Self-Regulatory Organizations; Municipal Securities Rulemaking Board; Notice of Filing of Amendments to Rule A-3, on Membership on the Board, 52724-52727 [2011-21557]
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Federal Register / Vol. 76, No. 163 / Tuesday, August 23, 2011 / Notices
B. Self-Regulatory Organization’s
Statement on Burden on Competition
CBOE does not believe that the
proposed rule change will impose any
burden on competition that is not
necessary or appropriate in furtherance
of purposes of the Act.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission
Because the foregoing proposed rule
change does not: (i) Significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days after the date of
the filing, or such shorter time as the
Commission may designate, it has
become effective pursuant to 19(b)(3)(A)
of the Act 10 and Rule 19b–4(f)(6) 11
thereunder.
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
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–CBOE–2011–075 on the
subject line.
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–1090.
All submissions should refer to File
Number SR–CBOE–2011–075. 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 CBOE.
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 publicly available. All
submissions should refer to File
Number SR–CBOE–2011–075 and
should be submitted on or before
September 13, 2011.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.12
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011–21465 Filed 8–22–11; 8:45 am]
BILLING CODE 8011–01–P
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Self-Regulatory Organizations; the
NASDAQ Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Extend the
Pilot Period of the Trading Pause for
NMS Stocks
August 10, 2011.
Correction
In notice document 2011–20735
appearing on pages 50779–50781 in the
issue of August 16, 2011, make the
following correction:
On page 50779, in the second column,
the File No. in the heading is corrected
to read as it appears above.
[FR Doc. C1–2011–20735 Filed 8–22–11; 8:45 am]
BILLING CODE 1505–01–D
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–65158; File No. SR–MSRB–
2011–11]
Self-Regulatory Organizations;
Municipal Securities Rulemaking
Board; Notice of Filing of Amendments
to Rule A–3, on Membership on the
Board
August 18, 2011.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that on August
11, 2011, the Municipal Securities
Rulemaking Board (‘‘Board’’ or
‘‘MSRB’’) filed with the Securities and
Exchange Commission (‘‘SEC’’ or
‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the MSRB. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
The MSRB is filing with the SEC a
proposed rule change consisting of
amendments to Rule A–3, on
membership on the Board, in order to
establish a permanent Board structure of
21 Board members divided into three
classes, each class being comprised of
seven members who would serve three
year terms. The terms would be
10 15
VerDate Mar<15>2010
[Release No. 34–65094; File No. SR–
NASDAQ–2011–115]
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Paper Comments
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6) requires a self-regulatory organization to give
the Commission written notice of its intent to file
the proposed rule change at least five business days
prior to the date of filing of the proposed rule
change, or such shorter time as designated by the
Commission. The Exchange has satisfied this
requirement.
SECURITIES AND EXCHANGE
COMMISSION
1 15
12 17
PO 00000
CFR 200.30–3(a)(12).
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2 17
E:\FR\FM\23AUN1.SGM
U.S.C. 78s(b)(1).
CFR 240.19b–4.
23AUN1
Federal Register / Vol. 76, No. 163 / Tuesday, August 23, 2011 / Notices
staggered and, each year, one class
would be nominated and elected to the
Board of Directors.
The text of the proposed rule change
is available on the MSRB’s Web site at
https://www.msrb.org/Rules-andInterpretations/SEC–Filings/2011–
Filings.aspx, at the MSRB’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
MSRB 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 places specified
in Item IV below. The Board has
prepared summaries, set forth in
Sections A, B, and C below, of the most
significant aspects of such statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
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1. Purpose
The purpose of the proposed rule
change is to make changes to MSRB
Rule A–3 as are necessary and
appropriate to establish a permanent
Board structure of 21 Board members
divided into three classes, each class
being comprised of seven members who
would serve three year terms. The terms
would be staggered and, each year, one
class would be nominated and elected
to the Board of Directors.
In order to facilitate the transition to
three staggered classes, Rule A–3 would
include a transitional provision, Rule
A–3(h), applicable for the Board’s fiscal
years commencing October 1, 2012, and
ending September 30, 2014, which
would provide that Board members who
were elected prior to July 2011 and
whose terms end on or after September
30, 2012, may be considered for term
extensions not exceeding two years, in
order to facilitate the transition to three
staggered classes of seven Board
members per class. The transitional
provision would further provide that
Board members would be nominated for
term extensions by a Special
Nominating Committee formed pursuant
to Rule A–6, on committees of the
Board, and that the Board would then
vote on each proposed term extension.
The selection of Board members whose
terms would be extended would be
consistent with ensuring that the Board
is in compliance with the composition
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16:33 Aug 22, 2011
Jkt 223001
requirements of revised Section (a) of
Rule A–3 during such extension
periods.
In an order approving changes to
MSRB Rule A–3 to comply with the
provisions of the Dodd-Frank Wall
Street Reform and Consumer Protection
Act (the ‘‘Dodd-Frank Act’’) (Pub. L.
111–203, 124 Stat. 1376 (2010))
requiring the Board to have a majority
of independent public members and
municipal advisor representation,3 the
Commission approved a transitional
provision of the rule that increased the
Board from 15 to 21 members, 11 of
whom would be independent public
members and 10 of whom would be
members representing regulated entities.
Of the public members, at least one
would be representative of municipal
entities, at least one would be
representative of institutional or retail
investors, and at least one would be a
member of the public with knowledge of
or experience in the municipal industry.
Of the regulated members, at least one
would be representative of brokerdealers, at least one would be
representative of bank dealers, and at
least one, but not less than 30% of the
regulated members, would be
representative of municipal advisors
that are not associated with brokerdealers or bank dealers.
The Commission also approved a
provision in MSRB Rule A–3 that
defined an independent public member
as one with no material business
relationship with an MSRB regulated
entity, meaning that, within the last two
years, the individual was not associated
with a municipal securities broker,
municipal securities dealer, or
municipal advisor, and that the
individual has no relationship with any
such entity, whether compensatory or
otherwise, that reasonably could affect
the independent judgment or decision
making of the individual. The rule
further provided that the Board, or by
delegation, its Nominating and
Governance Committee, could also
determine that additional circumstances
involving the individual could
constitute a material business
relationship with an MSRB regulated
entity.
In finding that the proposed rule
change was reasonable and consistent
with the requirements of the Securities
Exchange Act of 1934 (the ‘‘Exchange
Act’’) (15 U.S.C. 78o–4), in that it
provided for fair representation of
public representatives and MSRB
regulated entities, the Commission
noted that the MSRB had committed to
3 See SEC Release No. 34–63025, File No. SR–
MSRB–2010–08 (September 30, 2010).
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52725
monitor the effectiveness of the
structure of the Board to determine to
what extent, if any, proposed changes
might be appropriate. Additionally, in
its response to comment letters, the
MSRB suggested that, at the end of the
transitional period, the MSRB would be
in a better position to make long-term
decisions regarding representation, size
and related matters.
While the transitional period has not
yet concluded, the Board believes it is
now in a position to establish a
permanent structure. The MSRB has
now operated as an expanded, majoritypublic Board with representation of
municipal advisors, as approved by the
Commission, for approximately one
fiscal year. During this period, the Board
has engaged in the full range of MSRB
activities. In a typical year, the Board
meets quarterly but this year, due to the
requirements of the Dodd-Frank Act and
the new rulemaking authority over
municipal advisors, the Board met six
times in person and numerous times by
phone. Additionally, Board members
participated in committee meetings and
informal conversations. The Board has
undertaken many significant rulemaking
initiatives regulating the activities of
brokers, dealers, municipal securities
dealers and municipal advisors that
would provide important protections for
investors, municipal entities, obligated
persons and the public interest. In
particular, notwithstanding its larger
size, the Board acted swiftly to propose
and, in many cases, adopt baseline rules
for municipal advisors, and also
promulgate additional rules and
interpretive guidance applicable to
brokers, dealers and municipal
securities dealers. The insight of Board
members with diverse backgrounds and
viewpoints contributed considerably to
the quality of the initiatives. In addition,
the Board has continued to develop,
operate and maintain information
systems critical to investors, municipal
entities and market professionals.
Furthermore, the Board has made
significant efforts to orient previously
unregulated municipal advisors to the
realities of a regulated environment
through an unprecedented level of
outreach and education activities.
Given the extensive interaction among
Board members, the Board was able to
evaluate its effectiveness, particularly in
the development of a body of rules
governing the activities of municipal
advisors while maintaining its prior
level of regulatory and other activities in
connection with brokers, dealers and
municipal securities dealers. The Board
believes that it has acted effectively as
a regulator carrying out the functions
contemplated by the Exchange Act and
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Federal Register / Vol. 76, No. 163 / Tuesday, August 23, 2011 / Notices
the Dodd-Frank Act and that its current
size and composition have been
significant factors in the Board’s
efficient and effective operation during
this transition period. The Board further
believes there has been sufficient time
to evaluate its effectiveness and has
determined to proceed at this time with
this proposed rule change to ensure that
the federally mandated rule proposal
process necessary to obtain SEC
approval can be completed in time for
the MSRB to undertake its Board
member election process in a thorough
and orderly manner for the first class of
Board members to serve after the
conclusion of the transition period.
In order to evaluate the effectiveness
of the Board, the Nominating and
Governance Committee developed a
survey of the members of the Board that
addressed various governance issues,
such as participation in Board
deliberations by individual Board
members and constituencies,
development of Board agendas, skills
and experience of Board members, role
of Board committees and staff, and
management of Board meetings. The
survey inquired as to the ability of
industry and public Board members to
participate in Board meeting
discussions and debate, such as whether
the Board considers adequately the
interests of municipal advisors in its
deliberations, and whether discussions
on key issues include a balance of
perspectives. The survey results
indicated that Board members believe
the 21-member Board is working
effectively and that the Board, as
constituted, can carry out its mission
and objectives. Board members also
believe that all constituents, industry
and public, are appropriately
represented by Board members who are
able to provide input into the
development of Board agendas and
participate actively in deliberations.
While the Board proposes a
composition greater than the statutory
minimum of 15, the Board believes this
membership level is appropriate, given
the diversity of the municipal securities
marketplace and its constituencies,
many of whom are required by statute
to be represented on the Board. The
Exchange Act requires the Board to have
at least one retail or institutional
investor representative, at least one
municipal entity representative, at least
one member of the public with
knowledge of or experience in the
municipal securities industry, at least
one broker-dealer representative, at least
one bank dealer representative, and at
least one municipal advisor
representative. Given the diversity of
municipal entities, broker-dealers, bank
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16:33 Aug 22, 2011
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dealers, and municipal advisors, a
Board of 21 members provides more
flexibility to provide representation
from various sectors of the market. For
example, at a 21-member level, the
Board would be in a position to appoint
municipal entity representatives that
serve large and small constituencies,
such as states and state agencies, cities,
and other municipal entities, while at
the same time retaining the flexibility to
appoint academics and others with a
broader view of the market. A smaller
Board would be constrained in this
regard. Moreover, at a 21-member level,
the Board would be similar in size to its
counterpart, the Board of Governors of
the Financial Industry Regulatory
Authority (‘‘FINRA’’), the self-regulatory
organization that works closely with the
Board to enforce Board rules applicable
to FINRA members. Consequently, a
Board of 21 members is appropriate and
consistent with industry norms.
The survey results confirm the
individual sentiments of Board
members that the Board, as currently
constituted, is effective and provides
fair representation of public and
industry members. Consequently, the
Board voted to approve changes to
MSRB Rule A–3 to make permanent a
Board of 11 independent public
members and 10 regulated members,
with at least 30% of the regulated
members being municipal advisors who
are not associated with brokers, dealers
or municipal securities dealers (‘‘nondealer municipal advisors’’). The Board
further voted to divide itself into three
classes of seven, serving staggered threeyear terms. Each class would be as
evenly divided as possible between
public members and regulated members,
and there would be at least one nondealer municipal advisor in each of the
three classes. The Board believes this
permanent structure is consistent with
the Exchange Act and provides fair
representation of public members,
broker-dealers, bank dealers and
municipal advisors.
Finally, the Board voted to permit
existing Board members to be
considered for extended terms of up to
two years, in order to transition to three
staggered classes. A transition plan is
necessary to balance the classes with
public and regulated representatives
and to ensure there is at least one nondealer municipal advisor per class. In
order to carry out the transition plan,
the Board voted to create, by resolution,
a Special Nominating Committee of five
disinterested Board members to
nominate certain Board members for
extended terms. Disinterested Board
members are those members who are
ineligible for a term extension and,
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therefore, are less likely to have a
personal interest in the nomination
process that could affect their
independent judgment. The class of
2011 is ineligible and, hence,
disinterested because the term
extensions would commence as of fiscal
year 2013, and these members would no
longer be on the Board at that time.
Additionally, one public member from
the class of 2012 is disinterested
because the transition plan does not
contemplate an extension for public
members from that class. Therefore,
there are six disinterested Board
members, five of whom comprise the
Special Nominating Committee, which
includes three public members and two
regulated members. The Chair of the
Committee was selected from amongst
the public members. The Board believes
that a Special Nominating Committee of
disinterested members, led by a public
chair and with a public majority, is in
the best position to nominate Board
members for term extensions, in that
these members are least likely to have
personal interests regarding the term
extensions that could affect their
independent judgments.
The Dodd-Frank Act provides that the
Board shall be composed of 15 members
or more, provided that such number is
an odd number, as specified by the rules
of the Board. The Board has voted to
increase its membership to 21 and to
eliminate Rule A–3(b), which provides
that the Board may increase or decrease
its membership by multiples of six, in
order to maintain an odd number, and
that the membership be equally divided
among public members, bank dealers,
and broker-dealers, so long as the
membership is not less than 15. This
section is no longer applicable, since the
Dodd-Frank Act eliminated the prior
statutory requirement that the Board
consist of five public members, five
bank dealer representatives, and five
broker-dealer representatives. Moreover,
there is no necessity to specify in a
Board rule that the membership may be
greater than 15, provided that the
membership is set at an odd number,
since such a provision is incorporated
into the Exchange Act. Future changes
in size of the Board, if any, would be
effected through the rule change process
consistent with the Dodd-Frank Act
provisions. Hence, section (b) is no
longer necessary.
2. Statutory Basis
The MSRB has adopted the proposed
rule change pursuant to Section
15B(b)(2)(B) of the Act, which provides
that the MSRB’s rules shall:
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Federal Register / Vol. 76, No. 163 / Tuesday, August 23, 2011 / Notices
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establish fair procedures for the nomination
and election of members of the Board and
assure fair representation in such
nominations and elections of public
representatives, broker dealer
representatives, bank representatives, and
advisor representatives. Such rules—
(i) Shall provide that the number of public
representatives of the Board shall at all times
exceed the total number of regulated
representatives and that the membership
shall at all times be as evenly divided in
number as possible between public
representatives and regulated representatives;
(ii) Shall specify the length or lengths of
terms members shall serve;
(iii) May increase the number of members
which shall constitute the whole Board,
provided that such number is an odd
number; and
(iv) Shall establish requirements regarding
the independence of public representatives.
minimum number of non-dealer
municipal advisors—at least 30% of the
regulated representatives—is
reasonable, and consistent with the
Exchange Act.
The MSRB believes the proposed rule
change is consistent with the Exchange
Act in that the proposal provides that
the number of public representatives of
the Board shall exceed the total number
of regulated representatives by one so
that the membership shall be as evenly
divided as possible between public
representatives and regulated
representatives—11 to 10. The proposal
specifies the length of term that Board
members will serve—three years—
which is consistent with the length of
the terms served by Board members
prior to the adoption of the Dodd-Frank
Act. The proposal increases the size of
the Board from 15 to 21, consistent with
the size of the Board during the
transitional period that commenced on
October 1, 2010. For the reasons
discussed earlier, the Board believes a
21-member Board is effective and fairly
represents all constituencies referenced
in the Exchange Act, including public
representatives and regulated
representatives. Finally, the proposed
rule change maintains the existing
requirement regarding the
independence of public representatives.
Section 15B(b)(1) of the Exchange Act
further sets forth minimum
representation requirements for certain
categories of public representatives, as
well as for bank dealer, broker-dealer
and municipal advisor representatives.
The proposed rule change complies
with these requirements. The Exchange
Act does not, however, mandate the
specific number of any class of
representative that should serve on the
Board, nor does it set forth maximum
Board composition or representation
requirements. Thus, the MSRB believes
that its proposal does provide for fair
representation of public representatives,
broker-dealers, bank dealers and
municipal advisors under the Exchange
Act, and it believes that providing a
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
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16:33 Aug 22, 2011
Jkt 223001
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Board does not believe that the
proposed rule change will impose any
burden on competition not necessary or
appropriate in furtherance of the
purposes of the Act since it is solely
concerned with the administration of
the MSRB and, in any event, provides
for fair representation on the Board of
public representatives, broker dealer
representatives, bank dealer
representatives and municipal advisor
representatives.
Written comments were neither
solicited nor received on the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
52727
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–1090.
All submissions should refer to File
Number SR–MSRB–2011–11. This file
number should be included on the
subject line if e-mail is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Web site (https://www.sec.gov/rules/
sro.shtml). Copies of the submission, 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 website 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
am and 3 pm. Copies of such filing also
will be available for inspection and
copying at the MSRB’s offices. 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–2011–11 and should
be submitted on or before September 13,
2011.
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the self-regulatory
organization consents, the Commission
will:
(A) By order approve or disapprove
such proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.4
Elizabeth M. Murphy,
Secretary.
IV. Solicitation of Comments
[FR Doc. 2011–21557 Filed 8–22–11; 8:45 am]
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
BILLING CODE 8011–01–P
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–2011–11 on the
subject line.
Paper Comments
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–65150; File No. SR–
NASDAQ–2011–113]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
a Proposed Rule Change Regarding
Clerical Changes to Its Rules
August 17, 2011.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
4 17
E:\FR\FM\23AUN1.SGM
CFR 200.30–3(a)(12).
23AUN1
]]>Agencies
[Federal Register Volume 76, Number 163 (Tuesday, August 23, 2011)]
[Notices]
[Pages 52724-52727]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-21557]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-65158; File No. SR-MSRB-2011-11]
Self-Regulatory Organizations; Municipal Securities Rulemaking
Board; Notice of Filing of Amendments to Rule A-3, on Membership on the
Board
August 18, 2011.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on August 11, 2011, the Municipal Securities Rulemaking Board
(``Board'' or ``MSRB'') filed with the Securities and Exchange
Commission (``SEC'' or ``Commission'') the proposed rule change as
described in Items I, II, and III below, which Items have been prepared
by the MSRB. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The MSRB is filing with the SEC a proposed rule change consisting
of amendments to Rule A-3, on membership on the Board, in order to
establish a permanent Board structure of 21 Board members divided into
three classes, each class being comprised of seven members who would
serve three year terms. The terms would be
[[Page 52725]]
staggered and, each year, one class would be nominated and elected to
the Board of Directors.
The text of the proposed rule change is available on the MSRB's Web
site at https://www.msrb.org/Rules-and-Interpretations/SEC-Filings/2011-Filings.aspx, at the MSRB'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 MSRB 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 places specified in
Item IV below. The Board has prepared summaries, set forth in Sections
A, B, and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the proposed rule change is to make changes to MSRB
Rule A-3 as are necessary and appropriate to establish a permanent
Board structure of 21 Board members divided into three classes, each
class being comprised of seven members who would serve three year
terms. The terms would be staggered and, each year, one class would be
nominated and elected to the Board of Directors.
In order to facilitate the transition to three staggered classes,
Rule A-3 would include a transitional provision, Rule A-3(h),
applicable for the Board's fiscal years commencing October 1, 2012, and
ending September 30, 2014, which would provide that Board members who
were elected prior to July 2011 and whose terms end on or after
September 30, 2012, may be considered for term extensions not exceeding
two years, in order to facilitate the transition to three staggered
classes of seven Board members per class. The transitional provision
would further provide that Board members would be nominated for term
extensions by a Special Nominating Committee formed pursuant to Rule A-
6, on committees of the Board, and that the Board would then vote on
each proposed term extension. The selection of Board members whose
terms would be extended would be consistent with ensuring that the
Board is in compliance with the composition requirements of revised
Section (a) of Rule A-3 during such extension periods.
In an order approving changes to MSRB Rule A-3 to comply with the
provisions of the Dodd-Frank Wall Street Reform and Consumer Protection
Act (the ``Dodd-Frank Act'') (Pub. L. 111-203, 124 Stat. 1376 (2010))
requiring the Board to have a majority of independent public members
and municipal advisor representation,\3\ the Commission approved a
transitional provision of the rule that increased the Board from 15 to
21 members, 11 of whom would be independent public members and 10 of
whom would be members representing regulated entities. Of the public
members, at least one would be representative of municipal entities, at
least one would be representative of institutional or retail investors,
and at least one would be a member of the public with knowledge of or
experience in the municipal industry. Of the regulated members, at
least one would be representative of broker-dealers, at least one would
be representative of bank dealers, and at least one, but not less than
30% of the regulated members, would be representative of municipal
advisors that are not associated with broker-dealers or bank dealers.
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\3\ See SEC Release No. 34-63025, File No. SR-MSRB-2010-08
(September 30, 2010).
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The Commission also approved a provision in MSRB Rule A-3 that
defined an independent public member as one with no material business
relationship with an MSRB regulated entity, meaning that, within the
last two years, the individual was not associated with a municipal
securities broker, municipal securities dealer, or municipal advisor,
and that the individual has no relationship with any such entity,
whether compensatory or otherwise, that reasonably could affect the
independent judgment or decision making of the individual. The rule
further provided that the Board, or by delegation, its Nominating and
Governance Committee, could also determine that additional
circumstances involving the individual could constitute a material
business relationship with an MSRB regulated entity.
In finding that the proposed rule change was reasonable and
consistent with the requirements of the Securities Exchange Act of 1934
(the ``Exchange Act'') (15 U.S.C. 78o-4), in that it provided for fair
representation of public representatives and MSRB regulated entities,
the Commission noted that the MSRB had committed to monitor the
effectiveness of the structure of the Board to determine to what
extent, if any, proposed changes might be appropriate. Additionally, in
its response to comment letters, the MSRB suggested that, at the end of
the transitional period, the MSRB would be in a better position to make
long-term decisions regarding representation, size and related matters.
While the transitional period has not yet concluded, the Board
believes it is now in a position to establish a permanent structure.
The MSRB has now operated as an expanded, majority-public Board with
representation of municipal advisors, as approved by the Commission,
for approximately one fiscal year. During this period, the Board has
engaged in the full range of MSRB activities. In a typical year, the
Board meets quarterly but this year, due to the requirements of the
Dodd-Frank Act and the new rulemaking authority over municipal
advisors, the Board met six times in person and numerous times by
phone. Additionally, Board members participated in committee meetings
and informal conversations. The Board has undertaken many significant
rulemaking initiatives regulating the activities of brokers, dealers,
municipal securities dealers and municipal advisors that would provide
important protections for investors, municipal entities, obligated
persons and the public interest. In particular, notwithstanding its
larger size, the Board acted swiftly to propose and, in many cases,
adopt baseline rules for municipal advisors, and also promulgate
additional rules and interpretive guidance applicable to brokers,
dealers and municipal securities dealers. The insight of Board members
with diverse backgrounds and viewpoints contributed considerably to the
quality of the initiatives. In addition, the Board has continued to
develop, operate and maintain information systems critical to
investors, municipal entities and market professionals. Furthermore,
the Board has made significant efforts to orient previously unregulated
municipal advisors to the realities of a regulated environment through
an unprecedented level of outreach and education activities.
Given the extensive interaction among Board members, the Board was
able to evaluate its effectiveness, particularly in the development of
a body of rules governing the activities of municipal advisors while
maintaining its prior level of regulatory and other activities in
connection with brokers, dealers and municipal securities dealers. The
Board believes that it has acted effectively as a regulator carrying
out the functions contemplated by the Exchange Act and
[[Page 52726]]
the Dodd-Frank Act and that its current size and composition have been
significant factors in the Board's efficient and effective operation
during this transition period. The Board further believes there has
been sufficient time to evaluate its effectiveness and has determined
to proceed at this time with this proposed rule change to ensure that
the federally mandated rule proposal process necessary to obtain SEC
approval can be completed in time for the MSRB to undertake its Board
member election process in a thorough and orderly manner for the first
class of Board members to serve after the conclusion of the transition
period.
In order to evaluate the effectiveness of the Board, the Nominating
and Governance Committee developed a survey of the members of the Board
that addressed various governance issues, such as participation in
Board deliberations by individual Board members and constituencies,
development of Board agendas, skills and experience of Board members,
role of Board committees and staff, and management of Board meetings.
The survey inquired as to the ability of industry and public Board
members to participate in Board meeting discussions and debate, such as
whether the Board considers adequately the interests of municipal
advisors in its deliberations, and whether discussions on key issues
include a balance of perspectives. The survey results indicated that
Board members believe the 21-member Board is working effectively and
that the Board, as constituted, can carry out its mission and
objectives. Board members also believe that all constituents, industry
and public, are appropriately represented by Board members who are able
to provide input into the development of Board agendas and participate
actively in deliberations.
While the Board proposes a composition greater than the statutory
minimum of 15, the Board believes this membership level is appropriate,
given the diversity of the municipal securities marketplace and its
constituencies, many of whom are required by statute to be represented
on the Board. The Exchange Act requires the Board to have at least one
retail or institutional investor representative, at least one municipal
entity representative, at least one member of the public with knowledge
of or experience in the municipal securities industry, at least one
broker-dealer representative, at least one bank dealer representative,
and at least one municipal advisor representative. Given the diversity
of municipal entities, broker-dealers, bank dealers, and municipal
advisors, a Board of 21 members provides more flexibility to provide
representation from various sectors of the market. For example, at a
21-member level, the Board would be in a position to appoint municipal
entity representatives that serve large and small constituencies, such
as states and state agencies, cities, and other municipal entities,
while at the same time retaining the flexibility to appoint academics
and others with a broader view of the market. A smaller Board would be
constrained in this regard. Moreover, at a 21-member level, the Board
would be similar in size to its counterpart, the Board of Governors of
the Financial Industry Regulatory Authority (``FINRA''), the self-
regulatory organization that works closely with the Board to enforce
Board rules applicable to FINRA members. Consequently, a Board of 21
members is appropriate and consistent with industry norms.
The survey results confirm the individual sentiments of Board
members that the Board, as currently constituted, is effective and
provides fair representation of public and industry members.
Consequently, the Board voted to approve changes to MSRB Rule A-3 to
make permanent a Board of 11 independent public members and 10
regulated members, with at least 30% of the regulated members being
municipal advisors who are not associated with brokers, dealers or
municipal securities dealers (``non-dealer municipal advisors''). The
Board further voted to divide itself into three classes of seven,
serving staggered three-year terms. Each class would be as evenly
divided as possible between public members and regulated members, and
there would be at least one non-dealer municipal advisor in each of the
three classes. The Board believes this permanent structure is
consistent with the Exchange Act and provides fair representation of
public members, broker-dealers, bank dealers and municipal advisors.
Finally, the Board voted to permit existing Board members to be
considered for extended terms of up to two years, in order to
transition to three staggered classes. A transition plan is necessary
to balance the classes with public and regulated representatives and to
ensure there is at least one non-dealer municipal advisor per class. In
order to carry out the transition plan, the Board voted to create, by
resolution, a Special Nominating Committee of five disinterested Board
members to nominate certain Board members for extended terms.
Disinterested Board members are those members who are ineligible for a
term extension and, therefore, are less likely to have a personal
interest in the nomination process that could affect their independent
judgment. The class of 2011 is ineligible and, hence, disinterested
because the term extensions would commence as of fiscal year 2013, and
these members would no longer be on the Board at that time.
Additionally, one public member from the class of 2012 is disinterested
because the transition plan does not contemplate an extension for
public members from that class. Therefore, there are six disinterested
Board members, five of whom comprise the Special Nominating Committee,
which includes three public members and two regulated members. The
Chair of the Committee was selected from amongst the public members.
The Board believes that a Special Nominating Committee of disinterested
members, led by a public chair and with a public majority, is in the
best position to nominate Board members for term extensions, in that
these members are least likely to have personal interests regarding the
term extensions that could affect their independent judgments.
The Dodd-Frank Act provides that the Board shall be composed of 15
members or more, provided that such number is an odd number, as
specified by the rules of the Board. The Board has voted to increase
its membership to 21 and to eliminate Rule A-3(b), which provides that
the Board may increase or decrease its membership by multiples of six,
in order to maintain an odd number, and that the membership be equally
divided among public members, bank dealers, and broker-dealers, so long
as the membership is not less than 15. This section is no longer
applicable, since the Dodd-Frank Act eliminated the prior statutory
requirement that the Board consist of five public members, five bank
dealer representatives, and five broker-dealer representatives.
Moreover, there is no necessity to specify in a Board rule that the
membership may be greater than 15, provided that the membership is set
at an odd number, since such a provision is incorporated into the
Exchange Act. Future changes in size of the Board, if any, would be
effected through the rule change process consistent with the Dodd-Frank
Act provisions. Hence, section (b) is no longer necessary.
2. Statutory Basis
The MSRB has adopted the proposed rule change pursuant to Section
15B(b)(2)(B) of the Act, which provides that the MSRB's rules shall:
[[Page 52727]]
establish fair procedures for the nomination and election of members
of the Board and assure fair representation in such nominations and
elections of public representatives, broker dealer representatives,
bank representatives, and advisor representatives. Such rules--
(i) Shall provide that the number of public representatives of
the Board shall at all times exceed the total number of regulated
representatives and that the membership shall at all times be as
evenly divided in number as possible between public representatives
and regulated representatives;
(ii) Shall specify the length or lengths of terms members shall
serve;
(iii) May increase the number of members which shall constitute
the whole Board, provided that such number is an odd number; and
(iv) Shall establish requirements regarding the independence of
public representatives.
The MSRB believes the proposed rule change is consistent with the
Exchange Act in that the proposal provides that the number of public
representatives of the Board shall exceed the total number of regulated
representatives by one so that the membership shall be as evenly
divided as possible between public representatives and regulated
representatives--11 to 10. The proposal specifies the length of term
that Board members will serve--three years--which is consistent with
the length of the terms served by Board members prior to the adoption
of the Dodd-Frank Act. The proposal increases the size of the Board
from 15 to 21, consistent with the size of the Board during the
transitional period that commenced on October 1, 2010. For the reasons
discussed earlier, the Board believes a 21-member Board is effective
and fairly represents all constituencies referenced in the Exchange
Act, including public representatives and regulated representatives.
Finally, the proposed rule change maintains the existing requirement
regarding the independence of public representatives.
Section 15B(b)(1) of the Exchange Act further sets forth minimum
representation requirements for certain categories of public
representatives, as well as for bank dealer, broker-dealer and
municipal advisor representatives. The proposed rule change complies
with these requirements. The Exchange Act does not, however, mandate
the specific number of any class of representative that should serve on
the Board, nor does it set forth maximum Board composition or
representation requirements. Thus, the MSRB believes that its proposal
does provide for fair representation of public representatives, broker-
dealers, bank dealers and municipal advisors under the Exchange Act,
and it believes that providing a minimum number of non-dealer municipal
advisors--at least 30% of the regulated representatives--is reasonable,
and consistent with the Exchange Act.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Board does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act since it is solely concerned
with the administration of the MSRB and, in any event, provides for
fair representation on the Board of public representatives, broker
dealer representatives, bank dealer representatives and municipal
advisor representatives.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove such proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
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-2011-11 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-2011-11. This file
number should be included on the subject line if e-mail is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Web site (https://www.sec.gov/rules/sro.shtml). Copies
of the submission, 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 website 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 am and 3
pm. Copies of such filing also will be available for inspection and
copying at the MSRB's offices. 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-2011-11 and should be submitted on or before
September 13, 2011.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\4\
Elizabeth M. Murphy,
Secretary.
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\4\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2011-21557 Filed 8-22-11; 8:45 am]
BILLING CODE 8011-01-P
