entities to pay for a variety of public projects,
for cash flow and other governmental needs, and to fund non-
governmental private projects by acting as a conduit on behalf of
private organizations that wish to obtain tax-exempt interest
rates.\21\ As of March 31, 2010, municipal issuers had an outstanding
principal amount of securities in excess of $2.8 trillion.\22\ In 2009
alone, 15,055 new issuances of municipal securities took place, with a
value of over $474.5 billion.\23\ As of 2009, the average daily trading
volume for the municipal bond market was $12.5 billion, as compared to
$16.8 billion in the corporate bond market and $407.9 billion in the
Treasury bond market.\24\
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\17\ See Report on Transactions in Municipal Securities, Office
of Economic Analysis and Office of Municipal Securities, the
Division of Trading and Markets, U.S. Securities and Exchange
Commission, (July 1, 2004).
\18\ See American Bar Association, Disclosure Roles of Counsel
in State and Local Government Securities Offerings 1 (Third Edition,
2009) (``Disclosure of Bond Counsel'').
\19\ See id. at 2.
\20\ See id. at 78.
\21\ The Internal Revenue Code delineates the purposes for which
tax-exempt municipal bonds may be issued for the benefit of
organizations other than states and local governments, i.e., conduit
borrowers. See 26 U.S.C. 142-145, 1394.
\22\ See Federal Reserve Board, Flow of Funds Accounts, Flows
and Outstandings, First Quarter 2010.
\23\ See The Bond Buyer Yearbook 14 (SourceMedia Inc.) (2010).
\24\ See SIFMA, Average Daily Trading Volume in the U.S. Bond
Markets, available at https://www.google.com/url?q=https://www.sifma.org/uploadedFiles/Research/Statistics/StatisticsFiles/CM-US-Bond-Market-Trading-Volume-SIFMA.xls&sa=U&ei=5EHsTLvBFoT58AbPqdGjAQ&ved=0CBYQFjAA&usg=AFQjCNHv-FKIpdi_QB8m7jgvg2ssJJ1ikg (last visited November 23, 2010).
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Presently, there is no definitive public information regarding the
size of the municipal securities derivative market. Estimates of the
size of the market have been reported to range from $100 billion to
$300 billion, annually, in notional principal amount.\25\ Estimates of
the number of municipal issuers that have engaged in derivative
transactions also vary. Since interest rate swaps are bilateral
contracts entered into privately, there is no comprehensive data on how
many municipal issuers are active in the $450 trillion interest-rate
swap market, although some anecdotal evidence suggests a relatively
wide use. For instance, a review of Pennsylvania Department of
Community and Economic Development records revealed that 185 school
districts, towns and counties in Pennsylvania have engaged in
derivative transactions since 2003, when the State's law was explicitly
changed to allow for such transactions.\26\ However, other estimates
have pointed to a less widespread use of derivatives among municipal
issuers.\27\ Since 2008, the use of derivatives by municipal entities
has declined and many municipal entities have terminated existing
interest rate swaps.\28\
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\25\ See MSRB Study, supra note 8.
\26\ See Martin Z. Braun, Deutsche Bank Swap Lures County as
Budgets Crumble, Bloomberg (November 26, 2008).
\27\ In a 2007 study, Standard & Poor's identified 750 municipal
issuers that used swaps. See Joe Mysak, California Declares War on
State Bond Short-Sellers, Bloomberg Businessweek (Apr. 27, 2010). In
October 2009, Moody's undertook a review of the state and local
governments that it rates with outstanding swaps and identified 500
of such entities. See id. Moody's also estimated that Pennsylvania
issuers accounted for 22% of all municipal derivative transactions,
suggesting that broad participation by municipal entities in
Pennsylvania did not translate into broad participation by municipal
entities nationwide. See Joe Mysak, Swaps Nightmares Become Real for
Amateur Financiers, Bloomberg (Dec. 15, 2009).
\28\ See, e.g., Michael McDonald, Wall Street Collects $4
Billion From Taxpayers as Swaps Backfire, Bloomberg (Nov. 10, 2010),
available at https://www.bloomberg.com/news/2010-11-10/wall-street-collects-4-billion-from-taxpayers-as-swaps-backfire.html.
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According to recently available United States census data, as of
2008, there were approximately 2,550 state and local government
employee retirement systems.\29\ These ``public pension plans'' had
over $2.2 trillion of assets and represented one-third of all U.S.
pension assets.\30\ Public pension plans might seek advice with respect
to municipal financial products. In addition, third parties might
solicit these public pension plans on behalf of firms seeking to
provide services to these plans.\31\
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\29\ See U.S. Census Bureau, State & Local Government Employee
Retirement Systems, available at https://www.census.gov/govs/retire.
\30\ See Federal Reserve Board, Flow of Funds Accounts, Flows
and Outstanding, First Quarter 2009 (at table L.119).
\31\ See Investment Advisers Act Release No. IA-3043 (July 1,
2010), 75 FR 41018, 41019 (July 14, 2010) (``Political Contributions
Final Rule'').
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College savings plans (``529 Plans'') that comply with Section 529
of the Internal Revenue Code (``IRC'') provide tax advantages designed
to encourage saving for future college costs.\32\ 529 Plans are
sponsored by states, state agencies, or educational institutions. 529
plan assets have increased from $8.6 billion in 2000 to $104.9 billion
in the fourth quarter of 2008, and the number of 529 plan participants
has increased from 1.3 million in 2000 to 11.2 million in the fourth
quarter of 2008.\33\ Like public pension plans, 529 Plans might be
solicited on behalf of third parties seeking to do business with such
plans.\34\ 529 Plans might also seek advice with respect to municipal
financial products and the issuance of municipal securities.\35\
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\32\ See 26 U.S.C. 529.
\33\ See Investment Company Institute, 529 Plan Program
Statistics, December 2008 (May 22, 2009), available at https://www.ici.org/research/stats/529s/529s_12-08.
\34\ See Political Contributions Final Rule, supra note 31, at
41019.
\35\ See MSRB, Interpretation Relating to Sales of Municipal
Fund Securities in the Primary Market, Interpretative Notice of Rule
D-12, dated January 18, 2001, available at https://www.msrb.org/Rules-and-Interpretations/MSRB-Rules/Definitional/Rule-D-12.aspx?tab=2 (citing Letter from Catherine McGuire, Chief Counsel,
Division of Trading and Markets, Commission, to Diane G. Klinke,
General Counsel, MSRB, dated February 26, 1999, in response to
letter from Diane G. Klinke, General Counsel, MSRB, to Catherine
McGuire, Chief Counsel, Division of Trading and Markets, Commission,
dated June 2, 1998).
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In addition to public pension plans and 529 Plans, state and local
government agencies also maintain other pools of assets including their
general funds and other special funds. Governmental entities generally
invest such funds in a combination of individualized investments,
investment agreements or local government investment pools
(``LGIPs'').\36\
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\36\ 45 states have LGIPs with assets totaling more than $250
billion. See Jeff Pentages, Local Government Investment Pools and
the Financial Crisis: Lessons Learned, October 2009, Government
Finance Review 25. States have several trillion dollars in state
funds, including general funds, public pension plans, and 529 plans.
See e.g.,The National Association of State Treasurers, Reforming
Corporate Governance, State Government News (June/July 2003),
available at https://www.csg.org/knowledgecenter/docs/sgn0307ReformingCorporate.pdf.
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2. Historical Regulation of Municipal Securities and Municipal Advisors
a. Municipal Securities Market
The Securities Act of 1933 (``Securities Act'') \37\ and the
Exchange Act \38\ were both enacted with broad exemptions for municipal
securities from all of their provisions except for the antifraud
provisions of Section 17(a) of the Securities Act and Section 10(b) of
the Exchange Act.\39\ In the early 1970s, the municipal securities
market was still relatively small.\40\ Up until that time, the standard
issue was usually a general obligation bond, with fairly
[[Page 827]]
standard features, and the typical participants were banks,
underwriters, and bond counsel.\41\
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\37\ 15 U.S.C. 77a et seq.
\38\ 15 U.S.C. 78a et seq.
\39\ See, e.g., Securities Act Section 3(a)(2) (15 U.S.C.
77c(a)(2)); Securities Act Section 12(a)(2) (15 U.S.C. 77l(a)(2));
Exchange Act Section 3(a)(12) (15 U.S.C. 78c(a)(12)); Exchange Act
Section 3(a)(29) (15 U.S.C. 78c(a)(29)).
\40\ There were $235.4 billion of bonds outstanding in 1975
after an issuance of $58 billion in that year. See The Bond Buyer's
Municipal Finance Statistics, 1975 (June 1976).
\41\ See Ann Judith Gellis, Municipal Securities Market: Same
Problems--No Solutions, 21 Del. J. Corp. L. 427, 428 (1996).
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The regulation of the market for municipal securities at the
Federal level essentially began in 1975. Congress, as part of the
Securities Act Amendments of 1975 (``1975 Amendments'') created a
limited regulatory scheme for the municipal securities market at the
Federal level.\42\ That scheme included mandatory registration with the
Commission of brokers and dealers in municipal securities and gave the
Commission broad rulemaking and enforcement authority over such brokers
and dealers. At the same time, however, Congress prohibited the
Commission from requiring issuers of municipal securities to file
disclosures, such as a prospectus, with the Commission before selling
municipal securities to investors. Thus, the Commission's oversight of
the municipal securities market has been focused on the intermediaries
between municipal entities and investors, rather than on municipal
entities themselves. In addition, the 1975 Amendments authorized the
creation of the MSRB and granted it authority to promulgate rules
concerning broker and dealer transactions in municipal securities.
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\42\ See, e.g., Exchange Act Sections 15(c)(1), 15(c)(2),
15B(c)(1), 15B(c)(2), 17(a), 17(b), and 21(a)(1) (15 U.S.C.
78o(c)(1), 78o(c)(2), 78o-4(c)(1), 78o-4(c)(2), 78q(a), 78q(b), and
78u(a)(1)).
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As noted above, pursuant to the 1975 Amendments, all brokers and
dealers that underwrite or trade municipal securities are required to
register with the Commission.\43\ If a person engages in the activities
of a broker or dealer in municipal securities and does not satisfy an
exception from the registration provisions of the Exchange Act, such
person must register with the Commission and may have to join a self-
regulatory organization (``SRO'') such as the Financial Industry
Regulatory Authority, Inc. (``FINRA''). The Exchange Act defines a
``municipal securities dealer'' as any person (including a separately
identifiable department or division of a bank) engaged in the business
of buying and selling municipal securities for its own account other
than in a fiduciary capacity, through a broker or otherwise \44\ and
requires such person to register with the Commission.\45\ All brokers,
dealers, and municipal securities dealers that engage in municipal
securities transactions also must register with the MSRB and may not
act in contravention of its rules.\46\
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\43\ See 15 U.S.C. 78o-4(a)-(b).
\44\ See 15 U.S.C. 78c(a)(30).
\45\ See 15 U.S.C. 78o-4(a)-(b).
\46\ See MSRB rule A-12. These requirements for registration
with the Commission and MSRB were in effect prior to passage of the
Dodd-Frank Act and remain in effect.
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Since 1975, the municipal securities market has grown and evolved
significantly to encompass a wide variety of bond structures \47\ and
credit enhancement. Municipal bond insurance was first introduced in
1971 and letter of credit-supported municipal bonds became very popular
after the introduction of variable rate municipal bonds in the early
1980s.\48\ In 1988, auction rate securities were introduced into the
municipal market.\49\ In addition, the municipal securities market has
experienced a proliferation of complex derivative products beginning
generally with interest rate swap transactions in the mid 1980s.\50\
The availability of such a variety of financing options has led to an
increasing reliance on external advisors by municipal entities that
issue municipal securities to assist them in deciding among the
multiplying array of structural choices for their debt and to help them
negotiate with the multiplying number of intermediaries.\51\
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\47\ Although it is helpful to think of municipal securities as
either (1) general obligation bonds backed by the ``full faith and
credit'' or an unlimited taxing power of the issuing entity or (2)
revenue bonds, these general categories mask a broad range of
diversity and complexity in the underlying security for municipal
bonds. See Gary Gray and Patrick Cusatis, Municipal Derivative
Securities--Uses and Valuation 21 (1995) (discussion of revenue
bonds). See also Disclosure of Bond Counsel, supra note 18, at 54-55
(discussion of conduit bonds).
\48\ See Gray and Cusatis, supra note 47, at 30-31. The
Commission notes that although the use of letters of credit and bond
insurance have declined since 2008, these forms of credit
enhancement remain an option for municipal entities to consider when
issuing municipal securities.
\49\ See id. at 41.
\50\ See id. at 49. Municipal market derivatives must often be
structured in accordance with the provisions of the tax code and
other laws that apply to the issuance of tax-exempt financings. See
David L. Taub, Understanding Municipal Derivatives, August 2005,
Government Finance Review 21. Therefore, the most common use for
derivatives in the municipal securities market is the execution of
interest rate swaps to hedge issuers' interest rate exposure for
new, anticipated, or outstanding debt. See id.
\51\ See Vijayakumar and Daniels, supra note 7, at 43-44.
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b. Municipal Advisors
As discussed above, many market professionals are involved in
issuing municipal securities and advising municipal entities with
respect to municipal financial products. Historically, however,
municipal advisors have been largely unregulated. For example,
Commission staff has taken the position that financial advisors that
limit their advisory activities to advising municipal issuers as to the
structuring of their financings rather than providing advice for
compensation regarding the investment of assets may not need to
register as investment advisers.\52\ Also, while dealers who act as
municipal financial advisors are subject to regulation,\53\ those
regulations apply primarily to their business as dealers rather than
their activities as municipal financial advisors.\54\ Only in limited
circumstances do those rules also apply to their municipal advisory
activities.\55\
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\52\ See Division of Investment Management: Staff Legal Bulletin
No. 11, Applicability of the Advisers Act to Financial Advisors of
Municipal Securities Issuers (Sep. 19, 2000), available at https://www.sec.gov/interps/legal/slbim11.htm (explaining the staff's views
as to the circumstances under which financial advisors (a) may be
investment advisers, and (b) may give advice to issuers of municipal
securities regarding the investment of offering proceeds without
being deemed to be investment advisers).
\53\ See supra notes 43-46, and accompanying text.
\54\ See, e.g., 17 CFR 240.15Ba2-2.
\55\ For example, MSRB rule G-37 currently prohibits a broker,
dealer or municipal securities dealer from engaging in ``municipal
securities business with an issuer within two years after any
contribution to an official of such issuer * * *'' MSRB rule G-37.
The rule further defines ``municipal securities business'' to
include, among other things, underwriting and the provision of
financial advisory services. See id.
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Additionally, approximately fifteen states, as well as a number of
municipalities, have rules relating to the conduct of some municipal
advisors (generally, financial advisors and swap advisors). For
example, these governmental entities have enacted pay-to-play
prohibitions that range from broad proscriptions relating to all state
and local contracts to narrowly defined rules that only apply to
specific situations.\56\ Some state and local entities also require
certain types of municipal advisors to disclose actual or apparent
conflicts of interest.\57\
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\56\ See MSRB study, supra note 8.
\57\ See id.
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As discussed in more detail below, the Dodd-Frank Act amended the
Exchange Act to require municipal advisors to register with the
Commission.\58\ In addition, the Exchange Act, as amended by the Dodd-
Frank Act, grants the MSRB regulatory authority over municipal
advisors,\59\ and imposes a fiduciary duty on municipal advisors when
advising municipal entities.\60\
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\58\ See Section 975(a)(1)(B) of the Dodd-Frank Act; 15 U.S.C.
78o-4(a)(1)(B).
\59\ See 15 U.S.C. 78o-4(b).
\60\ See 15 U.S.C. 78o-4(c). Specifically, Exchange Act Section
15B(c)(1) provides that: ``A municipal advisor and any person
associated with such municipal advisor shall be deemed to have a
fiduciary duty to any municipal entity for whom such municipal
advisor acts as a municipal advisor, and no municipal advisor may
engage in any act, practice, or course of business which is not
consistent with a municipal advisor's fiduciary duty or that is in
contravention of any rule of the Board.'' 15 U.S.C. 78o-4(c)(1).
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[[Page 828]]
B. Interim Final Temporary Rule 15Ba2-6T and Form MA-T
The registration requirement for municipal advisors became
effective on October 1, 2010.\61\ Consequently, municipal advisors must
now be registered in order to continue their municipal advisory
activities. To enable municipal advisors to temporarily satisfy the
registration requirement, and to make relevant information available to
the public and municipal entities, the Commission adopted interim final
temporary rule 15Ba2-6T \62\ under the Exchange Act on September 1,
2010.\63\ Pursuant to rule 15Ba2-6T, a municipal advisor must
temporarily satisfy the statutory registration requirement by
submitting certain information electronically through the Commission's
public Web site on Form MA-T.\64\
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\61\ See Section 975(i) of the Dodd-Frank Act.
\62\ 17 CFR 240.15Ba2-6T.
\63\ See Securities Exchange Act Release No. 62824 (September 1,
2010), 75 FR 54465 (September 8, 2010) (``Temporary Registration
Rule Release'').
\64\ 17 CFR 249.1300T. A municipal advisor that completes the
temporary registration form and receives confirmation from the
Commission that the form was filed is temporarily registered for
purposes of Section 15B. Approximately 800 firms and individuals
have registered on Form MA-T as municipal advisors.
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Form MA-T requires a municipal advisor to indicate the purpose for
which it is submitting the form (i.e., initial application, amendment
or withdrawal), provide certain basic identifying and contact
information concerning its business, indicate the nature of its
activities, and supply information about its disciplinary history and
the disciplinary history of its associated municipal advisor
professionals.\65\
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\65\ See Temporary Registration Rule Release, supra note 63, for
a full description of the requirements of Form MA-T.
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The interim final temporary rule provides that, unless rescinded, a
municipal advisor's temporary registration by means of Form MA-T will
expire on the earlier of (1) the date that the municipal advisor's
registration is approved or disapproved by the Commission pursuant to a
final rule establishing a permanent registration regime; (2) the date
on which the municipal advisor's temporary registration is rescinded by
the Commission; or (3) December 31, 2011.\66\ The temporary
registration procedure was developed as a transitional step toward the
implementation of a permanent registration regime for municipal
advisors. Accordingly, as discussed in more detail below, the
Commission is proposing rules and forms that, if adopted, would
establish a permanent registration regime for municipal advisors that
would require registration by all persons meeting the definition of
municipal advisor, including those persons currently registered on Form
MA-T. In discussing the proposed permanent registration regime, the
Commission addresses issues, concerns, and suggestions relevant to this
proposal raised by commenters in response to the interim final
temporary rule.\67\
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\66\ See 17 CFR 240.15Ba2-6T(e).
\67\ The Commission received seven comment letters in response
to the interim final temporary rule. The comment letters are
available on the Commission's Internet Web site at https://www.sec.gov/comments/s7-19-10/s71910.shtml. The Commission also
received one comment letter in response to SEC regulatory
initiatives under the Dodd-Frank Act that discussed municipal
advisors in connection with pay-to-play rules and, therefore, is
outside the scope of this release relating to the registration of
municipal advisors. This comment letter is available on the
Commission's Internet Web site at https://www.sec.gov/comments/df-title-ix/municipal-securities-municipal-advisors/municipal-securities-municipal-advisors.shtml.
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II. Discussion
Section 15B(a)(1) of the Exchange Act, as amended by the Dodd-Frank
Act, makes it unlawful for a municipal advisor \68\ to provide advice
to or on behalf of a municipal entity or obligated person with respect
to municipal financial products or the issuance of municipal
securities, or to undertake a solicitation of a municipal entity or
obligated person, unless the municipal advisor is registered with the
Commission.\69\ Section 15B(a)(2) of the Exchange Act, as amended by
the Dodd-Frank Act, provides that a municipal advisor may be registered
by filing with the Commission an application for registration in such
form and containing such information and documents concerning the
municipal advisor and any person associated with the municipal advisor
as the Commission, by rule, may prescribe as necessary or appropriate
in the public interest or for the protection of investors.\70\
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\68\ See infra Section II.A.1. (discussing the term ``municipal
advisor'').
\69\ See 15 U.S.C. 78o-4(a)(1)(B). For a discussion of the terms
``municipal entity,'' ``obligated person,'' ``municipal financial
product,'' and ``solicitation of a municipal entity or obligated
person,'' see infra Section II.A.1.b.
\70\ See 15 U.S.C. 78o-4(a)(2).
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Consistent with the requirements of the Dodd-Frank Act, as
discussed in detail below, the Commission is proposing new rules and
forms that, if adopted, would establish a permanent Commission
registration regime for municipal advisors. The Commission believes
that the information disclosed pursuant to the proposed rules and forms
would provide significant value to the Commission in its oversight of
municipal advisors and their activities in the municipal securities
markets. The information provided pursuant to these rules and forms
would also aid municipal entities and obligated persons in choosing
municipal advisors, engaging in transactions with municipal advisors,
or participating in municipal securities transactions in which a
municipal advisor is also engaged.
A. Proposed Rules for the Permanent Registration of Municipal Advisors
1. Proposed Rule 15Ba1-1: Definition of ``Municipal Advisor'' and
Related Terms
a. Statutory Definition of ``Municipal Advisor''
Section 15B(e)(4)(A) of the Exchange Act,\71\ as amended by the
Dodd-Frank Act, defines the term ``municipal advisor'' to mean a person
(who is not a municipal entity \72\ or an employee of a municipal
entity) (i) that provides advice to or on behalf of a municipal entity
or obligated person \73\ with respect to municipal financial products
\74\ or the issuance of municipal securities, including advice with
respect to the structure, timing, terms, and other similar matters
concerning such financial products or issues, or (ii) that undertakes a
solicitation of a municipal entity.\75\
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\71\ 15 U.S.C. 78o-4(e)(4)(A).
\72\ See infra note 82, and accompanying text (discussing the
term ``municipal entity'').
\73\ See infra note 86, and accompanying text (discussing the
term ``obligated person'').
\74\ See infra note 93, and accompanying text (discussing the
term ``municipal financial products'').
\75\ See infra note 103, and accompanying text (discussing the
term ``solicitation of a municipal entity or obligated person'').
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The statutory definition of a ``municipal advisor'' is broad and
includes persons that traditionally have not been considered to be
municipal financial advisors. Specifically, the definition of a
``municipal advisor'' includes ``financial advisors, guaranteed
investment contract brokers, third-party marketers, placement agents,
solicitors, finders, and swap advisors'' that engage in municipal
advisory activities.\76\ These persons are included if they provide
advice to or on behalf of a municipal entity or obligated person with
respect to municipal financial products or the issuance of municipal
[[Page 829]]
securities (including advice with respect to the structure, timing,
terms and other similar matters concerning such financial products or
issues) or undertake a solicitation of a municipal entity or obligated
person (i.e., ``municipal advisory activities'').\77\
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\76\ See 15 U.S.C. 78o-4(e)(4).
\77\ The proposed definition of ``municipal advisory
activities'' has the same meaning as the definition of ``municipal
advisory services'' in connection with rule 15Ba2-6T. Thus, in
proposed rule 15Ba1-1 the Commission is proposing to define
``municipal advisory activities'' to mean ``advice to or on behalf
of a municipal entity (as defined in Section 15B(e)(8) of the
Securities Exchange Act of 1934 (15 U.S.C. 78o-4(e)(8)) or obligated
person (as defined in Section 15B(e)(10) of the Securities Exchange
Act of 1934 (15 U.S.C. 78o-4(e)(10)) with respect to municipal
financial products or the issuance of municipal securities,
including advice with respect to the structure, timing, terms, and
other similar matters concerning such financial products or issues;
or a solicitation of a municipal entity or obligated person.''
Proposed rule 15Ba1-1(e).
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The definition of ``municipal advisor'' explicitly excludes ``a
broker, dealer, or municipal securities dealer serving as an
underwriter,'' \78\ as well as attorneys offering legal advice or
providing services that are of a traditional legal nature and engineers
providing engineering advice.\79\ Further, the definition of
``municipal advisor'' excludes ``any investment adviser registered
under the Investment Advisers Act of 1940, or persons associated with
such investment advisers who are providing investment advice'' and
``any commodity trading advisor registered under the Commodity Exchange
Act or persons associated with a commodity trading advisor who are
providing advice related to swaps.'' \80\
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\78\ See infra note 105 (defining the term ``underwriter'').
\79\ See 15 U.S.C. 78o-4(e)(4)(C).
\80\ See id.
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Consequently, the statutory definition of ``municipal advisor''
includes distinct groups of professionals that offer different services
and compete in distinct markets. The three principal types of municipal
advisors are: (1) Financial advisors, including, but not limited to,
broker-dealers already registered with the Commission, that provide
advice to municipal entities with respect to their issuance of
municipal securities and their use of municipal financial products; (2)
investment advisers that advise municipal pension funds and other
municipal entities on the investment of funds held by or on behalf of
municipal entities (subject to certain exclusions from the definition
of a ``municipal advisor''); and (3) third-party marketers and
solicitors.
b. Interpretation of the Term ``Municipal Advisor''; Definition of
Related Terms
As noted above, Section 15B(e)(4) defines the term ``municipal
advisor'' to mean, in part, a person (who is not a municipal entity or
an employee of a municipal entity) that (i) provides advice to or on
behalf of a municipal entity or obligated person with respect to
municipal financial products or the issuance of municipal securities,
or (ii) undertakes a solicitation of a municipal entity or obligated
person.\81\ The Commission discusses below the terms ``municipal
entity,'' ``obligated person,'' ``municipal financial products,'' and
``solicitation of a municipal entity or obligated person'' as well as
other terms relating to the definition of ``municipal advisor.''
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\81\ See 15 U.S.C. 78o-4(e)(4).
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The registration requirement for municipal advisors under Section
15B of the Exchange Act applies to every person, including every
natural person, who provides the types of advice described in the
definition of ``municipal advisor''--whether that person is an
organized entity, sole proprietor, employee of a municipal advisory
firm, or otherwise. For clarity, the Commission refers to each
organized entity that is a municipal advisor, including sole
proprietors, as a ``municipal advisory firm,'' and each municipal
advisor that is a natural person, including sole proprietors, as a
``natural person municipal advisor.''
Municipal Entity
Exchange Act Section 15B(e)(8) provides that the term ``municipal
entity'' means ``any State, political subdivision of a State, or
municipal corporate instrumentality of a State, including--(A) any
agency, authority, or instrumentality of the State, political
subdivision, or municipal corporate instrumentality; (B) any plan,
program, or pool of assets sponsored or established by the State,
political subdivision, or municipal corporate instrumentality or any
agency, authority, or instrumentality thereof; and (C) any other issuer
of municipal securities.'' \82\ To provide additional clarification
with respect to clause (B) of the definition of ``municipal entity,''
the Commission notes that the definition includes, but is not limited
to, public pension funds, local government investment pools and other
state and local governmental entities or funds, as well as participant-
directed investment programs or plans such as 529, 403(b), and 457
plans.
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\82\ 15 U.S.C. 78o-4(e)(8).
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One commenter asked whether ``small issuers such as individual
charter schools (that are deemed public schools by the state with
individual charters)'' would be included in the definition of
``municipal entity.'' \83\ Charter schools are considered to be public
schools and generally derive their charter from a political subdivision
of a state (for example, local school boards, state universities,
community colleges or state boards of education) \84\ and, therefore,
would fall under the definition of municipal entity.\85\
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\83\ See letter from Brad R. Jacobsen, dated September 7, 2010
(``Jacobsen Letter'').
\84\ See, e.g., US Charter Schools, Answers to Frequently Asked
Questions, available at https://www.uscharterschools.org/pub/uscs_docs/o/faq.html (last visited November 2, 2010).
\85\ 15 U.S.C. 78o-4(e)(8). Charter schools, or persons that
operate charter schools such as charter school management
organizations that are organized as non-profit corporations, may
issue municipal securities through a municipal entity for capital
needs such as facilities that are not provided for by state funding
or other reasons. See, e.g., US Charter Schools, Charter School
Facilities: A Resource Guide on Development and Financing, available
at https://www.uscharterschools.org/gb/dev_fin/financing.htm (last
visited November 23, 2010). In that instance, the charter school or
charter school management organization would be an obligated person
with respect to the issuance of municipal securities and any related
municipal financial products.
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Obligated Person
Exchange Act Section 15B(e)(10) provides that the term ``obligated
person'' means ``any person, including an issuer of municipal
securities, who is either generally or through an enterprise, fund, or
account of such person, committed by contract or other arrangement to
support the payment of all or part of the obligations on the municipal
securities to be sold in an offering of municipal securities.'' \86\
One commenter stated that this definition in Exchange Act Section
15B(e)(10) is ``potentially very broad'' and asked for clarification
regarding the definition.\87\ In particular, the commenter encouraged
the Commission to interpret the definition of ``obligated person'' for
purposes of the definition of ``municipal advisor'' consistently with
the definition of ``obligated person'' for purposes of rule 15c2-
12.\88\
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\86\ 15 U.S.C. 78o-4(e)(10). Obligated persons can include
entities acting as conduit borrowers such as private universities,
non-profit hospitals, and private corporations.
\87\ See letter from John J. Wagner, Kutak Rock LLP, to
Elizabeth M. Murphy, Secretary, Securities and Exchange Commission,
dated September 28, 2010 (``Kutak Rock Letter'').
\88\ See id. Rule 15c2-12 relates to municipal securities
disclosures. See 17 CFR 240.15c2-12.
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The Commission believes that the definition of ``obligated person''
for purposes of the definition of ``municipal advisor'' should be
consistent with the
[[Page 830]]
definition of ``obligated person'' for purposes of rule 15c2-12. Rule
15c2-12 defines the term ``obligated person'' to mean ``any person,
including an issuer of municipal securities, who is either generally or
through an enterprise, fund, or account of such person committed by
contract or other arrangement to support payment of all, or part of the
obligations on the municipal securities to be sold in the Offering
(other than providers of municipal bond insurance, letters of credit,
or other liquidity facilities).'' \89\ Thus, pursuant to the exemptive
authority granted in Section 15B(a)(4) of the Exchange Act, the
Commission proposes to exempt from the definition of ``obligated
person'' providers of municipal bond insurance, letters of credit, or
other liquidity facilities. Specifically, proposed rule 15Ba1-1(i)
provides that the term ``obligated person'' shall not include providers
of municipal bond insurance, letters of credit, or other liquidity
facilities.\90\ The Commission believes that this interpretation does
not conflict with the goals of the Dodd-Frank Act to provide further
protections for certain entities that participate in borrowings in the
municipal securities market and would help ensure uniformity among
rules relating to such market. Providers of municipal bond insurance,
letters of credit, or other liquidity facilities are generally non-
governmental providers of credit enhancements.\91\ As providers of
credit enhancement, these entities are not borrowing funds through a
municipal entity and, therefore, the Commission believes they do not
require the type of protection that should be applicable with respect
to those who borrow funds through municipal entities in municipal
securities transactions. In addition, the Commission notes that this
interpretation would further uniformity among rules relating to the
definition of obligated persons in the municipal securities market.\92\
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\89\ See 17 CFR 240.15c2-12(f)(10). ``Offering'' as used in this
definition is defined in rule 15c2-12(a). See 17 CFR 240.15c2-12(a).
\90\ See proposed rule 15Ba1-1(i). See also Securities Exchange
Act Release No. 34961 (November 10, 1994), 59 FR 59590 (November 17,
1994).
\91\ The Commission notes that a municipal entity that provides
credit enhancement could be an obligated person for purposes of the
proposed rule.
\92\ See Kutak Rock Letter.
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Municipal Financial Products; Investment Strategies
Section 15B(e)(5) provides that the term ``municipal financial
product'' means ``municipal derivatives, guaranteed investment
contracts, and investment strategies.'' \93\ Exchange Act Section
15B(e)(3) provides that ``the term `investment strategies' includes
plans or programs for the investment of the proceeds of municipal
securities that are not municipal derivatives, guaranteed investment
contracts, and the recommendation of and brokerage of municipal escrow
investments.'' \94\ One commenter requested that the Commission clarify
the term ``investment strategies'' for purposes of the definition of
``municipal financial products.'' \95\ The Commission notes that the
definition of ``investment strategies'' provides that it ``includes''
plans or programs for the investment of the proceeds of municipal
securities and, therefore, the Commission interprets the definition to
mean that it includes, without limitation, the investment of the
proceeds of municipal securities. Further, the Commission interprets
this definition to include plans, programs, or pools of assets that
invest funds held by or on behalf of a municipal entity, and,
therefore, any person that provides advice with respect to such funds
must register as a municipal advisor unless it is covered by one of the
exclusions discussed below. Consistent with this interpretation,
proposed rule 15Ba1-1(b) provides that the term ``investment
strategies'' includes ``plans, programs or pools of assets that invest
funds held by or on behalf of a municipal entity.'' \96\ In proposing
this interpretation of the term ``investment strategies,'' the
Commission considered the statutory definitions of ``municipal
advisor'' and ``municipal entity.'' Specifically, the Commission noted
that the definition of a ``municipal entity'' includes ``any plan,
program, or pool of assets sponsored or established by the State,
political subdivision, or municipal corporate instrumentality or any
agency, authority, or instrumentality thereof.'' \97\ Based on these
definitions, the Commission believes it was Congress's intent to
include in the definition of ``municipal advisor'' persons that provide
advice with respect to plans, programs or pools of assets that invest
funds held by, or on behalf of, a municipal entity, such as a 529
college savings plan, LGIP or public pension plan. Such plans,
programs, and pools of assets are generally funded from sources other
than proceeds of municipal securities, such as families who wish to
save for a child's college expenses, general monies of state and local
governments being temporarily invested prior to their budgeted
expenditure, and pension contributions from employees and state and
local government employers. As a result, the Commission does not
believe that it was Congress's intent to limit the requirement to
register as a municipal advisor only to those persons that provide
advice with respect to plans or programs for the investment of proceeds
from municipal securities. Also, because every bank account of a
municipal entity is comprised of funds ``held by or on behalf of a
municipal entity,'' money managers providing advice to municipal
entities with respect to their bank accounts could be municipal
advisors. The Commission notes, however, that to the extent a person is
providing advice to a pooled investment vehicle in which a municipal
entity has invested funds along with other investors that are not
municipal entities, the pooled investment vehicle would not be
considered funds ``held by or on behalf of a municipal entity'' and,
therefore, the person providing advice to the pooled investment vehicle
would not have to register as a municipal advisor.\98\
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\93\ 15 U.S.C. 78o-4(e)(5).
\94\ 15 U.S.C. 78o-4(e)(3).
\95\ See letter from Carolyn Walsh, Vice President and Senior
Counsel, Center for Securities, Trust and Investments, American
Bankers Association (``ABA''), and Deputy General Counsel, ABA
Securities Association, to Elizabeth M. Murphy, Secretary,
Commission, dated October 13, 2010 (``ABA Letter''). See also letter
from Leslie M. Norwood, Managing Director and Associate General
Counsel, Securities Industry and Financial Markets Association
(``SIFMA''), to Martha Haines, Assistant Director and Chief, Office
of Municipal Securities, Commission, dated November 15, 2010
(``SIFMA Letter'') (suggesting interpretations of the term
``investment strategies'').
\96\ Proposed rule 15Ba1-1(b).
\97\ 15 U.S.C. 78o-4(e)(8)(B).
\98\ To the extent that the pooled investment vehicle is a LGIP,
the pooled investment vehicle would be considered to be funds ``held
by or on behalf of'' a municipal entity and, therefore, a person
providing advice with respect to a LGIP would have to register as a
municipal advisor. See also supra note 36 (discussing LGIPs).
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One commenter that asked for clarification regarding the definition
of the term ``investment strategies'' stated that it assumes that
``once the proceeds of a municipal securities offering are commingled
with other operating funds or the general funds of the municipal entity
that they lose their characteristic as `proceeds' under the statute,
and the provision of advice by a bank to the municipal entity with
respect to the investment of such operating or general funds would not
make the bank a `municipal advisor' under the statute.'' \99\ Further,
this commenter stated that it assumes that ``the proceeds of a
municipal securities offering that are used to fund a municipal pension
[[Page 831]]
plan, once deposited in the plan and commingled with other funds, would
likewise lose their characteristic as proceeds under the statute; and
the provision of advice by a bank to the municipal entity with respect
to the investment of plan assets would not make the bank a `municipal
advisor' under the statute.'' \100\
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\99\ See ABA Letter. See also SIFMA Letter (suggesting that
moneys in a commingled account would not be considered proceeds
unless the municipal entity specifically communicates that such
investment is being made with proceeds of an issue of municipal
securities).
\100\ See ABA Letter.
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As noted above, the Commission is proposing to interpret the term
``investment strategies'' to include plans, programs or pools of assets
that invest funds held by or on behalf of a municipal entity, as well
as plans or programs for the investment of the proceeds of municipal
securities that are not municipal derivatives or guaranteed investment
contracts, or the recommendation of or brokerage of municipal escrow
investments. Municipal entities utilizing the services of advisors with
respect to plans, programs or pools of assets that invest funds are
subject to the same risks regardless of whether those funds are the
proceeds of municipal securities. The Commission does not have any
evidence that the competency of the advisors or quality of advice
needed by municipal entities with respect to the proceeds of municipal
securities and municipal escrow investments is any different than with
respect to the investment of other public funds--which may exceed the
amount of proceeds of municipal securities or municipal escrow
investments. Furthermore, this approach avoids any need to trace the
investment of proceeds of municipal securities commingled with other
public funds and eliminates the potential for abuse from the artificial
commingling of the proce
