Self-Regulatory Organizations; Municipal Securities Rulemaking Board; Notice of Filing of a Proposed Rule Change To Amend MSRB Rule A-3, on Membership on the Board, To Modify the Standard of Independence for Public Board Members, 44607-44609 [2013-17724]
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Federal Register / Vol. 78, No. 142 / Wednesday, July 24, 2013 / Notices
be submitted to OMB within 30 days of
this notice.
Dated: July 18, 2013.
Kevin M. O’Neill,
Deputy Secretary.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
[FR Doc. 2013–17723 Filed 7–23–13; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–70004; File No. SR–MSRB–
2013–06]
Self-Regulatory Organizations;
Municipal Securities Rulemaking
Board; Notice of Filing of a Proposed
Rule Change To Amend MSRB Rule
A–3, on Membership on the Board, To
Modify the Standard of Independence
for Public Board Members
July 18, 2013.
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 July 3,
2013, the Municipal Securities
Rulemaking Board (the ‘‘MSRB’’ or
‘‘Board’’) filed with the Securities and
Exchange Commission (‘‘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.
sroberts on DSK5SPTVN1PROD with NOTICES
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The MSRB is filing with the
Commission a proposed rule change
consisting of amendments to MSRB
Rule A–3 to modify the standard of
independence for public Board
members (the ‘‘proposed rule change’’).
The text of the proposed rule change
is available on the MSRB’s Web site at
www.msrb.org/Rules-andInterpretations/SEC-Filings/2013Filings.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
1 15
2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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in Item IV below. The MSRB has
prepared summaries, set forth in
Sections A, B, and C below, of the most
significant aspects of such statements.
1. Purpose
The MSRB is the self-regulatory
organization created by Congress to
establish rules governing the municipal
securities activities of brokers, dealers
and municipal securities dealers
(collectively ‘‘dealers’’) and the
municipal advisory activities of
municipal advisors (collectively
‘‘regulated entities’’). It is governed by a
21-member board composed of eleven
independent public members and ten
regulated members.
The MSRB’s mission is to protect
municipal entities, investors and the
public interest by promoting a fair and
efficient municipal securities market.
The MSRB fulfills this mission by
regulating dealers and municipal
advisors and providing market
transparency through its Electronic
Municipal Market Access (‘‘EMMA®’’)
Web site.
Given the role of the board of
directors in overseeing the municipal
securities market, it is imperative that
the board identify candidates for the
board of directors who have the
requisite knowledge and expertise about
the municipal market and its operation.
The composition of the board of
directors of the MSRB is set forth in the
Act, and categorizes individuals into
two broad groups: Regulated
representatives and public
representatives.3 The regulated
representatives must be individuals who
are associated with a regulated entity,
and at least one of whom must be
associated with a dealer that is not a
bank (or subsidiary or department or
division thereof), at least one of whom
must be associated with a dealer that is
a bank (or subsidiary or department or
division thereof), and at least one of
whom must be associated with a
municipal advisor.4
The public representatives must be
independent of any regulated entity,
and at least one of whom must be
representative of institutional or retail
investors, at least one of whom must be
representative of municipal entities, and
U.S.C. 78o–4(b)(1).
Rule A–3 further requires that at least
one, but not less than 30 percent of the total number
of regulated representatives, must be associated
with and representative of non-dealer municipal
advisors.
PO 00000
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44607
at least one of whom must be a member
of the public with knowledge of or
experience in the municipal industry.
While Congress, as part of the DoddFrank Act, revised the statutory
composition of the board of directors, it
did not specify the requirements for
independence of public representatives.
Rather, it delegated the obligation to the
MSRB.5
In 2010, in implementing this new
standard, the MSRB amended Rule
A–3 to define independent of any
regulated entity to mean an individual
who has ‘‘no material business
relationship’’ with any regulated entity.6
The MSRB defined ‘‘no material
business relationship’’ to mean that, at
a minimum: (a) The individual is not
and, within the last two years, was not
associated with a regulated entity, and
(b) the individual does not have a
relationship with any regulated entity,
whether compensatory or otherwise,
that reasonably could affect the
independent judgment or decision
making of the individual.
In practice, this standard has
precluded consideration of otherwise
viable candidates who are
knowledgeable of matters related to the
municipal securities market from
serving as public representatives
because such candidates are
encompassed within the broad
definition of ‘‘associated with’’ a
regulated entity under the Act. This
standard of independence disqualifies
many individuals with the expertise and
knowledge to represent investors
because such persons have a regulated
entity within their employer’s corporate
structure, even if the individual’s nexus
with such regulated entity is remote and
cannot reasonably be seen as affecting
his or her independent judgment or
decision-making.
For example, a candidate whose only
affiliation with a broker-dealer
registered with the MSRB is due to the
individual’s service as an independent
director on the board of directors of a
company that is in the same corporate
family as the broker-dealer would be
disqualified from serving on the board
as a public representative. Similarly,
because many mutual fund and
insurance companies have affiliated
broker-dealers that engage in a
municipal securities or municipal fund
securities business, any non-clerical
individual within such a company
would be precluded from serving as a
public representative even if the
4 MSRB
Frm 00089
Fmt 4703
Sfmt 4703
5 See
15 U.S.C. 78o–4(b)(2)(B)(iv).
Securities Exchange Act Release 34–63025
(September 30, 2010); 75 FR 61806 (October 6,
2010); File No. SR–MSRB–2010–08.
6 See
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Federal Register / Vol. 78, No. 142 / Wednesday, July 24, 2013 / Notices
sroberts on DSK5SPTVN1PROD with NOTICES
individual’s role and responsibilities are
wholly unrelated to the broker-dealer
activity or such broker-dealer activity is
a de minimis portion of the company’s
overall business.
To address this shortcoming, and
consistent with the approach of the
Financial Industry Regulatory Authority
(‘‘FINRA’’),7 another self-regulatory
organization, the MSRB proposes
amending Rule A–3 to set forth a more
function-oriented approach to defining
independence. Specifically, the term
‘‘no material business relationship’’ will
require that an individual is not, and
within the last two years, was not an
officer, director (other than as an
independent director), employee or
controlling person of any regulated
entity. Replacing the ‘‘associated with’’
language with the more functionoriented language described above does
not have any effect on the portion of the
‘‘no material business relationship’’
provision in Rule A–3(g)(ii) that
prohibits an individual from having a
relationship with any regulated entity,
whether compensatory or otherwise,
that reasonably could affect the
independent judgment or decision
making of the individual. This provision
of Rule A–3 ensures that an individual
with a meaningful nexus with a
regulated entity, either by position or
function, will not be an eligible
candidate to serve as a public
representative.
The proposed rule change will,
however, allow the MSRB to consider
candidates who are associated with
regulated entities solely by virtue of the
corporate structure of their employer.
Removing these limitations will allow
the MSRB to consider a broader group
of public representative board
candidates, with an appropriate level of
independence, and with the objective of
maximizing the depth of municipal
securities knowledge and experience on
the board. Regardless of their status—
public or regulated—all board members
have a fiduciary duty to the MSRB and
are bound by a duty of loyalty and duty
of care and are obligated to act in the
best interests of the organization and to
avoid conflicts of interest.8
7 FINRA Bylaws, Article I, defines an industry
governor, in part, to include an individual who is
or has served in the prior year as an officer, director
(other than as an independent director), employee
or controlling person of a broker or dealer and a
public governor, in part, as in individual who is not
an industry governor and who otherwise has no
material business relationship with a broker or
dealer.
8 The MSRB is a Virginia nonstock corporation.
See Va. Nonstock Corporations Act § 13.1–870 (‘‘A
director shall discharge his duties as a director,
including his duties as a member of a committee,
in accordance with his good faith business
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2. Statutory Basis
The MSRB believes that the proposed
rule change is consistent with the Act
and, in particular, Section 15B(b) of the
Act,9 which provides, in part, that the
MSRB shall be composed of a majority
of public members who are independent
(as defined by the MSRB) of regulated
entities. This section further requires
that all members of the board must be
knowledgeable regarding the municipal
securities market. The proposed rule
change will allow the MSRB to consider
candidates who are associated with
regulated entities solely by virtue of the
corporate structure of their employer.
Removing these limitations will allow
the MSRB to consider a broader group
of public representative board
candidates, with an appropriate level of
independence, and with the objective of
maximizing the depth of municipal
securities knowledge and experience on
the board. Having such expertise on the
board will ensure that the board has
sufficient knowledge and perspective of
all aspects of the municipal securities
market and is well-positioned to carry
out its statutory obligation ‘‘to protect
investors, municipal entities, obligated
persons, and the public interest.’’ 10
The proposed rule change broadens
the existing independence standard and
public representative board candidates
would no longer be automatically
disqualified solely by virtue of a
tenuous corporate affiliation with a
regulated entity. As noted above, the
proposed rule change also makes the
MSRB independence standard
consistent with the standard utilized by
FINRA for its public governors.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The MSRB 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 broadens
the potential pool of public board
candidates and provides for fair
representation by qualified members of
the public on the board, consistent with
the Act.
judgment of the best interests of the corporation’’),
13.1–871 (‘‘A conflict of interests transaction is a
transaction with the corporation in which a director
of the corporation has an interest that precludes
him from being a disinterested director.’’); Bates v.
Cekada, 130 F.R.D. 52, 1990 U.S. Dist. LEXIS 1571,
16 Fed. R. Serv. 3d (Callaghan) 282 (E.D. Va. 1990)
(‘‘Directors have a fiduciary duty to act for the
benefit of the corporation . . .’’).
9 15 U.S.C. 78o–4(b).
10 15 U.S.C. 78o–4(b)(2)(C).
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Frm 00090
Fmt 4703
Sfmt 4703
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 of
up to 90 days (i) as the Commission may
designate 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 email to rulecomments@sec.gov. Please include File
Number SR–MSRB–2013–06 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–2013–06. This file
number should be included on the
subject line if email 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
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Federal Register / Vol. 78, No. 142 / Wednesday, July 24, 2013 / Notices
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
10:00 a.m. and 3:00 p.m. Copies of the
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–
2013–06 and should be submitted on or
before August 14, 2013.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.11
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–17724 Filed 7–23–13; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing of Proposed
Rule Change To List and Trade Shares
of the SPDR SSgA Ultra Short Term
Bond ETF; SPDR SSgA Conservative
Ultra Short Term Bond ETF; and SPDR
SSgA Aggressive Ultra Short Term
Bond ETF Under NYSE Arca Equities
Rule 8.600
sroberts on DSK5SPTVN1PROD with NOTICES
July 18, 2013.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on July 9,
2013, NYSE Arca, Inc. (the ‘‘Exchange’’
or ‘‘NYSE Arca’’) filed with the
Securities and Exchange Commission
(the ‘‘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.
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
1 15
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The Exchange proposes to list and
trade shares of the following under
NYSE Arca Equities Rule 8.600: SPDR
SSgA Ultra Short Term Bond ETF; SPDR
SSgA Conservative Ultra Short Term
Bond ETF; and SPDR SSgA Aggressive
Ultra Short Term Bond ETF. The text of
the proposed rule change is available on
the Exchange’s Web site at
www.nyse.com, at the principal office of
the Exchange, 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
self-regulatory organization 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 those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
[Release No. 34–70005; File No. SR–
NYSEARCA–2013–71]
11 17
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
1. Purpose
The Exchange proposes to list and
trade shares of the following under
NYSE Arca Equities Rule 8.600, which
governs the listing and trading of
Managed Fund Shares 4: SPDR SSgA
Ultra Short Term Bond ETF; SPDR SSgA
Conservative Ultra Short Term Bond
ETF; and SPDR SSgA Aggressive Ultra
Short Term Bond ETF (each, a ‘‘Fund’’
and, collectively, the ‘‘Funds’’). The
Shares will be offered by SSgA Active
ETF Trust (the ‘‘Trust’’), which is
organized as a Massachusetts business
trust and is registered with the
Commission as an open-end
4 A Managed Fund Share is a security that
represents an interest in an investment company
registered under the Investment Company Act of
1940 (15 U.S.C. 80a–1) (‘‘1940 Act’’) organized as
an open-end investment company or similar entity
that invests in a portfolio of securities selected by
its investment adviser consistent with its
investment objectives and policies. In contrast, an
open-end investment company that issues
Investment Company Units, listed and traded on
the Exchange under NYSE Arca Equities Rule
5.2(j)(3), seeks to provide investment results that
correspond generally to the price and yield
performance of a specific foreign or domestic stock
index, fixed income securities index or combination
thereof.
PO 00000
Frm 00091
Fmt 4703
Sfmt 4703
44609
management investment company.5
SSgA Funds Management, Inc. (the
‘‘Adviser’’ or ‘‘SSgA FM’’) will serve as
the investment adviser to the Funds.
State Street Global Markets, LLC (the
‘‘Distributor’’) will be the principal
underwriter and distributor of the
Funds’ Shares. State Street Bank and
Trust Company (the ‘‘Administrator’’,
‘‘Custodian’’ or ‘‘Transfer Agent’’) will
serve as administrator, custodian and
transfer agent for the Funds.6
Commentary .06 to Rule 8.600
provides that, if the investment adviser
to the investment company issuing
Managed Fund Shares is affiliated with
a broker-dealer, such investment adviser
shall erect a ‘‘fire wall’’ between the
investment adviser and the brokerdealer with respect to access to
information concerning the composition
and/or changes to such investment
company portfolio. In addition,
Commentary .06 further requires that
personnel who make decisions on the
open-end fund’s portfolio composition
must be subject to procedures designed
to prevent the use and dissemination of
material nonpublic information
regarding the open-end fund’s
portfolio.7 Commentary .06 to Rule
5 The Trust is registered under the 1940 Act. On
August 2, 2012, the Trust filed with the
Commission an amendment to its registration
statement on Form N–1A under the Securities Act
of 1933 (15 U.S.C. 77a) (‘‘Securities Act’’), and
under the 1940 Act relating to the Funds (File Nos.
333–173276 and 811–22542) (‘‘Registration
Statement’’). The description of the operation of the
Trust and the Funds herein is based, in part, on the
Registration Statement. In addition, the
Commission has issued an order granting certain
exemptive relief to the Trust under the1940 Act.
See Investment Company Act Release No. 29524
(December 13, 2010) (File No. 812–13487)
(‘‘Exemptive Order’’).
6 The Commission has previously approved
listing and trading on the Exchange of a number of
actively managed funds under Rule 8.600. See, e.g.,
Securities Exchange Act Release Nos. 57801 (May
8, 2008), 73 FR 27878 (May 14, 2008) (SR–
NYSEArca–2008–31) (order approving Exchange
listing and trading of twelve actively-managed
funds of the WisdomTree Trust); 60981 (November
10, 2009), 74 FR 59594 (November 18, 2009) (SR–
NYSEArca–2009–79) (order approving listing and
trading of five fixed income funds of the PIMCO
ETF Trust); 66343 (February 7, 2012), 77 FR 7647
(February 13, 2012) (SR–NYSEArca–2011–85)
(order approving listing and trading of SPDR
SSgAReal Assets ETF; SPDR SSgA Income
Allocation ETF; SPDR SSgAConservative Global
Allocation ETF; SPDR SSgA Global Allocation ETF;
and SPDR SSgA Aggressive Global).
7 An investment adviser to an open-end fund is
required to be registered under the Investment
Advisers Act of 1940 (the ‘‘Advisers Act’’). As a
result, the Adviser and its related personnel are
subject to the provisions of Rule 204A–1 under the
Advisers Act relating to codes of ethics. This Rule
requires investment advisers to adopt a code of
ethics that reflects the fiduciary nature of the
relationship to clients as well as compliance with
other applicable securities laws. Accordingly,
procedures designed to prevent the communication
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]]>Agencies
[Federal Register Volume 78, Number 142 (Wednesday, July 24, 2013)]
[Notices]
[Pages 44607-44609]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-17724]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-70004; File No. SR-MSRB-2013-06]
Self-Regulatory Organizations; Municipal Securities Rulemaking
Board; Notice of Filing of a Proposed Rule Change To Amend MSRB Rule A-
3, on Membership on the Board, To Modify the Standard of Independence
for Public Board Members
July 18, 2013.
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 July 3, 2013, the Municipal Securities Rulemaking Board (the
``MSRB'' or ``Board'') filed with the Securities and Exchange
Commission (``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 Commission a proposed rule change
consisting of amendments to MSRB Rule A-3 to modify the standard of
independence for public Board members (the ``proposed rule change'').
The text of the proposed rule change is available on the MSRB's Web
site at www.msrb.org/Rules-and-Interpretations/SEC-Filings/2013-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 MSRB 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 MSRB is the self-regulatory organization created by Congress to
establish rules governing the municipal securities activities of
brokers, dealers and municipal securities dealers (collectively
``dealers'') and the municipal advisory activities of municipal
advisors (collectively ``regulated entities''). It is governed by a 21-
member board composed of eleven independent public members and ten
regulated members.
The MSRB's mission is to protect municipal entities, investors and
the public interest by promoting a fair and efficient municipal
securities market. The MSRB fulfills this mission by regulating dealers
and municipal advisors and providing market transparency through its
Electronic Municipal Market Access (``EMMA[supreg]'') Web site.
Given the role of the board of directors in overseeing the
municipal securities market, it is imperative that the board identify
candidates for the board of directors who have the requisite knowledge
and expertise about the municipal market and its operation.
The composition of the board of directors of the MSRB is set forth
in the Act, and categorizes individuals into two broad groups:
Regulated representatives and public representatives.\3\ The regulated
representatives must be individuals who are associated with a regulated
entity, and at least one of whom must be associated with a dealer that
is not a bank (or subsidiary or department or division thereof), at
least one of whom must be associated with a dealer that is a bank (or
subsidiary or department or division thereof), and at least one of whom
must be associated with a municipal advisor.\4\
---------------------------------------------------------------------------
\3\ 15 U.S.C. 78o-4(b)(1).
\4\ MSRB Rule A-3 further requires that at least one, but not
less than 30 percent of the total number of regulated
representatives, must be associated with and representative of non-
dealer municipal advisors.
---------------------------------------------------------------------------
The public representatives must be independent of any regulated
entity, and at least one of whom must be representative of
institutional or retail investors, at least one of whom must be
representative of municipal entities, and at least one of whom must be
a member of the public with knowledge of or experience in the municipal
industry.
While Congress, as part of the Dodd-Frank Act, revised the
statutory composition of the board of directors, it did not specify the
requirements for independence of public representatives. Rather, it
delegated the obligation to the MSRB.\5\
---------------------------------------------------------------------------
\5\ See 15 U.S.C. 78o-4(b)(2)(B)(iv).
---------------------------------------------------------------------------
In 2010, in implementing this new standard, the MSRB amended Rule
A-3 to define independent of any regulated entity to mean an individual
who has ``no material business relationship'' with any regulated
entity.\6\ The MSRB defined ``no material business relationship'' to
mean that, at a minimum: (a) The individual is not and, within the last
two years, was not associated with a regulated entity, and (b) the
individual does not have a relationship with any regulated entity,
whether compensatory or otherwise, that reasonably could affect the
independent judgment or decision making of the individual.
---------------------------------------------------------------------------
\6\ See Securities Exchange Act Release 34-63025 (September 30,
2010); 75 FR 61806 (October 6, 2010); File No. SR-MSRB-2010-08.
---------------------------------------------------------------------------
In practice, this standard has precluded consideration of otherwise
viable candidates who are knowledgeable of matters related to the
municipal securities market from serving as public representatives
because such candidates are encompassed within the broad definition of
``associated with'' a regulated entity under the Act. This standard of
independence disqualifies many individuals with the expertise and
knowledge to represent investors because such persons have a regulated
entity within their employer's corporate structure, even if the
individual's nexus with such regulated entity is remote and cannot
reasonably be seen as affecting his or her independent judgment or
decision-making.
For example, a candidate whose only affiliation with a broker-
dealer registered with the MSRB is due to the individual's service as
an independent director on the board of directors of a company that is
in the same corporate family as the broker-dealer would be disqualified
from serving on the board as a public representative. Similarly,
because many mutual fund and insurance companies have affiliated
broker-dealers that engage in a municipal securities or municipal fund
securities business, any non-clerical individual within such a company
would be precluded from serving as a public representative even if the
[[Page 44608]]
individual's role and responsibilities are wholly unrelated to the
broker-dealer activity or such broker-dealer activity is a de minimis
portion of the company's overall business.
To address this shortcoming, and consistent with the approach of
the Financial Industry Regulatory Authority (``FINRA''),\7\ another
self-regulatory organization, the MSRB proposes amending Rule A-3 to
set forth a more function-oriented approach to defining independence.
Specifically, the term ``no material business relationship'' will
require that an individual is not, and within the last two years, was
not an officer, director (other than as an independent director),
employee or controlling person of any regulated entity. Replacing the
``associated with'' language with the more function-oriented language
described above does not have any effect on the portion of the ``no
material business relationship'' provision in Rule A-3(g)(ii) that
prohibits an individual from having a relationship with any regulated
entity, whether compensatory or otherwise, that reasonably could affect
the independent judgment or decision making of the individual. This
provision of Rule A-3 ensures that an individual with a meaningful
nexus with a regulated entity, either by position or function, will not
be an eligible candidate to serve as a public representative.
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\7\ FINRA Bylaws, Article I, defines an industry governor, in
part, to include an individual who is or has served in the prior
year as an officer, director (other than as an independent
director), employee or controlling person of a broker or dealer and
a public governor, in part, as in individual who is not an industry
governor and who otherwise has no material business relationship
with a broker or dealer.
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The proposed rule change will, however, allow the MSRB to consider
candidates who are associated with regulated entities solely by virtue
of the corporate structure of their employer. Removing these
limitations will allow the MSRB to consider a broader group of public
representative board candidates, with an appropriate level of
independence, and with the objective of maximizing the depth of
municipal securities knowledge and experience on the board. Regardless
of their status--public or regulated--all board members have a
fiduciary duty to the MSRB and are bound by a duty of loyalty and duty
of care and are obligated to act in the best interests of the
organization and to avoid conflicts of interest.\8\
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\8\ The MSRB is a Virginia nonstock corporation. See Va.
Nonstock Corporations Act Sec. 13.1-870 (``A director shall
discharge his duties as a director, including his duties as a member
of a committee, in accordance with his good faith business judgment
of the best interests of the corporation''), 13.1-871 (``A conflict
of interests transaction is a transaction with the corporation in
which a director of the corporation has an interest that precludes
him from being a disinterested director.''); Bates v. Cekada, 130
F.R.D. 52, 1990 U.S. Dist. LEXIS 1571, 16 Fed. R. Serv. 3d
(Callaghan) 282 (E.D. Va. 1990) (``Directors have a fiduciary duty
to act for the benefit of the corporation . . .'').
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2. Statutory Basis
The MSRB believes that the proposed rule change is consistent with
the Act and, in particular, Section 15B(b) of the Act,\9\ which
provides, in part, that the MSRB shall be composed of a majority of
public members who are independent (as defined by the MSRB) of
regulated entities. This section further requires that all members of
the board must be knowledgeable regarding the municipal securities
market. The proposed rule change will allow the MSRB to consider
candidates who are associated with regulated entities solely by virtue
of the corporate structure of their employer. Removing these
limitations will allow the MSRB to consider a broader group of public
representative board candidates, with an appropriate level of
independence, and with the objective of maximizing the depth of
municipal securities knowledge and experience on the board. Having such
expertise on the board will ensure that the board has sufficient
knowledge and perspective of all aspects of the municipal securities
market and is well-positioned to carry out its statutory obligation
``to protect investors, municipal entities, obligated persons, and the
public interest.'' \10\
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\9\ 15 U.S.C. 78o-4(b).
\10\ 15 U.S.C. 78o-4(b)(2)(C).
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The proposed rule change broadens the existing independence
standard and public representative board candidates would no longer be
automatically disqualified solely by virtue of a tenuous corporate
affiliation with a regulated entity. As noted above, the proposed rule
change also makes the MSRB independence standard consistent with the
standard utilized by FINRA for its public governors.
B. Self-Regulatory Organization's Statement on Burden on Competition
The MSRB 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 broadens the potential pool of
public board candidates and provides for fair representation by
qualified members of the public on the board, consistent with the Act.
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 of up to 90 days (i) as
the Commission may designate 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 email to rule-comments@sec.gov. Please include
File Number SR-MSRB-2013-06 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-2013-06. This file
number should be included on the subject line if email 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
[[Page 44609]]
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
10:00 a.m. and 3:00 p.m. Copies of the 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-2013-06 and should be
submitted on or before August 14, 2013.
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\11\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\11\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-17724 Filed 7-23-13; 8:45 am]
BILLING CODE 8011-01-P
