Self-Regulatory Organizations; Municipal Securities Rulemaking Board; Notice of Filing of Amendment No. 1 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 1, to Amend Rule G-23, on Activities of Financial Advisors, 32248-32255 [2011-13752]
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32248
Federal Register / Vol. 76, No. 107 / Friday, June 3, 2011 / Notices
should be submitted on or before June
24, 2011.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.14
Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011–13738 Filed 6–2–11; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–64561; File No. SR–NYSE–
2011–15]
Self-Regulatory Organizations; New
York Stock Exchange LLC; Order
Granting Approval of Proposed Rule
Change To Modify the Initial Trading
Market Value for Debt Securities
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I. Introduction
On April 1, 2011, the New York Stock
Exchange LLC (‘‘NYSE’’ or ‘‘Exchange’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
19b–4 thereunder,2 a proposed rule
change to modify the initial trading
market value requirements for certain
debt securities. The proposed rule
change was published in the Federal
Register on April 14, 2011.3 The
Commission received no comments on
the proposal. This order grants approval
of the proposed rule change.
II. Description of the Proposal
The Exchange’s proposal would
amend NYSE Rule 1401 to modify the
initial trading market value requirement
for ‘‘Debt Securities’’ from $10,000,000
to $5,000,000. The term ‘‘Debt
Securities’’ includes any unlisted note,
bond, debenture or evidence of
indebtedness that is: (1) Statutorily
exempt from the registration
requirements of Section 12(b) of the Act,
or (2) eligible to be traded under a
Commission exemptive order. NYSE
Rules 1400 and 1401 set forth
requirements for trading Debt Securities.
Currently, NYSE Rule 1401 requires
that Debt Securities traded on the NYSE
have an outstanding aggregate market
value or principal amount of no less
than $10,000,000 on the date that
trading commences. In the Notice, the
Exchange cited a number of corporate
retail note programs offered by issuers
whose equity securities are listed on the
14 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Securities Exchange Act Release No. 64287
(April 8, 2011), 76 FR 21086 (‘‘Notice’’).
1 15
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Exchange that involve issuances of
$5,000,000 or more but less than
$10,000,000 in principal. The Exchange
proposed to reduce the required initial
outstanding aggregate market value to
$5,000,000 in order to be able to list
such securities. The Exchange believes
that expanding the number of Debt
Securities that could be traded on the
Exchange’s platform would offer
investors greater transparency and
choice with respect to secondary market
trading in such securities.
SECURITIES AND EXCHANGE
COMMISSION
III. Discussion and Commission’s
Findings
May 27, 2011
The Commission has carefully
reviewed the proposed rule change and
finds that it is consistent with the
requirements of Section 6 of the Act 4
and the rules and regulations
thereunder applicable to a national
securities exchange.5 In particular, the
Commission finds that the proposal is
consistent with Section 6(b)(5) of the
Act,6 which requires, among other
things, that the Exchange’s rules be
designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, to remove impediments to and
perfect the mechanism of a free and
open market and a national market
system, and, in general, to protect
investors and the public interest. The
Commission believes that the proposal
is reasonably designed to expand
exchange trading for debt securities
with a smaller initial float, and thereby
to increase transparency and price
competition for investors.
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,7 that the
proposed rule change (SR–NYSE–2011–
15) be, and it hereby is, approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.8
Dated: May 27, 2011.
Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011–13755 Filed 6–2–11; 8:45 am]
BILLING CODE 8011–01–P
4 15
U.S.C. 78f.
approving this proposed rule change, the
Commission has considered the proposed rule’s
impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
6 17 U.S.C. 78f(b)(5).
7 15 U.S.C. 78s(b)(2).
8 17 CFR 200.30–3(a)(12).
5 In
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[Release No. 34–64564; File No. SR–MSRB–
2011–03]
Self-Regulatory Organizations;
Municipal Securities Rulemaking
Board; Notice of Filing of Amendment
No. 1 and Order Granting Accelerated
Approval of a Proposed Rule Change,
as Modified by Amendment No. 1, to
Amend Rule G–23, on Activities of
Financial Advisors
On February 9, 2011, the Municipal
Securities Rulemaking Board (‘‘Board’’
or ‘‘MSRB’’) filed with the Securities and
Exchange Commission (‘‘Commission’’),
pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Exchange Act’’) 1 and Rule 19b–4
thereunder,2 a proposed rule change to
amend MSRB Rule G–23, on activities of
financial advisors. The Commission
published the proposed rule change for
comment in the Federal Register on
February 28, 2011 (the ‘‘Commission
Notice’’).3 The Commission received
eighteen comment letters.4 On May 27,
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 63946
(February 22, 2011), 76 FR 10926.
4 See letter from F. John White, Chief Executive
Officer, Public Financial Management, Inc., dated
February 25, 2011 (‘‘PFM Letter’’); e-mail to Mary N.
Simpkins, Senior Special Counsel, Commission,
from Patricia Bowen, Vice President, Eastern Bank,
dated March 2, 2011 (‘‘Eastern Bank Letter’’); letter
from Robert W. Doty, President, American
Governmental Financial Services, dated March 10,
2011 (‘‘AGFS Letter’’); letter from Hill A. Feinberg,
Chairman and CEO, First Southwest Company,
dated March 16, 2011 (‘‘First Southwest Letter’’);
letter from Carl Giles, dated March 16, 2011 (‘‘Giles
Letter’’); letter from Keith Kolb, Managing Director,
Director of Baird Public Finance, Robert W. Baird
& Co. Incorporated, dated March 18, 2011 (‘‘Baird
Letter’’); letter from Joy A. Howard, Principal, WM
Financial Strategies, dated March 18, 2011 (‘‘Joy
Howard Letter’’); letter from Christopher Hamel,
Head of Municipal Finance, RBC Capital Markets,
LLC, dated March 21, 2011 (‘‘RBC Letter’’): letter
from Nathan R. Howard, Municipal Advisor, WM
Financial Strategies, dated March 21, 2011 (‘‘Nathan
Howard Letter’’); letter from Mike Nicholas, Chief
Executive Officer, Bond Dealers of America, dated
March 21, 2011 (‘‘BDA Letter’’); e-mail from David
A. Wagner, Senior Vice President and Financial
Advisor, Ehlers Associates, Inc., dated March 21,
2011 (‘‘Ehlers Letter’’); letter from Colette J. IrwinKnott, President, National Association of
Independent Public Finance Advisors, dated March
21, 2011 (‘‘NAIPFA Letter’’); letter from Steve
Apfelbacher, President, Ehlers Associates, Inc.,
dated March 21, 2011 (‘‘Apfelbacher Letter’’): letter
from Leslie M. Norwood, Managing Director and
Associate General Counsel, The Securities Industry
and Financial Markets Association, dated March 21,
2011 (‘‘SIFMA Letter’’); letter from Larry Kidwell,
President, Kidwell & Company Inc., dated March
21, 2011 (‘‘Kidwell Letter’’); e-mail from Robert J.
Stracks, Counsel, BMO Capital Markets GKST Inc.,
dated March 22, 2011 (‘‘BMO Letter’’); letter from
Susan Gaffney, Director, Federal Liaison Center,
2 17
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Federal Register / Vol. 76, No. 107 / Friday, June 3, 2011 / Notices
2011, the MSRB filed an amendment
(‘‘Amendment No. 1’’) to the proposed
rule change.5 The Commission is
publishing this notice and order to
solicit comments on Amendment No. 1
and to approve the proposed rule
change, as modified by Amendment No.
1.
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I. Description of Proposed Rule Change
and Summary of Comments
As described in the Commission
Notice, the MSRB is proposing to amend
its Rule G–23, on activities of financial
advisors. Proposed Rule G–23 would,
subject to limited exceptions, (i)
prohibit a dealer financial advisor with
respect to the issuance of municipal
securities from acquiring all or any
portion of such issue directly or
indirectly, from the issuer as principal,
or acting as agent for the issuer in
arranging the placement of such issue,
either alone or as a participant in a
syndicate or other similar account
formed for that purpose; (ii) apply the
same prohibition to any dealer
controlling, controlled by, or under
common control with the dealer
financial advisor; and (iii) prohibit a
dealer financial advisor from acting as
the remarketing agent for such issue. In
addition, the proposed interpretive
guidance, as amended, would provide
guidance on when a dealer that renders
advice would be considered to be
‘‘acting as an underwriter’’ rather than as
a financial advisor for purposes of
proposed Rule G–23.
The proposed rule change resulted
from a concern that a dealer financial
advisor’s ability to underwrite the same
issue of municipal securities, on which
it acted as financial advisor, presented
a conflict that is too significant for the
existing disclosure and consent
provisions of Rule G–23 to cure. Even in
the case of a competitive underwriting,
the perception on the part of issuers and
investors that such a conflict might exist
was sufficient to cause concern that
permitting such role switching was not
Government Finance Officers Association, dated
March 21, 2011 (‘‘GFOA Letter’’); letter from
Thomas M. DeMars, Managing Principal, Fieldman,
Rolapp & Associates, dated March 23, 2011
(‘‘Fieldman Letter’’).
5 Amendment No. 1 partially amends the text of
the original proposed interpretive notice to: (i)
Clarify that Rule G–23 is solely a conflicts rule; (ii)
eliminate the rebuttable presumption that a dealer
providing certain advice is a financial advisor; (iii)
emphasize that Rule G–23(b) does not require a
writing in order for a financial advisory relationship
to exist; (iv) provide additional clarity as to when
a dealer will be deemed to be ‘‘acting as an
underwriter’’ and not as a financial advisor for
purposes of Rule G–23(b); and (v) provide guidance
on certain activities (in addition to underwriting
activities) in which a dealer may engage without
violating Rule G–23(d).
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consistent with ‘‘a free and open market
in municipal securities,’’ which the
Board is mandated to perfect.6 Of the
eighteen comment letters received on
the proposed rule change,7 eleven
commenters expressed some support for
the proposed rule change, including the
general principle that prompted the
proposed rule change, but these
commenters also suggested certain
changes to or exemptions from the
proposed rule change.8 Seven
commenters objected to all or part of the
proposed rule change.9
The MSRB’s responses to comments
and changes to the proposed rule
change made by Amendment No. 1 are
described below.
A. Scope of ‘‘Acting as an Underwriter’’
and Rule G–23(b)
Several commenters stated that the
proposed rule change would preserve
the general confusion between the role
of a financial advisor and the role of an
underwriter and preserve historically
abusive market practices.10 One
commenter expressed concern that the
exemption for underwriters under the
proposed interpretive guidance is
inconsistent with the underwriter
exemption provided under the DoddFrank Act and the Commission’s
proposed rules,11 and would help
underwriters evade fiduciary duties.12
Another commenter stated that the
proposed rule change: (i) Undermines
the will of the Exchange Act to adhere
to clear lines between interests that are
public and interests that are private; (ii)
perpetuates a culture of conflict that the
Exchange Act intended to eliminate; (iii)
creates loopholes for bank/broker
dealers to continue to serve in multiple
roles and represent conflicting interests
in transactions; (iv) avoids the intent of
the Exchange Act to impose fiduciary
duties on municipal advisors who are
bank/broker dealers; (v) creates
6 See
Commission Notice, supra note 3 at 10927.
supra note 4.
8 See PFM Letter, AGFS Letter, First Southwest
Letter, Joy Howard Letter, Nathan Howard Letter,
Ehlers Letter, NAIPFA Letter, Apfelbacher Letter,
Kidwell Letter, GFOA Letter and Fieldman Letter.
9 See Eastern Bank Letter, Giles Letter, Baird
Letter, RBC Letter, BDA Letter, SIFMA Letter and
BMO Letter.
10 See Joy Howard Letter at 1–2. See also Kidwell
Letter at 2–3 and Nathan Howard Letter at 1. One
commenter expressed the belief that the current
financial crisis was caused in part by the acts of
financial advisors who engaged in conflicts of
interest that were either undisclosed, or disclosed
and misunderstood, by debt issuers, borrowers, and
investors. See id. at 2.
11 See Exchange Act Release No. 63576
(December 20, 2010), 76 FR 824 (January 6, 2011)
(‘‘Municipal Advisor Registration Proposing
Release’’).
12 See PFM Letter at 2–4.
7 See
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32249
confusion and perplexity as opposed to
clarity and precision as a baseline for
interpretation of the rules; (vi) invites
opportunity for continued abuses of
municipal issuers; and (vii) conflicts
with the stated mission of the MSRB to
protect the interests of issuers,
investors, and the public trust, and not
those of the bank/broker dealer
community.13
Another commenter stated that it has
asked the MSRB, on various occasions,
to consider whether it is appropriate for
a broker-dealer to provide the kind of
advice that financial advisors typically
provide.14 This commenter stated that
the MSRB has failed to recognize the
distinction between providing advice
and acting as an underwriter, and
objected to the exemption from the
definition of municipal advisor for
underwriters that render ‘‘advice to an
issuer, including advice with respect to
the structure, timing, terms and other
similar matters concerning the issuance
of municipal securities.’’15
Other commenters expressed concern
that the lack of distinction between the
‘‘advice’’ provided by municipal
advisors and the ‘‘advice’’ provided by
underwriters will reduce market
transparency and the distinction
between the roles, and as such will
confuse market participants, including
small infrequent municipal issuers.16
Specifically, one commenter stated that
because the proposed rule change uses
the term ‘‘advice’’ to describe both the
actions of financial advisors and
underwriters, market participants will
be confused as to the type of services
that may be provided.17 This
commenter suggested using the term
‘‘recommendation or guidance’’ in the
context of municipal advisors, and the
term ‘‘information’’ in the context of
underwriters.18
Several commenters suggested
enhanced disclosure by dealers who act
as underwriters. According to one
commenter, with regard to negotiated
sales, dealers, in their course of
engagement as underwriters, typically
provide input regarding matters related
to the structure, timing, and terms of the
13 See Kidwell Letter at 4. This commenter stated
that state and local governments and their
instrumentalities should be held to a different and
higher standard than individuals or corporations
because the risk associated with loss due to a
conflict of interest is of public monies, where the
officials responsible for the allowance of the
conflict bear no personal financial responsibility in
association with such actions. See id. at 3.
14 See NAIPFA Letter at 1.
15 Id. at 2.
16 See Joy Howard Letter at 8 and Nathan Howard
Letter at 1.
17 See Nathan Howard Letter at 1.
18 See id. at 1–4.
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Federal Register / Vol. 76, No. 107 / Friday, June 3, 2011 / Notices
bonds.19 The commenter stated its belief
that this input should not be substituted
for advice the issuer receives from a
financial advisor.20 This commenter
also suggested that when the issuer is
represented by a financial advisor, this
underwriter input should not be seen as
violating the intent of Rule G–23.21
However, when the issuer is not so
represented, such input provided by the
underwriter becomes the issuer’s sole
source of financial advice, and this may
cause the underwriter to be the de facto
financial advisor to the issuer.22 The
commenter suggested that the latter
relationship should be prohibited by
Rule G–23.23 As such, this commenter
suggested that the proposed interpretive
guidance should at least require the
underwriter to disclose that it is not
serving as the issuer’s financial advisor,
and has no fiduciary obligation to act in
the best interest of the issuer.24 This
commenter further stated that ‘‘[i]ssuers
need to clearly understand that their
underwriter is not their financial
advisor and that they are not
discouraged from hiring a financial
advisor because of a loophole in the
proposed Guidance that suggests the
underwriter can perform both roles.’’ 25
Another commenter stated that if the
Commission adopts the expansive view
of what constitutes ‘‘acting as an
underwriter’’ as proposed by the MSRB,
the underwriters acting as financial
advisors should be required to decide
the role they wish to play before they
talk with the issuer and affirmatively
disclose the conflicts inherent in their
underwriting role to the issuer, if that is
the role they decide to pursue.26
Further, this commenter stated that any
contract that the underwriter had for
acting as an advisor for an issuer must
be terminated when the firm is hired or
seeks to be hired as an underwriter to
the issuer, or in any other role that is
inconsistent with the role of a
fiduciary.27 Another commenter stated
that a firm should disclose in writing,
19 See
GFOA Letter at 2.
id.
21 See id..
22 See id.
23 See id.
24 See id.
25 Id.
26 See NAIPFA Letter at 7–8. This commenter also
noted the extensive affirmative disclosure
obligations the MSRB is seeking to impose on
municipal advisors, and the lack of similar
disclosure required of dealers. See id. As such, this
commenter suggested that dealers providing advice
should be required to do more than merely state
that they are acting as an underwriter to avoid being
deemed a financial advisor. See id. at 8. Rather, the
commenter suggested that disclosure similar to that
proposed for municipal advisors should be required
for underwriters. See id.
27 See NAIPFA Letter at 8.
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20 See
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prior to beginning any work for a
municipal issuer, whether it will be
working as a broker-dealer or as a
municipal advisor so as to allow a
municipality to make an informed
decision to use a broker-dealer instead
of a municipal advisor.28
Another commenter generally
expressed support for the proposed rule
change and the proposed interpretive
guidance.29 With respect to the
proposed interpretive guidance, the
commenter pointed out that it is
possible that a dealer may make
representations or engage in conduct at
the outset of a relationship that leads a
municipal entity to believe that the
dealer, even though labeled as
‘‘underwriter,’’ is providing advice in the
municipal entity’s best interests.30
Moreover, the commenter stated that the
‘‘advice’’ offered to a municipal entity
may have other functions than being
offered in an issuer’s best interests.31
Further, this commenter pointed out
that even if a direct explicit
representation is not made, there are a
variety of methods to lead a municipal
entity to believe that an underwriter’s
advice places the entity’s interests
first.32 In addition, this commenter
expressed skepticism that merely
informing an issuer that a dealer will be
an underwriter is sufficient to
‘‘whitewash the dealer’s advice to the
issuer’’ because many issuers do not
know the difference between an
underwriter and a financial advisor.33
As such, this commenter suggested that
the dealer be required to inform the
issuer that the advice is not offered in
a fiduciary capacity, with an
explanation of what that means.34
Lastly, this commenter suggested that
dealers serving as underwriters should
engage in discussions with issuers
underscoring the non-fiduciary
character of the relationship and state in
bond purchase agreements atypical facts
and circumstances in which
underwriters do assume fiduciary
roles.35
28 See
Ehlers Letter.
AGFS Letter at 1.
30 See id.
31 See id.
32 See id.
33 See id. at 2. See also Kidwell Letter at 2–3
(stating that while conflicts of interest may have
been disclosed to issuers, many may not fully
understand how their interests could be adversely
affected by permitting such conflicts of interest to
exist).
34 See AGFS Letter at 2.
35 See id. at 2–3. The commenter also pointed out
that the discussions should occur at the outset of
the relationship, and prior to the time that issuers
commit themselves to particular courses of action.
See id. at 3.
29 See
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On a similar note, five commenters 36
suggested amending or deleting
paragraph (b) of Rule G–23 in order to
reduce confusion about the scope of the
role of an underwriter and the role of a
financial advisor. One of these
commenters stated that under the
Exchange Act, an individual acts as a
municipal advisor if it provides ‘‘advice
with respect to the structure, timing,
terms and other similar matters
concerning such financial products or
issues,’’ and a ‘‘broker, dealer, or
municipal securities dealer serving as
an underwriter’’ is excluded from the
definition of a municipal advisor.37 This
commenter then pointed out that ‘‘[t]he
definition of ‘underwriter’ under
Section 2(a)(11) of the Securities Act of
1933 does not include ‘a person that
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, including advice with respect
to the structure, timing, terms, and other
similar matters concerning such
financial products or issues.’ ’’ 38 As
such, the commenter stated that
proposed Rule G–23 confuses the
distinction between municipal advisors
and underwriters, thereby making the
market less transparent and more
susceptible to conflicts of interest and
abuse and that proposed Rule G–23
would be less ambiguous if paragraph
(b) was deleted in its entirety.39 Another
commenter suggested that the last
sentence of paragraph (b) of proposed
Rule G–23 be revised to read:
‘‘Notwithstanding the foregoing, for
purposes of this rule, a financial
advisory relationship shall not be
deemed to exist when, in the course of
acting as an underwriter, a broker,
dealer or municipal securities dealer
provides information to an issuer
relating to the sale of the securities to
investors such as transactional
structures, the underwriter’s capabilities
to sell various securities, how particular
terms of a security structure may affect
rates and yields, and matters incidental
to the underwriting of a new issue of
municipal securities.’’ 40
In response, in Amendment No. 1, the
MSRB stated that, in order for a dealer
to be considered to be acting as an
underwriter under Rule G–23(b), it must
clearly identify itself, in writing, as an
underwriter and not as a financial
advisor from the earliest stages of the
36 See PFM Letter, Joy Howard Letter, Nathan
Howard Letter, NAIPFA Letter and Kidwell Letter.
37 See Joy Howard Letter at 2.
38 Id.
39 See id.
40 NAIPFA Letter at 6.
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Federal Register / Vol. 76, No. 107 / Friday, June 3, 2011 / Notices
relationship and, in the proposed
interpretive guidance, as amended by
Amendment No. 1, the MSRB provides
additional examples of what the earliest
stage of a relationship may be.
Amendment No. 1 would also amend
the proposed interpretive guidance to
provide that the required disclosure
must make clear that the primary role of
an underwriter is to purchase, or
arrange the placement of, securities in
an arm’s-length commercial transaction
between the issuer and the underwriter
and that the underwriter has financial
and other interests that differ from those
of the issuer. Additionally, as amended,
the proposed interpretive guidance
would provide that the dealer must not
engage in a course of conduct that is
inconsistent with an arm’s length
relationship with the issuer in
connection with such issue of
municipal securities or the dealer will
be deemed to be a financial advisor with
respect to that issue and precluded from
underwriting that issue by Rule G–
23(d). The MSRB is of the view that
these disclosures would be adequate to
alert the issuer to the role of the dealer
as an underwriter with respect to an
issue, especially when coupled with the
requirement that the dealer’s course of
conduct must not be inconsistent with
its disclosures if it is to avoid being
considered a financial advisor.
The Commission understands
commenters’ concerns regarding clarity
of the roles of an underwriter and a
financial advisor and believes that the
requirement under the proposed rule, as
amended, that a firm wishing to serve as
an underwriter must make a written
disclosure of its proposed role with
respect to an issuance at the earliest
stages of its relationship with the issuer
and continue to engage in a course of
conduct consistent with that role in
connection with such issue, will help
achieve that clarity. In addition, the
Commission notes that a variety of facts
and circumstances, including the
presence or absence of another firm
serving as a financial advisor with
respect to that issuance, may ultimately
inform any review of whether or not a
dealer has engaged in a course of
conduct consistent with the role of an
underwriter with respect to that issue.
As discussed above, several
commenters expressed concern that the
proposed rule conflicted with the
provisions of Section 15B(c)(1) of the
Exchange Act 41 which provides that
‘‘municipal advisors have a fiduciary
duty to their municipal entity
41 15
U.S.C. 78o–4(c)(1).
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clients.’’ 42 The Commission notes that
the proposed rule, as amended,
explicitly does not define ‘‘whether
provision of the advice permitted by
Rule G–23 would cause the dealer to be
considered a ‘municipal advisor’ under
the Exchange Act.’’ In addition, the
proposed interpretive guidance, as
amended, clarifies that ‘‘Rule G–23 is
only a conflicts-of-interest rule and does
not set normative standards for dealer
conduct. In particular, Rule G–23, as
amended, would not address whether
the provision of any of the advice
permitted by Rule G–23 would subject
the dealer to a fiduciary duty as a
‘municipal advisor.’ ’’ 43 The
Commission further notes that although
it shall not be a violation of Rule
G–23(d) for a dealer acting as an
underwriter to give advice with respect
to the investment of the proceeds of the
issue, municipal derivatives integrally
related to the issue or other similar
matters concerning the issue, as
proposed in the Municipal Advisor
Registration Proposing Release, such
dealer would be required by the
Commission to register as a municipal
advisor with respect to such advice.44
Since October 1, 2010, municipal
advisors, and any persons associated
with a municipal advisor, have had a
fiduciary duty to any municipal entity
for whom the municipal advisor acts as
a municipal advisor. In addition, the
Commission notes that a dealer acting as
an underwriter who must also register
as a municipal advisor may be subject
to additional rules (including, but not
limited to, limitations on unmanageable
conflicts or additional disclosures
regarding compensation and conflicts of
interest) based upon fiduciary duty or
other laws or rules.
B. Rebuttable Presumption of Financial
Advisor Status
Several commenters objected to the
rebuttable presumption in the proposed
interpretive guidance, which stated that
a dealer that provides advice to an
issuer with respect to the issuance of
municipal securities will be presumed
to be a financial advisor with respect to
that issue and suggested that the
presumption be eliminated. One
commenter suggested that the
interpretive guidance does not provide
any clarity because it states that an
underwriter could still be considered a
financial advisor by engaging in certain
42 See, e.g., PFM Letter, Joy Howard Letter,
NAIPFA Letter and Kidwell Letter.
43 See Amendment No. 1 at 4.
44 See Municipal Advisor Registration Proposing
Release, supra note 11.
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unspecified subsequent actions.45 This
commenter opined that rather than
using presumptions, the rule should be
that if a party is engaged by an issuer
as a financial advisor, then it is a
financial advisor; and if a party is
engaged by an issuer as an underwriter,
then it is an underwriter.46 This
commenter further stated that if the
Commission does not believe issuers
can understand the differences between
those roles, it can prescribe disclosures
to make the differences clear.47
Another commenter expressed
concerns with the ability of
underwriters to advise issuers in
connection with an offering in the
context of the proposed rebuttable
presumption.48 The commenter stated
that, in connection with the solicitation
of municipal underwriting business,
prospective underwriters are frequently
asked by issuers about structuring and
strategic alternatives, comparative
analyses and general market
intelligence, and other relevant ideas,
and this dialogue provides an important
informational foundation for many
issuers in the financing process.49 As
such, this commenter stated that the
presumption that dealers are financial
advisors would chill or eliminate this
pre-engagement exchange, particularly
because even if a dealer had properly
alerted the issuer that it was acting
solely as an underwriter, its subsequent
course of conduct may still cause it to
be considered a financial advisor and
thus be precluded from participating in
the underwriting.50 The commenter
stated that this problem is exacerbated
because of the proposed deletion of the
reference to compensation in Rule G–
23(b), which has provided a bright line
for determining whether a person is a
financial advisor.51 Consequently, the
commenter suggested that the
presumption be eliminated, and instead,
the interpretive guidance should
provide that dealers intending to act
solely as underwriters make clear and
unambiguous such intentions in their
initial communications with the
issuer.52 Another commenter objected to
45 See
BDA Letter at 3.
id.
47 See id.
48 See SIFMA Letter at 3.
49 See id. at 4.
50 See id.
51 See id.
52 See id. This commenter further suggested that
the proposed interpretive guidance should provide
that a written agreement between the prospective
underwriter and municipal issuer reflecting such
understanding would, in fact, establish a
presumption that the underwriter will continue to
act in such role throughout the pendency of the
offering. See id. at 4–5.
46 See
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the proposed presumption and stated
that underwriter conduct is clearly
discernible because such transactions
are formally concluded by a bond
purchase agreement.53
On the other hand, several
commenters requested more guidance
about the content of the actions
necessary to rebut the presumption of
financial advisory status.54 One
commenter stated that ‘‘[t]o give the
Rule any substantive meaning, the
timing and content of a rebuttal of a
municipal advisory relationship must be
well defined * * * It is particularly
important that the rebuttal be clear
about the broker-dealer’s role and its
limits in the context of a negotiated
transaction in which there is no
municipal advisor.’’ 55
In response, in Amendment No. 1, the
MSRB noted that Amendment No. 1
would amend the proposed interpretive
guidance by removing the rebuttable
presumption language and replacing it
with language that a financial advisory
relationship will be deemed to exist
whenever a dealer renders the types of
advice provided for in proposed Rule
G–23(b), because the revised language is
more consistent with the language of
proposed Rule G–23(b).
C. Section 23(c): Writing Requirement
for Financial Advisors
One commenter recommended that
Rule G–23(c) be deleted or revised 56
because it is no longer necessary.57 This
commenter stated that the Dodd-Frank
Act provided a definition of ‘‘municipal
advisor’’ and the Commission’s
proposing release on the registration of
municipal advisors made it clear that an
individual will be treated as a
53 See
BMO Letter.
Joy Howard Letter at 5–8 and Fieldman
Letter. For example, one commenter raised
questions about the meaning of the phrases ‘‘in the
course of acting as an underwriter’’ and ‘‘clearly
identify itself as an underwriter’’ as they are used
in the proposed interpretive guidance. See Joy
Howard Letter at 5–8.
55 Fieldman Letter. This commenter suggested
that the rebuttal must state that the underwriter
broker-dealer is not serving as a municipal advisor;
that the underwriter also represents interests that
may conflict with those of the issuer; and that the
broker-dealer does not owe a fiduciary duty and
duties of loyalty and care to the issuer. See id. This
commenter also suggested that the rebuttal must be
in writing and acknowledged by the issuer, and
must be provided prior to the beginning of any
work for the issuer. See id.
56 See Joy Howard Letter at 3–4. This commenter
suggested that the rule be modified such that a
broker-dealer that intends to serve as an
underwriter would be required to submit to the
municipal entity a written document that defines
the broker-dealer’s role as an underwriter, and
indicates that the underwriter is not serving as an
advisor and is not serving as a fiduciary. See id. at
4.
57 See id. at 3.
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54 See
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municipal advisor regardless of whether
these services are free.58 As such, the
commenter opined that a written
agreement is unnecessary for
determining whether the broker-dealer
is a financial advisor.59
In response, in Amendment No. 1, the
MSRB noted that Amendment No. 1
would amend the proposed interpretive
guidance to reiterate what Rule G–23
has always provided: it is not necessary
to have a writing in order for a financial
advisory relationship to exist. Instead,
Rule G–23(c) provides that a writing
must be entered into prior to, upon or
promptly after the inception of the
financial advisory relationship. The
Commission believes that the change in
Amendment No. 1 clarifying that it is
not necessary to have a written
agreement for a financial advisory
relationship to exist is consistent with
the provisions of the Exchange Act.
D. Small and/or Infrequent Issuers
Several commenters 60 stated that the
proposed amendments to Rule G–23
would harm small and infrequent
issuers, with one commenter 61
specifically calling for an exemption for
‘‘Small Issue Deals’’ or ‘‘offerings under
$5 million in aggregate principal
amount’’ and another commenter 62
calling for an exemption for ‘‘issuances
under $10 million.’’
One commenter expressed concern
that the proposed rule change will
adversely impact small municipal bond
transactions because it will eliminate an
already limited number of potential
underwriters for such transactions,
resulting in decreased competition,
decreased choice, and increased costs to
issuers.63 Several other commenters
expressed similar concerns about
decreased competition, decreased
choice, and increased costs.64 Further,
one commenter stated that it is unaware
of any history of abuse in simple fixed
rate bonds that make up most of the
small issuances, and that any concern
relating to potential abuse by financial
advisors is addressed through federal
and state fiduciary duties imposed on
financial advisors.65 One commenter
suggested that, if the proposed rule
change is approved, the MSRB carefully
monitor the impact of the rule change
on small and/or infrequent issuers and
58 See
id.
id.
60 See e.g., RBC Letter, First Southwest Letter,
BDA Letter and SIFMA Letter. See also Eastern
Bank Letter.
61 See First Southwest Letter at 1–2.
62 See SIFMA Letter at 5.
63 See First Southwest Letter at 1.
64 See SIFMA Letter at 5 and BDA Letter at 2.
65 See SIFMA Letter at 5.
59 See
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revise the rule if needed to increase
market accessibility.66
On the other hand, one commenter
that supported the proposed
amendments to Rule G–23 did not
support an exception to the proposed
amendments for small and/or infrequent
issuers.67 This commenter noted that
small and infrequent issuers will be the
primary beneficiaries of the revised Rule
G–23 because these issuers are the least
likely to understand the conflicts of
interest that arise when a financial
advisor switches to serving as an
underwriter.68
In Amendment No. 1, the MSRB
stated that it believes that the potential
negative impact on fees and market
accessibility for small and/or infrequent
issuers would be minimal compared to
the protections that will be afforded to
such issuers. The MSRB stated that it
was persuaded by arguments that small
and/or infrequent issuers are, in many
cases, unable to appreciate the
difference in the nature of the roles of
a financial advisor and an underwriter
and did not believe that exceptions
should be provided for smaller offerings
as suggested by several commenters.
The Commission agrees that it is
appropriate to apply the protections of
proposed Rule G–23 to small and/or
infrequent issuers.
E. Competitive Bid Offerings
Six commenters 69 supported changes
to the proposed amendments that would
exempt some or all competitively bid
transactions from the proposed rule
change. Several commenters stated that
there has been no history of abuse by
dealers that had previously served as
financial advisors in competitive bids.70
One commenter pointed out that the
competitive bidding process for
municipal issues has become almost
exclusively electronic, and the
electronic process provides for a
66 See
BDA Letter at 2.
Joy Howard Letter at 10.
68 See id.
69 See Giles Letter, BDA Letter, Baird Letter, RBC
Letter, SIFMA Letter and First Southwest Letter.
One commenter stated that except for municipal
bond transactions under $5 million, the commenter
does not believe there should be an exception for
competitively bid transactions. See First Southwest
Letter at 1.
70 See RBC Letter at 2. This commenter stated that
there is no evidence that financial advisors
structure transactions to give themselves an
advantage, or are not diligent in seeking other
bidders in order to improve their chances of being
the successful bidder. See id. See also Baird Letter
at 3; SIFMA Letter at 3; and Giles Letter at 1 (stating
that the proposed rule change is based on the
‘‘specious argument’’ that ‘‘a conflict of interest
might exist when a financial advisor acts as an
underwriter,’’ and that there is no tangible proof
that an actual conflict of interest exists or that such
conflict of interest has resulted in wrongdoing).
67 See
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completely transparent, highly efficient
and tamper proof process.71 Another
commenter stated that the municipal
underwriting market is competitive, and
competition and transparency resulting
from a free and open market would
prohibit inappropriate or unethical
behavior by financial advisors acting as
underwriters.72 One other commenter
stated that financial advisors would
have no practical opportunity in these
straightforward, simple contexts to
structure an offering that might give
them any competitive advantage.73
Several commenters also expressed
concern that by prohibiting the bid of
financial advisors under the proposed
rule change, issuers may end up being
locked out of the market, or the lowest
bid would be removed from the process,
harming particularly the smaller
issuers.74 Moreover, some commenters
stated that concerns relating to potential
abuse by financial advisors would be
addressed through their fiduciary duties
under federal and state law.75
On the other hand, one commenter
expressed support for the absence of an
exception for competitive sales in the
proposed rule change because this
would ensure that financial advisors
aggressively work to secure the largest
number of bids possible.76 This
commenter acknowledged that there
could be instances where a small issuer
experiences difficulty in obtaining
bids.77 However, the commenter stated
that if a financial advisor is allowed to
switch roles to become an underwriter,
the financial advisor would effectively
be allowed to breach its fiduciary duty
71 See RBC Letter at 2. See also SIFMA Letter at
3 (stating that ‘‘competitively bid, non rated, non
credit-enhanced, fixed rate municipal debt
issuances in which the issuer utilizes an electronic
bidding platform’’ should be exempt from the
proposed rule change in order to ensure continued
unfettered access to the credit markets for
municipal issuers).
72 See Giles Letter at 2. See also BDA Letter at 2
(stating that potential conflicts of interest for
financial advisors who act as underwriters are
eliminated in a fairly run, competitively bid
offering of securities) and Giles Letter at 1 (stating
that ‘‘any conflict of interest that might exist would
be erased by permitting competitive bidding’’).
73 See SIFMA Letter at 3.
74 See RBC Letter at 2. This commenter opined
that this proposed rule change would create an
additional artificial barrier to entry to the market by
non-rated competitive issuers because such issuers
have historically depended on ‘‘bidders that are
willing to do their homework in order to bid,’’ such
as financial advisors. See id. at 3. See also SIFMA
Letter at 3 and Giles Letter at 2 (stating that the
proposed rule change could be economically
harmful to taxpayers by eliminating competitive
bidders and precluding best execution for the
issuer).
75 See SIFMA Letter at 3. See also RBC Letter at
3.
76 See Joy Howard Letter at 10.
77 See id.
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by structuring and marketing the
transaction in a fashion to insure their
success as the winning bidder rather
than seeking to obtain the largest
number of bids possible.78
In Amendment No. 1, the MSRB
stated that it does not believe that the
use of electronic bidding platforms
mitigates the conflict of interest posed
by a dealer financial advisor’s switching
to an underwriter role, in part, because
such platforms are not necessarily
available to all issuers. Further, in the
Commission Notice, the MSRB stated its
belief that involvement in this process
provides a dealer financial advisor with
information that can provide an unfair
advantage when such dealer participates
in a competitive bid transaction. The
Commission believes that the MSRB’s
proposed rule change helps prevent
potential conflicts of interest and/or
unfair competition issues that could
arise when a dealer financial advisor
participates in a competitive bid
transaction without limiting access to
potential purchasers of an issuance of
municipal securities.
Another commenter stated that because
municipal advisors had a fiduciary duty
under federal law effective October 1,
2010, any role switching that occurred
after that date is a violation of the
Exchange Act.84
In response, in Amendment No. 1, the
MSRB stated that it does not
recommend changing the current
proposal that the rule change be made
effective for new issues for which the
Time of Formal Award (as defined in
MSRB Rule G–34) occurs more than six
months after Commission approval. In
addition, the MSRB does not
recommend a grandfather provision, as
the MSRB has determined that the
effective date described above provides
an ample time period for issuers of
municipal securities to finalize any
outstanding transactions that might be
affected by the proposed rule change.
The Commission believes that the
proposed effective date for proposed
Rule G–23 is appropriate.
F. Effective Date
Several commenters suggested that
the six-month transition period
provided in the proposed rule change
should be extended. Commenters
suggested various transitional
timeframes to allow market participants
adequate time to comply with any
changes.79 One commenter suggested a
transitional period of one year to allow
issuers, dealers, and financial advisors
sufficient time to take action to comply
with the rules.80 Another commenter
expressed concern that the six-month
implementation period proposed by the
MSRB for the proposed rule change is
insufficient to avoid market
disruption.81 One commenter suggested
incorporating a grandfather clause that
would allow current Rule G–23 to
continue to apply to financial advisory
relationships that are in place at the
time the proposed rule change is
adopted.82
On the other hand, several
commenters suggested that the
transition period should be shortened or
eliminated. One commenter suggested
that in order to clarify and enforce the
fiduciary duty of financial advisors,
there should not be a transition period
for prohibiting role switching from
financial advisor to underwriter.83
Several commenters expressed
concern that the MSRB never published
the proposed interpretive guidance to
proposed Rule G–23 for public comment
before it was filed with the Commission,
as it did with other amendments to Rule
G–23.85 In response, in Amendment No.
1, the MSRB noted that it filed the
proposed rule change with the
Commission in accordance with the
requirements of Section 19(b) of the
Exchange Act, which generally provides
for a 21-day comment period following
publication in the Federal Register of a
rule change proposed by a selfregulatory organization.
Two commenters objected to the part
of the proposed rule change that would
allow for a dealer to serve as a financial
advisor on one transaction and serve as
the underwriter on a separate
transaction for the same issuer.86 One
commenter suggested that proposed
Rule G–23 be revised such that it would
force the underwriter acting as an
advisor to decide which role they will
play for the issuer and prohibit the firm
from playing both roles at the same
78 See
id.
BDA Letter, Baum Letter and SIFMA Letter.
80 See BDA Letter at 3.
81 See SIFMA Letter at 6.
82 See id.
83 See Joy Howard Letter at 9. This commenter
stated that in MSRB Notice 2010–42, dated October
79 See
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G. Other Comments
1, 2010, the MSRB stated that financial advisors are
subject to a federal fiduciary duty to their
municipal entity clients as of October 1, 2010, even
before MSRB rulemaking on the subject. See id. As
such, this commenter stated that any broker-dealer
that has served as a financial advisor on or after
October 1, 2010 and subsequently switched to
serving as an underwriter has already violated its
fiduciary duty. See id.
84 See NAIPFA Letter at 8.
85 See e.g., PFM Letter at 1–2 and GFOA Letter
at 2.
86 See NAIPFA Letter at 9 and GFOA Letter at 1.
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time.87 This commenter suggested a one
year cooling off period from the time an
advisor terminates its role as a
municipal advisor and the time the
advisor would be allowed to negotiate
an issue with the issuer or act in any
other role that is inconsistent with the
role of a fiduciary.88 One commenter
raised a concern that some brokerdealers serve as financial advisors with
the objective of establishing a
relationship with the issuer that will
ultimately enable the company to serve
as the underwriter for subsequent
transactions, and that the proposed rule
change does not resolve this conflict of
interest.89 As such, this commenter
suggested that Rule G–23 require a twoyear period after a financial advisory
relationship has expired before a brokerdealer serving as a financial advisor can
switch to serving as an underwriter.90
In response, in Amendment No. 1, the
MSRB noted that it has determined to
continue to apply Rule G–23 on an
issue-by-issue basis. The proposed
amendments would not prohibit a
dealer financial advisor from providing
financial advisory services on one issue
and then serving as underwriter on
another issue, even if the two issues
were in the market concurrently. The
Commission believes that applying
proposed Rule G–23 on an issue-byissue basis is consistent with the
Exchange Act in light of the
requirements in the proposed rule that
a dealer clearly identify its role as an
underwriter and engage in a course of
conduct not inconsistent with that role.
Another commenter expressed
concern about the requirement that a
dealer may not act as a remarketing
agent with respect to an issue for one
year following the termination of an
advisory relationship in connection
with such issue.91 This commenter
opined that the one-year period is
arbitrary and unnecessarily long, and
should be no longer than three
months.92 In response, the MSRB noted
in Amendment No. 1 that it has
previously stated that it does consider it
to be appropriate to impose a one-year
cooling off period during which a dealer
financial advisor could not serve as
remarketing agent for the same issue of
municipal securities. The MSRB stated
that the one year period is a significant
timeframe that would more adequately
address any potential or actual conflicts
of interest than the three month
87 See
NAIPFA Letter at 9.
id.
89 See Joy Howard Letter at 9.
90 See id. at 10.
91 See SIFMA Letter at 5–6.
92 See id.
88 See
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timeframe. The Commission agrees with
the MSRB that a one-year cooling off
period is appropriate.
One commenter stated that current
Rule G–23 has provided balanced
guidance to financial advisors who seek
to act as underwriters without any
history of abuse.93 As such, the
commenter suggested that the
Commission consider sunsetting the
proposed rule change two years after its
implementation, which would allow the
MSRB to assess the impact of the
proposed rule change and would ensure
reconsideration of the actual need for its
continuance at such time.94 In response,
the MSRB stated in Amendment No. 1
that it does not recommend a sunset
provision, as the MSRB and
Commission comment periods have
provided ample opportunity for public
comment and considerations of those
comments on the proposed rule change.
The Commission agrees with the MSRB
that a sunset provision is not
appropriate. In particular, the
Commission notes the importance of the
protections that will be provided by
proposed Rule G–23, as amended, and
believes it is appropriate to have those
protections on a going-forward basis and
not to sunset the Rule after a specified
period of time.
II. Discussion and Commission’s
Findings
The Commission has carefully
considered the proposed rule change,
the comment letters received, and
Amendment No.1 and finds that the
proposed rule change, as amended, is
consistent with the requirements of the
Exchange Act and the rules and
regulations thereunder applicable to the
MSRB.95
In particular, the Commission finds
that the proposed rule, as amended,
does not conflict with Section
15B(e)(4)(A) of the Exchange Act,96
which defines the term ‘‘municipal
advisor,’’ because the proposed rule, as
amended, explicitly does not state
whether provision of the advice
permitted by proposed Rule G–23, as
amended, would cause the dealer to be
considered a ‘‘municipal advisor’’ under
the Exchange Act.
The Commission also finds that the
proposed rule, as amended, does not
conflict with the provisions of Section
15B(c)(1) of the Exchange Act,97 which
93 See
id. at 6.
94 See id. See also BMO Letter.
95 In approving this proposed rule change, the
Commission notes that it has considered the
proposed rule’s impact on efficiency, competition
and capital formation. See 15 U.S.C. 78c(f).
96 15 U.S.C. 78o–4(e)(4)(A).
97 15 U.S.C. 78o–4(c)(1).
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provides that ‘‘[a] municipal advisor
* * * shall be deemed to have a
fiduciary duty to any municipal entity
for whom such municipal advisor acts
as a municipal advisor’’ because, as the
MSRB notes in Amendment No. 1, the
proposed rule, as amended, does not set
normative standards for dealer conduct.
The Commission notes that other laws
or rules may set the normative standards
for the activities allowed by the
proposed rule, as amended.
The Commission believes that the
proposed rule, as amended, is consistent
with Section 15B(b)(2) of the Exchange
Act 98 and, in particular, Section
15B(b)(2)(C) of the Exchange Act,99
which provides that the rules of the
MSRB shall:
be designed to prevent fraudulent and
manipulative acts and practices, to promote
just and equitable principles of trade, to
foster cooperation and coordination with
persons engaged in regulating, clearing,
settling, processing information with respect
to, and facilitating transactions in municipal
securities and municipal financial products,
to remove impediments to and perfect the
mechanism of a free and open market in
municipal securities and municipal financial
products, and, in general, to protect
investors, municipal entities, obligated
persons, and the public interest.
The proposed rule change, as
amended, is consistent with Section
15B(b)(2) of the Exchange Act because it
will help prevent potentially fraudulent
and manipulative acts and practices
caused by a dealer financial advisor
serving as underwriter or placement
agent for an issue of municipal
securities for which it provided
financial advisory services.
Accordingly, the proposed rule change,
as amended, will help protect municipal
entities and help to perfect the
mechanism of a free and open market in
municipal securities to the benefit of
investors, municipal entities, and the
public interest.
Furthermore, the Commission finds
that the proposed rule, as amended, is
consistent with Section 15B(b)(2)(L)(iv)
of the Exchange Act,100 which requires
that rules adopted by the MSRB:
not impose a regulatory burden on small
municipal advisors that is not necessary or
appropriate in the public interest and for the
protection of investors, municipal entities,
and obligated persons, provided that there is
robust protection of investors against fraud.
The Commission believes that the
proposed rule, as amended, would
principally affect dealer financial
advisors that are not small municipal
98 15
U.S.C. 78o–4(b)(2).
U.S.C. 78o–4(b)(2)(C).
100 15 U.S.C. 78o–4(b)(2)(L)(iv).
99 15
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advisors. Furthermore, it is likely that
those dealer financial advisors that are
small municipal advisors primarily
serve as financial advisors to issuers of
municipal securities that do not access
the capital markets frequently and,
when they do so, issue securities in
small principal amounts. Those issuers
may be less likely than larger, more
frequent issuers to understand the
conflict presented when their financial
advisors also underwrite their
securities. The Commission believes it
is appropriate for the prohibitions in the
proposed rule, as amended, to also
apply to those dealer financial advisors
that are small municipal advisors.
a.m. and 3 p.m. Copies of such filing
also will be available for inspection and
copying at the principal office of the
MSRB. All comments received will be
posted without change; the Commission
does not edit personal identifying
information from submissions. You
should submit only information that
you wish to make available publicly. All
submissions should refer to File
Number SR–MSRB–2011–03 and should
be submitted on or before June 24, 2011.
III. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether Amendment No. 1 to
the proposed rule change is consistent
with the Exchange Act. Comments may
be submitted by any of the following
methods:
The Commission finds good cause for
approving the proposed rule change, as
modified by Amendment No. 1, before
the 30th day after the date of
publication in the Federal Register. The
Commission notes that the proposal was
published for notice and comment, and
the Commission received eighteen
comment letters, which comments have
been discussed in detail above.
The Commission believes that
Amendment No.1 is consistent with the
requirements of the Exchange Act and
finds good cause, consistent with
Section 19(b)(2) of the Act,101 to
approve the proposed rule change, as
modified by Amendment No. 1, on an
accelerated basis.
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Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–MSRB–2011–03 on the
subject line.
Paper Comments
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–1090.
All submissions should refer to File
Number SR–MSRB–2011–03. This file
number should be included on the
subject line if e-mail is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street, NE.,
Washington DC 20549, on official
business days between the hours of 10
VerDate Mar<15>2010
15:49 Jun 02, 2011
Jkt 223001
IV. Accelerated Approval of Proposed
Rule Change, as Modified by
Amendment No. 1
V. Conclusion
For the foregoing reasons, the
Commission finds that the proposed
rule change, as modified by Amendment
No. 1, is consistent with the
requirements of the Exchange Act and
the rules and regulations thereunder
applicable to the MSRB, and in
particular, Sections 15B(b)(2),102
15B(c)(1),103 and 15B(e)(4)(A) 104 of the
Exchange Act. The proposal will
become effective for new issues for
which the Time of Formal Award (as
defined in MSRB Rule G–
34(a)(ii)(C)(1)(a)) occurs more than six
months after the date of this order.
It is therefore ordered, pursuant to
Section 19(b)(2) of the Exchange Act,105
that the proposed rule change (SR–
MSRB–2011–03), as modified by
Amendment No. 1, be, and hereby is,
approved on an accelerated basis.
101 15
U.S.C. 78s(b)(2).
U.S.C. 78o–4(b)(2).
103 15 U.S.C. 78o–4(c)(1).
104 15 U.S.C. 78o–4(e)(4)(A).
105 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.106
Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011–13752 Filed 6–2–11; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–64563; File No. SR–Phlx–
2011–70]
Self-Regulatory Organizations;
NASDAQ OMX PHLX LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Modify the
Functionality of NASDAQ OMX PSX’s
Post-Only Order
May 27, 2011.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on May 19,
2011, NASDAQ OMX PHLX LLC (the
‘‘Exchange’’ or ‘‘PHLX’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of the Substance
of the Proposed Rule Change
The Exchange is filing this proposed
rule change to modify the functionality
of the Post-Only Order on NASDAQ
OMX PSX (‘‘PSX’’). PHLX proposes to
implement the rule change thirty days
after the date of filing or as soon
thereafter as practicable. The text of the
proposed rule change is available at
https://
nasdaqomxphlx.cchwallstreet.com/
NASDAQOMXPHLX/Filings/, at PHLX’s
principal office, and at the
Commission’s Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
102 15
PO 00000
Frm 00121
Fmt 4703
Sfmt 4703
32255
106 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
E:\FR\FM\03JNN1.SGM
03JNN1
]]>Agencies
[Federal Register Volume 76, Number 107 (Friday, June 3, 2011)]
[Notices]
[Pages 32248-32255]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-13752]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-64564; File No. SR-MSRB-2011-03]
Self-Regulatory Organizations; Municipal Securities Rulemaking
Board; Notice of Filing of Amendment No. 1 and Order Granting
Accelerated Approval of a Proposed Rule Change, as Modified by
Amendment No. 1, to Amend Rule G-23, on Activities of Financial
Advisors
May 27, 2011
On February 9, 2011, the Municipal Securities Rulemaking Board
(``Board'' or ``MSRB'') filed with the Securities and Exchange
Commission (``Commission''), pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Exchange Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to amend MSRB Rule G-23, on
activities of financial advisors. The Commission published the proposed
rule change for comment in the Federal Register on February 28, 2011
(the ``Commission Notice'').\3\ The Commission received eighteen
comment letters.\4\ On May 27,
[[Page 32249]]
2011, the MSRB filed an amendment (``Amendment No. 1'') to the proposed
rule change.\5\ The Commission is publishing this notice and order to
solicit comments on Amendment No. 1 and to approve the proposed rule
change, as modified by Amendment No. 1.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 63946 (February 22,
2011), 76 FR 10926.
\4\ See letter from F. John White, Chief Executive Officer,
Public Financial Management, Inc., dated February 25, 2011 (``PFM
Letter''); e-mail to Mary N. Simpkins, Senior Special Counsel,
Commission, from Patricia Bowen, Vice President, Eastern Bank, dated
March 2, 2011 (``Eastern Bank Letter''); letter from Robert W. Doty,
President, American Governmental Financial Services, dated March 10,
2011 (``AGFS Letter''); letter from Hill A. Feinberg, Chairman and
CEO, First Southwest Company, dated March 16, 2011 (``First
Southwest Letter''); letter from Carl Giles, dated March 16, 2011
(``Giles Letter''); letter from Keith Kolb, Managing Director,
Director of Baird Public Finance, Robert W. Baird & Co.
Incorporated, dated March 18, 2011 (``Baird Letter''); letter from
Joy A. Howard, Principal, WM Financial Strategies, dated March 18,
2011 (``Joy Howard Letter''); letter from Christopher Hamel, Head of
Municipal Finance, RBC Capital Markets, LLC, dated March 21, 2011
(``RBC Letter''): letter from Nathan R. Howard, Municipal Advisor,
WM Financial Strategies, dated March 21, 2011 (``Nathan Howard
Letter''); letter from Mike Nicholas, Chief Executive Officer, Bond
Dealers of America, dated March 21, 2011 (``BDA Letter''); e-mail
from David A. Wagner, Senior Vice President and Financial Advisor,
Ehlers Associates, Inc., dated March 21, 2011 (``Ehlers Letter'');
letter from Colette J. Irwin-Knott, President, National Association
of Independent Public Finance Advisors, dated March 21, 2011
(``NAIPFA Letter''); letter from Steve Apfelbacher, President,
Ehlers Associates, Inc., dated March 21, 2011 (``Apfelbacher
Letter''): letter from Leslie M. Norwood, Managing Director and
Associate General Counsel, The Securities Industry and Financial
Markets Association, dated March 21, 2011 (``SIFMA Letter''); letter
from Larry Kidwell, President, Kidwell & Company Inc., dated March
21, 2011 (``Kidwell Letter''); e-mail from Robert J. Stracks,
Counsel, BMO Capital Markets GKST Inc., dated March 22, 2011 (``BMO
Letter''); letter from Susan Gaffney, Director, Federal Liaison
Center, Government Finance Officers Association, dated March 21,
2011 (``GFOA Letter''); letter from Thomas M. DeMars, Managing
Principal, Fieldman, Rolapp & Associates, dated March 23, 2011
(``Fieldman Letter'').
\5\ Amendment No. 1 partially amends the text of the original
proposed interpretive notice to: (i) Clarify that Rule G-23 is
solely a conflicts rule; (ii) eliminate the rebuttable presumption
that a dealer providing certain advice is a financial advisor; (iii)
emphasize that Rule G-23(b) does not require a writing in order for
a financial advisory relationship to exist; (iv) provide additional
clarity as to when a dealer will be deemed to be ``acting as an
underwriter'' and not as a financial advisor for purposes of Rule G-
23(b); and (v) provide guidance on certain activities (in addition
to underwriting activities) in which a dealer may engage without
violating Rule G-23(d).
---------------------------------------------------------------------------
I. Description of Proposed Rule Change and Summary of Comments
As described in the Commission Notice, the MSRB is proposing to
amend its Rule G-23, on activities of financial advisors. Proposed Rule
G-23 would, subject to limited exceptions, (i) prohibit a dealer
financial advisor with respect to the issuance of municipal securities
from acquiring all or any portion of such issue directly or indirectly,
from the issuer as principal, or acting as agent for the issuer in
arranging the placement of such issue, either alone or as a participant
in a syndicate or other similar account formed for that purpose; (ii)
apply the same prohibition to any dealer controlling, controlled by, or
under common control with the dealer financial advisor; and (iii)
prohibit a dealer financial advisor from acting as the remarketing
agent for such issue. In addition, the proposed interpretive guidance,
as amended, would provide guidance on when a dealer that renders advice
would be considered to be ``acting as an underwriter'' rather than as a
financial advisor for purposes of proposed Rule G-23.
The proposed rule change resulted from a concern that a dealer
financial advisor's ability to underwrite the same issue of municipal
securities, on which it acted as financial advisor, presented a
conflict that is too significant for the existing disclosure and
consent provisions of Rule G-23 to cure. Even in the case of a
competitive underwriting, the perception on the part of issuers and
investors that such a conflict might exist was sufficient to cause
concern that permitting such role switching was not consistent with ``a
free and open market in municipal securities,'' which the Board is
mandated to perfect.\6\ Of the eighteen comment letters received on the
proposed rule change,\7\ eleven commenters expressed some support for
the proposed rule change, including the general principle that prompted
the proposed rule change, but these commenters also suggested certain
changes to or exemptions from the proposed rule change.\8\ Seven
commenters objected to all or part of the proposed rule change.\9\
---------------------------------------------------------------------------
\6\ See Commission Notice, supra note 3 at 10927.
\7\ See supra note 4.
\8\ See PFM Letter, AGFS Letter, First Southwest Letter, Joy
Howard Letter, Nathan Howard Letter, Ehlers Letter, NAIPFA Letter,
Apfelbacher Letter, Kidwell Letter, GFOA Letter and Fieldman Letter.
\9\ See Eastern Bank Letter, Giles Letter, Baird Letter, RBC
Letter, BDA Letter, SIFMA Letter and BMO Letter.
---------------------------------------------------------------------------
The MSRB's responses to comments and changes to the proposed rule
change made by Amendment No. 1 are described below.
A. Scope of ``Acting as an Underwriter'' and Rule G-23(b)
Several commenters stated that the proposed rule change would
preserve the general confusion between the role of a financial advisor
and the role of an underwriter and preserve historically abusive market
practices.\10\ One commenter expressed concern that the exemption for
underwriters under the proposed interpretive guidance is inconsistent
with the underwriter exemption provided under the Dodd-Frank Act and
the Commission's proposed rules,\11\ and would help underwriters evade
fiduciary duties.\12\ Another commenter stated that the proposed rule
change: (i) Undermines the will of the Exchange Act to adhere to clear
lines between interests that are public and interests that are private;
(ii) perpetuates a culture of conflict that the Exchange Act intended
to eliminate; (iii) creates loopholes for bank/broker dealers to
continue to serve in multiple roles and represent conflicting interests
in transactions; (iv) avoids the intent of the Exchange Act to impose
fiduciary duties on municipal advisors who are bank/broker dealers; (v)
creates confusion and perplexity as opposed to clarity and precision as
a baseline for interpretation of the rules; (vi) invites opportunity
for continued abuses of municipal issuers; and (vii) conflicts with the
stated mission of the MSRB to protect the interests of issuers,
investors, and the public trust, and not those of the bank/broker
dealer community.\13\
---------------------------------------------------------------------------
\10\ See Joy Howard Letter at 1-2. See also Kidwell Letter at 2-
3 and Nathan Howard Letter at 1. One commenter expressed the belief
that the current financial crisis was caused in part by the acts of
financial advisors who engaged in conflicts of interest that were
either undisclosed, or disclosed and misunderstood, by debt issuers,
borrowers, and investors. See id. at 2.
\11\ See Exchange Act Release No. 63576 (December 20, 2010), 76
FR 824 (January 6, 2011) (``Municipal Advisor Registration Proposing
Release'').
\12\ See PFM Letter at 2-4.
\13\ See Kidwell Letter at 4. This commenter stated that state
and local governments and their instrumentalities should be held to
a different and higher standard than individuals or corporations
because the risk associated with loss due to a conflict of interest
is of public monies, where the officials responsible for the
allowance of the conflict bear no personal financial responsibility
in association with such actions. See id. at 3.
---------------------------------------------------------------------------
Another commenter stated that it has asked the MSRB, on various
occasions, to consider whether it is appropriate for a broker-dealer to
provide the kind of advice that financial advisors typically
provide.\14\ This commenter stated that the MSRB has failed to
recognize the distinction between providing advice and acting as an
underwriter, and objected to the exemption from the definition of
municipal advisor for underwriters that render ``advice to an issuer,
including advice with respect to the structure, timing, terms and other
similar matters concerning the issuance of municipal securities.''\15\
---------------------------------------------------------------------------
\14\ See NAIPFA Letter at 1.
\15\ Id. at 2.
---------------------------------------------------------------------------
Other commenters expressed concern that the lack of distinction
between the ``advice'' provided by municipal advisors and the
``advice'' provided by underwriters will reduce market transparency and
the distinction between the roles, and as such will confuse market
participants, including small infrequent municipal issuers.\16\
Specifically, one commenter stated that because the proposed rule
change uses the term ``advice'' to describe both the actions of
financial advisors and underwriters, market participants will be
confused as to the type of services that may be provided.\17\ This
commenter suggested using the term ``recommendation or guidance'' in
the context of municipal advisors, and the term ``information'' in the
context of underwriters.\18\
---------------------------------------------------------------------------
\16\ See Joy Howard Letter at 8 and Nathan Howard Letter at 1.
\17\ See Nathan Howard Letter at 1.
\18\ See id. at 1-4.
---------------------------------------------------------------------------
Several commenters suggested enhanced disclosure by dealers who act
as underwriters. According to one commenter, with regard to negotiated
sales, dealers, in their course of engagement as underwriters,
typically provide input regarding matters related to the structure,
timing, and terms of the
[[Page 32250]]
bonds.\19\ The commenter stated its belief that this input should not
be substituted for advice the issuer receives from a financial
advisor.\20\ This commenter also suggested that when the issuer is
represented by a financial advisor, this underwriter input should not
be seen as violating the intent of Rule G-23.\21\ However, when the
issuer is not so represented, such input provided by the underwriter
becomes the issuer's sole source of financial advice, and this may
cause the underwriter to be the de facto financial advisor to the
issuer.\22\ The commenter suggested that the latter relationship should
be prohibited by Rule G-23.\23\ As such, this commenter suggested that
the proposed interpretive guidance should at least require the
underwriter to disclose that it is not serving as the issuer's
financial advisor, and has no fiduciary obligation to act in the best
interest of the issuer.\24\ This commenter further stated that
``[i]ssuers need to clearly understand that their underwriter is not
their financial advisor and that they are not discouraged from hiring a
financial advisor because of a loophole in the proposed Guidance that
suggests the underwriter can perform both roles.'' \25\
---------------------------------------------------------------------------
\19\ See GFOA Letter at 2.
\20\ See id.
\21\ See id..
\22\ See id.
\23\ See id.
\24\ See id.
\25\ Id.
---------------------------------------------------------------------------
Another commenter stated that if the Commission adopts the
expansive view of what constitutes ``acting as an underwriter'' as
proposed by the MSRB, the underwriters acting as financial advisors
should be required to decide the role they wish to play before they
talk with the issuer and affirmatively disclose the conflicts inherent
in their underwriting role to the issuer, if that is the role they
decide to pursue.\26\ Further, this commenter stated that any contract
that the underwriter had for acting as an advisor for an issuer must be
terminated when the firm is hired or seeks to be hired as an
underwriter to the issuer, or in any other role that is inconsistent
with the role of a fiduciary.\27\ Another commenter stated that a firm
should disclose in writing, prior to beginning any work for a municipal
issuer, whether it will be working as a broker-dealer or as a municipal
advisor so as to allow a municipality to make an informed decision to
use a broker-dealer instead of a municipal advisor.\28\
---------------------------------------------------------------------------
\26\ See NAIPFA Letter at 7-8. This commenter also noted the
extensive affirmative disclosure obligations the MSRB is seeking to
impose on municipal advisors, and the lack of similar disclosure
required of dealers. See id. As such, this commenter suggested that
dealers providing advice should be required to do more than merely
state that they are acting as an underwriter to avoid being deemed a
financial advisor. See id. at 8. Rather, the commenter suggested
that disclosure similar to that proposed for municipal advisors
should be required for underwriters. See id.
\27\ See NAIPFA Letter at 8.
\28\ See Ehlers Letter.
---------------------------------------------------------------------------
Another commenter generally expressed support for the proposed rule
change and the proposed interpretive guidance.\29\ With respect to the
proposed interpretive guidance, the commenter pointed out that it is
possible that a dealer may make representations or engage in conduct at
the outset of a relationship that leads a municipal entity to believe
that the dealer, even though labeled as ``underwriter,'' is providing
advice in the municipal entity's best interests.\30\ Moreover, the
commenter stated that the ``advice'' offered to a municipal entity may
have other functions than being offered in an issuer's best
interests.\31\ Further, this commenter pointed out that even if a
direct explicit representation is not made, there are a variety of
methods to lead a municipal entity to believe that an underwriter's
advice places the entity's interests first.\32\ In addition, this
commenter expressed skepticism that merely informing an issuer that a
dealer will be an underwriter is sufficient to ``whitewash the dealer's
advice to the issuer'' because many issuers do not know the difference
between an underwriter and a financial advisor.\33\ As such, this
commenter suggested that the dealer be required to inform the issuer
that the advice is not offered in a fiduciary capacity, with an
explanation of what that means.\34\ Lastly, this commenter suggested
that dealers serving as underwriters should engage in discussions with
issuers underscoring the non-fiduciary character of the relationship
and state in bond purchase agreements atypical facts and circumstances
in which underwriters do assume fiduciary roles.\35\
---------------------------------------------------------------------------
\29\ See AGFS Letter at 1.
\30\ See id.
\31\ See id.
\32\ See id.
\33\ See id. at 2. See also Kidwell Letter at 2-3 (stating that
while conflicts of interest may have been disclosed to issuers, many
may not fully understand how their interests could be adversely
affected by permitting such conflicts of interest to exist).
\34\ See AGFS Letter at 2.
\35\ See id. at 2-3. The commenter also pointed out that the
discussions should occur at the outset of the relationship, and
prior to the time that issuers commit themselves to particular
courses of action. See id. at 3.
---------------------------------------------------------------------------
On a similar note, five commenters \36\ suggested amending or
deleting paragraph (b) of Rule G-23 in order to reduce confusion about
the scope of the role of an underwriter and the role of a financial
advisor. One of these commenters stated that under the Exchange Act, an
individual acts as a municipal advisor if it provides ``advice with
respect to the structure, timing, terms and other similar matters
concerning such financial products or issues,'' and a ``broker, dealer,
or municipal securities dealer serving as an underwriter'' is excluded
from the definition of a municipal advisor.\37\ This commenter then
pointed out that ``[t]he definition of `underwriter' under Section
2(a)(11) of the Securities Act of 1933 does not include `a person that
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, including advice with respect to the structure,
timing, terms, and other similar matters concerning such financial
products or issues.' '' \38\ As such, the commenter stated that
proposed Rule G-23 confuses the distinction between municipal advisors
and underwriters, thereby making the market less transparent and more
susceptible to conflicts of interest and abuse and that proposed Rule
G-23 would be less ambiguous if paragraph (b) was deleted in its
entirety.\39\ Another commenter suggested that the last sentence of
paragraph (b) of proposed Rule G-23 be revised to read:
``Notwithstanding the foregoing, for purposes of this rule, a financial
advisory relationship shall not be deemed to exist when, in the course
of acting as an underwriter, a broker, dealer or municipal securities
dealer provides information to an issuer relating to the sale of the
securities to investors such as transactional structures, the
underwriter's capabilities to sell various securities, how particular
terms of a security structure may affect rates and yields, and matters
incidental to the underwriting of a new issue of municipal
securities.'' \40\
---------------------------------------------------------------------------
\36\ See PFM Letter, Joy Howard Letter, Nathan Howard Letter,
NAIPFA Letter and Kidwell Letter.
\37\ See Joy Howard Letter at 2.
\38\ Id.
\39\ See id.
\40\ NAIPFA Letter at 6.
---------------------------------------------------------------------------
In response, in Amendment No. 1, the MSRB stated that, in order for
a dealer to be considered to be acting as an underwriter under Rule G-
23(b), it must clearly identify itself, in writing, as an underwriter
and not as a financial advisor from the earliest stages of the
[[Page 32251]]
relationship and, in the proposed interpretive guidance, as amended by
Amendment No. 1, the MSRB provides additional examples of what the
earliest stage of a relationship may be. Amendment No. 1 would also
amend the proposed interpretive guidance to provide that the required
disclosure must make clear that the primary role of an underwriter is
to purchase, or arrange the placement of, securities in an arm's-length
commercial transaction between the issuer and the underwriter and that
the underwriter has financial and other interests that differ from
those of the issuer. Additionally, as amended, the proposed
interpretive guidance would provide that the dealer must not engage in
a course of conduct that is inconsistent with an arm's length
relationship with the issuer in connection with such issue of municipal
securities or the dealer will be deemed to be a financial advisor with
respect to that issue and precluded from underwriting that issue by
Rule G-23(d). The MSRB is of the view that these disclosures would be
adequate to alert the issuer to the role of the dealer as an
underwriter with respect to an issue, especially when coupled with the
requirement that the dealer's course of conduct must not be
inconsistent with its disclosures if it is to avoid being considered a
financial advisor.
The Commission understands commenters' concerns regarding clarity
of the roles of an underwriter and a financial advisor and believes
that the requirement under the proposed rule, as amended, that a firm
wishing to serve as an underwriter must make a written disclosure of
its proposed role with respect to an issuance at the earliest stages of
its relationship with the issuer and continue to engage in a course of
conduct consistent with that role in connection with such issue, will
help achieve that clarity. In addition, the Commission notes that a
variety of facts and circumstances, including the presence or absence
of another firm serving as a financial advisor with respect to that
issuance, may ultimately inform any review of whether or not a dealer
has engaged in a course of conduct consistent with the role of an
underwriter with respect to that issue.
As discussed above, several commenters expressed concern that the
proposed rule conflicted with the provisions of Section 15B(c)(1) of
the Exchange Act \41\ which provides that ``municipal advisors have a
fiduciary duty to their municipal entity clients.'' \42\ The Commission
notes that the proposed rule, as amended, explicitly does not define
``whether provision of the advice permitted by Rule G-23 would cause
the dealer to be considered a `municipal advisor' under the Exchange
Act.'' In addition, the proposed interpretive guidance, as amended,
clarifies that ``Rule G-23 is only a conflicts-of-interest rule and
does not set normative standards for dealer conduct. In particular,
Rule G-23, as amended, would not address whether the provision of any
of the advice permitted by Rule G-23 would subject the dealer to a
fiduciary duty as a `municipal advisor.' '' \43\ The Commission further
notes that although it shall not be a violation of Rule G-23(d) for a
dealer acting as an underwriter to give advice with respect to the
investment of the proceeds of the issue, municipal derivatives
integrally related to the issue or other similar matters concerning the
issue, as proposed in the Municipal Advisor Registration Proposing
Release, such dealer would be required by the Commission to register as
a municipal advisor with respect to such advice.\44\ Since October 1,
2010, municipal advisors, and any persons associated with a municipal
advisor, have had a fiduciary duty to any municipal entity for whom the
municipal advisor acts as a municipal advisor. In addition, the
Commission notes that a dealer acting as an underwriter who must also
register as a municipal advisor may be subject to additional rules
(including, but not limited to, limitations on unmanageable conflicts
or additional disclosures regarding compensation and conflicts of
interest) based upon fiduciary duty or other laws or rules.
---------------------------------------------------------------------------
\41\ 15 U.S.C. 78o-4(c)(1).
\42\ See, e.g., PFM Letter, Joy Howard Letter, NAIPFA Letter and
Kidwell Letter.
\43\ See Amendment No. 1 at 4.
\44\ See Municipal Advisor Registration Proposing Release, supra
note 11.
---------------------------------------------------------------------------
B. Rebuttable Presumption of Financial Advisor Status
Several commenters objected to the rebuttable presumption in the
proposed interpretive guidance, which stated that a dealer that
provides advice to an issuer with respect to the issuance of municipal
securities will be presumed to be a financial advisor with respect to
that issue and suggested that the presumption be eliminated. One
commenter suggested that the interpretive guidance does not provide any
clarity because it states that an underwriter could still be considered
a financial advisor by engaging in certain unspecified subsequent
actions.\45\ This commenter opined that rather than using presumptions,
the rule should be that if a party is engaged by an issuer as a
financial advisor, then it is a financial advisor; and if a party is
engaged by an issuer as an underwriter, then it is an underwriter.\46\
This commenter further stated that if the Commission does not believe
issuers can understand the differences between those roles, it can
prescribe disclosures to make the differences clear.\47\
---------------------------------------------------------------------------
\45\ See BDA Letter at 3.
\46\ See id.
\47\ See id.
---------------------------------------------------------------------------
Another commenter expressed concerns with the ability of
underwriters to advise issuers in connection with an offering in the
context of the proposed rebuttable presumption.\48\ The commenter
stated that, in connection with the solicitation of municipal
underwriting business, prospective underwriters are frequently asked by
issuers about structuring and strategic alternatives, comparative
analyses and general market intelligence, and other relevant ideas, and
this dialogue provides an important informational foundation for many
issuers in the financing process.\49\ As such, this commenter stated
that the presumption that dealers are financial advisors would chill or
eliminate this pre-engagement exchange, particularly because even if a
dealer had properly alerted the issuer that it was acting solely as an
underwriter, its subsequent course of conduct may still cause it to be
considered a financial advisor and thus be precluded from participating
in the underwriting.\50\ The commenter stated that this problem is
exacerbated because of the proposed deletion of the reference to
compensation in Rule G-23(b), which has provided a bright line for
determining whether a person is a financial advisor.\51\ Consequently,
the commenter suggested that the presumption be eliminated, and
instead, the interpretive guidance should provide that dealers
intending to act solely as underwriters make clear and unambiguous such
intentions in their initial communications with the issuer.\52\ Another
commenter objected to
[[Page 32252]]
the proposed presumption and stated that underwriter conduct is clearly
discernible because such transactions are formally concluded by a bond
purchase agreement.\53\
---------------------------------------------------------------------------
\48\ See SIFMA Letter at 3.
\49\ See id. at 4.
\50\ See id.
\51\ See id.
\52\ See id. This commenter further suggested that the proposed
interpretive guidance should provide that a written agreement
between the prospective underwriter and municipal issuer reflecting
such understanding would, in fact, establish a presumption that the
underwriter will continue to act in such role throughout the
pendency of the offering. See id. at 4-5.
\53\ See BMO Letter.
---------------------------------------------------------------------------
On the other hand, several commenters requested more guidance about
the content of the actions necessary to rebut the presumption of
financial advisory status.\54\ One commenter stated that ``[t]o give
the Rule any substantive meaning, the timing and content of a rebuttal
of a municipal advisory relationship must be well defined * * * It is
particularly important that the rebuttal be clear about the broker-
dealer's role and its limits in the context of a negotiated transaction
in which there is no municipal advisor.'' \55\
---------------------------------------------------------------------------
\54\ See Joy Howard Letter at 5-8 and Fieldman Letter. For
example, one commenter raised questions about the meaning of the
phrases ``in the course of acting as an underwriter'' and ``clearly
identify itself as an underwriter'' as they are used in the proposed
interpretive guidance. See Joy Howard Letter at 5-8.
\55\ Fieldman Letter. This commenter suggested that the rebuttal
must state that the underwriter broker-dealer is not serving as a
municipal advisor; that the underwriter also represents interests
that may conflict with those of the issuer; and that the broker-
dealer does not owe a fiduciary duty and duties of loyalty and care
to the issuer. See id. This commenter also suggested that the
rebuttal must be in writing and acknowledged by the issuer, and must
be provided prior to the beginning of any work for the issuer. See
id.
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In response, in Amendment No. 1, the MSRB noted that Amendment No.
1 would amend the proposed interpretive guidance by removing the
rebuttable presumption language and replacing it with language that a
financial advisory relationship will be deemed to exist whenever a
dealer renders the types of advice provided for in proposed Rule G-
23(b), because the revised language is more consistent with the
language of proposed Rule G-23(b).
C. Section 23(c): Writing Requirement for Financial Advisors
One commenter recommended that Rule G-23(c) be deleted or revised
\56\ because it is no longer necessary.\57\ This commenter stated that
the Dodd-Frank Act provided a definition of ``municipal advisor'' and
the Commission's proposing release on the registration of municipal
advisors made it clear that an individual will be treated as a
municipal advisor regardless of whether these services are free.\58\ As
such, the commenter opined that a written agreement is unnecessary for
determining whether the broker-dealer is a financial advisor.\59\
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\56\ See Joy Howard Letter at 3-4. This commenter suggested that
the rule be modified such that a broker-dealer that intends to serve
as an underwriter would be required to submit to the municipal
entity a written document that defines the broker-dealer's role as
an underwriter, and indicates that the underwriter is not serving as
an advisor and is not serving as a fiduciary. See id. at 4.
\57\ See id. at 3.
\58\ See id.
\59\ See id.
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In response, in Amendment No. 1, the MSRB noted that Amendment No.
1 would amend the proposed interpretive guidance to reiterate what Rule
G-23 has always provided: it is not necessary to have a writing in
order for a financial advisory relationship to exist. Instead, Rule G-
23(c) provides that a writing must be entered into prior to, upon or
promptly after the inception of the financial advisory relationship.
The Commission believes that the change in Amendment No. 1 clarifying
that it is not necessary to have a written agreement for a financial
advisory relationship to exist is consistent with the provisions of the
Exchange Act.
D. Small and/or Infrequent Issuers
Several commenters \60\ stated that the proposed amendments to Rule
G-23 would harm small and infrequent issuers, with one commenter \61\
specifically calling for an exemption for ``Small Issue Deals'' or
``offerings under $5 million in aggregate principal amount'' and
another commenter \62\ calling for an exemption for ``issuances under
$10 million.''
---------------------------------------------------------------------------
\60\ See e.g., RBC Letter, First Southwest Letter, BDA Letter
and SIFMA Letter. See also Eastern Bank Letter.
\61\ See First Southwest Letter at 1-2.
\62\ See SIFMA Letter at 5.
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One commenter expressed concern that the proposed rule change will
adversely impact small municipal bond transactions because it will
eliminate an already limited number of potential underwriters for such
transactions, resulting in decreased competition, decreased choice, and
increased costs to issuers.\63\ Several other commenters expressed
similar concerns about decreased competition, decreased choice, and
increased costs.\64\ Further, one commenter stated that it is unaware
of any history of abuse in simple fixed rate bonds that make up most of
the small issuances, and that any concern relating to potential abuse
by financial advisors is addressed through federal and state fiduciary
duties imposed on financial advisors.\65\ One commenter suggested that,
if the proposed rule change is approved, the MSRB carefully monitor the
impact of the rule change on small and/or infrequent issuers and revise
the rule if needed to increase market accessibility.\66\
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\63\ See First Southwest Letter at 1.
\64\ See SIFMA Letter at 5 and BDA Letter at 2.
\65\ See SIFMA Letter at 5.
\66\ See BDA Letter at 2.
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On the other hand, one commenter that supported the proposed
amendments to Rule G-23 did not support an exception to the proposed
amendments for small and/or infrequent issuers.\67\ This commenter
noted that small and infrequent issuers will be the primary
beneficiaries of the revised Rule G-23 because these issuers are the
least likely to understand the conflicts of interest that arise when a
financial advisor switches to serving as an underwriter.\68\
---------------------------------------------------------------------------
\67\ See Joy Howard Letter at 10.
\68\ See id.
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In Amendment No. 1, the MSRB stated that it believes that the
potential negative impact on fees and market accessibility for small
and/or infrequent issuers would be minimal compared to the protections
that will be afforded to such issuers. The MSRB stated that it was
persuaded by arguments that small and/or infrequent issuers are, in
many cases, unable to appreciate the difference in the nature of the
roles of a financial advisor and an underwriter and did not believe
that exceptions should be provided for smaller offerings as suggested
by several commenters. The Commission agrees that it is appropriate to
apply the protections of proposed Rule G-23 to small and/or infrequent
issuers.
E. Competitive Bid Offerings
Six commenters \69\ supported changes to the proposed amendments
that would exempt some or all competitively bid transactions from the
proposed rule change. Several commenters stated that there has been no
history of abuse by dealers that had previously served as financial
advisors in competitive bids.\70\ One commenter pointed out that the
competitive bidding process for municipal issues has become almost
exclusively electronic, and the electronic process provides for a
[[Page 32253]]
completely transparent, highly efficient and tamper proof process.\71\
Another commenter stated that the municipal underwriting market is
competitive, and competition and transparency resulting from a free and
open market would prohibit inappropriate or unethical behavior by
financial advisors acting as underwriters.\72\ One other commenter
stated that financial advisors would have no practical opportunity in
these straightforward, simple contexts to structure an offering that
might give them any competitive advantage.\73\ Several commenters also
expressed concern that by prohibiting the bid of financial advisors
under the proposed rule change, issuers may end up being locked out of
the market, or the lowest bid would be removed from the process,
harming particularly the smaller issuers.\74\ Moreover, some commenters
stated that concerns relating to potential abuse by financial advisors
would be addressed through their fiduciary duties under federal and
state law.\75\
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\69\ See Giles Letter, BDA Letter, Baird Letter, RBC Letter,
SIFMA Letter and First Southwest Letter. One commenter stated that
except for municipal bond transactions under $5 million, the
commenter does not believe there should be an exception for
competitively bid transactions. See First Southwest Letter at 1.
\70\ See RBC Letter at 2. This commenter stated that there is no
evidence that financial advisors structure transactions to give
themselves an advantage, or are not diligent in seeking other
bidders in order to improve their chances of being the successful
bidder. See id. See also Baird Letter at 3; SIFMA Letter at 3; and
Giles Letter at 1 (stating that the proposed rule change is based on
the ``specious argument'' that ``a conflict of interest might exist
when a financial advisor acts as an underwriter,'' and that there is
no tangible proof that an actual conflict of interest exists or that
such conflict of interest has resulted in wrongdoing).
\71\ See RBC Letter at 2. See also SIFMA Letter at 3 (stating
that ``competitively bid, non rated, non credit-enhanced, fixed rate
municipal debt issuances in which the issuer utilizes an electronic
bidding platform'' should be exempt from the proposed rule change in
order to ensure continued unfettered access to the credit markets
for municipal issuers).
\72\ See Giles Letter at 2. See also BDA Letter at 2 (stating
that potential conflicts of interest for financial advisors who act
as underwriters are eliminated in a fairly run, competitively bid
offering of securities) and Giles Letter at 1 (stating that ``any
conflict of interest that might exist would be erased by permitting
competitive bidding'').
\73\ See SIFMA Letter at 3.
\74\ See RBC Letter at 2. This commenter opined that this
proposed rule change would create an additional artificial barrier
to entry to the market by non-rated competitive issuers because such
issuers have historically depended on ``bidders that are willing to
do their homework in order to bid,'' such as financial advisors. See
id. at 3. See also SIFMA Letter at 3 and Giles Letter at 2 (stating
that the proposed rule change could be economically harmful to
taxpayers by eliminating competitive bidders and precluding best
execution for the issuer).
\75\ See SIFMA Letter at 3. See also RBC Letter at 3.
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On the other hand, one commenter expressed support for the absence
of an exception for competitive sales in the proposed rule change
because this would ensure that financial advisors aggressively work to
secure the largest number of bids possible.\76\ This commenter
acknowledged that there could be instances where a small issuer
experiences difficulty in obtaining bids.\77\ However, the commenter
stated that if a financial advisor is allowed to switch roles to become
an underwriter, the financial advisor would effectively be allowed to
breach its fiduciary duty by structuring and marketing the transaction
in a fashion to insure their success as the winning bidder rather than
seeking to obtain the largest number of bids possible.\78\
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\76\ See Joy Howard Letter at 10.
\77\ See id.
\78\ See id.
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In Amendment No. 1, the MSRB stated that it does not believe that
the use of electronic bidding platforms mitigates the conflict of
interest posed by a dealer financial advisor's switching to an
underwriter role, in part, because such platforms are not necessarily
available to all issuers. Further, in the Commission Notice, the MSRB
stated its belief that involvement in this process provides a dealer
financial advisor with information that can provide an unfair advantage
when such dealer participates in a competitive bid transaction. The
Commission believes that the MSRB's proposed rule change helps prevent
potential conflicts of interest and/or unfair competition issues that
could arise when a dealer financial advisor participates in a
competitive bid transaction without limiting access to potential
purchasers of an issuance of municipal securities.
F. Effective Date
Several commenters suggested that the six-month transition period
provided in the proposed rule change should be extended. Commenters
suggested various transitional timeframes to allow market participants
adequate time to comply with any changes.\79\ One commenter suggested a
transitional period of one year to allow issuers, dealers, and
financial advisors sufficient time to take action to comply with the
rules.\80\ Another commenter expressed concern that the six-month
implementation period proposed by the MSRB for the proposed rule change
is insufficient to avoid market disruption.\81\ One commenter suggested
incorporating a grandfather clause that would allow current Rule G-23
to continue to apply to financial advisory relationships that are in
place at the time the proposed rule change is adopted.\82\
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\79\ See BDA Letter, Baum Letter and SIFMA Letter.
\80\ See BDA Letter at 3.
\81\ See SIFMA Letter at 6.
\82\ See id.
---------------------------------------------------------------------------
On the other hand, several commenters suggested that the transition
period should be shortened or eliminated. One commenter suggested that
in order to clarify and enforce the fiduciary duty of financial
advisors, there should not be a transition period for prohibiting role
switching from financial advisor to underwriter.\83\ Another commenter
stated that because municipal advisors had a fiduciary duty under
federal law effective October 1, 2010, any role switching that occurred
after that date is a violation of the Exchange Act.\84\
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\83\ See Joy Howard Letter at 9. This commenter stated that in
MSRB Notice 2010-42, dated October 1, 2010, the MSRB stated that
financial advisors are subject to a federal fiduciary duty to their
municipal entity clients as of October 1, 2010, even before MSRB
rulemaking on the subject. See id. As such, this commenter stated
that any broker-dealer that has served as a financial advisor on or
after October 1, 2010 and subsequently switched to serving as an
underwriter has already violated its fiduciary duty. See id.
\84\ See NAIPFA Letter at 8.
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In response, in Amendment No. 1, the MSRB stated that it does not
recommend changing the current proposal that the rule change be made
effective for new issues for which the Time of Formal Award (as defined
in MSRB Rule G-34) occurs more than six months after Commission
approval. In addition, the MSRB does not recommend a grandfather
provision, as the MSRB has determined that the effective date described
above provides an ample time period for issuers of municipal securities
to finalize any outstanding transactions that might be affected by the
proposed rule change. The Commission believes that the proposed
effective date for proposed Rule G-23 is appropriate.
G. Other Comments
Several commenters expressed concern that the MSRB never published
the proposed interpretive guidance to proposed Rule G-23 for public
comment before it was filed with the Commission, as it did with other
amendments to Rule G-23.\85\ In response, in Amendment No. 1, the MSRB
noted that it filed the proposed rule change with the Commission in
accordance with the requirements of Section 19(b) of the Exchange Act,
which generally provides for a 21-day comment period following
publication in the Federal Register of a rule change proposed by a
self-regulatory organization.
---------------------------------------------------------------------------
\85\ See e.g., PFM Letter at 1-2 and GFOA Letter at 2.
---------------------------------------------------------------------------
Two commenters objected to the part of the proposed rule change
that would allow for a dealer to serve as a financial advisor on one
transaction and serve as the underwriter on a separate transaction for
the same issuer.\86\ One commenter suggested that proposed Rule G-23 be
revised such that it would force the underwriter acting as an advisor
to decide which role they will play for the issuer and prohibit the
firm from playing both roles at the same
[[Page 32254]]
time.\87\ This commenter suggested a one year cooling off period from
the time an advisor terminates its role as a municipal advisor and the
time the advisor would be allowed to negotiate an issue with the issuer
or act in any other role that is inconsistent with the role of a
fiduciary.\88\ One commenter raised a concern that some broker-dealers
serve as financial advisors with the objective of establishing a
relationship with the issuer that will ultimately enable the company to
serve as the underwriter for subsequent transactions, and that the
proposed rule change does not resolve this conflict of interest.\89\ As
such, this commenter suggested that Rule G-23 require a two-year period
after a financial advisory relationship has expired before a broker-
dealer serving as a financial advisor can switch to serving as an
underwriter.\90\
---------------------------------------------------------------------------
\86\ See NAIPFA Letter at 9 and GFOA Letter at 1.
\87\ See NAIPFA Letter at 9.
\88\ See id.
\89\ See Joy Howard Letter at 9.
\90\ See id. at 10.
---------------------------------------------------------------------------
In response, in Amendment No. 1, the MSRB noted that it has
determined to continue to apply Rule G-23 on an issue-by-issue basis.
The proposed amendments would not prohibit a dealer financial advisor
from providing financial advisory services on one issue and then
serving as underwriter on another issue, even if the two issues were in
the market concurrently. The Commission believes that applying proposed
Rule G-23 on an issue-by-issue basis is consistent with the Exchange
Act in light of the requirements in the proposed rule that a dealer
clearly identify its role as an underwriter and engage in a course of
conduct not inconsistent with that role.
Another commenter expressed concern about the requirement that a
dealer may not act as a remarketing agent with respect to an issue for
one year following the termination of an advisory relationship in
connection with such issue.\91\ This commenter opined that the one-year
period is arbitrary and unnecessarily long, and should be no longer
than three months.\92\ In response, the MSRB noted in Amendment No. 1
that it has previously stated that it does consider it to be
appropriate to impose a one-year cooling off period during which a
dealer financial advisor could not serve as remarketing agent for the
same issue of municipal securities. The MSRB stated that the one year
period is a significant timeframe that would more adequately address
any potential or actual conflicts of interest than the three month
timeframe. The Commission agrees with the MSRB that a one-year cooling
off period is appropriate.
---------------------------------------------------------------------------
\91\ See SIFMA Letter at 5-6.
\92\ See id.
---------------------------------------------------------------------------
One commenter stated that current Rule G-23 has provided balanced
guidance to financial advisors who seek to act as underwriters without
any history of abuse.\93\ As such, the commenter suggested that the
Commission consider sunsetting the proposed rule change two years after
its implementation, which would allow the MSRB to assess the impact of
the proposed rule change and would ensure reconsideration of the actual
need for its continuance at such time.\94\ In response, the MSRB stated
in Amendment No. 1 that it does not recommend a sunset provision, as
the MSRB and Commission comment periods have provided ample opportunity
for public comment and considerations of those comments on the proposed
rule change. The Commission agrees with the MSRB that a sunset
provision is not appropriate. In particular, the Commission notes the
importance of the protections that will be provided by proposed Rule G-
23, as amended, and believes it is appropriate to have those
protections on a going-forward basis and not to sunset the Rule after a
specified period of time.
---------------------------------------------------------------------------
\93\ See id. at 6.
\94\ See id. See also BMO Letter.
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II. Discussion and Commission's Findings
The Commission has carefully considered the proposed rule change,
the comment letters received, and Amendment No.1 and finds that the
proposed rule change, as amended, is consistent with the requirements
of the Exchange Act and the rules and regulations thereunder applicable
to the MSRB.\95\
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\95\ In approving this proposed rule change, the Commission
notes that it has considered the proposed rule's impact on
efficiency, competition and capital formation. See 15 U.S.C. 78c(f).
---------------------------------------------------------------------------
In particular, the Commission finds that the proposed rule, as
amended, does not conflict with Section 15B(e)(4)(A) of the Exchange
Act,\96\ which defines the term ``municipal advisor,'' because the
proposed rule, as amended, explicitly does not state whether provision
of the advice permitted by proposed Rule G-23, as amended, would cause
the dealer to be considered a ``municipal advisor'' under the Exchange
Act.
---------------------------------------------------------------------------
\96\ 15 U.S.C. 78o-4(e)(4)(A).
---------------------------------------------------------------------------
The Commission also finds that the proposed rule, as amended, does
not conflict with the provisions of Section 15B(c)(1) of the Exchange
Act,\97\ which provides that ``[a] municipal advisor * * * shall be
deemed to have a fiduciary duty to any municipal entity for whom such
municipal advisor acts as a municipal advisor'' because, as the MSRB
notes in Amendment No. 1, the proposed rule, as amended, does not set
normative standards for dealer conduct. The Commission notes that other
laws or rules may set the normative standards for the activities
allowed by the proposed rule, as amended.
---------------------------------------------------------------------------
\97\ 15 U.S.C. 78o-4(c)(1).
---------------------------------------------------------------------------
The Commission believes that the proposed rule, as amended, is
consistent with Section 15B(b)(2) of the Exchange Act \98\ and, in
particular, Section 15B(b)(2)(C) of the Exchange Act,\99\ which
provides that the rules of the MSRB shall:
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\98\ 15 U.S.C. 78o-4(b)(2).
\99\ 15 U.S.C. 78o-4(b)(2)(C).
be designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, to
foster cooperation and coordination with persons engaged in
regulating, clearing, settling, processing information with respect
to, and facilitating transactions in municipal securities and
municipal financial products, to remove impediments to and perfect
the mechanism of a free and open market in municipal securities and
municipal financial products, and, in general, to protect investors,
---------------------------------------------------------------------------
municipal entities, obligated persons, and the public interest.
The proposed rule change, as amended, is consistent with Section
15B(b)(2) of the Exchange Act because it will help prevent potentially
fraudulent and manipulative acts and practices caused by a dealer
financial advisor serving as underwriter or placement agent for an
issue of municipal securities for which it provided financial advisory
services. Accordingly, the proposed rule change, as amended, will help
protect municipal entities and help to perfect the mechanism of a free
and open market in municipal securities to the benefit of investors,
municipal entities, and the public interest.
Furthermore, the Commission finds that the proposed rule, as
amended, is consistent with Section 15B(b)(2)(L)(iv) of the Exchange
Act,\100\ which requires that rules adopted by the MSRB:
---------------------------------------------------------------------------
\100\ 15 U.S.C. 78o-4(b)(2)(L)(iv).
not impose a regulatory burden on small municipal advisors that is
not necessary or appropriate in the public interest and for the
protection of investors, municipal entities, and obligated persons,
---------------------------------------------------------------------------
provided that there is robust protection of investors against fraud.
The Commission believes that the proposed rule, as amended, would
principally affect dealer financial advisors that are not small
municipal
[[Page 32255]]
advisors. Furthermore, it is likely that those dealer financial
advisors that are small municipal advisors primarily serve as financial
advisors to issuers of municipal securities that do not access the
capital markets frequently and, when they do so, issue securities in
small principal amounts. Those issuers may be less likely than larger,
more frequent issuers to understand the conflict presented when their
financial advisors also underwrite their securities. The Commission
believes it is appropriate for the prohibitions in the proposed rule,
as amended, to also apply to those dealer financial advisors that are
small municipal advisors.
III. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether Amendment No. 1
to the proposed rule change is consistent with the Exchange Act.
Comments may be submitted by any of the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-MSRB-2011-03 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-MSRB-2011-03. This file
number should be included on the subject line if e-mail is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street, NE.,
Washington DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of such filing also will be available for
inspection and copying at the principal office of the MSRB. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-MSRB-2011-03 and should be
submitted on or before June 24, 2011.
IV. Accelerated Approval of Proposed Rule Change, as Modified by
Amendment No. 1
The Commission finds good cause for approving the proposed rule
change, as modified by Amendment No. 1, before the 30th day after the
date of publication in the Federal Register. The Commission notes that
the proposal was published for notice and comment, and the Commission
received eighteen comment letters, which comments have been discussed
in detail above.
The Commission believes that Amendment No.1 is consistent with the
requirements of the Exchange Act and finds good cause, consistent with
Section 19(b)(2) of the Act,\101\ to approve the proposed rule change,
as modified by Amendment No. 1, on an accelerated basis.
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\101\ 15 U.S.C. 78s(b)(2).
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V. Conclusion
For the foregoing reasons, the Commission finds that the proposed
rule change, as modified by Amendment No. 1, is consistent with the
requirements of the Exchange Act and the rules and regulations
thereunder applicable to the MSRB, and in particular, Sections
15B(b)(2),\102\ 15B(c)(1),\103\ and 15B(e)(4)(A) \104\ of the Exchange
Act. The proposal will become effective for new issues for which the
Time of Formal Award (as defined in MSRB Rule G-34(a)(ii)(C)(1)(a))
occurs more than six months after the date of this order.
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\102\ 15 U.S.C. 78o-4(b)(2).
\103\ 15 U.S.C. 78o-4(c)(1).
\104\ 15 U.S.C. 78o-4(e)(4)(A).
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It is therefore ordered, pursuant to Section 19(b)(2) of the
Exchange Act,\105\ that the proposed rule change (SR-MSRB-2011-03), as
modified by Amendment No. 1, be, and hereby is, approved on an
accelerated basis.
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\105\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\106\
---------------------------------------------------------------------------
\106\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-13752 Filed 6-2-11; 8:45 am]
BILLING CODE 8011-01-P
