Registration of Municipal Advisors, 67467-67798 [2013-23524]
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Vol. 78
Tuesday,
No. 218
November 12, 2013
Part II
Securities and Exchange Commission
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17 CFR Parts 200, 240 and 249
Registration of Municipal Advisors; Final Rule
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Federal Register / Vol. 78, No. 218 / Tuesday, November 12, 2013 / Rules and Regulations
SECURITIES AND EXCHANGE
COMMISSION
17 CFR Parts 200, 240 and 249
[Release No. 34–70462; File No. S7–45–10]
RIN 3235–AK86
Registration of Municipal Advisors
Securities and Exchange
Commission.
ACTION: Final rule.
AGENCY:
Section 975 of Title IX of the
Dodd-Frank Wall Street Reform and
Consumer Protection Act (‘‘Dodd-Frank
Act’’) amended Section 15B of the
Securities Exchange Act of 1934
(‘‘Exchange Act’’) to require municipal
advisors, as defined below, to register
with the Securities and Exchange
Commission (‘‘Commission’’ or ‘‘SEC’’),
effective October 1, 2010. To enable
municipal advisors to temporarily
satisfy this requirement, the
Commission adopted an interim final
temporary rule, Exchange Act Rule
15Ba2–6T, and form, Form MA–T,
effective October 1, 2010. To enable
municipal advisors to continue to
register under the temporary registration
regime until the applicable compliance
date for permanent registration, the
Commission is extending Rule 15Ba2–
6T, in a separate release, to December
31, 2014. The Commission is today
adopting new Rules 15Ba1–1 through
15Ba1–8, new Rule 15Bc4–1, and new
Forms MA, MA–I, MA–W, and MA–NR
under the Exchange Act. These rules
and forms are designed to give effect to
provisions of Title IX of the Dodd-Frank
Act that, among other things, require the
Commission to establish a registration
regime for municipal advisors and
impose certain record-keeping
requirements on such advisors.
DATES: Effective Date: January 13, 2014,
except that amendatory instruction 11
removing § 249.1300T is effective
January 1, 2015.
Compliance Date: The applicable
compliance dates are discussed in the
section of the release titled ‘‘V.
Implementation and Compliance
Dates’’.
FOR FURTHER INFORMATION CONTACT:
Office of Municipal Securities: John
Cross, Director, at (202) 551–5839;
Jessica Kane, Senior Special Counsel
to the Director, at (202) 551–3235;
Rebecca Olsen, Attorney Fellow, at
(202) 551–5540; or Mary Simpkins,
Senior Special Counsel, at (202) 551–
5683; at Office of Municipal
Securities, Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549–7010.
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SUMMARY:
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Office of Market Supervision: Molly
Kim, Senior Special Counsel, at (202)
551–5644; Ira Brandriss, Special
Counsel, at (202) 551–5651; Brian
Baltz, Special Counsel, at (202) 551–
5762; Jennifer Dodd, Special Counsel,
at (202) 551–5653; Derek James,
Special Counsel, at (202) 551–5792;
Yue Ding, Attorney-Adviser, at (202)
551–5842; or Eugene Hsia, AttorneyAdviser, at (202) 551–5709; at
Division of Trading and Markets,
Securities and Exchange Commission,
100 F Street NE., Washington, DC
20549–7010.
SUPPLEMENTARY INFORMATION: The
Commission is adopting Rules 15Ba1–1
to 15Ba1–8 (17 CFR 240.15Ba1–1 to
240.15Ba1–8) and 15Bc4–1 (17 CFR
240.15Bc4–1) under the Exchange Act;
Forms MA, MA–I, MA–W, and MA–NR
(17 CFR 249.1300, 1310, 1320, and
1330); and Rules 30–3a (17 CFR 200.30–
3a) and 19d (17 CFR 200.19d) under the
Commission’s Rules of Organization and
Program Management. The Commission
is amending Rules 30–18 (17 CFR
200.30–18) and 19c (17 CFR 200.19c)
under the Commission’s Rules of
Organization and Program Management.
Table of Contents
I. Executive Summary
II. Introduction
A. Background
1. Overview of Municipal Securities
Market
a. Municipal Advisors
b. Municipal Entities and Municipal
Financial Products
2. Historical Regulation of Municipal
Securities and Municipal Advisors
a. Municipal Securities Market
b. Municipal Advisors
B. Dodd-Frank Act and the Need for
Oversight
C. Interim Final Temporary Rule 15Ba2–6T
and Form MA–T
D. Proposal To Establish a Registration
Regime for Municipal Advisors
III. Discussion
A. Rules for the Registration of Municipal
Advisors
1. Rule 15Ba1–1: Definition of ‘‘Municipal
Advisor’’ and Related Terms
a. Statutory Definition of ‘‘Municipal
Advisor’’
b. Interpretation of the Term ‘‘Municipal
Advisor’’; Definition of Related Terms
i. Advice Standard in General
ii. Municipal Entity
iii. Obligated Person
iv. Municipal Financial Products
v. Municipal Derivatives
vi. Guaranteed Investment Contracts
vii. Issuance of Municipal Securities
viii. Investment Strategies
ix. Pooled Investment Vehicles
x. Solicitation of a Municipal Entity or
Obligated Person
c. Exclusions and Exemptions From the
Definition of ‘‘Municipal Advisor’’
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i. Public Officials and Employees of
Municipal Entities and Obligated
Persons
ii. Responses to Requests for Proposals or
Requests for Qualifications
iii. Municipal Entity or Obligated Person
Represented by an Independent
Municipal Advisor
iv. Broker, Dealer, or Municipal Securities
Dealer Serving as an Underwriter
v. Registered Investment Advisers
vi. Registered Commodity Trading
Advisors; Swap Dealers
vii. Accountants, Attorneys, Engineers and
Other Professionals
viii. Banks
2. Rule 15Ba1–2
a. Application for Municipal Advisor
Registration
b. Information Requested in Form MA
c. Information Requested in Form MA–I
3. Rule 15Ba1–3: Exemption of Certain
Natural Persons Associated With
Registered Municipal Advisors From
Registration
4. Rule 15Ba1–4: Withdrawal From
Municipal Advisor Registration; Form
MA–W
a. Rule 15Ba1–4: Withdrawal From
Municipal Advisor Registration
b. Form MA–W
5. Rule 15Ba1–5: Amendments to Form
MA and Form MA–I
6. Rule 15Ba1–6: Consent to Service of
Process To Be Filed by Non-Resident
Registered Municipal Advisors; Legal
Opinion To Be Provided by NonResident Municipal Advisors; and Form
MA–NR
a. Rule 15Ba1–6: Consent to Service of
Process To Be Filed by Non-Resident
Registered Municipal Advisors; Legal
Opinion To Be Provided by NonResident Municipal Advisors
b. Form MA–NR
7. Rule 15Ba1–7: Registration of Successor
to Municipal Advisor
8. General Instructions and Glossary
9. Rule 15Bc4–1: Persons Associated With
Municipal Advisors
B. Approval or Denial of Registration
C. Rule 15Ba1–8: Books and Records To Be
Made and Maintained by Municipal
Advisors
IV. Designation of FINRA To Examine FINRA
Member Municipal Advisors
V. Implementation and Compliance Dates
VI. Delegation of Authority
A. Delegation to the Director of the Office
of Municipal Securities
B. Delegation to the Director of the Office
of Compliance Inspections and
Examinations
VII. Paperwork Reduction Act
VIII. Economic Analysis
IX. Final Regulatory Flexibility Analysis
X. Statutory Basis and Text of Amendments
I. Executive Summary
Section 975 of the Dodd-Frank Act
creates a new class of regulated persons,
‘‘municipal advisors,’’ and requires
these advisors to register with the
Commission. This new registration
requirement, which became effective on
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October 1, 2010, makes it unlawful for
any municipal advisor to provide
certain advice to or on behalf of, or to
solicit, municipal entities or certain
other persons without registering with
the Commission.1 A person is deemed
under the Exchange Act to have a
statutory fiduciary duty to any
municipal entity for whom such person
acts as a municipal advisor.
The new registration requirements
and regulatory standards are intended to
mitigate some of the problems observed
with the conduct of some municipal
advisors, including ‘‘pay to play’’
practices, undisclosed conflicts of
interest, advice rendered by financial
advisors without adequate training or
qualifications, and failure to place the
duty of loyalty to their clients ahead of
their own interests.2 According to a
Senate Report related to the Dodd-Frank
Act, ‘‘[t]he $3 trillion municipal
securities market is subject to less
supervision than corporate securities
markets, and market participants
generally have less information upon
which to base investment decisions.
During the [financial] crisis, a number of
municipalities suffered losses from
complex derivatives products that were
marketed by unregulated financial
intermediaries.’’ 3 Accordingly, in
response to the financial crisis that
began in 2008, the Dodd-Frank Act
amended the Exchange Act to require ‘‘a
range of municipal financial advisors to
register with the [Commission] and
comply with regulations issued by the
[MSRB].’’ 4
In September 2010, the Commission
adopted, and subsequently extended, an
interim final temporary rule establishing
a temporary means for municipal
advisors to satisfy the registration
requirement.5 As of March 31, 2013,
there were approximately 1,130 Form
MA–T registrants, including
approximately 330 registrants that are
also registered investment advisers and/
or broker-dealers. In December 2010, the
Commission proposed a permanent
registration regime to govern municipal
advisor registration (‘‘Proposal’’).6 The
1 See
15 U.S.C. 78o–4(a)(1)(B).
e.g., Municipal Securities Rulemaking
Board, Unregulated Municipal Market
Participants—A Case for Reform, April 2009, http://
www.msrb.org/News-and-Events/Press-Releases/
Press-Releases/∼/media/Files/Special-Publications/
MSRBReportonUnregulatedMarketParticipants_
April09.ashx (‘‘MSRB Study’’).
3 See S. Rep. No. 111–176, at 38 (2010).
4 See id.
5 See Section II.C. below and Securities Exchange
Act Release No. 62824 (September 1, 2010), 75 FR
54465 (September 8, 2010) (‘‘Temporary
Registration Rule Release’’).
6 See Section II.D. below and Securities Exchange
Act Release No. 63576 (December 20, 2010), 76 FR
824 (January 6, 2011) (‘‘Proposal’’).
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2 See,
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Commission has considered comments
received in connection with both the
2010 interim final temporary rules, as
well as the Proposal, and is today
establishing a permanent registration
regime for municipal advisors and
imposing certain record-keeping
requirements on such advisors. Further,
the Commission today, in a separate
release, is extending the expiration date
of the temporary registration regime to
December 31, 2014.7 This extension will
enable municipal advisors that are
required to register with the
Commission on or after the Effective
Date but before the applicable
compliance date to continue to register
under the temporary registration regime.
The statutory definition of a
‘‘municipal advisor’’ is broad and
includes persons that may not have
been considered to be municipal
financial advisors prior to the enactment
of the Dodd-Frank Act. Historically,
municipal advisors have been largely
unregulated.8 The Commission believes
that the information disclosed pursuant
to the rules and forms established by the
permanent registration regime for
municipal advisors will enhance the
Commission’s oversight of municipal
advisors and their activities in the
municipal securities markets. The
publicly-available online information
provided pursuant to these rules and
forms should also aid municipal entities
and obligated persons in choosing
municipal advisors and help provide
greater transparency when engaging in
transactions or investments with
municipal advisors.
The Exchange Act defines the term
‘‘municipal advisor’’ to mean a person
(who is not a municipal entity or an
employee of a municipal entity) that: (1)
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; or (2)
undertakes a solicitation of a municipal
entity.9 The definition of municipal
advisor includes financial advisors,
guaranteed investment contract brokers,
third-party marketers, placement agents,
solicitors, finders, and swap advisors
that provide municipal advisory
services, unless they are statutorily
excluded.10
7 See Rule 15Ba2–6T and Securities Exchange Act
Release No. 70468 (September 23, 2013) (‘‘Form
MA–T Extension Release’’).
8 See, e.g., MSRB Study, supra note 2.
9 See 15 U.S.C. 78o–4(e)(4)(A).
10 See 15 U.S.C. 78o–4(e)(4)(B).
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The statutory definition of ‘‘municipal
advisor’’ explicitly excludes: (1) A
broker, dealer, or municipal securities
dealer serving as an underwriter (as
defined in Section 2(a)(11) of the
Securities Act of 1933); (2) any
investment adviser registered under the
Investment Advisers Act of 1940, or
persons associated with such
investment advisers who are providing
investment advice; (3) any commodity
trading advisor registered under the
Commodity Exchange Act or persons
associated with a commodity trading
advisor who are providing advice
related to swaps; (4) attorneys offering
legal advice or providing services of a
traditional legal nature; and (5)
engineers providing engineering
advice.11
The Exchange Act defines the term
‘‘municipal financial product’’ to mean
municipal derivatives, guaranteed
investment contracts, and investment
strategies.12 ‘‘Investment strategies’’ is
defined to include plans or programs for
the investment of proceeds of municipal
securities that are not municipal
derivatives, guaranteed investment
contracts, and the recommendation of
and brokerage of municipal escrow
investments.13
The Proposal reflected the
Commission’s preliminary
interpretation of the new statutory
requirements, based on its
understanding at that time of
Congressional objectives and intent in
adopting Section 975 of the Dodd-Frank
Act. The Commission requested
comment generally on the Proposal and
also requested comment on over 175
specific issues. The Commission
received over 1,000 comment letters on
the Proposal, representing a wide range
of viewpoints, which are discussed
throughout this release. Commenters
included municipal advisors, municipal
entities, broker-dealers, banks,
accountants, lawyers, engineers,
registered investment advisers,
organizations representing industry
participants, investors, the Municipal
Securities Rulemaking Board, members
of Congress, and others.
Commenters generally supported the
goals of the Proposal, although many
expressed concerns about its breadth
and recommended that the Proposal be
amended or clarified in certain respects.
Major themes in the comments
included: (1) Concerns about the
proposed treatment of appointed board
members and other public officials of
municipal entities as advisors; (2)
11 See
15 U.S.C. 78o–4(e)(4)(C).
15 U.S.C. 78o–4(e)(5).
13 See 15 U.S.C. 78o–4(e)(3).
12 See
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concerns about the proposed
application to advice on investments of
all municipal funds (versus investments
associated with proceeds of municipal
securities); and (3) potential effects on
securities activities of banks for which
there are no statutory exclusions from
the definition of ‘‘municipal advisor.’’
The Commission staff discussed many
issues with other U.S. financial
regulators, commenters, and interested
market participants in devising a final
rule that requires registration of parties
engaging in municipal advisory
activities without unnecessarily
imposing additional regulation.
One theme reflected in the statutory
exclusions to the definition of a
municipal advisor and in the
Commission’s consideration of
additional regulatory exemptions
involves an approach that focuses and
limits the scope of these exclusions and
exemptions based on identified
activities (‘‘activities-based
exemptions’’) rather than on the basis of
the status of particular categories of
market participants (‘‘status-based
exemptions’’). This approach aims to
ensure that exemptions apply in
targeted circumstances to appropriate
identified activities. By comparison, a
concern with status-based exemptions is
that they could provide inappropriate
competitive advantages to covered
categories of market participants.14
In consideration of the views
expressed, suggestions for alternatives,
and other information provided by
commenters, the Commission is
adopting the rules with significant
modifications from the Proposal to
narrow the scope of the registration
requirement, including through certain
activity-based exemptions from the
definition of municipal advisor, and to
provide additional guidance to market
participants about what constitutes
municipal advice and who is required to
register as a municipal advisor. Some of
the more significant changes made in
this adopting release are summarized as
follows.
Broad Exemption for Public Officials
and Employees of Municipal Entities
and Obligated Persons
The Exchange Act excludes municipal
entities and employees of municipal
entities from the definition of municipal
advisor.15 The Proposal did not extend
the exclusion for ‘‘employees of a
municipal entity’’ to include appointed
14 See infra Sections VIII.D.5.b. (discussing
alternatives to the exclusions from the definition of
municipal advisor) and VIII.D.6.b. (discussing
alternatives to the exemptions from the definition
of municipal advisor).
15 See 15 U.S.C. 78o–4(e)(4)(A).
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officials. The Commission received
approximately 670 comment letters to
the effect that the proposed exclusion
for employees of municipal entities was
unduly narrow and that it failed to
provide sufficient coverage for
appointed board members and other
public officials associated with
municipal entities. The final rule
provides a broad exemption from
municipal advisor registration for all
employees, governing body members,
and other officials of municipal entities
and obligated persons, to the extent that
they act within the scope of their
employment or official capacity.16 The
Commission does not expect that the
ordinary performance of the duties of an
appointed member of a governing body
of a municipal entity—such as voting,
providing a statement or discussion of
views, or asking questions at a public
meeting—would cause that individual
to be a municipal advisor with respect
to the municipal entity on whose board
he or she serves.
Limitation to Investments Related to
Proceeds of Municipal Securities
Instead of All Public Funds
The Exchange Act provides that the
term ‘‘‘investment strategies’ includes
plans or programs for the investment of
the proceeds of municipal securities
that are not municipal derivatives,
guaranteed investment contracts, and
the recommendation of and brokerage of
municipal escrow investments’’
(emphasis added).17 In the Proposal, the
Commission proposed to interpret the
‘‘investment strategies’’ definition
broadly to cover not only the statutorilyidentified matters but also plans,
programs, or pools of assets that invest
any funds held by or on behalf of a
municipal entity.
The Commission received
approximately 60 comment letters to the
effect that the Proposal interpreted the
‘‘investment strategies’’ definition too
broadly to cover advice to municipal
entities regarding plans or programs for
the investment of all public funds of
municipal entities (rather than
investments more narrowly associated
with proceeds of municipal securities
and the recommendation of and
brokerage of municipal escrow
arrangements). The Commission has
determined to adopt the statutory
definition of ‘‘investment strategies,’’
but is also adopting an exemption for
certain persons that will result in a
narrower application of ‘‘investment
strategies’’ than originally proposed,
limiting such strategies to matters
16 See
17 See
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15 U.S.C. 78o–4(e)(3).
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relating to the investment of the
proceeds of municipal securities or the
recommendation of and brokerage of
municipal escrow investments, in lieu
of all public funds of municipal
entities.18 This more circumscribed
approach to ‘‘investment strategies’’ has
a narrowing effect throughout the
municipal advisor registration regime
(e.g., many investment advisers and a
significant portion of the bank activities
identified by commenters will not be
subject to municipal advisor
registration).
New Tailored Exemption for Banks
The Exchange Act does not exclude
banks from the definition of municipal
advisor. The Commission received
approximately 300 comment letters to
the effect that the Proposal did not
provide needed exemptions for socalled ‘‘traditional banking’’ activities.
Most of these comments regarding the
impact on banks related to the proposed
broad interpretation of the ‘‘investment
strategies’’ definition. Many commercial
banks and banking associations asserted
that the Commission’s interpretation of
‘‘investment strategies’’ was overly
broad and would potentially cover
traditional banking products and
services, such as deposit accounts, cash
management products, and loans to
municipalities. As a result, according to
commenters, banks or bank employees
that provide advice regarding such
products and services could be
considered municipal advisors, adding
‘‘a new layer of regulation on bank
products for no meaningful public
purpose.’’ 19
The narrowing of the application of
‘‘investment strategies’’ in the final rule
is designed to address the main
concerns raised by these commenters.20
In addition, the final rule provides a
new tailored exemption from the
definition of municipal advisor for a
bank providing advice with respect to
the following: (1) Any investments that
are held in a deposit account, savings
account, certificate of deposit, or other
deposit instrument issued by a bank; (2)
any extension of credit by a bank to a
municipal entity or obligated person,
including the issuance of a letter of
credit, the making of a direct loan, or
the purchase of a municipal security by
the bank for its own account; (3) any
funds held in a sweep account; or (4)
any investment made by a bank acting
in the capacity of an indenture trustee
18 See
infra Section III.A.1.b.viii.
infra note 876 and accompanying text
(discussing comments regarding an exemption for
banks from the municipal advisor registration
rules).
20 See infra Section III.A.1.c.viii.
19 See
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or similar capacity (e.g., a bond
indenture trustee, paying agent, or
municipal escrow agent).
The final rule preserves the municipal
advisor registration requirement for
banks that engage in municipal advisory
activities, such as banks that act as
financial advisors to municipal entities
in structuring issues of municipal
securities. Also, the final rule preserves
the municipal advisor registration
requirement for banks that provide
advice with respect to municipal
derivatives.
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Advice Standard in General
For purposes of the municipal advisor
definition, the Dodd-Frank Act did not
specifically define or otherwise provide
a general standard to determine what
constitutes ‘‘advice’’ to a municipal
entity or obligated person. The
Commission received comments
requesting clarification of ‘‘advice’’ and
suggesting general parameters for
defining advice that distinguish
between providing general information
to a municipal entity and
recommending a specific action to a
municipal entity. While the
Commission believes that the
determination of whether a person
provides advice to or on behalf of a
municipal entity or obligated person
depends on all the relevant facts and
circumstances, the Commission also
believes that additional guidance on the
advice standard for purposes of the
municipal advisor definition will
provide greater clarity regarding the
applicability of the municipal advisor
registration requirement. Accordingly,
the adopted rules provide that advice
excludes, among other things, the
provision of general information that
does not involve a recommendation
regarding municipal financial products
or the issuance of municipal securities
(including with respect to the structure,
timing, terms and other similar matters
concerning such financial products or
issues).21
Exemption for Certain Swap Dealers
The Exchange Act does not exclude
swap dealers from the definition of
municipal advisor. The Commission
received comments suggesting that
regulation of swap dealers under the
municipal advisor registration regime
should be coordinated with other
regulatory programs. The Commission
recognizes that swap dealers are also
subject to the provisions of Title VII of
the Dodd-Frank Act,22 which provide
21 See
22 See
infra Section III.A.1.b.i.
Dodd-Frank Act sections 731 et seq., 764
et seq.
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the Commodity Futures Trading
Commission (‘‘CFTC’’) with authority to
register and implement business
conduct standards for swap dealers with
respect to their interactions with
municipal entities and obligated
persons that are ‘‘special entities,’’ as
discussed further below in Section
III.A.1.c.vi. The final rules exempt any
registered swap dealer to the extent that
such dealer recommends a municipal
derivative or a trading strategy that
involves a municipal derivative, so long
as such dealer or associated person is
not ‘‘acting as an advisor’’ to the
municipal entity or obligated person,
applying the standards applicable to the
parties to such transactions under the
existing regulatory regime of the
CFTC.23
Exemption When There Is an
Independent Registered Municipal
Advisor
Several commenters suggested that a
person providing advice with respect to
municipal financial products or the
issuance of municipal securities should
not be regulated as a municipal advisor
if the municipal entity or obligated
person is otherwise represented by a
municipal advisor. The Commission
believes that if a municipal entity or
obligated person is represented by a
registered municipal advisor, parties to
the municipal securities transaction and
others who are not registered municipal
advisors should be able to provide
advice to such municipal entity or
obligated person, so long as the
responsibilities of each of the parties are
clear.
Accordingly, the final rules exempt
persons providing advice with respect
to municipal financial products or the
issuance of municipal securities from
the definition of municipal advisor so
long as: (1) An independent registered
municipal advisor is providing advice
with respect to the same aspects of the
municipal financial product or issuance
of municipal securities, is registered
pursuant to Section 15B of the Exchange
Act and the rules and regulations
thereunder, and is not, and within at
least the past two years was not,
associated with the person seeking to
rely on this exemption; (2) such person
receives from the municipal entity or
23 See infra Section III.A.1.c.vi. The Commission
also received similar comments regarding securitybased swap dealers. As discussed herein, although
the Commission is not providing an exemption in
the rules as adopted for security-based swap
dealers, security-based swap dealers may be eligible
for exemption pursuant to another exemption, such
as when there is a separate registered municipal
advisor, and the Commission may in the future
consider whether to provide a comparable
exemption by rule. See id.
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67471
obligated person a representation in
writing that it is represented by, and
will rely on the advice of, an
independent registered municipal
advisor; and (3) such person provides
written disclosure to the municipal
entity or obligated person that such
person is not a municipal advisor and,
with respect to a municipal entity, is not
subject to the statutory fiduciary duty
applicable to municipal advisors under
the Exchange Act, and such person
provides a copy of such disclosure to
the municipal entity’s or the obligated
person’s independent registered
municipal advisor.24
Exclusion of Individuals From
Registration
In the Proposal, the Commission
proposed to require registration of all
individuals associated with municipal
advisory firms who engage in municipal
advisory activities, as contrasted with
limiting registration to the municipal
advisory firms themselves. For reasons
further discussed in Sections III.A.2.a.
and III.A.3. of this adopting release, the
Commission is limiting the registration
requirement to municipal advisory firms
and sole proprietors.
II. Introduction
A. Background
On July 21, 2010, President Obama
signed into law the Dodd-Frank Act.25
The Dodd-Frank Act was enacted,
among other things, to promote the
financial stability of the United States
by improving accountability and
transparency in the financial system.26
With Section 975 of Title IX of the
Dodd-Frank Act, Congress amended
Section 15B of the Exchange Act 27 to,
among other things, make it unlawful
for municipal advisors 28 to provide
certain advice to, or solicit, municipal
entities 29 or certain other persons
without registering with the
Commission.30
24 See
infra Section III.A.1.c.iii.
Dodd-Frank Wall Street Reform and
Consumer Protection Act, Public Law 111–203, 124
Stat. 1376 (2010).
26 See Public Law 111–203 Preamble.
27 15 U.S.C. 78o–4.
28 See infra Section III.A.1. (discussing the term
‘‘municipal advisor’’).
29 See infra Section III.A.1.b.ii. (discussing the
term ‘‘municipal entity’’).
30 See Section 975(a)(1)(B) of the Dodd-Frank Act;
15 U.S.C. 78o–4(a)(1)(B).
25 The
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1. Overview of Municipal Securities
Market
a. Municipal Advisors
As discussed in the Proposal,31 until
the passage of the Dodd-Frank Act, the
activities of municipal advisors were
largely unregulated, and municipal
advisors were generally not required to
register with the Commission or any
other federal, state, or self-regulatory
entity with respect to their municipal
advisory activities. As discussed below
in this section and in the Proposal,32
some entities that are now subject to
registration as municipal advisors
pursuant to Section 15B of the Exchange
Act and rules or regulations
promulgated thereunder currently are
subject to regulation by various federal
and state regulators in other capacities.
These entities include brokers, dealers,
municipal securities dealers, investment
advisers, and banks. Such regulations,
however, generally do not apply
specifically to these entities’ municipal
advisory activities.
Municipal advisors, commonly
referred to as ‘‘financial advisors,’’ 33
engage in municipal advisory activities
in a variety of contexts. With respect to
the issuance of municipal securities,
municipal advisors (which may include
entities registered as brokers, dealers,
municipal securities dealers, or
investment advisers acting as municipal
advisors), among other things, may
assist municipal entities in developing a
financing plan, assist municipal entities
in evaluating different financing options
and structures, assist in the selection of
other parties to the financing (such as
bond counsel and underwriters),
coordinate the rating process, ensure
adequate disclosure, and/or evaluate
and negotiate the financing terms.34
According to the Municipal Securities
Rulemaking Board (‘‘MSRB’’),
approximately $315 billion (70%) 35 of
the municipal debt issued in 2008 was
issued with the participation of
municipal advisors.36 The MSRB also
stated that participation by municipal
31 See
Proposal, 76 FR 825.
id.
33 See infra note 36 (referring to municipal
advisors as ‘‘financial advisors’’).
34 See Jayaraman Vijayakumar and Kenneth N.
Daniels, 2006, The Role and Impact of Financial
Advisors in the Market for Municipal Bonds
(‘‘Vijayakumar and Daniels’’), Journal of Financial
Services Research, 30:43, at 46.
35 See MSRB Study, supra note 2, at 1.
36 See id. (referring to municipal advisors as
‘‘financial advisors’’). Approximately 43% of the
$453 billion of municipal debt issued in 2008 (by
par amount of bonds) (or 62% of the $315 billion
of municipal debt issued with financial advisors)
was issued with the assistance of ‘‘financial
advisors’’ that were not part of dealer firms
regulated by the MSRB. See id., at 2.
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32 See
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advisory firms in the issuance of
municipal securities is rising, noting a
63% participation rate in 2006, a 66%
participation rate in 2007, and a 70%
participation rate in 2008.37 A study
that looked at historical involvement by
‘‘financial advisors’’ identified
participation rates of approximately
50% in the period from 1984 to 2002.38
As discussed in the Proposal,39
municipal advisors may also engage in
municipal advisory activities with
respect to municipal financial
products.40 For example, as
derivatives—which are municipal
financial products—developed in the
municipal securities market, some
municipal advisory firms began
marketing themselves as experts in
derivatives. These municipal advisory
firms are generally referred to as ‘‘swap
advisors.’’ 41 Swap advisors may
provide advice solely with respect to a
municipal derivative transaction or may
provide advice in other types of
municipal advisory capacities.
Further, municipal advisors may
provide advice to municipal entities
concerning guaranteed investment
contracts and investment strategies.42
These advisory firms may assist in the
investment of proceeds from bond
offerings as well as manage other public
monies. Such public monies include
general and special funds of state and
local governments, public pension
plans, and other funds dedicated to
public programs, such as public
transportation, police and fire
protection, public health, and public
education. In addition, municipal
advisors may help state and local
governments find and evaluate other
advisors that manage public funds and
provide other types of services.43
Other persons that may be required to
register as municipal advisors include
those who solicit municipal entities on
behalf of brokers, dealers, municipal
securities dealers, municipal advisors,
and investment advisers. Such
solicitation activities are discussed
herein.44
37 See
id., at 2.
Arthur Allen and Donna Dudney, May
2010, Does the Quality of Financial Advice Affect
Prices? The Financial Review 45: 389 (‘‘Allen and
Dudney’’).
39 See Proposal, 76 FR 825.
40 See infra Section III.A.1.b.iv. (discussing the
term ‘‘municipal financial products’’).
41 See MSRB Study, supra note 35.
42 See infra Sections III.A.1.b.vi. and III.A.1.b.viii.
(discussing the terms ‘‘guaranteed investment
contracts’’ and ‘‘investment strategies,’’
respectively).
43 See Investment Advisers Act Release No. 3043
(July 1, 2010), 75 FR 41018, 41019 (July 14, 2010)
(‘‘Political Contributions Final Rule’’).
44 See infra Section III.A.1.b.x.
38 See
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b. Municipal Entities and Municipal
Financial Products
The municipal securities market
consists of approximately 44,000
issuers,45 a diverse group that includes
states, their political subdivisions (such
as cities, towns, counties, and school
districts), and their instrumentalities,
authorities, agencies, and special
districts. These public bodies are
governed by state and local laws,
including state constitutions, statutes,
city charters, and municipal codes.46
Such constitutions, statutes, charters,
and codes impose on municipal issuers
requirements relating to governance,
budgeting, accounting, and other
financial matters.47 The governing
bodies of municipal issuers are as varied
as the types of issuers, ranging from
state governments, cities, towns,
counties, and school districts, to
authorities, agencies, and other special
districts.48
Municipal securities are issued by
government entities to pay for a variety
of public projects, to obtain cash flow
for other governmental needs, and to
provide tax-exempt or taxable financing
for non-governmental private projects
by acting as a conduit on behalf of
private organizations.49 In 2011, there
were over one million different
municipal bonds outstanding, totaling
$3.7 trillion in principal.50 Also, there
were 13,463 municipal issuances,
totaling $355 billion of principal.51
Further, in 2011, the average daily
trading volume for the municipal bond
market was $11.3 billion.52
Interests offered by college savings
plans (‘‘529 Savings Plans’’) that comply
with Section 529 of the Internal
Revenue Code 53 are another type of
45 See Commission Report on the Municipal
Securities Market, 1 (July 31, 2012), available at
http://sec.gov/news/studies/2012/
munireport073112.pdf (‘‘2012 Report on the
Municipal Securities Market’’).
46 See American Bar Association, Disclosure
Roles of Counsel in State and Local Government
Securities Offerings 1 (Third Edition, 2009)
(‘‘Disclosure Roles of Bond Counsel’’).
47 See id., at 2.
48 See id., at 78.
49 The Internal Revenue Code delineates the
purposes for which tax-exempt municipal bonds
may be issued for the benefit of organizations other
than states and local governments, i.e., conduit
borrowers. See 26 U.S.C. 142–145, 1394.
50 See 2012 Report on the Municipal Securities
Market, supra note 45, at 5. In 2011, there were
fewer than 50,000 different corporate bonds,
totaling $11.5 trillion in principal (this figure
includes foreign bonds). See id. There were also
$22.5 trillion of corporate equities outstanding. See
id.
51 See id., at 6.
52 See id., at 21. Compare this to the corporate
bond market, which in 2011 had an average daily
trading volume of $20.6 billion. See id.
53 See 26 U.S.C. 529.
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municipal security. 529 Savings Plans
involve offerings of interests in state
tuition programs and qualified savings
plans that are public instrumentalities
of the particular state, and provide tax
advantages designed to encourage
saving for future college costs.54 529
Savings Plan assets have increased from
approximately $9 billion in 2000 to
approximately $190 billion in 2012, and
the number of 529 Savings Plan
accounts has increased from
approximately 1.3 million in 2000 to
approximately 11 million in 2012.55
A person that sells interests in 529
Savings Plans generally must be
registered as a broker, dealer, or
municipal securities dealer and comply
with applicable MSRB rules.56 529
Savings Plans are also relevant in the
context of municipal advisor regulation,
because an issuance of interests in 529
Savings Plans is an issuance of
municipal securities.57 Further, 529
Savings Plans may engage in
transactions involving municipal
financial products and may also seek
advice in connection with such
products or issuances.58 Moreover, third
parties seeking to advise 529 Savings
Plans may solicit such plans for that
purpose.59
Public pension plans may also engage
in transactions in municipal financial
products and seek advice in connection
with such transactions. Third parties
may solicit these public pension plans
on behalf of firms seeking to provide
advice to these plans.60 According to the
2011 Census Bureau survey, there were
3,418 state- and locally-administered
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54 See
2012 Report on the Municipal Securities
Market, supra note 45, at 8.
55 See College Savings Plans Network 529 Report
(March 2013), available at http://
www.collegesavings.org/includes/pdfs/
March%202013%20529%20Report%20Final.pdf
and Investment Company Institute, 529 Plan
Program Statistics, Fourth Quarter 2012, available at
http://www.ici.org/research/stats/529s/529s_12_q4.
56 See, e.g., MSRB Notice 2002–19 (May 14, 2002)
(Application of Fair Practice and Advertising Rules
to Municipal Fund Securities).
57 See MSRB, 529 Plan Basics, available at http://
emma.msrb.org/EducationCenter/
FAQs.aspx?topic=PlanBasics and MSRB,
Interpretation Relating to Sales of Municipal Fund
Securities in the Primary Market (January 18, 2001),
available at http://www.msrb.org/Rules-andInterpretations/MSRB-Rules/Definitional/Rule-D12.aspx?tab=2#_4B905EF1-5F85-4D2E-B27C6B94EF405F47 (citing Letter from Catherine
McGuire, Chief Counsel, Division of Trading and
Markets, Commission, to Diane G. Klinke, General
Counsel, MSRB, dated February 26, 1999, in
response to letter from Diane G. Klinke, General
Counsel, MSRB, to Catherine McGuire, Chief
Counsel, Division of Trading and Markets,
Commission, dated June 2, 1998).
58 See Political Contributions Final Rule, supra
note 43, at 41044–46.
59 See id., at 41019.
60 See id.
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pension systems in 2011.61 As of the
first quarter of 2013, public pension
plans had over $3 trillion of assets and
represented approximately 30 percent of
all U.S. pension assets.62
In addition to public pension plans
and 529 Savings Plans, state and local
government agencies also maintain
other pools of assets, including general
funds and other special funds.
Governmental entities generally invest
such funds in a combination of
individualized investments, investment
agreements, and local government
investment pools (‘‘LGIPs’’).63
Historically, the over-the-counter
derivatives markets have been relatively
opaque because of their privately
negotiated, bilateral nature and the
limited availability of transaction data
such as prices and volumes.64
Accordingly, there is currently no
comprehensive data on how many
municipal issuers are active in the $162
trillion interest-rate swap market,65
although reported estimates of the size
of the municipal derivatives market
range from $100 billion to $300 billion
annually in notional principal
amount.66 Further, estimates of the
number of municipal issuers that have
engaged in derivative transactions also
vary. Some anecdotal evidence suggests
61 See U.S. Census Bureau, Annual Survey of
Public Pensions: State- and Locally-Administered
Defined Benefit Data Summary Report: 2011
(August 2013), available at http://www2.census.gov/
govs/retire/2011summaryreport.pdf.
62 See Federal Reserve Board, Financial Accounts
of the United States—Flow of Funds, Balance
Sheets, and Integrated Macroeconomic Accounts,
Table L.117 (First Quarter 2013), available at http://
www.federalreserve.gov/releases/z1/current/z1.pdf.
63 According to a 2009 article, 45 states have
LGIPs with assets totaling more than $250 billion.
See Jeff Pentages, Local Government Investment
Pools and the Financial Crisis: Lessons Learned,
October 2009, Government Finance Review 25. As
of the first quarter of 2013, state and local
governments had approximately $2.1 trillion dollars
in total financial assets. See Federal Reserve Board,
Financial Accounts of the United States—Flow of
Funds, Balance Sheets, and Integrated
Macroeconomic Accounts, Table L.104 (First
Quarter 2013), available at http://
www.federalreserve.gov/releases/z1/current/z1.pdf.
64 The Dodd-Frank Act, however, will require
more public reporting of derivative transactions in
the future. For example, the CFTC has adopted
rules to implement a framework for the real-time
public reporting of swap transactions and pricing
data for swap transactions. See 77 FR 1182 (January
9, 2012). Moreover, the Dodd-Frank Act requires the
Commission to adopt, and the Commission has
proposed, rules to provide for the reporting of
security-based swaps information to registered
security-based swap data repositories or to the
Commission and the public dissemination of
security-based swap transaction, volume, and
pricing information. See Securities Exchange Act
Release No. 63346 (November 19, 2010), 75 FR
75208 (December 2, 2010).
65 See 2012 Report on the Municipal Securities
Market, supra note 45, at 91.
66 See MSRB Study, supra note 35, at 10.
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67473
a relatively wide use of municipal
derivatives in recent years. For instance,
a 2008 review of Pennsylvania
Department of Community and
Economic Development records
indicated that 185 school districts,
towns, and counties in Pennsylvania
have entered into derivative
transactions since 2003, when the state’s
law was explicitly changed to allow for
such transactions.67 Other estimates,
however, have pointed to a less
widespread use of derivatives among
municipal issuers. For example, a 2007
study by Standard & Poor’s identified
750 municipal issuers that engaged in
interest rate swaps.68 In addition, in
October 2009, Moody’s undertook a
review of the state and local
governments for which Moody’s
provides ratings and identified 500
entities with outstanding interest rate
swaps.69 Moody’s also estimated that
Pennsylvania issuers accounted for 22%
of all municipal derivative transactions,
suggesting that a broad participation in
derivative transactions by municipal
entities in Pennsylvania did not
necessarily translate into a broad
participation by municipal entities
nationwide.70 Since 2008, the use of
derivatives by municipal entities has
declined, and many municipal entities
have terminated existing interest rate
swaps.71
2. Historical Regulation of Municipal
Securities and Municipal Advisors
a. Municipal Securities Market
As discussed in the Proposal,72 the
Securities Act of 1933 (‘‘Securities
67 See Martin Z. Braun, Deutsche Bank Swap
Lures County as Budgets Crumble, Bloomberg (Nov.
26, 2008), available at http://www.bloomberg.com/
apps/
news?pid=newsarchive&sid=aUYLG7W1nGpM.
68 See Joe Mysak, California Declares War on
State Bond Short-Sellers, Bloomberg (Apr. 27,
2010), available at http://www.bloomberg.com/
news/2010-04-28/california-declares-war-on-shortsellers-of-bonds-commentary-by-joe-mysak.html.
69 See Joe Mysak, Swaps Nightmares Become Real
for Amateur Financiers, Bloomberg (Dec. 15, 2009),
available at http://www.bloomberg.com/apps/
news?pid=newsarchive&sid=aVCDZ6c1PYC0.
70 See id.
71 See, e.g., William Selway, Derivatives Sold to
Governments Get Dodd-Frank Disclosure: One Year
Later, Bloomberg (Jul. 18, 2011), available at http://
www.bloomberg.com/news/2011-07-18/derivativessold-to-governments-get-dodd-frank-disclosure-oneyear-later.html; Michael McDonald, Wall Street
Collects $4 Billion From Taxpayers as Swaps
Backfire, Bloomberg (Nov. 10, 2010), available at
http://www.bloomberg.com/news/2010-11-10/wallstreet-collects-4-billion-from-taxpayers-as-swapsbackfire.html; Transcript of the U.S. Securities and
Exchange Commission Birmingham Field Hearing
on the State of the Municipal Securities Market, at
239–240 and 243.
72 See Proposal, 76 FR 826.
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Federal Register / Vol. 78, No. 218 / Tuesday, November 12, 2013 / Rules and Regulations
Act’’) 73 and the Exchange Act 74 were
both enacted with exemptions for
municipal securities, except for the
antifraud provisions of Section 17(a) of
the Securities Act, Section 10(b) of the
Exchange Act, and Rule 10b-5
promulgated thereunder.75 In the early
1970s, the municipal securities market
was still relatively small.76 Up until that
time, the standard issue was usually a
general obligation bond, with fairly
standard features, and the typical
participants were banks, underwriters,
and bond counsel.77
In 1975, Congress granted new
authority to regulate intermediaries in
the market for municipal securities. As
part of the Securities Acts Amendments
of 1975 (‘‘1975 Amendments’’),
Congress created a limited regulatory
scheme for the municipal securities
market at the federal level.78 That
scheme included mandatory registration
with the Commission for brokers,
dealers, and municipal securities
dealers involved in effecting municipal
securities transactions,79 and gave the
Commission broad rulemaking and
enforcement authority over such
persons.80 In addition, the 1975
73 15
U.S.C. 77a et seq.
U.S.C. 78a et seq.
75 See, e.g., Securities Act Section 3(a)(2) (15
U.S.C. 77c(a)(2)); Securities Act Section 12(a)(2) (15
U.S.C. 77l(a)(2)); Exchange Act Section 3(a)(12) (15
U.S.C. 78c(a)(12)); Exchange Act Section 3(a)(29)
(15 U.S.C. 78c(a)(29)).
76 There were $235.4 billion of municipal bonds
outstanding in 1975 after an issuance of $58 billion
in that year. See The Bond Buyer’s Municipal
Finance Statistics, 1975 (June 1976). At the end of
1976, there were $323 billion of corporate bonds
outstanding, which was about one third more than
state and local government securities and about half
as much as U.S. Treasury securities. See Federal
Reserve Bank of New York, the Market for
Corporate Bonds (Autumn 1977). As of the first
quarter of 2013, there were approximately $3.7
trillion of municipal bonds outstanding, $13 trillion
of corporate and foreign bonds outstanding, and $12
trillion of Treasury securities outstanding. See
Federal Reserve Board, Financial Accounts of the
United States—Flow of Funds, Balance Sheets, and
Integrated Macroeconomic Accounts, Tables L.209,
211 and 212, (First Quarter 2013), available at
http://www.federalreserve.gov/releases/z1/current/
z1.pdf.
77 See Ann Judith Gellis, Municipal Securities
Market: Same Problems—No Solutions, 21 Del. J.
Corp. L. 427, 428 (1996).
78 See, e.g., Exchange Act Sections 15(c)(1),
15(c)(2), 15B(c)(1), 15B(c)(2), 17(a), 17(b), and
21(a)(1) (15 U.S.C. 78o(c)(1), 78o(c)(2), 78o–4(c)(1),
78o–4(c)(2), 78q(a), 78q(b), and 78u(a)(1)).
79 The Exchange Act defines a ‘‘municipal
securities dealer’’ as any person (including a
separately identifiable department or division of a
bank) engaged in the business of buying and selling
municipal securities for its own account other than
in a fiduciary capacity, through a broker or
otherwise. See 15 U.S.C. 78c(a)(30).
80 See supra note 78. Enforcement activities
regarding municipal securities dealers must be
coordinated by the Commission, the Financial
Industry Regulatory Authority (‘‘FINRA’’), and the
appropriate bank regulatory agency. See Exchange
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Amendments authorized the creation of
the MSRB and granted it authority to
promulgate rules concerning
transactions in municipal securities by
brokers, dealers, and municipal
securities dealers. The 1975
Amendments, however, did not create a
regulatory scheme for, or impose any
new requirements on, municipal
issuers. Rather, the 1975 Amendments
expressly prohibited the Commission
and the MSRB from requiring municipal
securities issuers, either directly or
indirectly, to file any application,
report, or document with the
Commission or the MSRB prior to any
sale by the issuer.81
As noted above and in the Proposal,
pursuant to the 1975 Amendments,
unless an exception or exemption
applies, all brokers, dealers, and
municipal securities dealers that
underwrite or trade municipal securities
are required to register with the
Commission.82 All brokers, dealers, and
municipal securities dealers that engage
in municipal securities transactions also
must register with the MSRB and
comply with its rules.83 Furthermore,
unless it is a bank, each broker, dealer,
and municipal securities dealer that
engages in municipal securities
transactions must be a member of
FINRA.84 FINRA is required to examine
brokers, dealers, and municipal
securities dealers for compliance with
the Exchange Act, rules and regulations
thereunder, and MSRB rules.85 Bank
municipal securities dealers are
examined by their appropriate
regulatory agencies.86
Since 1975, the municipal securities
market has grown and evolved
Act Sections 15B(c)(6)(A), 15B(c)(6)(B), and 17(c)
(15 U.S.C. 78o–4(c)(6)(A), 78o–4(c)(6)(B), 78q(c)).
81 Section 15B(d)(1) of the Exchange Act
(commonly known as the ‘‘Tower Amendment’’)
provides that ‘‘[n]either the Commission nor the
Board is authorized under this title, by rule or
regulation, to require any issuer of municipal
securities, directly or indirectly through a purchaser
or prospective purchaser of securities from the
issuer, to file with the Commission or the Board
prior to the sale of such securities by the issuer any
application, report, or document in connection with
the issuance, sale, or distribution of such
securities.’’ 15 U.S.C. 78o–4(d)(1).
82 See 15 U.S.C. 78o–4(a)–(b). See also Proposal,
76 FR 827.
83 See 15 U.S.C. 78o–4(c)(1). See also MSRB,
Registration Guidelines for Regulated Entities,
available at http://www.msrb.org/Rules-andInterpretations/∼/media/Files/User-Manuals/
GuidelinesforRegistration.ashx.
84 See 15 U.S.C. 78o(b)(8) and 78o–4(a).
85 See 15 U.S.C. 78o–4(c)(7).
86 The term ‘‘appropriate regulatory agency,’’
when used with respect to a municipal securities
dealer, is defined in Section 3(a)(34)(A) of the
Exchange Act. 15 U.S.C. 78c(a)(34)(A). The
Commission also has the authority to examine all
registered municipal securities dealers. See 15
U.S.C. 78q(b)(1).
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significantly to encompass a wide
variety of bond structures 87 and credit
enhancements. The variety of financing
options has led municipal entities to
increasingly rely on external advisors to
assist them in deciding among the
structural choices for their debt and to
help them negotiate with a variety of
specialized intermediaries.88 For
example, municipal bond insurance was
first introduced in 1971.89 The
introduction of variable rate municipal
bonds in the early 1980s increased the
use of letter of credit-supported
municipal bonds.90 In 1988, auction rate
securities were introduced into the
municipal market.91 In addition,
derivative products have been utilized
by municipal securities issuers
beginning generally with interest rate
swap transactions in the mid-1980s. The
derivatives utilized since then have
become more complex.92
b. Municipal Advisors
As discussed above and in the
Proposal,93 many market participants
advise municipal entities about the
issuance of municipal securities and
municipal financial products.
Historically, however, these participants
have been largely unregulated with
respect to their municipal advisory
activities. In addition, Commission staff
has taken the position that financial
advisors that limit their advisory
activities solely to advising municipal
issuers as to the structuring of their
87 Although it is helpful to think of municipal
securities as either (1) general obligation bonds
backed by the ‘‘full faith and credit,’’ or an
unlimited taxing power of the issuing entity, or (2)
revenue bonds, these general categories mask a
broad range of diversity and complexity in the
underlying security for municipal bonds. See Gary
Gray and Patrick Cusatis, Municipal Derivative
Securities—Uses and Valuation 21 (1995)
(discussion of revenue bonds). See also Disclosure
of Bond Counsel, supra note 46, at 54–55
(discussion of conduit bonds).
88 See Vijayakumar and Daniels, supra note 34, at
43–44.
89 See Gray and Cusatis, supra note 87, at 30–31.
90 See id. As the Commission noted in the
Proposal, although the use of letters of credit and
bond insurance has declined since 2008, these
forms of credit enhancement remain an option for
municipal entities to consider when issuing
municipal securities. See 76 FR 827, note 48. See
also 2012 Report on the Municipal Securities
Market, supra note 45, at 10–11.
91 See Gray and Cusatis, supra note 87, at 41.
92 See id., at 49. Municipal derivatives must often
be structured in accordance with the provisions of
the tax code and other laws that apply to the
issuance of tax-exempt financings. See David L.
Taub, Understanding Municipal Derivatives, August
2005, Government Finance Review 21. The most
common use for derivatives in the municipal
securities market is the use of interest rate swaps
for new, anticipated, or outstanding debt. See id.
93 See Proposal, 76 FR 827.
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financings may not need to register as
investment advisers.94
Approximately fifteen states,
however, as well as a number of
municipalities, have rules relating to the
conduct of some municipal advisors
(generally, financial advisors and swap
advisors). For example, these
governmental entities have enacted payto-play prohibitions that range from
broad proscriptions relating to all state
and local contracts to narrowly defined
rules that apply only to specific
situations.95 Some state and local
entities also require certain types of
municipal advisors to disclose actual or
apparent conflicts of interest.96
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B. Dodd-Frank Act and the Need for
Oversight
As discussed in more detail below
and in the Proposal,97 the Dodd-Frank
Act amended the Exchange Act to
require municipal advisors to register
with the Commission.98 In addition, the
Exchange Act, as amended by the DoddFrank Act, grants the MSRB regulatory
authority over municipal advisors 99 and
imposes a fiduciary duty on municipal
advisors when advising municipal
entities.100
The Commission believes that
regulation of municipal advisors is in
the public interest and will improve the
94 See Division of Investment Management: Staff
Legal Bulletin No. 11, Applicability of the Advisers
Act to Financial Advisors of Municipal Securities
Issuers (Sep. 19, 2000), available at http://
www.sec.gov/interps/legal/slbim11.htm (‘‘Staff
Legal Bulletin No. 11’’) (explaining staff’s views as
to the circumstances under which financial
advisors (a) may be investment advisers, and (b)
may give advice to issuers of municipal securities
regarding the investment of offering proceeds
without being deemed to be investment advisers).
95 See MSRB Study, supra note 35, at 4.
96 See id., at 6.
97 See, generally, Proposal, 76 FR 824.
98 See Section 975(a)(1)(B) of the Dodd-Frank Act;
15 U.S.C. 78o–4(a)(1)(B).
99 See 15 U.S.C. 78o–4(b).
100 See 15 U.S.C. 78o–4(c). Specifically, Exchange
Act Section 15B(c)(1) provides that: ‘‘A municipal
advisor and any person associated with such
municipal advisor shall be deemed to have a
fiduciary duty to any municipal entity for whom
such municipal advisor acts as a municipal advisor,
and no municipal advisor may engage in any act,
practice, or course of business which is not
consistent with a municipal advisor’s fiduciary
duty or that is in contravention of any rule of the
Board.’’ 15 U.S.C. 78o–4(c)(1). The Commission
notes that a number of commenters discussed the
applicability of fiduciary duty to municipal
advisors. This adopting release generally does not
address those comments, as this release generally
concerns the registration of municipal advisors. The
Commission notes, however, that the fiduciary duty
of a municipal advisor, as set forth in Exchange Act
Section 15B(c)(1), extends only to its municipal
entity clients. The Exchange Act does not impose
a fiduciary duty with respect to advice to obligated
persons. See infra note 202 and accompanying text
(discussing the definition of the term ‘‘obligated
person’’).
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protection of municipal entities,
including the protection of municipal
entities in their capacities as investors,
and those who invest in municipal
securities. As noted above,101 according
to a Senate Report related to the DoddFrank Act, ‘‘[t]he $3 trillion municipal
securities market is subject to less
supervision than corporate securities
markets, and market participants
generally have less information upon
which to base investment decisions.
During the [financial] crisis, a number of
municipalities suffered losses from
complex derivatives products that were
marketed by unregulated financial
intermediaries.’’ 102 Accordingly, in
response to the financial crisis that
began in 2008, the Dodd-Frank Act
amended the Exchange Act to require ‘‘a
range of municipal financial advisors to
register with the [Commission] and
comply with regulations issued by the
[MSRB].’’ 103
A number of actions brought by the
Commission against municipal market
participants also highlight the abuses in
the municipal securities market. For
example, the Commission brought a
number of actions alleging payments by
J.P. Morgan Securities Inc. (now J.P.
Morgan Securities LLC) to local firms
whose principals or employees were
friends of public officials of Jefferson
County, Alabama in connection with a
$5 billion bond underwriting and
interest rate swap agreement
business.104 In addition, the
Commission has settled several actions
against major financial institutions for
their role in a series of complex, wideranging bid-rigging schemes involving
101 See
supra notes 3–4 and accompanying text.
S. Rep. No. 111–176, at 38 (2010).
103 See id.
104 The Commission had alleged that J.P. Morgan
Securities engaged in an improper payment scheme
in connection with obtaining municipal securities
underwriting and interest swap agreement business
from Jefferson County, Alabama. The Commission
had alleged that J.P. Morgan Securities incorporated
certain of the costs of these payments into higher
swap interest rates that it charged the County,
directly increasing the swap transaction costs to the
County and its taxpayers. J.P. Morgan Securities
was censured, paid a $25 million civil penalty,
made a $50 million payment to the County, and
forfeited more than $647 million in claimed
termination fees under the swaps. See In the Matter
of J.P. Morgan Securities Inc., Securities Exchange
Act Release No. 60928 (Nov. 4, 2009) (order
instituting administrative and cease-and-desist
proceedings, making findings, and imposing
remedial sanctions and a cease-and-desist order).
See also SEC v. Larry P. Langford, et al., Litigation
Release No. 20545 (Apr. 30, 2008) and SEC v.
Charles E. LeCroy and Douglas W. MacFaddin,
Litigation Release No. 21280 (Nov. 4, 2009)
(charging an Alabama local government official, a
bond dealer and J.P. Morgan Securities employees
with conducting undisclosed payment schemes in
connection with awarding Jefferson County
municipal bond and swap agreement business).
102 See
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derivatives utilized by municipalities
and underlying obligors as reinvestment
products.105 Further, in August 2011,
the Commission filed a civil injunctive
action against Stifel, Nicolaus & Co., Inc.
and its former Senior Vice President,
David Noack, for allegedly violating
federal securities laws in connection
with a $200 million sale of highly
leveraged and unsuitably risky
derivatives to five Wisconsin school
districts.106 According to the complaint,
Stifel and Noack misrepresented the
risks of the investments and failed to
disclose material facts to the school
districts.
C. Interim Final Temporary Rule 15Ba2–
6T and Form MA–T
The registration requirement for
municipal advisors established by the
Dodd-Frank Act became effective on
October 1, 2010.107 To enable municipal
advisors to temporarily satisfy the
registration requirement, and to make
relevant information available to the
public and municipal entities, the
Commission adopted interim final
temporary Rule 15Ba2–6T 108 on
September 1, 2010.109 Pursuant to Rule
15Ba2–6T, a municipal advisor may
temporarily satisfy the statutory
registration requirement by submitting
certain information electronically
105 Collectively, the five financial institutions,
Banc of America Securities LLC, UBS Financial
Services Inc., J.P. Morgan Securities LLC, Wachovia
Bank, N.A., and GE Funding Capital Market
Services, Inc., paid $205 million to settle the
Commission actions, all of which was distributed
to hundreds of harmed municipal entities or
borrowers, located in 47 states, the District of
Columbia, Guam, and Puerto Rico, as well as an
additional $540 million to settle parallel
proceedings by other federal and state authorities
for their misconduct. See In the Matter of Banc of
America Securities, Securities Exchange Act
Release No. 63451 (Dec. 7, 2010); SEC v. UBS
Financial Services Inc., Civil Action No. 11–CV–
2885 (D.N.J. May 4, 2011); SEC v. J.P. Morgan
Securities LLC., Civil Action No. 11–CV–3877
(D.N.J. Jul. 7, 2011); SEC v. Wachovia Bank, N.A.,
Civil Action No. 2:11–cv–07135–WJM–MF (D.N.J.
Dec. 8, 2011); SEC v. GE Funding Capital Market
Services, Inc., Civil Action No. 2:11–cv–07465–
WJM–MF (D.N.J. Dec. 23, 2011).
106 See SEC v. Stifel, Nicolaus & Co., Inc. and
David W. Noack, Civil Action No. 2:11–cv–00755–
AEG (E.D. Wisc. Aug. 10, 2011). The Commission
also charged, and settled with, RBC Capital
Markets, LLC for their involvement in these sales.
According to the order instituting administrative
and cease-and-desist proceedings, RBC negligently
recommended and sold these investments, despite
significant internal concerns about the suitability of
the investments for municipalities like the school
districts. Moreover, RBC’s marketing materials
failed to explain adequately the risks associated
with the investments. See In the Matter of RBC
Capital Markets, LLC, Securities Exchange Act
Release No. 65404 (Sept. 27, 2011).
107 See Section 975(i) of the Dodd-Frank Act.
108 17 CFR 240.15Ba2–6T.
109 See Temporary Registration Rule Release,
supra note 5.
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through the Commission’s public Web
site on Form MA–T.110
Form MA–T requires a municipal
advisor to indicate the purpose for
which it is submitting the form (i.e.,
initial application, amendment, or
withdrawal), provide certain basic
identifying and contact information
concerning its business, indicate the
nature of its activities, and supply
information about its disciplinary
history and the disciplinary history of
its associated municipal advisor
professionals.111
As originally adopted, the interim
final temporary rule provided that,
unless rescinded, a municipal advisor’s
temporary registration by means of
Form MA–T would expire on the earlier
of: (1) The date that the municipal
advisor’s registration is approved or
disapproved by the Commission
pursuant to a final rule establishing a
permanent registration regime; (2) the
date on which the municipal advisor’s
temporary registration is rescinded by
the Commission; or (3) December 31,
2011.112 The temporary registration
procedure was developed as a
transitional step toward the
implementation of a permanent
registration regime, which, as discussed
below, the Commission is adopting
today. On December 21, 2011, the
Commission extended the expiration
date of the temporary registration
regime to September 30, 2012, in order
to continue to provide a method for
municipal advisors to temporarily
satisfy the statutory registration
requirement.113 On September 21, 2012,
the Commission further extended the
expiration date of the temporary
registration regime to September 30,
2013.114 Today, in a separate release,
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110 17
CFR 249.1300T. A municipal advisor that
completes the temporary registration form and
receives confirmation from the Commission that the
form was filed is temporarily registered for
purposes of Section 15B. As of March 31, 2013,
there were approximately 1,130 Form MA–T
registrants.
111 See Temporary Registration Rule Release,
supra note 5, for a full description of the
requirements of Form MA–T.
112 See Temporary Registration Rule Release, 75
FR 54471.
113 See Securities Exchange Act Release No.
66020 (December 21, 2012), 76 FR 80733 (December
27, 2011).
114 See Securities Exchange Act Release No.
67901 (September 21, 2012), 77 FR 59061
(September 26, 2012). As extended, all temporary
municipal advisor registrations will expire on the
earlier of: (1) The date that the municipal advisor’s
registration is approved or disapproved by the
Commission pursuant to a final rule adopted by the
Commission establishing another manner of
registration of municipal advisors and prescribing
a form for such purpose; (2) the date on which the
municipal advisor’s temporary registration is
rescinded by the Commission; or (3) on September
30, 2013. See 17 CFR 240.15Ba2–6T(e).
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the Commission is extending the
expiration date of the temporary
registration regime to December 31,
2014.115 This extension will enable
municipal advisors that are required to
register with the Commission on or after
the Effective Date but before the
applicable compliance date to continue
to register under the temporary
registration regime.
D. Proposal To Establish a Registration
Regime for Municipal Advisors
In light of the requirements of Section
975 of the Dodd-Frank Act, and in
anticipation of the expiration of Rule
15Ba2–6T, on December 20, 2010, the
Commission proposed Rules 15Ba1–1 to
15Ba1–7 under the Exchange Act and
Forms MA, MA–I, MA–W, and MA–NR
to establish a permanent registration
regime for all persons meeting the
definition of municipal advisor,
including those persons currently
registered on Form MA–T.116 The
Proposal was published for comment in
the Federal Register on January 6,
2011.117
In response to the Proposal, the
Commission received over 1,000 unique
comment letters from broker-dealers,
investment advisers, individuals, banks,
municipal entities, attorneys, engineers,
and other market participants.118 In
general, commenters supported the
Proposal’s overarching goal to establish
a permanent registration regime for
municipal advisors. As discussed
further below, however, many
commenters recommended that the
Proposal be modified or clarified in
certain respects.
The Commission has carefully
considered these comments and is
adopting Rules 15Ba1–1 to 15Ba1–8 and
15Bc4–1 under the Exchange Act and
Forms MA, MA–I, MA–W, and MA–NR,
with revisions as appropriate. In
discussing these rules and forms, the
Commission highlights and addresses
below commenters’ main issues,
concerns, and suggestions.
The Commission believes that the
information required to be disclosed
pursuant to the new rules and forms
will enhance the Commission’s
oversight of municipal advisors and
their activities in the municipal
115 See Rule 15Ba2–6T and Form MA–T
Extension Release, supra note 7.
116 See Proposal, 76 FR 824.
117 See id.
118 See http://www.sec.gov/comments/s7-45-10/
s74510.shtml. The Commission has also considered
the comment letters that were submitted in
response to the publication of the Temporary
Registration Rule Release. See http://sec.gov/
comments/s7-19-10/s71910.shtml (comments
received on the Temporary Registration Rule
Release).
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securities market. Moreover, the
Commission believes the information
provided pursuant to these rules and
forms will aid municipal entities and
obligated persons in choosing municipal
advisors and engaging in transactions or
investments with municipal advisors.
III. Discussion
Section 15B(a)(1) of the Exchange Act,
as amended by the Dodd-Frank Act,
makes it unlawful for a municipal
advisor 119 to provide advice to or on
behalf of a municipal entity or obligated
person with respect to municipal
financial products or the issuance of
municipal securities, or to undertake a
solicitation of a municipal entity or
obligated person, unless the municipal
advisor is registered with the
Commission.120 Section 15B(a)(2) of the
Exchange Act, as amended by the DoddFrank Act, provides that a municipal
advisor may be registered by filing with
the Commission an application for
registration in such form and containing
such information and documents
concerning the municipal advisor and
any person associated with the
municipal advisor as the Commission,
by rule, may prescribe as necessary or
appropriate in the public interest or for
the protection of investors.121
Consistent with the requirements of
the Dodd-Frank Act, as discussed in
detail below, the Commission is
adopting new rules and forms that
establish a Commission registration
regime for municipal advisors, which
the Commission believes is necessary
and appropriate in the public interest
and will improve the protection of
municipal entities and investors in
municipal securities.
A. Rules for the Registration of
Municipal Advisors
1. Rule 15Ba1–1: Definition of
‘‘Municipal Advisor’’ and Related
Terms
a. Statutory Definition of ‘‘Municipal
Advisor’’
Section 15B(e)(4)(A) of the Exchange
Act,122 as amended by the Dodd-Frank
Act, defines the term ‘‘municipal
advisor’’ to mean a person (who is not
a municipal entity 123 or an employee of
119 See infra Section III.A.1. (discussing the term
‘‘municipal advisor’’).
120 See 15 U.S.C. 78o–4(a)(1)(B). For a discussion
of the terms ‘‘municipal entity,’’ ‘‘obligated
person,’’ ‘‘municipal financial products,’’ and
‘‘solicitation of a municipal entity or obligated
person,’’ see infra Section III.A.1.b.
121 See 15 U.S.C. 78o–4(a)(2).
122 15 U.S.C. 78o–4(e)(4)(A).
123 See infra Section III.A.1.b.ii. (discussing the
term ‘‘municipal entity’’).
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a municipal entity 124) that (i) provides
advice to or on behalf of a municipal
entity or obligated person 125 with
respect to municipal financial
products 126 or the issuance of
municipal securities,127 including
advice with respect to the structure,
timing, terms, and other similar matters
concerning such financial products or
issues, or (ii) undertakes a solicitation of
a municipal entity.128 As discussed in
the Proposal,129 the statutory definition
of municipal advisor is broad and
includes persons that traditionally have
not been considered to be municipal
financial advisors. Specifically, the
definition of a municipal advisor
includes ‘‘financial advisors, guaranteed
investment contract brokers, third-party
marketers, placement agents, solicitors,
finders, and swap advisors’’ 130 that
engage in municipal advisory
activities.131
The statutory definition of municipal
advisor includes distinct groups of
professionals that offer different services
and compete in distinct markets. As
noted in the Proposal, the three
principal types of municipal advisors
are: (1) financial advisors, including, but
not limited to, brokers, dealers, and
municipal securities dealers already
registered with the Commission, that
provide advice to municipal entities
with respect to their issuance of
municipal securities and their use of
municipal financial products; 132 (2)
investment advisers that advise
municipal entities on the investment of
public monies, including the proceeds
of municipal securities; 133 and (3) thirdparty marketers and solicitors.
Relevant exclusions from the
definition of a municipal advisor also
124 See infra Section III.A.1.c.i. (discussing the
Commission’s interpretation of the exclusion for
employees of a municipal entity from the definition
of the term ‘‘municipal advisor’’ and a parallel
exemption for employees of obligated persons).
125 See infra Section III.A.1.b.iii. (discussing the
term ‘‘obligated person’’).
126 See infra Section III.A.1.b.iv. (discussing the
term ‘‘municipal financial products’’).
127 See infra Section III.A.1.b.vii. (discussing the
term ‘‘issuance of municipal securities’’).
128 See infra Section III.A.1.b.x. (discussing the
term ‘‘solicitation of a municipal entity or obligated
person’’).
129 See Proposal, 76 FR 828.
130 See 15 U.S.C. 78o–4(e)(4).
131 See infra note 143 and accompanying text
(discussing the definition of ‘‘municipal advisory
activities’’).
132 See Proposal, 76 FR 829. For clarity, the
Commission notes that financial advisors as
referred to herein also include swap advisors,
including some that are registered with the CFTC
or the SEC in other capacities, that provide advice
to municipal entities on their use of municipal
financial products.
133 See infra Section III.A.1.b.iv. (discussing the
term ‘‘proceeds of municipal securities’’).
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limit the scope of the three types of
municipal advisors. The statutory
definition of municipal advisor
explicitly excludes ‘‘a broker, dealer, or
municipal securities dealer serving as
an underwriter . . ., attorneys offering
legal advice or providing services that
are of a traditional legal nature, [and]
engineers providing engineering
advice[.]’’ 134 Further, the statutory
definition of municipal advisor
excludes ‘‘any investment adviser
registered under the Investment
Advisers Act of 1940 [(‘‘Investment
Advisers Act’’)], or persons associated
with such investment advisers who are
providing investment advice’’ and ‘‘any
commodity trading advisor registered
under the Commodity Exchange Act or
persons associated with a commodity
trading advisor who are providing
advice related to swaps[.]’’ 135 As
discussed more fully below in Section
III.A.1.c., the Commission also proposed
Rule 15Ba1–1(d)(2), and is adopting
with modifications as Rules 15Ba1–
1(d)(2) and 15Ba1–1(d)(3) a definition of
‘‘municipal advisor’’ that interprets
those exclusions and provides other
activity-based (but not status-based)
exemptions.
The Commission also noted in the
Proposal that, in defining the term
municipal advisor in Exchange Act
Section 15B(e)(4), Congress did not
distinguish between persons who are
compensated for providing advice and
those who are not. Accordingly, as
explained in the Proposal, the
Commission believes compensation for
providing advice with respect to
municipal financial products or the
issuance of municipal securities should
not factor into the determination of
whether a person must register with the
Commission as a municipal advisor.136
However, as clarified in this release,
whether or not a person would have to
register as a municipal advisor in
connection with solicitation of a
municipal entity or obligated person
would depend upon whether such
person receives compensation (direct or
indirect).137
b. Interpretation of the Term ‘‘Municipal
Advisor’’; Definition of Related Terms
As noted above, Exchange Act Section
15B(e)(4) defines the term ‘‘municipal
advisor’’ to mean, in part, a person (who
is not a municipal entity or an employee
of a municipal entity) that (i) provides
advice to or on behalf of a municipal
134 See
15 U.S.C. 78o–4(e)(4)(C).
15 U.S.C. 78o–4(e)(4)(C).
136 See Proposal, 76 FR 832, note 113 and
accompanying text.
137 See infra note 409 and accompanying text.
135 See
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entity or obligated person with respect
to municipal financial products or the
issuance of municipal securities, or (ii)
undertakes a solicitation of a municipal
entity or obligated person.138 The
Commission discusses below the terms
‘‘municipal entity,’’ ‘‘obligated person,’’
‘‘municipal financial products,’’ and
‘‘solicitation of a municipal entity or
obligated person’’ as well as other terms
relating to the definition of municipal
advisor.139 Rule 15Ba1–1(d), as
proposed 140 and adopted, provides that
the term ‘‘municipal advisor’’ has the
same meaning as in Exchange Act
Section 15B(e)(4),141 and, as discussed
in Section III.A.1.c., provides certain
exclusions and exemptions. For the
purposes of clarity, however, Rule
15Ba1–1(d) as adopted also includes
several non-substantive and
organizational changes. For example, it:
(1) incorporates in Rule 15Ba1–1(d)(1)
the language of the statutory definition,
rather than cross referencing the statute;
(2) sets forth in Rule 15Ba1–1(d)(2) the
statutory exclusions from the definition,
as interpreted by the Commission; and
(3) sets forth in Rule 15Ba1–1(d)(3)
certain exemptions.142
In certain of the rules and forms that
the Commission is adopting with
respect to the registration of municipal
advisors, the Commission uses the term
‘‘municipal advisory activities’’ to refer
to the activities that would generally
require a person to register as a
municipal advisor. In this regard, the
Commission is adopting, substantially
as proposed, a definition of the term
‘‘municipal advisory activities’’ with
minor clarifying modifications. As
138 See 15 U.S.C. 78o–4(e)(4). As noted in the
Proposal, the Commission interprets the definition
of ‘‘municipal advisor’’ to include the solicitation
of a municipal entity or obligated person, because,
as noted in the Proposal, the definition of
municipal advisor under Exchange Act Section
15B(e)(4)(A) means, in part, a person that
‘‘undertakes a solicitation of a municipal entity,’’
and in defining the phrase ‘‘solicitation of a
municipal entity,’’ Exchange Act Section 15B
includes within that phrase, ‘‘or obligated person.’’
Also, Exchange Act Section 15B(a)(1)(B) includes
solicitations of obligated persons. See Proposal, 76
FR 831, note 102 and accompanying text.
See also Rule 15Ba1–1(d)(1)(i), which makes clear
in the definition of ‘‘municipal advisor’’ that the
Commission interprets the term ‘‘municipal
advisor’’ to include persons that undertake
solicitation of a municipal entity or obligated
person.
139 The Commission discusses the statutory
exclusion for ‘‘an employee of a municipal entity,’’
along with other exclusions and exemptions from
the definition of ‘‘municipal advisor,’’ in Section
III.A.1.c. below.
140 See proposed Rule 15Ba1–1(d)(1).
141 15 U.S.C. 78o–4(e)(4).
142 See Rule 15Ba1–1(d). To the extent the
Commission’s exemptions or interpretations of the
exclusions differ substantively from the Proposal,
those differences are discussed in detail below.
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adopted, ‘‘municipal advisory
activities’’ means ‘‘(1) [p]roviding
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; or (2)
[s]olicitation of a municipal entity or
obligated person.’’ 143 The Commission
notes, for example, that advice to a
municipal entity about whether to issue
municipal securities would be
‘‘municipal advisor activity.’’
Additionally, as discussed more fully
below, in response to comments
received on the Proposal and to provide
additional clarity, the Commission is
adopting rule text to provide guidance
on the term ‘‘advice.’’ The Commission
also notes, as mentioned above and
143 In the Proposal, the Commission proposed to
give ‘‘municipal advisory activities’’ the same
meaning as the term ‘‘municipal advisory services’’
in Rule 15Ba2–6T (the temporary rule for the
registration of municipal advisors). Thus, in
proposed Rule 15Ba1–1(e), the Commission
proposed to define ‘‘municipal advisory activities’’
to mean ‘‘advice to or on behalf of a municipal
entity (as defined in Section 15B(e)(8) of the
Securities Exchange Act of 1934 (15 U.S.C. 78o–
4(e)(8)) or obligated person (as defined in Section
15B(e)(10) of the Securities Exchange Act of 1934
(15 U.S.C. 78o–4(e)(10)) with respect to municipal
financial products or the issuance of municipal
securities, including advice with respect to the
structure, timing, terms, and other similar matters
concerning such financial products or issues; or a
solicitation of a municipal entity or obligated
person.’’ See Proposal, 76 FR 829, note 77 and
proposed Rule 15Ba1–1(e).
While the Commission received a few comments
that certain activities should not be ‘‘municipal
advisory activities,’’ these comments were in the
context of whether certain persons should be
subject to registration as ‘‘municipal advisors’’ and
are addressed below in the context of the various
exemptions and exclusions from the definition of
‘‘municipal advisor.’’ See, e.g., notes 780, 807, 835
and accompanying text (citing the Gilmore & Bell
Letter, the Rose Letter, and the Brinckerhoff Letter,
in the context of exclusions or exemptions for
accountants, attorneys, and engineers, respectively).
These comments are addressed in Section
III.A.1.c.vii.
The Commission is adopting the definition of
‘‘municipal advisory activities’’ substantially as
proposed, but with minor non-substantive
modifications to provide greater clarity and
consistency with other organizational changes the
Commission is making to the definitions.
Specifically, the Commission is defining
‘‘municipal advisory activities’’ to mean ‘‘the
following activities specified in section 15B(e)(4)(A)
of the Act (15 U.S.C. 78o–4(e)(4)(A)) and paragraph
(d)(1) of this section that, absent the availability of
an exclusion under paragraph (d)(2) of this section
or an exemption under paragraph (d)(3) of this
section, would cause a person to be a municipal
advisor: (1) [P]roviding 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; or (2) [s]olicitation of a municipal entity or
obligated person.’’ See Rule 15Ba1–1(e).
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explained in more detail below, that the
definitions of ‘‘municipal advisor’’ and
related terms that it is adopting today
include several non-substantive,
clarifying changes designed to
reorganize and simplify the rule,
including using defined terms, where
possible, and providing greater clarity as
to which statutory standards are being
incorporated into the Commission’s
rules, the Commission’s interpretation
of such standards, and any exemptions
the Commission is providing with these
rules.
i. Advice Standard in General
In the Proposal and as noted above,
the Commission defined the term
‘‘municipal advisory activities,’’ which
includes certain advice to or on behalf
of a municipal entity or obligated
person,144 and addressed the scope of
activities that would require a person to
register as a municipal advisor. The
Commission discussed the scope of
such activities through its proposed
interpretation of the definition of
‘‘municipal advisor,’’ which included
guidance on the particular statutory
exclusions and exemptions
therefrom.145
In the Proposal, the Commission
requested comment on its interpretation
of the definition of ‘‘municipal advisor’’
and related terms, and particularly
sought comment on whether any of its
interpretations should be in any way
modified or clarified.146 The
Commission also requested comment on
whether its interpretation of certain
exclusions from the definition of
‘‘municipal advisor’’ should be
narrowed or expanded to exclude or
include various activities.147 More
144 See Proposal, 76 FR 829, note 77. See also
supra note 143 and accompanying text (discussing
the term ‘‘municipal advisory activities’’).
145 See, e.g., Proposal 76 FR 832, text
accompanying note 113 (discussing whether
compensation for providing advice factors into the
determination of whether a person must register as
a municipal advisor), 833, note 118 and
accompanying text (discussing the provision of
certain kinds of advice by investment advisers), 833
(discussing whether a commodity trading advisor
would be required to register as a municipal advisor
if the advisor provides certain kinds of advice), and
833–834 (discussing with respect to accountants,
attorneys and engineers whether certain kinds of
advice and activities are ‘‘advice’’ within the
meaning of the Exchange Act or would otherwise
cause such persons to meet the definition of
‘‘municipal advisor’’).
146 See Proposal, 76 FR 835.
147 See id., at 836–838 (requesting comment on,
among other things: whether there are other
services or activities engaged in by accountants,
engineers, attorneys or other professionals that
should qualify such persons for exclusion from the
definition of ‘‘municipal advisor;’’ and whether
there are other specific types of persons that should
be excluded and the circumstances under which
they should be excluded).
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specifically, the Commission requested
comment on whether it should exclude
the following persons from the
definition of municipal advisor: (1) An
entity that provides to clients
investment advice, such as research
information and generic trade ideas or
commentary that does not purport to
meet the needs or objectives of specific
clients, and is provided to a municipal
entity as part of its ongoing ordinary
communications; and (2) a broker-dealer
that provides to a municipal entity a list
of securities meeting specified criteria
that are readily available in the
marketplace, but without making a
recommendation as to the merits of any
investment particularized to the
municipal entity’s specific
circumstances or investment
objectives.148
In response to these requests for
comment, commenters recommended
additional guidance on the meaning and
scope of the term ‘‘advice’’ both in
general and, as addressed in more detail
in subsequent sections on particular
exclusions and exemptions, in the
context of specific activities. A number
of commenters requested that the
Commission clarify the meaning of
providing ‘‘advice to a municipal entity
or obligated person with respect to
municipal financial products or the
issuance of municipal securities.’’ 149
One commenter noted that ‘‘the concept
of ‘advice’ is central to the application
148 See
Proposal, 76 FR 838.
e.g., letters from Raymond J. Dorado,
Executive Vice President, Deputy General Counsel,
Bank of New York Mellon Corporation, dated
February 23, 2011 (‘‘BNY Letter’’); Wayne A.
Abernathy, Executive Vice President, Financial
Institutions Policy and Regulatory Affairs,
American Bankers Association, Cecelia A. Calaby,
Executive Director and General Counsel, ABA
Securities Association, and Eli K. Peterson, Vice
President and Regulatory Counsel, The Clearing
House Association LLC, dated February 22, 2011
(‘‘American Bankers Association Letter I’’); Richard
M. Whiting, Executive Director and General
Counsel, Financial Services Roundtable, dated
February 22, 2011 (‘‘Financial Services Roundtable
Letter’’); John M. McNally, President, National
Association of Bond Lawyers, dated February 25,
2011 (‘‘NABL Letter’’); Leslie M. Norwood,
Managing Director and Associate General Counsel,
Securities Industry and Financial Markets
Association, dated February 22, 2011 (‘‘SIFMA
Letter I’’); Alexandra M. MacLennan, Chair,
Disclosure Group, and D. Bruce Gabriel, Practice
Group Leader, Public and Infrastructure Finance
Group, Squire, Sanders & Dempsey (US) LLP, dated
February 22, 2011 (‘‘Squire Sanders & Dempsey
Letter’’); Adella M. Heard, Senior Vice President
and Assistant General Counsel, First Tennessee
Bank National Association, dated February 18, 2011
(‘‘First Tennessee Bank Letter’’); Dale E. Brown,
President and Chief Executive Officer, Financial
Services Institute, dated April 28, 2011 (‘‘Financial
Services Institute Letter’’); Sandra K–H Werner,
Chief Executive Officer, First National Bank and
Trust, dated February 18, 2011 (‘‘First National
Bank and Trust Letter’’).
149 See,
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of Section 975,’’ 150 while another
commenter stated that ‘‘[a]bsent a clear
understanding of the scope of ‘advice,’
there will be substantial uncertainty as
to which communications with
municipal entity clients would be
deemed ‘advice.’’’ 151 The Commission
also received comments suggesting
general parameters for defining advice.
For example, one commenter suggested
that the Commission ‘‘distinguish
between situations in which
information is provided to a municipal
entity or obligated person as opposed to
a recommendation as to a specific
course of action.’’ 152 Similarly, another
commenter suggested that ‘‘advice’’ is
generally understood to contain a
recommendation component as
distinguished from the mere giving of
factual, objectively-determinable
information.153
Regarding the provision of general
information, commenters made general
and specific suggestions regarding the
types of information that should not
require registration as a municipal
advisor. For example, one commenter
suggested that the provision of general
information should not be defined, in
any instance, as municipal advisory
activities that would give rise to a
fiduciary duty.154 More specifically,
other commenters suggested that brokerdealers be permitted to provide general
market, transactional or financial
information,155 attorneys be permitted
to provide general educational
information to clients and nonclients,156 and insurance companies be
permitted to provide certain general
information of an educational nature
regarding retirement plans without
being required to register as a municipal
advisor.157 With respect to municipal
derivatives, one commenter asked for
clarification that the following activities
do not constitute advice for purposes of
the municipal advisor definition: (i) The
provision of research, general market
150 BNY
Letter.
Services Roundtable Letter.
152 NABL Letter (emphasis in original).
153 Letter from John J. Wagner, Kutak Rock, dated
February 21, 2011 (‘‘Kutak Rock Letter’’).
154 See letter from Anthony A. Kuznik, Vice
President and General Counsel, Honeywell Building
Solutions, Honeywell International Inc., dated
February 22, 2011 (‘‘Honeywell Letter’’).
155 See letter from Brad Winges, Head of Fixed
Income Sales and Trading, Piper Jaffray & Co. and
Rebecca S. Lawrence, Assistant General Counsel,
Principal, Piper Jaffray & Co., dated March 18, 2011
(‘‘Piper Jaffray Letter’’).
156 See letter from Sherman & Howard L.L.C.,
dated February 22, 2011 (‘‘Sherman & Howard
Letter’’).
157 See letter from Jeffrey W. Rubin, Chair of the
Committee on Federal Regulation of Securities,
Business Law Section, American Bar Association,
dated March 1, 2011 (‘‘ABA Letter’’).
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information, and product information
that is not specific to a particular client
and is provided to the bank’s customers
as part of its ordinary communications
with clients or the public; and (ii) the
provision of information describing
product alternatives that may meet the
needs of a client without giving a
recommendation that the client engage
in any specific transaction.158
Additionally, several commenters
recommended that advice be defined in
accordance with its commonly
understood meaning—a
recommendation to act.159 One of these
commenters further recommended that
the Commission clarify that a
communication constitutes advice only
when ‘‘it is provided with respect to and
directly relates to an enumerated
municipal financial product or the
issuance of municipal securities, and it
is a recommendation that is
particularized to the needs and
circumstances of the recipient such that,
under the prevailing facts and
circumstances, a municipal entity or
obligated person would reasonably
expect that it could rely and take action,
without further input, based upon such
communication.’’ 160 Another
commenter suggested that registration
be required only if a communication
constitutes a recommendation that the
municipal entity take an action and the
recommendation is particularized to the
entity’s needs and is distinct from
normal sales efforts.161
The Commission agrees with
commenters that clarifying guidance on
what constitutes advice solely for the
purposes of the municipal advisor
definition will provide greater clarity
regarding the applicability of the
municipal advisor registration
requirement. The Commission does not
however believe that the term ‘‘advice’’
is susceptible to a bright-line definition.
Instead, the Commission believes that
‘‘advice’’ can be construed broadly and
that, therefore, the determination of
whether a person provides advice to or
on behalf of a municipal entity or an
obligated person regarding municipal
financial products or the issuance of
municipal securities depends on all the
relevant facts and circumstances.162
158 See
BNY Letter.
e.g., BNY Letter; American Bankers
Association Letter I; and SIFMA Letter I. See also
Kutak Rock Letter.
160 SIFMA Letter I.
161 See American Bankers Association Letter I.
162 In contexts outside of the municipal advisor
definition, whether certain activities constitute
advice also is dependent on the facts and
circumstances.
For example, in the context of broker-dealer
regulation, Commission staff has described that,
159 See,
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67479
Accordingly, to address comments, the
Commission is adopting Rule 15Ba1–
1(d)(1)(ii), which provides that advice
excludes, among other things, the
provision of general information that
does not involve a recommendation
regarding municipal financial products
or the issuance of municipal securities,
including with respect to the structure,
timing, terms, and other similar matters
concerning such financial products or
issues.163
The Commission agrees with
commenters that the provision of certain
general information does not constitute
advice for purposes of the municipal
advisor definition. For example, the
Commission believes that advice does
not include provision of the following
general information:
• Information of a factual nature
without subjective assumptions,
opinions, or views;
• Information that is not
particularized to a specific municipal
entity or type of municipal entity;
• Information that is widely
disseminated for use by the public,
although not a bright-line test, ‘‘[t]he more
individually tailored the communication is to a
particular customer or targeted group of customers,
the more likely it will be viewed as a
recommendation.’’ Study on Investment Advisers
and Broker-Dealers (January 2011), available at
http://www.sec.gov/news/studies/2011/
913studyfinal.pdf (‘‘Study on Investment Advisers
and Broker-Dealers’’) at 124.
In the context of investment adviser regulation,
the determination of whether a particular
communication rises to the level of investment
advice depends on the facts and circumstances and
is construed broadly. For example, Commission
staff has interpreted the definition of investment
adviser to include persons who advise clients
concerning the relative advantages and
disadvantages of investing in securities in general
as compared to other investments. See, e.g.,
Applicability of the Investment Advisers Act to
Financial Planners, Pension Consultants, and Other
Persons Who Provide Investment Advisory Services
as a Component of Other Financial Services,
Investment Advisers Act Release No. 1092 (October
8, 1987).
The Commission discusses below, with respect to
its interpretation of the term ‘‘municipal advisor’’
and the various exclusions and exemptions
therefrom, whether certain activities would be
advice in the context of the municipal advisor
registration regime.
163 The Commission is providing this clarifying
guidance regarding ‘‘advice’’ only with respect to
municipal advisors and solely for purposes of the
municipal advisor definition. The Commission
further notes that, by establishing certain
parameters for advice, Rule 15Ba1–1(d)(1)(ii)
clarifies not only the type of information or
communications that may constitute advice, but
also the persons who may be subject to the
municipal advisor definition in Section 15B(e)(4) of
the Exchange Act (15 U.S.C. 78o–4(e)(4)). For
example, the Commission believes that an
individual performing by contract clerical or
ministerial services for a municipal entity or
obligated person as part of performing these
services would generally not be providing advice,
as defined in adopted Rule 15Ba1–1(d)(1)(ii).
Accordingly, such person would not be required to
register as a municipal advisor.
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clients, or market participants other
than municipal entities or obligated
persons; or
• General information in the nature of
educational materials.
The Commission believes that
educational materials constitute general
information if the content is limited to
instructional or explanatory
information, such as materials that
describe the general nature of financial
products or strategies, do not include
past or projected performance figures
(including annualized rate of return), do
not include a recommendation to
purchase or sell any product or utilize
any particular strategy, and to the extent
additional disclosure is available about
a product (such as a prospectus), the
materials contain information about
how to obtain such additional
information.164
Conversely, the definition of advice
under Rule 15Ba1–1(d)(1)(ii), as
adopted, does not exclude information
that involves a recommendation 165
164 The Commission has similarly interpreted
‘‘educational materials’’ in other contexts. See, e.g.,
Securities Act Release No. 6426 (September 16,
1982), 47 FR 41950 (September 23, 1982) (adopting
Rule 134a under the Securities Act to permit the
preparation and dissemination of certain
educational materials concerning options and
options trading without deeming such materials to
be a prospectus).
165 Whether a ‘‘recommendation’’ has taken place
is not susceptible to a bright line definition, but
turns on the facts and circumstances of the
particular situation. See Securities Exchange Act
Release No. 64766 (June 29, 2011), 76 FR 42396,
42415 (July 18, 2011) (‘‘Business Conduct Standards
Proposal for Security-Based Swaps’’). ‘‘This is
consistent with the FINRA approach to what
constitutes a recommendation. In the context of the
FINRA suitability standard, factors considered in
determining whether a recommendation has taken
place include whether the communication
‘reasonably could be viewed as a ‘call to action’ ’
and ‘reasonably would influence an investor to
trade a particular security or group of securities.’
The more individually tailored the communication
to a specific customer or a targeted group of
customers about a security or group of securities,
the greater the likelihood that the communication
may be viewed as a ‘recommendation.’ ’’ Business
Conduct Standards Proposal for Security-Based
Swaps, 76 FR 42415, note 133 and accompanying
text (citing FINRA Notice to Members 01–23 (March
19, 2001), and Notice of Filing of Proposed Rule
Change to Adopt FINRA Rules 2090 (Know Your
Customer) and 2111 (Suitability) in the
Consolidated FINRA Rulebook, Securities Exchange
Act Release No. 62718A (August 20, 2010), 75 FR
52562 (August 26, 2010)).
FINRA suitability guidance has long provided
that the determination of whether a
‘‘recommendation’’ has been made is an objective
rather subjective inquiry. See FINRA Notice to
Members 01–23 (March 19, 2001). In guidance
relating to FINRA rules 2090 and 2011, FINRA
reiterated this prior guidance, stating that an
important factor in this inquiry ‘‘is whether—given
its content, context and manner of presentation—
a particular communication from a firm or
associated person to a customer reasonably would
be viewed as a suggestion that the customer take
action or refrain from taking action regarding a
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regarding municipal financial products
or the issuance of municipal securities.
Further and more precisely, the
Commission believes that, for purposes
of the municipal advisor definition,
advice includes, without limitation, a
recommendation that is particularized
to the specific needs, objectives, or
circumstances of a municipal entity or
obligated person with respect to
municipal financial products or the
issuance of municipal securities,
including with respect to the structure,
timing, terms, and other similar matters
concerning such financial products or
issues, based on all the facts and
circumstances. As discussed above and
consistent with the FINRA approach to
what constitutes a recommendation, for
purposes of the municipal advisor
definition, the Commission believes that
the determination of whether a
recommendation has been made is an
objective rather than a subjective
inquiry.166 An important factor in this
inquiry is whether, considering its
content, context and manner of
presentation, the information
communicated to the municipal entity
or obligated person reasonably would be
viewed as a suggestion that the
municipal entity or obligated person
take action or refrain from taking action
regarding municipal financial products
or the issuance of municipal
securities.167
While the determination of whether a
person provides advice depends on all
the relevant facts and circumstances, the
more individually tailored the
information to a specific municipal
entity or obligated person or a targeted
group of municipal entities or obligated
persons that share common
characteristics, such as school districts
or hospitals, with respect to municipal
financial products or the issuance of
municipal securities, the more likely it
will be a recommendation that
constitutes advice under the municipal
security or investment strategy.’’ See FINRA
Regulatory Notice 11–02 (Know Your Customer and
Suitability), January 2011, available at http://
www.finra.org/web/groups/industry/@ip/@reg/@
notice/documents/notices/p122778.pdf.
The MSRB has provided similar guidance for
dealers in connection with MSRB Rule G–19. See
http://www.msrb.org/Rules-and-Interpretations/
MSRB-Rules/General/Rule-G-19.aspx?tab=2.
166 See supra note 165. See also Michael
Frederick Siegel v. Securities and Exchange
Commission, 592 F.3d 147, 156 (D.C. Cir. 2010) (in
sustaining the Commission’s finding that Siegel, a
broker, recommended an ‘‘investment’’ within the
meaning of NASD rule 2310, the court held that the
SEC properly considered the ‘‘content, context and
presentation’’ of the communications and whether,
as an ‘‘objective matter,’’ the communication could
reasonably have been viewed as a ‘‘call to action’’
and reasonably would influence an investor to trade
a particular security or group of securities).
167 See supra note 165.
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advisor definition, which would require
registration as a municipal advisor,
absent the application of an exemption
or exclusion from registration.168 For
example, whether information
describing municipal financial product
alternatives constitutes advice under the
municipal advisor definition generally
depends on how individually tailored
the information is to a particular
municipal entity, obligated person, or
targeted group of municipal entities or
obligated persons that share common
characteristics, as well as the content,
context, and manner of presentation of
the information communicated.
ii. Municipal Entity
Exchange Act Section 15B(e)(8)
provides that the term ‘‘municipal
entity’’ means ‘‘any State, political
subdivision of a State, or municipal
corporate instrumentality of a State,
including—(A) any agency, authority, or
instrumentality of the State, political
subdivision, or municipal corporate
instrumentality; (B) any plan, program,
or pool of assets sponsored or
established by the State, political
subdivision, or municipal corporate
instrumentality or any agency,
authority, or instrumentality thereof;
and (C) any other issuer of municipal
securities.’’ 169 In the Proposal, the
Commission proposed to clarify that,
with respect to clause (B) of the
definition of ‘‘municipal entity,’’ the
definition includes, but is not limited
to, public pension funds, LGIPs, and
other state and local governmental
entities or funds, as well as participantdirected investment programs or plans
such as 529, 403(b), and 457 plans.170
In the Proposal, the Commission
requested comment on whether the
proposed interpretation of municipal
entity for purposes of the proposed
definition of municipal advisor is
appropriate, and whether additional
clarification is necessary.171 The
Commission received approximately 20
comment letters regarding the scope of
the Commission’s interpretation of the
term ‘‘municipal entity.’’ Based on
consideration of the comments received,
as further discussed below, the
Commission is making one change to its
interpretation.
Several commenters suggested that
the definition of ‘‘municipal entity’’
should be limited to issuers of
municipal securities 172 because the
168 See
supra notes 162 and 165.
U.S.C. 78o–4(e)(8).
170 See infra note 191 (defining 403(b) and 457
plans).
171 See Proposal, 76 FR 835.
172 See NABL Letter; letters from Hon. Kelly
Schmidt, President, National Association of State
169 15
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phrase ‘‘any other issuer of municipal
securities’’ in Section 15B(e)(8)(C)
would otherwise be unnecessary.173 In
connection with these comments, one
commenter stated that the text and
legislative history of the Dodd-Frank
Act ‘‘are devoid of any indication that
its provisions addressing municipal
securities were intended to grant the
[Commission] general prudential
authority over State and local fiscal
matters.’’ 174 This commenter further
stated that the ‘‘Dodd-Frank Act
references to municipal securities were
intended to address securities (primarily
municipal bonds) issued by ‘municipal
entities’ to the class of nongovernmental
investors that the [Commission] is
charged with protecting.’’ 175 Another
commenter, however, suggested that the
definition, as proposed, should extend
to public pension funds, LGIPs, other
government asset pools, and investordirected governmental plans only to the
extent that they are political
subdivisions of a state, or corporate
instrumentalities of a state, that issue
municipal securities in the public
market.176 This commenter also stated
that LGIPs, tax-sheltered annuities, and
deferred compensation plans should not
be deemed to be municipal entities,
because they do not issue securities in
the public municipal securities
market.177 Finally, another commenter
suggested that the definition of
municipal entity should include
obligated persons, because the
definition includes issuers of municipal
securities, and obligated persons can be
issuers of municipal securities pursuant
to other provisions of the federal
securities laws.178
Treasurers, dated February 16, 2011 (‘‘National
Association of State Treasurers Letter’’); Gail
Schubert, Chair, Alaska Retirement Management
Board, dated February 18, 2011 (‘‘Alaska Retirement
Management Board Letter’’).
173 See, e.g., NABL Letter; National Association of
State Treasurers Letter; Alaska Retirement
Management Board Letter.
174 National Association of State Treasurers
Letter. See also NABL Letter (stating that Section
975 was not intended to address advice to an entity
based on a mere possibility that it would become
an issuer of municipal securities in the public
market place, and that it was not intended to
address advice concerning a municipal entity’s
fiscal affairs generally, except to the extent that
such affairs relate directly to its issuance or
administration of municipal securities).
175 National Association of State Treasurers
Letter.
176 See NABL Letter.
177 See id.
178 According to this commenter, ‘‘municipal
entity’’ is defined under the Dodd-Frank Act to
include ‘‘any other issuer of municipal securities,’’
and ‘‘issuer of municipal securities’’ is defined
under Exchange Act Rule 15c2–12 to mean ‘‘the
governmental issuer specified in section 3(a)(29) of
the Act and the issuer of any separate security.’’ See
letter from Chapman and Cutler, dated February 22,
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One commenter stated that, although
Congress specifically referred to states,
counties, cities, and other political
subdivisions, Congress did not refer to
their pension or retirement plans when
it enacted Section 975 of the DoddFrank Act. This commenter further
argued that governmental retirement
plans are separate legal entities from the
municipal entities and are not
ordinarily funded by, or involved in, the
types of transactions contemplated by
Section 975 or the proposed rules.179
Another commenter questioned whether
a public retirement system would be a
municipal entity, a municipal financial
product, or both.180
2011 (‘‘Chapman and Cutler Letter’’). Further, this
commenter stated that ‘‘municipal securities’’ is
defined in the Exchange Act to include both
governmental bonds and tax-exempt ‘‘industrial
development bonds.’’ This commenter stated that,
since the Commission has interpreted the term
‘‘obligated person’’ to have the same meaning as in
Exchange Act Rule 15c2–12, conduit borrowers
under tax exempt bond issues would be ‘‘issuers of
separate securities’’ that are also ‘‘issuers of
municipal securities.’’ As a result, the commenter
suggested that obligated persons under tax-exempt
bond issues are ‘‘municipal entities.’’
The Commission does not agree. Although the
Commission believes that the definition of obligated
person for purposes of municipal advisor
registration should be consistent with the definition
of obligated person for purposes of Rule 15c2–12,
the Commission is not applying the definition of
‘‘issuer of municipal securities’’ in Rule 15c2–12 for
purposes of interpreting the definition of
‘‘municipal entity’’ in Exchange Act Section
15B(e)(8). The Commission does not believe that the
definition of ‘‘municipal entity’’ should be
interpreted to include obligated persons, because
the Dodd-Frank Act amended Exchange Act Section
15B to separately define ‘‘municipal entity’’ (15
U.S.C. 78o–4(e)(8)) and ‘‘obligated person’’ (15
U.S.C. 78o–4(e)(10)).
179 See letter from Daniel J. Wintz, Fraser Stryker,
dated February 21, 2011 (‘‘Fraser Stryker Letter’’).
For example, this commenter stated that assets of
plans qualified under Internal Revenue Code
Section 401(a) must be held in trust for the benefit
of employees and their beneficiaries, and qualified
plan trusts maintained by governmental employers
are prohibited from engaging in transactions such
as self-dealing with the plan sponsor. The
commenter also provided that 403(b) plans are
typically funded with employee and employer
contributions, which are used to purchase annuity
contracts or are deposited in custodial accounts, the
assets of which are invested in mutual funds.
Finally, the commenter stated that 457 plans allow
employees of political subdivisions to defer
compensation. All amounts deferred under the
plan, all property and rights purchased with the
amounts, and all income attributable to such
amounts, property, or rights, must be held in trust
for the exclusive benefit of the participants and
their beneficiaries. See also letter from Clifford E.
Kirsch, Michael B. Koffler, and Susan S. Krawczyk,
Sutherland Asbill & Brennan LLP, for the
Committee of Annuity Insurers, dated February 22,
2011 (‘‘Committee of Annuity Insurers Letter I’’).
180 See letter from Richard K. Matta, Groom Law
Group, on behalf of the State Board of
Administration of Florida, dated February 28, 2011
(‘‘State Board of Administration of Florida Letter’’).
This commenter expressed this concern, because it
is unsure as to how the employee exclusion from
the definition of municipal advisor would apply to
public retirement systems.
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Other commenters suggested that the
definition of municipal entity should
exclude public pension plans or
participant-directed plans.181 One
commenter stated that these plans have
nothing to do with raising funds for a
municipal entity or investing proceeds
from an offering of municipal
securities.182 This commenter also
stated that once the funds are
contributed to a governmental
retirement plan, they are no longer the
property or held for the benefit of the
municipal entity that established the
plan.183 Further, this commenter stated
that the definition of municipal entity
should not include individual
participants in a governmental
retirement plan.184
One commenter stated that the
Commission should clarify that
municipal entity only includes entities
that are controlled by, or established for
the benefit and enjoyment of, a state or
any of its constituent political
subdivisions or municipal
corporations.185 This commenter noted
that some public pension plans,
‘‘sponsored or established’’ by states or
their political subdivisions or municipal
corporations, are not controlled by the
sponsoring governmental unit but are
instead controlled by trustees with
plenary authority.186 This commenter
also suggested that private pension
funds, mutual funds, and insurance
companies recognized under state law
as such entities as a result of a filing
with a state official and issuance of a
certificate of formation should not be
included within clause (B) of the
definition of municipal entity as a
‘‘plan, program or pool of assets
sponsored or established by the State.
. . .’’ 187
181 See, e.g., Alaska Retirement Management
Board Letter; Committee of Annuity Insurers Letter
I; Fraser Stryker Letter.
182 See Committee of Annuity Insurers Letter I.
This commenter stated that, if the Commission were
to modify the definition of ‘‘municipal entity’’ so
it did not include 457 plans and 403(b) plans, its
concerns regarding the impact of the proposed rules
on separate accounts, broker-dealers and
investment advisers for insurance contracts would
be mooted. See infra notes 386 and 405 and
accompanying text.
183 See Committee of Annuity Insurers Letter I.
184 See id. As such, this commenter asked the
Commission to clarify that the municipal advisor
registration regime does not apply to persons
providing investment advice to individual plan
participants or investment education provided to
plan participants.
185 See NABL Letter.
186 See id.
187 See id. The commenter expressed concern that
the Commission’s proposed interpretation that the
definition of municipal entity includes
‘‘participant-directed investment programs or
pools’’ could be interpreted to include private plans
established by an entity chartered by a state.
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The Commission has carefully
evaluated comments received on its
proposed definition of ‘‘municipal
entity’’ and continues to believe that the
definition of ‘‘municipal entity’’ should
not be limited to issuers of municipal
securities.188 The Commission believes
that the phrase ‘‘any other issuer of
municipal securities’’ does not limit
clauses (A) and (B) of the definition to
entities that can issue municipal
securities. Many of the plans, programs
and pools of assets included in clause
(B) of Section 15B(e)(8) do not issue
municipal securities. Further, the
definition of municipal entity does not
otherwise limit itself to those entities
that issue municipal securities. To limit
the entities listed in clause (A) and (B)
of Section 15B(e)(8) to issuers of
municipal securities would also limit
the definitions of ‘‘municipal financial
products’’ (and therefore ‘‘municipal
derivatives’’) and ‘‘solicitation of a
municipal entity’’ to encompass only
those entities that issue municipal
securities. Under such a limited
definition, advice with respect to
municipal derivatives, for example,
would not subject advisors to
registration unless the municipal entity
entering into a swap 189 was also an
issuer of municipal securities. This
limited definition would also allow
third parties to solicit various public
pension funds and LGIPs on behalf of
brokers, dealers, investment advisers,
and municipal advisors without
registering as municipal advisors. The
Commission believes that such entities
should have the protections provided by
municipal advisor registration.190
The Commission believes public
employee retirement systems and public
employee benefit plans or public
pension plans (including participant188 See
supra notes 173–176 and accompanying
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text.
189 Unless the context otherwise requires, for
purposes of the discussion in this release, swap
refers to swaps and security-based swaps.
190 The Commission notes that Section 15B(b) of
the Exchange Act, as amended by the Dodd-Frank
Act, requires, among other things, that the MSRB
adopt rules to effect the purposes of the Exchange
Act with respect to, among other things, ‘‘advice
provided to or on behalf of municipal entities or
obligated persons by . . . municipal advisors with
respect to municipal financial products, the
issuance of municipal securities, and solicitations
of municipal entities or obligated persons
undertaken by brokers, dealers, municipal
securities dealers, and municipal advisors.’’ See
Section 15B(b)(2) of the Exchange Act. At a
minimum, the rules of the MSRB, with respect to
municipal advisors, must, among other things: ‘‘(i)
Prescribe means reasonably designed to prevent
acts, practices, and courses of business as are not
consistent with a municipal advisor’s fiduciary
duty to its clients; (ii) provide continuing education
requirements for municipal advisors; [and] (iii)
provide professional standards.’’ See Section
15B(b)(2)(L) of the Exchange Act.
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directed plans, 403(b), and 457
plans) 191 fall within the statutory
definition of municipal entity. The
Commission believes that each of these
plans constitutes a ‘‘plan, program, or
pool of assets sponsored or established
191 In this release, the Commission uses the term
‘‘public employee benefit plan’’ to refer to a
‘‘pension plan’’ that is a ‘‘governmental plan’’ (as
such terms are described below). Such plans
include ‘‘participant-directed plans,’’ ‘‘403(b)
plans,’’ and ‘‘457 plans’’ (as such terms are
described below), and may be plans, funds, or
programs (also described below). The Commission
also uses the term ‘‘public employee retirement
system.’’ As described below, a public employee
retirement system is a special purpose government,
and therefore, a public employee pension plan or
a public employee retirement system may itself be
a municipal entity. The Commission uses the term
‘‘private employee benefit plan’’ to refer to a
pension plan that is not a governmental plan.
The term ‘‘governmental plan’’ includes a plan
established or maintained for its employees by the
Government of the United States, by the
government of any state or political subdivision
thereof, or by any agency or instrumentality of any
of the foregoing. See Section 3(32) of ERISA, 29
U.S.C. 1002(32).
The term ‘‘employee benefit plan’’ or ‘‘plan’’
means an employee pension benefit plan or a plan
which is both an employee welfare benefit plan and
an employee pension benefit plan. See Section 3(3)
of ERISA, 29 U.S.C. 1002(3).
The terms ‘‘employee pension benefit plan’’ and
‘‘pension plan’’ mean any plan, fund, or program
which was heretofore or is hereafter established or
maintained by an employer or by an employee
organization, or by both, to the extent that by its
express terms or as a result of surrounding
circumstances such plan, fund, or program—(i)
provides retirement income to employees, or (ii)
results in a deferral of income by employees for
periods extending to the termination of covered
employment or beyond, regardless of the method of
calculating the contributions made to the plan, the
method of calculating the benefits under the plan
or the method of distributing benefits from the plan.
See Section 3(2) of ERISA, 29 U.S.C. 1002(2).
Pursuant to the Governmental Accounting
Standards Board (‘‘GASB’’), ‘‘public employee
retirement system’’ means a special-purpose
government that administers one or more pension
plans. Public employee retirement systems also may
administer other types of employee benefit plans,
including postemployment healthcare plans and
deferred compensation plans. See GASB Statement
No. 28: Accounting and Financial Reporting for
Pensions.
A ‘‘participant-directed plan’’ is a plan that
provides for the allocation of investment
responsibilities to participants or beneficiaries. See
U.S. Department of Labor, Fact Sheet: Final Rule to
Improve Transparency of Fees and Expenses to
Workers in 401(k)–Type Retirement Plans (February
2012), available at http://www.dol.gov/ebsa/pdf/
fsparticipantfeerule.pdf.
A ‘‘403(b) plan’’ is a tax-sheltered retirement
plan, similar to a 401(k) plan, offered by public
schools and certain 501(c)(3) tax-exempt
organizations. See Internal Revenue Service, IRC
403(b) Tax-Sheltered Annuity Plans, available at
http://www.irs.gov/Retirement-Plans/IRC-403(b)Tax-Sheltered-Annuity-Plans.
A ‘‘457 plan’’ is a deferred compensation plan as
described in IRC section 457, which is available for
certain state and local governments and nongovernmental entities tax exempt under IRC section
501. See Internal Revenue Service, IRC 457(b)
Deferred Compensation Plans, available at http://
www.irs.gov/retirement/article/
0,,id=172437,00.html.
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by the State, political subdivision, or
municipal corporate instrumentality or
any agency, authority, or
instrumentality thereof.’’ 192
Further, the Commission believes that
such plans should be afforded the
protection granted to municipal entities
by the statute. The Commission notes
that the solicitation of public pension
plans 193 in connection with investment
advisory services has been subject to
multiple Commission enforcement
actions. For example, in 2009, the
Commission charged a former New York
State official and top political advisor
with allegedly defrauding the New York
State Common Retirement Fund by
causing the fund to invest billions of
dollars with private equity funds and
hedge fund managers who paid millions
of dollars in the form of sham ‘‘finder’’
or ‘‘placement agent’’ fees.194
The Commission notes, however, that
individual natural person participants
in a public employee benefit plan do not
fall within the definition of municipal
entity, because such persons would not
be a state, political subdivision of a
state, or municipal corporate
instrumentality. Similarly, private
employee benefit plans, mutual funds,
and insurance companies that are not
sponsored or established by a state,
political subdivision, or municipal
corporate instrumentality or any agency,
authority, or instrumentality thereof, do
not fall within the statutory definition of
municipal entity.195 Such funds and
entities are not ‘‘established or
sponsored by’’ a state merely because
they file with a state official or are
issued a certificate of formation by a
state.
As noted above, three commenters 196
stated that funds contributed to a
governmental plan are no longer the
property of, or held for the benefit of or
192 15 U.S.C. 78o–4(e)(8) (defining ‘‘municipal
entity’’).
193 See infra Section III.A.1.b.x. (discussing
‘‘solicitation of a municipal entity or obligated
person’’).
194 See SEC v. Henry Morris, Litigation Release
No. 20963 (March 19, 2009).
As another example, the Commission charged the
former CEO of the California Public Employees’
Retirement System and his close personal friend
with allegedly scheming to defraud an investment
firm into paying $20 million in fees to the friend’s
placement agent firms. See SEC Charges Former
CalPERS CEO and Friend With Falsifying Letters in
$20 Million Placement Agent Fee Scheme, available
at http://www.sec.gov/news/press/2012/201273.htm.
195 See supra note 187 and accompanying text.
196 See Fraser Stryker Letter and Committee of
Annuity Insurers Letter I. See also NABL Letter
(making a similar argument that the term
‘‘municipal entity’’ should only include entities
that are controlled by or established for the benefit
and enjoyment of a state or any of its political
subdivisions or municipal corporations).
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controlled by, the municipal entity that
established the plan, and that such
plans are not ordinarily funded by or
involved in the types of transactions
contemplated by Congress. These
commenters argued that, as a result,
these plans should be excluded from the
definition of municipal entity. The
Commission does not agree. Such a plan
is ‘‘sponsored or established’’ by the
municipal entity and, therefore, falls
within the statutory definition of
municipal entity.
One commenter suggested that the
phrase ‘‘any State, political subdivision
of a State, or municipal corporate
instrumentality of a State’’ in the
interpretation of the definition of
‘‘municipal entity’’ would be clearer if
it were revised to read ‘‘any State,
political subdivision of a State, or
municipal corporate instrumentality of a
State or of a political subdivision of a
State.’’ 197 The commenter noted, for
example, that a charter school may be
organized as an ‘‘instrumentality of a
political subdivision of a State.’’
Because states delegate powers to
their political subdivisions and one of
the powers that may be delegated to
political subdivisions is the ability of
political subdivisions to create
corporate instrumentalities,198 the
Commission believes that a municipal
entity organized as a municipal
corporate instrumentality of a political
subdivision of a state is properly
considered a municipal corporate
instrumentality of a state. Accordingly,
the Commission is adopting Rule
15Ba1–1(g) to reflect such interpretation
and define municipal entity to include
municipal corporate instrumentalities of
political subdivisions of states.199
iii. Obligated Person
Exchange Act Section 15B(e)(10)
provides that the term ‘‘obligated
person’’ means ‘‘any person, including
an issuer of municipal securities, who is
either generally or through an
197 NABL
Letter.
e.g., MCL 117.4o: http://
www.legislature.mi.gov/
(S(p3jhrzzb5hbiew45wy2fmz45))/
mileg.aspx?page=getobject&objectname=mcl-117-4o
(authorizing cities in the state of Michigan to form
nonprofit corporations under that state’s nonprofit
corporation act if they are organized for valid public
purposes).
199 See Rule 15Ba1–1(g), which defines municipal
entity to mean ‘‘any State, political subdivision of
a State, or municipal corporate instrumentality of
a State or of a political subdivision of a State,
including: (1) [A]ny agency, authority, or
instrumentality of the State, political subdivision,
or municipal corporate instrumentality; (2) [a]ny
plan, program, or pool of assets sponsored or
established by the State, political subdivision, or
municipal corporate instrumentality or any agency,
authority, or instrumentality thereof; and (3) [a]ny
other issuer of municipal securities.’’
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198 See,
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enterprise, fund, or account of such
person, committed by contract or other
arrangement to support the payment of
all or part of the obligations on the
municipal securities to be sold in an
offering of municipal securities.’’ 200 In
the Proposal, in response to a
commenter’s request for clarification,201
the Commission stated its belief that the
definition of obligated person for
purposes of the definition of municipal
advisor should be consistent with the
definition of obligated person for
purposes of Rule 15c2–12.202 The
Commission therefore proposed to
exempt from the definition of obligated
person providers of municipal bond
insurance, letters of credit, or other
liquidity facilities.203 In the Proposal,
the Commission stated its belief that
this interpretation would not conflict
with the goals of the Dodd-Frank Act to
provide further protections for certain
entities that participate in borrowings in
the municipal securities market and
would help ensure uniformity among
rules relating to such market, including
uniformity relating to the definition of
obligated persons.204 The Commission
noted that providers of municipal bond
insurance, letters of credit, or other
liquidity facilities are generally nongovernmental providers of credit
enhancements.205 As providers of credit
enhancements, these entities are not
borrowing funds through a municipal
entity. Therefore, the Commission stated
in the Proposal its belief that they do
not require the type of protection that
should be provided to those who, in
municipal securities transactions,
borrow funds through municipal
entities.
The Commission received
approximately ten comment letters with
regard to the definition of ‘‘obligated
200 15 U.S.C. 78o–4(e)(10). Obligated persons can
include entities acting as conduit borrowers, such
as private universities, non-profit hospitals, and
private corporations.
201 See Proposal, 76 FR 829, note 88 and
accompanying text.
202 Rule 15c2–12 defines the term ‘‘obligated
person’’ to mean ‘‘any person, including an issuer
of municipal securities, who is either generally or
through an enterprise, fund, or account of such
person committed by contract or other arrangement
to support payment of all, or part of the obligations
on the municipal securities to be sold in the
Offering (other than providers of municipal bond
insurance, letters of credit, or other liquidity
facilities).’’ See 17 CFR 240.15c2–12(f)(10).
‘‘Offering’’ as used in this definition is defined in
Rule 15c2–12(a). See 17 CFR 240.15c2–12(a). See
also Securities Exchange Act Release No. 34961
(November 10, 1994), 59 FR 59590 (November 17,
1994).
203 See proposed Rule 15Ba1–1(i) and 17 CFR
240.15c2–12(f)(10).
204 See Proposal, 76 FR 830.
205 See id.
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67483
person’’ and the application of the
proposed rules to such persons.
Definition of ‘‘Obligated Person’’
Generally, most commenters agreed
that the definition of ‘‘obligated person’’
should be consistent with the definition
of that term in Rule 15c2–12,206 or
otherwise expressed support for the
proposed definition of obligated
person.207 Consequently, the
Commission is adopting the definition
substantially as proposed, but with
modifications for general consistency
with the application of the term in Rule
15c2–12 208 and certain clarifying
modifications to address concerns
raised by commenters. Specifically,
Rule 15Ba1–1(k) provides that obligated
person ‘‘has the same meaning as in
section 15B(e)(10) of the Act (15 U.S.C.
78o–4(e)(10)); provided, however, the
term obligated person shall not include:
(1) A person who provides municipal
bond insurance, letters of credit, or
other liquidity facilities; (2) a person
whose financial information or
operating data is not material to a
municipal securities offering, without
reference to any municipal bond
insurance, letter of credit, liquidity
facility, or other credit enhancement; or
(3) the federal government.’’
The Commission believes that there is
no reason to differentiate the definition
of obligated person for purposes of
municipal advisor registration from the
definition of obligated person for other
Exchange Act purposes. As discussed in
the Proposal and herein, the
Commission believes that such
definition will provide further
protections for certain entities that
participate in borrowings in, and help
ensure uniformity among rules relating
to, the municipal securities market. The
continued use of a consistent definition
will also provide clearer guidance to
market participants.
Although most commenters supported
the proposed definition, some
commenters asked for clarification. One
commenter suggested that the definition
should exclude persons who might
otherwise be deemed to be an obligated
person solely on the basis of a
commitment to support payment of the
underlying assets that secure such issue,
other than a borrower, lessee, or
installment purchaser who is
contractually responsible for payments
that exceed a specified and substantial
materiality standard, or a guarantor of
206 See, e.g., Kutak Rock Letter; NABL Letter. See
also ABA Letter; BNY Letter.
207 See letter from Michael G. Bartolotta,
Chairman, MSRB, dated February 22, 2011 (‘‘MSRB
Letter I’’).
208 See Rule 15Ba1–1(k). See also supra note 202.
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such a payment obligation, who is not
otherwise excluded from the definition
of obligated person.209 One commenter
specifically stated that guaranty
agencies for loans under the Federal
Family Education Loan Program
(‘‘FFELP’’) should not be deemed
obligated persons.210 Another
commenter stated that companies
registered under the Exchange Act, the
federal government and its
instrumentalities, foreign governments
and their instrumentalities, religious
organizations, and entities already
subject to substantial oversight and
regulation, such as banks, credit unions,
regulated investment companies, and
insurance companies, should be exempt
from the definition of obligated
person.211
The Commission has carefully
considered these comments. The
Commission continues to believe that
there is no reason to differentiate the
definition of obligated person for
purposes of municipal advisor
registration from the definition of
obligated person for purposes of Rule
15c2–12. The Commission, however, is
modifying the rule text of Rule 15Ba1–
1(k) to clarify that the definition of
obligated person excludes persons
whose financial information or
operating data is not material to a
municipal securities offering, without
reference to any municipal bond
insurance, letter of credit, liquidity
facility, or other credit enhancement.
The continuing disclosure
requirements of Rule 15c2–12 exclude
certain obligated persons whose
financial information or operating data
is not material to the issuance of
209 See NABL Letter. The commenter stated that
the interpretive guidance with respect to Rule
15c2–12 leaves open the possibility that some
persons who are not directly committed to support
payment of a municipal securities issue may
nonetheless be deemed to be obligated persons by
reason of their commitment to support payment of
the underlying assets securing the issue, based
upon a factual analysis of their relationship to the
issue. See id. See also letter from Brett E. Lief,
President, National Council of Higher Education
Loan Programs, dated February 16, 2011 (‘‘National
Council of Higher Education Loan Programs
Letter’’). Another commenter stated that, according
to the proposed rules, while some of its members
would fall within the definition of obligated person
in each of its capital market financings, under the
materiality standard of Rule 15c2–12 under the
Exchange Act, the commenter only designates as
obligated persons those members participating in
the projects being financed that have a significant
percentage of the financial obligation that supports
the debt service on the commenter’s bonds. See
letter from Robert W. Trippe, Senior Vice President
and Chief Financial Officer, American Municipal
Power, Inc., dated February 21, 2011 (‘‘American
Municipal Power Letter’’).
210 See National Council of Higher Education
Loan Programs Letter.
211 See Kutak Rock Letter.
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municipal securities.212 Therefore,
consistent with Rule 15c2–12, the
Commission is clarifying that an entity
whose financial information or
operating data is not material to an
issuance of municipal securities would
not be an obligated person under Rule
15Ba1–1(k). Any advisor to such entity
would not be required to register as a
municipal advisor, because such person
would not be a municipal advisor
within the meaning of Rule 15Ba1–
1(d).213 In addition to promoting
consistency, the Commission believes
that the materiality standard for
secondary market disclosure in Rule
15c2–12 also serves as an appropriate
standard to identify those obligated
persons that should have the protections
afforded by Section 15B of the Exchange
Act. Using a similar approach ensures
uniformity, provides municipal market
participants with existing guidance
about how the rules should be applied,
and limits the application of the
definition to only those persons whose
financial information or operating data
is material to a municipal securities
offering and for whom registration
provides significant benefits to the
municipal marketplace.
While the definition of obligated
person in the Proposal excluded only
providers of municipal bond insurance,
letters of credit, or other liquidity
facilities, the Commission understands
that credit enhancement for municipal
securities is not necessarily limited to
those three categories and that many
municipal securities may be credit
enhanced indirectly. Prior guidance
from Commission staff provides that
‘‘[e]ntities that insure or guarantee
performance of assets that have been
pledged to secure the repayment of the
municipal obligation may fall within the
definition of ‘obligated person’ . . .
unless such insurance or guarantee has
been obtained prior to and not in
212 For example, Rule 15c2–12 requires a written
agreement or contract to provide ongoing
information (1) with respect to any obligated person
for whom financial information or operating data is
presented in the final official statement or (2) for
each obligated person meeting the objective criteria
specified in the undertaking and used to select the
obligated persons for whom financial information
or operating data is presented in the final official
statement, except that in the case of pooled
obligations the undertaking shall specify such
objective criteria. See Rule 15c2–12(b)(5)(i)(A). The
issuer and the other participants determine at the
time of preparation of the official statement which
obligated persons are material to the offering. See
Securities Exchange Act Release No. 34961
(November 10, 1994), 59 FR 59590, 59596
(November 17, 1994).
213 A person advising a guarantor that is a
municipal entity (such as a state credit enhancer)
must separately determine whether its advice to
that municipal entity would trigger the municipal
advisor registration requirement.
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contemplation of any offering of
municipal securities, the insurance or
guarantee relates only to the individual
pledged assets, and the insurance or
guarantee exists independent of the
existence of a municipal obligation.’’ 214
Consistent with this prior guidance from
Commission staff, the Commission is
adopting a definition of ‘‘obligated
person’’ for purposes of Rule 15Ba1–
1(k), which provides that the ultimate
determination as to whether an insurer
or guarantor is an obligated person
under Rule 15c2–12 depends on the
relationship to the financing itself,
which is a factual analysis.215 Similarly,
a determination of whether a guarantor
or insurer falls within the exclusion
from the definition of obligated person
for the purposes of the municipal
advisor registration regime also depends
on the particular facts and
circumstances.216
In addition, the Commission notes
that although the federal government
and its instrumentalities, as providers of
credit enhancement, could fall within
the definition of obligated person under
Rule 15c2–12, the federal government
does not require the type of protection
that should be applicable generally to
those who borrow funds through
municipal entities in municipal
securities transactions.217 Accordingly,
for purposes of the municipal advisor
registration regime, the Commission is
interpreting the definition of obligated
person to exclude the federal
government. Therefore, advisors to the
federal government and its
instrumentalities providing credit
enhancements in connection with
issuances of municipal securities are not
required to register as municipal
advisors.
Another commenter stated that buyers
of municipal securities rely on the letter
of credit and the credit rating of the
lender issuing the bonds rather than the
‘‘ultimate borrower,’’ and the security or
collateral provided by a borrower goes
to the lender or letter of credit issuer,
214 Response to Question 9 in letter from
Catherine McGuire, Chief Counsel, Division of
Market Regulation, Commission to John S.
Overdorff, Chair, Securities Law and Disclosure
Committee, NABL, dated September 19, 1995.
215 See id.
216 See id.
217 The federal government, as a credit enhancer,
would not be borrowing any funds through a
municipal entity, and would therefore be in a
position similar to that of providers of municipal
bond insurance, letters of credit, or other liquidity
facilities that are excluded from the definition of
‘‘obligated person’’ in Rule 15c2–12. In addition—
unlike for the definition of special entity—Congress
did not include the federal government in the
definition of municipal entity. See infra note 275
(noting differences in the two definitions).
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not bondholders.218 The commenter
stated that the real borrower-lender
relationship is between the borrower
and the bank issuing the letter of
credit.219 This commenter noted that
these and other factors distance conduit
borrowers 220 from direct obligations to
bondholders, but they nonetheless
would be obligated persons under the
Proposal.
The Commission understands this
commenter to be suggesting that such
conduit borrowers should not be
considered obligated persons, such that
their advisors would not have to register
as municipal advisors. The Commission,
however, has taken the position that,
regardless of whether an obligated
person obtains a letter of credit from a
bank to guarantee the payment of
municipal securities, an obligated
person has an obligation to investors.221
The Commission has long been of the
view that the presence of credit
enhancements generally would not be a
substitute for material disclosure
concerning the primary obligor on
municipal bonds.222 Thus, an advisor to
an obligated person that has obtained a
letter of credit from a bank to guarantee
the payment of municipal securities
should not be treated differently from an
advisor to an obligated person that has
not obtained such credit enhancements,
and would therefore have to register as
a municipal advisor.223
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Application of Rules to Advisors to
Obligated Persons
One commenter suggested generally
that the proposed rules should be more
strictly applied to advisors dealing with
218 See letter from Andrew S. Rose, dated April
10, 2011 (‘‘Rose Letter’’).
219 See id.
220 Many commenters used the term ‘‘conduit
borrower’’ in their letters. Although the term
‘‘conduit borrower’’ and ‘‘obligated person’’ do not
have identical meanings, for purposes of this
release, the Commission is treating the comments
regarding ‘‘conduit borrowers’’ as applying to
‘‘obligated persons.’’
221 See Securities Exchange Act Release No.
26985 (June 28, 1989), 54 FR 28799, note 89 (July
10, 1989). See also Securities Exchange Act Release
No. 62184A (May 27, 2010), 75 FR 33100, 33107
(June 10, 2010) (stating: ‘‘As noted in [Securities
Exchange Act Release No. 60332 (July 17, 2009), 74
FR 36831 (July 24, 2009)], the Commission believes
that information regarding conduit borrowers is
material to investors in credit enhanced offerings
and therefore should be included in the official
statements’’).
222 See Securities Exchange Act Release No.
26985 (June 28, 1989), 54 FR 28799, 28812 (July 10,
1989).
223 The text of Rule 15Ba1–1(k) has also been
clarified to provide that the definition of obligated
person excludes persons whose financial
information or operating data is not material to a
municipal securities offering, without reference to
any municipal bond insurance, letter of credit,
liquidity facility, or other credit enhancement.
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municipal entities than to advisors
dealing with obligated persons. The
commenter asserted that there is less
public interest in regulating advice to
private entities, and such regulation is
better handled outside of municipal
markets regulation.224 As stated above,
obligated persons assume the same role
as municipal entities in an issuance of
municipal securities, because obligated
persons are committed by contract or
other arrangement to support the
payment of all or part of the obligations
on the municipal securities. Further,
defaults by private entity obligated
persons with respect to municipal
securities can have negative
consequences for municipal entities.225
Section 15B of Exchange Act (as
amended by the Dodd-Frank Act),
moreover, provides for the protection of
both municipal entities and obligated
persons.226 Accordingly, the
Commission believes that the municipal
advisor registration regime should
generally apply in the same manner to
advisors of obligated persons as to
advisors of municipal entities.227
As described more fully below,
however, the Commission is providing
an exemption from the definition of
municipal advisor for persons providing
advice with respect to certain
‘‘investment strategies,’’ which will
narrow the range of activities that would
cause an advisor to an obligated person
to meet the definition of municipal
advisor.228 Also as described more fully
224 See letter from Kendra York, Public Finance
Director, State of Indiana, dated February 22, 2011
(‘‘State of Indiana Letter’’). This commenter stated
that it is unrealistic to expect board members,
attorneys, and accountants of obligated persons to
be aware that their activities would be subject to
Commission regulation. The commenter stated that
it seems more appropriate to regulate improvident
and risky usage of derivatives by unsophisticated
borrowers by focusing on suitability rules
applicable to the providers of these services, rather
than focusing on their use in the municipal market.
225 According to a Standard and Poor’s study of
municipal bond defaults in the 1990s, bonds for the
three major types of conduit bond issues
(healthcare, multi-family housing, and industrial
development) accounted for more than 70% of
defaulted principal. More recent reports have also
indicated that non-governmental conduit borrowers
account for more than 70% of municipal bond
defaults. For example, a 2011 report stated that the
largest share of modern era defaults consists of
industrial development revenue bonds, followed by
bonds supporting healthcare and housing. The
report states that these three sectors accounted for
67% of all defaulting issues during the period of
1980 to 2011. See 2012 Report on the Municipal
Securities Market, supra note 45, at 24.
226 See 15 U.S.C. 78o–4(b)(2)(C).
227 The Commission notes, however, that the
Exchange Act, as amended by the Dodd-Frank Act,
imposes a fiduciary duty on municipal advisors
when advising municipal entities. See 15 U.S.C.
78o–4(c)(1). The statute does not impose a fiduciary
duty with respect to advice to obligated persons.
See also supra note 100.
228 See infra Section III.A.1.b.viii.
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67485
below, the Commission is limiting the
scope of its definition of the term
‘‘municipal derivative’’ and its
interpretation of the term ‘‘solicitation
of a municipal entity or obligated
person’’ as each applies to obligated
persons, such that an obligated person
must be acting in its capacity as such
and the relevant activity is in
connection with municipal securities
(or, in the case of a solicitation,
municipal financial products).229
When does a person become an
obligated person?
One commenter asked when a client
would become an obligated person.230
Specifically, the commenter asked
whether it would be rendering advice as
a municipal advisor if it was engaged to
consider a client’s options regarding
conventional versus conduit financing,
but the client subsequently chose not to
engage in conduit financing.231 In
addition, the commenter asked whether
only registered municipal advisors can
solicit clients that are eligible to use
conduit financing.232 Lastly, the same
commenter asked whether a financial
advisor would be required to register as
a municipal advisor if a client is
examining its debt alternatives, among
which is conduit financing.233
Whether a financial advisor that
advises clients about conduit financing
or other financing options would be
required to register as a municipal
advisor would depend on the facts and
circumstances. A person will not be a
municipal advisor to an obligated
person until the obligated person has
begun the process of applying to, or
negotiating with, a municipal entity to
issue conduit bonds on behalf of the
obligated person. Activity that never
results in solicitation of or actual
contact with a municipal entity does not
have a sufficient nexus to municipal
financial products or the issuance of
municipal securities to require
registration as municipal advisor.
Merely advising a client on debt
financing alternatives that include
conduit financing is not a municipal
advisory activity, because the client
would not be sufficiently close to being
an obligated person with respect to an
issuance of municipal securities.234 If a
229 See
infra note 236 and accompanying text.
letter from Jonathan Roberts, Principal,
Roberts Consulting, LLC, dated February 18, 2011
(‘‘Roberts Consulting Letter’’).
231 See id.
232 See id.
233 See id.
234 Conversely, providing advice to a client who
is a municipal entity regarding debt financing
alternatives would constitute a municipal advisory
activity.
230 See
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client is only considering conduit
financing, the client is not an obligated
person. However, if the client applies to,
or negotiates with, the municipal entity
to issue conduit bonds, the person
advising the conduit borrower would be
required to be registered as a municipal
advisor, regardless of whether or not the
financing successfully closes.
One commenter argued that a person
that is an obligated person does not
remain an obligated person indefinitely
and is not an obligated person with
respect to unrelated matters.235 The
Commission agrees and has limited the
scope of the rules as applied to advice
concerning municipal financial
products used by, and third-party
solicitations of, obligated persons as
described herein.236
The same commenter also argued that
a person should not be deemed an
obligated person if it is not the initial
obligor, but rather comes to support the
payment of obligations on municipal
securities after the offering, through an
assumption or other arrangement, and
asked the Commission to clarify that
any relationship between an obligated
person and its advisor will only be
considered a municipal advisory
relationship to the extent that it directly
involves a transaction in which the
person is an obligated person.237 The
Commission does not agree. It is the
Commission’s view that such a person
would be an obligated person if the
municipal securities remain outstanding
after the substitution of the obligated
person, and such a person is an
obligated person for purposes of Rule
15c2–12. The obligated person’s
responsibilities and need for protection
would be similar regardless of whether
it was an initial obligor or a subsequent
obligor. The Commission notes that, as
discussed, a person is only a municipal
advisor to an obligated person if it
provides advice to, or on behalf of, the
obligated person ‘‘with respect to
municipal financial products or the
issuance of municipal securities,
235 See
SIFMA Letter I.
infra Section III.A.1.b.v. (discussing the
definition of ‘‘municipal derivatives’’ and its scope
with respect to obligated persons) and Section
III.A.1.b.x. (discussing the definition of ‘‘solicitation
of a municipal entity or obligated person’’ and its
scope with respect to obligated persons).
237 See SIFMA Letter I. Further, another
commenter stated that if an entity related to a
borrower agrees to guarantee, or be jointly
obligated, on a borrowing, it should be treated as
the primary borrower and not as a municipal
advisor. See letter from Kasey Kesselring, President,
South Lake County Hospital District, dated
February 16, 2011 (‘‘South Lake County Hospital
Letter’’). The Commission notes that such an entity
is not acting as an advisor to its affiliated borrower
merely by agreeing to guarantee or be jointly
obligated on a borrowing.
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236 See
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including advice with respect to the
structure, timing, terms, and other
similar matters concerning such
financial products or issues’’ or that
meets the definition for ‘‘solicitation’’ of
such obligated person.238 The
Commission also notes that Exchange
Act Section 15B(e)(10) defines obligated
person to mean, among other things,
‘‘any person . . . who is either generally
or through an enterprise, fund, or
account of such person, committed by
contract or other arrangement to support
the payment of all or part of the
obligations on the municipal securities
to be sold in an offering of municipal
securities.’’ 239
Charter Schools
In the Proposal, the Commission
noted that a charter school would
generally fall under the definition of
municipal entity, but may, in certain
circumstances, fall under the definition
of obligated person.240 With respect to
municipal financial products or the
issuance of municipal securities, the
Commission asked in what
circumstances should charter schools be
considered municipal entities or
obligated persons.241 Further, the
Commission asked how the treatment of
charter schools under different state
laws affects their classification as
municipal entities or obligated
persons.242
One commenter stated that charter
schools that have bonds issued on their
behalf by a local financing governmental
entity are classic examples of obligated
persons.243 This commenter suggested
that, if a charter school receives tax
money from a state or school district,
the school should be treated as a
municipal entity.244 Otherwise, the
238 See
15 U.S.C. 78o–4(e)(4).
15 U.S.C. 78o–4(e)(10).
240 15 U.S.C. 78o–4(e)(8). See also infra note 241.
241 See Proposal, 76 FR 835.
In the Proposal, the Commission clarified, in
response to a commenter, that charter schools are
considered to be public schools and generally
derive their charter from a political subdivision of
a state (for example, local school boards, state
universities, community colleges, or state boards of
education) and, therefore, would fall under the
definition of municipal entity. See id., at 829, notes
83–85 and accompanying text.
Charter schools, or persons that operate charter
schools, such as charter school management
organizations that are organized as non-profit
corporations, may issue municipal securities
through a municipal entity for capital needs, such
as facilities that are not provided for by state
funding. In that instance, the charter school, or
charter school management organization, would be
an obligated person with respect to the issuance of
municipal securities and any related municipal
financial products. See id., at 829, note 85.
242 See id., at 835.
243 See Kutak Rock Letter.
244 See id.
239 See
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school should be treated as an obligated
person.245 Another commenter stated
that a charter school should be
considered a municipal entity if it is
organized as a political subdivision of a
state or an instrumentality of a political
subdivision of a state.246 This
commenter stated that, in other
circumstances when providing for
payment of municipal securities, a
charter school should be considered an
obligated person.247
As stated in the Proposal, the
Commission continues to believe that
charter schools are generally municipal
entities, because they are public schools
and derive their charter from a political
subdivision of a state. While charter
schools generally receive a portion of
their funds from the state, they may also
raise funds through conduit borrowing,
and may pledge funds other than state
money for the payment on the conduit
borrowing. Thus, a charter school is an
obligated person under Section
15B(e)(10) and Rule 15Ba1–1(k) when it
engages in conduit borrowing using
and/or pledging solely monies derived
from sources other than the state or
political subdivision of a state.248 A
municipal entity that is an obligated
person on bonds issued by another
municipal entity is still a municipal
entity for purposes of this rule, and
advisors to such municipal entities are
subject to a statutory fiduciary duty.249
iv. Municipal Financial Products
Exchange Act Section 15B(e)(5)
defines ‘‘municipal financial product’’
to mean ‘‘municipal derivatives,
guaranteed investment contracts, and
investment strategies.’’ 250 The
Commission proposed to incorporate
into the rule the statutory definition of
municipal financial product.251 The
Commission received approximately ten
comment letters regarding the proposed
definition. The issues raised by these
commenters are discussed below in the
‘‘Municipal Derivatives,’’ ‘‘Guaranteed
Investment Contracts,’’ and ‘‘Investment
Strategies’’ sections. The Commission is
adopting the definition of ‘‘municipal
financial product’’ as proposed.252
245 See
id.
NABL Letter.
247 See id.
248 See also supra note 241 and accompanying
text (recognizing that a charter school may be an
obligated person).
249 See 15 U.S.C. 78o–4(c).
250 15 U.S.C. 78o–4(e)(5).
251 See proposed Rule 15Ba1–1(g) (providing that
‘‘municipal financial product’’ has the same
meaning as in Section 15B(e)(5) of the Exchange
Act).
252 See Rule 15Ba1–1(i).
246 See
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v. Municipal Derivatives
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As discussed in the Proposal,
Exchange Act Section 15B does not
define the term ‘‘municipal
derivatives.’’ Accordingly, the
Commission proposed Rule 15Ba1–1(f)
to define the term to mean any swap 253
or security-based swap 254 to which a
municipal entity is a counterparty or to
which an obligated person, acting in its
capacity as an obligated person, is a
counterparty.255 Thus, as stated in the
Proposal, the Commission included in
the definition of municipal derivatives
the definitions of ‘‘swap’’ and ‘‘securitybased swap,’’ as those terms are defined
by statute (and any rules and regulations
thereunder). In the Proposal, the
Commission asked whether the
proposed definition of municipal
derivatives should be modified or
clarified in any way.256
One commenter stated that the
proposed definition of municipal
derivatives is too broad, because it
encompasses too many types of advisory
entities and transactions and the
definition goes beyond securities.257
The commenter expressed concern that
a person must register as a municipal
advisor regardless of the type of swap
advice contemplated or the relationship
between the municipal entity and the
person seeking to offer the advice.258
Another commenter stated that there
is no statutory basis or legislative
history for the proposed expansion of
the industry’s common usage of the
term ‘‘municipal derivatives,’’ which is
limited to derivatives of a municipal
security.259 The commenter stated that
the proposed definition would mean
that any public plan (if not exempted
from the definition of municipal entity)
using swaps in the management of its
overall portfolio would be dealing in
municipal financial products, merely by
virtue of being a counterparty to the
swap.260
253 As proposed and adopted, the definition
specifies that ‘‘swap’’ is as defined in Section 1a(47)
of the Commodity Exchange Act (7 U.S.C. 1a(47))
and Section 3(a)(69) of the Exchange Act (15 U.S.C.
78c(a)(69)), including any rules and regulations
thereunder.
254 As proposed and adopted, the definition
specifies that ‘‘security-based swap’’ is as defined
in Section 3(a)(68) of the Exchange Act (15 U.S.C.
78c(a)(68)), including any rules and regulations
thereunder.
255 See proposed Rule 15Ba1–1(f).
256 See Proposal, 76 FR 836.
257 See David J. Tudor, President and CEO, ACES
Power Marketing LLC, dated March 2, 2011 (‘‘ACES
Power Marketing Letter’’).
258 See id.
259 See letter from Robert V. Newman, Executive
Director, Utah Retirement Systems, dated February
22, 2011 (‘‘Utah Retirement System Letter’’).
260 See id.
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Additionally, one commenter stated
that many municipal entities enter into
commodity hedging transactions in
connection with their operations to
avoid mid-year operating budget
disruptions and rate hikes. Accordingly,
this commenter asked the Commission
to confirm that hedging transactions by
municipal entities related to their
operations (rather than municipal
securities) do not constitute municipal
derivatives.261
One commenter asked the
Commission to clarify how a person
engaging in a transaction or assignment
with respect to a municipal derivative
would determine that the person it is
advising is ‘‘an obligated person, acting
in its capacity as an obligated
person.’’ 262 The commenter stated that
the Commission should clarify that a
person (presumably acting as a dealer or
counterparty) must have actual
knowledge that the counterparty is an
obligated person acting as such and
have actual knowledge that the
municipal derivative implicates or is
related to the underlying transactions or
funds that make such person an
obligated person.263 Further, the
commenter stated that a person should
not need to affirmatively inquire as to
the counterparty’s or the funds’
status.264
Another commenter suggested
narrowing the definition of municipal
derivatives to only include debt-related
derivatives entered into (a) by a
municipal entity in connection with an
issue of municipal securities or (b) by an
obligated person as a pledged security
or a source of payment for municipal
securities.265 This commenter also
stated that the phrase ‘‘in its capacity as
an obligated person’’ is not sufficiently
tailored, because it would include any
derivative entered into by the obligated
person to hedge a conduit borrowing,
not merely those that ‘‘by contract or
other arrangement . . . support the
payment’’ of municipal securities.266 In
67487
addition, this commenter stated that,
given the use of the term ‘‘municipal
financial product,’’ Congress did not
intend to regulate transactions with
non-municipal entities that do not affect
municipal entities or investors, simply
because they result from a municipal
securities transaction.267
In contrast, one commenter agreed
with the Commission that municipal
derivatives includes both swaps and
security-based swaps to which a
municipal entity or obligated person is
a counterparty, but stated that this
definition is too narrow.268 This
commenter stated that, because the term
‘‘municipal derivatives’’ (rather than the
term ‘‘swap’’) was used in the definition
of municipal financial products,
Congress intended to ‘‘provide
flexibility to address problems that may
arise in the future in connection with
the use of other existing or yet-to-bedeveloped forms of derivatives by
municipal entities.’’ 269
The Commission has carefully
considered these comments and is
adopting the definition of municipal
derivatives substantially as proposed.
The Commission, however, is clarifying
herein the scope of application of the
definition to obligated persons, in
response to issues raised by
commenters.270 Specifically, the
Commission is adopting Rule 15Ba1–
1(f), which now provides that the term
‘‘municipal derivatives’’ means ‘‘any
swap (as defined in Section 1a(47) of the
Commodity Exchange Act (7 U.S.C.
1a(47)) and section 3(a)(69) of the Act
(15 U.S.C. 78c(a)(69)), including any
rules and regulations thereunder) or
security-based swap (as defined in
section 3(a)(68) of the Act (15 U.S.C.
78c(a)(68)), including any rules and
regulations thereunder) to which: (1) [a]
Municipal entity is a counterparty; or
(2) [a]n obligated person, acting in such
capacity, is a counterparty.’’ 271
267 See
id.
MSRB Letter I.
269 See id. See also infra note 271 (discussion of
the definition of swap and security-based swap,
which includes flexibility to address yet-to-be
developed forms of derivatives).
The Commission also notes that on July 18, 2012,
it adopted rules jointly with the CFTC to, among
other things, further define the terms swap,
security-based swap, and security-based swap
agreement. See Securities Exchange Act Release No.
67453 (July 18, 2012), 77 FR 48208 (August 13,
2012) (Further Definition of ‘‘Swap,’’ ‘‘SecurityBased Swap,’’ and ‘‘Security-Based Swap
Agreement;’’ Mixed Swaps; Security-Based Swap
Agreement Recordkeeping).
270 See Rule 15Ba1–1(f).
271 See id. The Commission notes that the
definitions of swap and security-based swap are
quite broad and that Section 712(d) of the DoddFrank Act gives the Commission and CFTC joint
268 See
261 See
NABL Letter.
SIFMA Letter I.
263 See id.
264 See id.
265 See NABL Letter. This commenter stated that
by narrowing the definition of municipal
derivatives accordingly, ‘‘swaps that are entered
into by a municipal entity to hedge the interest rate
on variable rate securities, or to hedge the value of
municipal securities to be issued in the future, as
well as swaps that are part of a structured
municipal securities financing (e.g., a structured
student loan or mortgage revenue bond issue)
would be covered, but derivatives that are unrelated
to municipal securities issues (e.g., swaps to hedge
bank loans or fuel costs) or are entered into by a
conduit borrower and [not] pledged as security or
a source of payment for, the municipal securities
issue would be excluded.’’
266 See id.
262 See
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As proposed and adopted, with
respect to municipal entities, the
Commission has determined not to
qualify the definition of municipal
derivatives as being limited to those
entered into in connection with, or
pledged as security or a source of
payment for, existing or contemplated
municipal securities. Municipal entities
seeking advice with respect to
municipal derivative transactions
(including commodity hedging
transactions in connection with their
operations, which fall within the
definition of municipal derivatives) are
subject to risks, regardless of whether
the municipal derivatives are entered
into in connection with or pledged as
security or a source of payment for
existing or contemplated municipal
securities, and should have the
protections provided by municipal
advisor registration.272
As proposed and adopted, with
respect to obligated persons, the
coverage of the registration requirement
is limited to advice relating to
derivatives entered into by an obligated
person in its capacity as an obligated
person with respect to municipal
securities. Thus, with respect to
obligated persons, municipal derivatives
include those derivatives entered into
by obligated persons in connection
with, or pledged as security or a source
of payment for, existing municipal
securities or municipal securities to be
issued in the future.273 By contrast,
advice with respect to other types of
derivative transactions entered into by
obligated persons outside of their
capacity as obligated persons will not
trigger the municipal advisor
registration requirement. For example, a
person advising a nonprofit hospital to
hedge an interest rate swap entered into
in connection with a variable rate
conduit borrowing (by such hospital)
authority to further define such terms. Under the
Commodity Exchange Act, as amended by the
Dodd-Frank Act, the term ‘‘swap’’ is defined to
mean, in part, any agreement, contract, or
transaction that is, or in the future becomes,
commonly known to the trade as a swap. See 7
U.S.C. 1a(47). In addition, under the Exchange Act,
as amended by the Dodd-Frank Act, the term
‘‘security-based swap’’ incorporates the definition
of ‘‘swap’’ under the Commodity Exchange Act. See
15 U.S.C. 78c(a)(68).
272 See supra note 190 and accompanying text.
273 The Commission believes it is appropriate to
refer to ‘‘existing or contemplated’’ municipal
securities because an obligated person could enter
into a swap or security-based swap before or after
an issuance of municipal securities (e.g., a forwardstarting interest rate swap as part of a synthetic
advanced refunding). See also supra note 265
(discussing the comment in the NABL Letter that
the definition of municipal derivatives should be
narrowed in a way that would still cover, among
other things, swaps entered into to hedge the value
of municipal securities to be issued in the future).
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would be a municipal advisor. However,
a person would not be required to
register as a municipal advisor if it is
advising an airline company that is an
obligated person with respect to airport
revenue bonds about whether the airline
company should hedge its exposure on
aviation fuel costs with a derivatives
transaction that is unrelated to any
particular issuance of municipal
securities and that is outside of its
capacity as an obligated person. The
Commission believes that this
clarification with respect to obligated
persons addresses the concerns of
commenters regarding scope of the
advisors’ responsibilities to conduit
borrowers and the ability to identify
situations where advising obligated
persons triggers a registration
requirement.
The Commission notes that the
Exchange Act and the Commodity
Exchange Act, as amended by the DoddFrank Act, provide heightened
protection to special entities, in
connection with swaps and securitybased swaps. The Commission
interprets the term special entity to
generally include municipal entities,
because the definition of municipal
entity is substantially similar to the
definition of special entity in the
Exchange Act and the Commodity
Exchange Act.274 The heightened
protection afforded by the Acts to
special entities applies to all swaps and
security-based swaps, irrespective of
whether the swaps and security-based
swaps are entered into in connection
274 The Commission notes that there are some
differences between the statutory definitions of
municipal entity and special entity. In particular,
the statutory definitions of special entity do not
explicitly include authorities, instrumentalities or
corporate instrumentalities of a state. The definition
of municipal entity includes plans, programs, or
pools of assets established by a state, political
subdivision, or municipal corporate instrumentality
(or any agency, authority, or instrumentality
thereof), and therefore includes 529 Savings Plans
and LGIPs, while the statutory definitions of special
entity do not explicitly include such entities. Also,
the statutory definitions of special entity include
governmental plans as defined by ERISA. The
Commission notes that the CFTC, in adopting rules
to implement business conduct standards for swap
dealers, included in the definition of ‘‘special
entity’’ (for purposes of Commodity Exchange Act
Section 4s): ‘‘A State, State agency, city, county,
municipality, other political subdivision of a State,
or any instrumentality, department, or a corporation
of or established by a State or political subdivision
of a State.’’ See Standards for Swap Dealers and
Major Swap Participants with Counterparties
(January 11, 2012), 77 FR 9734 (February 17, 2012)
(adopting rules proposed by the CFTC prescribing
external business conduct standards for swap
dealers and major swap participants) (‘‘Business
Conduct Standards for Swaps’’).
The CFTC’s final rules state that all State and
municipal special entities are municipal entities.
See Business Conduct Standards for Swaps, 77 FR
9739.
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with or pledged as security or a source
of payment for existing or contemplated
securities.275 Accordingly, the
Commission’s determination not to
qualify its interpretation of the term
‘‘municipal derivatives’’ with respect to
municipal entities is designed to
provide a level of protection to such
entities with respect to swaps and
security-based swaps that is consistent
with the protection afforded to special
entities and the Commission’s
interpretation of that term with respect
to obligated persons is intended to
reflect the scope of the role of obligated
persons with respect to municipal
securities.
275 As discussed herein, with Title IX of the
Dodd-Frank Act, Congress provided certain
protections for municipal entities and obligated
persons with respect to their interaction with
certain advisors, including persons providing
advice with respect to, among other things,
municipal derivatives.
Moreover, with Section 764 of Title VII of the
Dodd-Frank Act, by adding new Section 15F to the
Exchange Act, Congress provided certain
protections for special entities with respect to their
interaction with security-based swap dealers and
major security-based swap participants. See Pub. L.
111–203, 124 Stat. 1376, 1789–1792, section 764(a)
(adding Exchange Act Section 15F).
Among other things, Section 15F(h)(4) of the
Exchange Act establishes that a security-based swap
dealer that ‘‘acts as an advisor to a special entity
shall have a duty to act in the best interests of the
special entity’’ and ‘‘shall make reasonable efforts
to obtain such information as is necessary to make
a reasonable determination’’ that any security-based
swap recommended by the security-based swap
dealer is in the best interests of the special entity
. . . .’’ Section 15F(h)(5) requires that securitybased swap entities that offer to, or enter into a
security-based swap with, a special entity comply
with any duty established by the Commission that
requires a security-based swap entity to have a
‘‘reasonable basis’’ for believing that the special
entity has an ‘‘independent representative’’ that
meets certain criteria and undertakes a duty to act
in the ‘‘best interests’’ of the special entity. See Pub.
L. 111–203, 124 Stat. 1376, 1791 (to be codified at
15 U.S.C. 78o–10(h)(5)). This provision is intended
to operate together with the municipal advisor
regulatory scheme, which would apply to such an
‘‘independent representative’’ unless the
representative is an employee of the municipal
entity. Similarly, Section 731 of the Dodd-Frank Act
amends the Commodity Exchange Act by adding
Section 4s, which contains language parallel to
Section 15F of the Exchange Act that applies to
swap dealers and major swap participants. See Pub.
L. 111–203, 124 Stat. 1376, 1789–1792, section 731
(adding Commodity Exchange Act Section 4s).
The term ‘‘special entity’’ is defined to include a
‘‘State, State agency, city, county, municipality, or
other political subdivision of a State.’’ This
definition is consistent with, but not identical to,
the statutory definition of ‘‘municipal entity’’ in
Section 15B(e)(8). (‘‘[T]he term ‘municipal entity’
means any State, political subdivision of a State, or
municipal corporate instrumentality of a State,
including—(A) any agency, authority or
instrumentality of the State, political subdivision,
or municipal corporate instrumentality; (B) any
plan, program, or pool of assets sponsored or
established by the State, political subdivision, or
municipal corporate instrumentality or any agency,
authority or instrumentality thereof; and (C) any
other issuer of municipal securities[.]’’).
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vi. Guaranteed Investment Contracts
Section 15B(e)(2) of the Exchange Act,
as amended by the Dodd-Frank Act,
defines ‘‘guaranteed investment
contract’’ to include ‘‘any investment
that has specified withdrawal or
reinvestment provisions and a
specifically negotiated or bid interest
rate, and also includes any agreement to
supply investments on two or more
future dates, such as a forward supply
contract.’’ 276 In the Proposal, the
Commission proposed to include the
statutory definition of guaranteed
investment contract in Rule 15Ba1–
1(a).277
The Commission received one
comment supporting the proposed
definition.278 Another commenter,
however, suggested that the definition
does not include all guaranteed
investment contracts entered into by
municipal entities.279 Instead, this
commenter stated that the statutory
definition of guaranteed investment
contracts refers only to those contracts
related to issues of bonds and similar
municipal securities.280 Another
commenter stated that it is ‘‘cognizant of
special issues arising in the investment
of bond proceeds in guaranteed
investment contracts, particularly in the
tax area, but [is] unclear how the
situation is improved . . . . by
additional regulation of [guaranteed
investment contract] providers by the
SEC.’’ 281
The Commission has carefully
considered these comments and is
adopting a definition of guaranteed
investment contract substantially as
proposed but with changes designed to
respond to commenters.282 Specifically,
the Commission is interpreting the
statutory definition of guaranteed
investment contract so that it ‘‘has the
same meaning as in section 15B(e)(2) of
the Act (15 U.S.C. 78o–4(e)(2));
provided, however, that the contract
relates to investments of proceeds of
municipal securities or municipal
escrow investments.’’ 283
For the same reasons that the
Commission is narrowing the
application of the term investment
strategies as discussed further herein,284
the Commission is persuaded by
commenters that, at this time, it is
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276 15
U.S.C. 78o–4(e)(2).
proposed rule 15Ba1–1(a).
278 See MSRB Letter. This commenter did not
suggest any changes to the proposed definition.
279 See NABL Letter.
280 See id.
281 See State of Indiana Letter.
282 See Rule 15Ba1–1(a).
283 See id.
284 See Section III.A.1.viii.
277 See
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appropriate to apply the definition of
guaranteed investment contract more
narrowly. Guaranteed investment
contracts are investment products,285
and this more limited interpretation is
consistent with the approach the
Commission is adopting with respect to
the application of ‘‘investment
strategies,’’ which will be limited to
plans or programs for the investment of
proceeds of municipal securities and the
recommendation of and brokerage of
municipal escrow investments.286 A
municipal entity could invest any funds
held by or on behalf of such municipal
entity, as opposed to just proceeds of
municipal securities, in a guaranteed
investment contract. Under the rule as
adopted, a provider of a guaranteed
investment contract is generally not a
municipal advisor as long as such
provider does not engage in municipal
advisory activities, such as providing
advice to the municipal entity or
obligated person about the purchase of
a guaranteed investment contract that
relates to investments of proceeds of
municipal securities or municipal
escrow investments.287 The
285 The Commission notes that, by comparison,
swaps and security-based swaps are not investment
products, but instead are often used to hedge the
risk from other financial transactions. Also, the
Commission notes that the protections established
by the Dodd-Frank Act with respect to swap and
security-based swap transactions discussed above,
are not applicable to guaranteed investment
contracts or other investment strategies. See supra
note 275 and accompanying text.
286 See infra Section III.A.1.b.viii. (discussing the
term ‘‘investment strategies’’ and the exemption in
Rule 15Ba1–1(d)(3)(vii)).
287 The Commission also notes that it has brought
several enforcement actions involving investment of
proceeds in guaranteed investment contracts. See,
e.g., In the Matter of Banc of America Securities,
now known as Merrill Lynch, Pierce, Fenner &
Smith Incorporated, successor by merger, AP File
No. 3–14153, Securities Exchange Act Release No.
63451 (December 7, 2010) (Banc of America
Securities LLC agreed to settle Commission charges
of securities fraud for allegedly engaging in
improper practices in connection with the bidding
of reinvestment instruments used by municipal
entities) (‘‘Banc of America Settlement’’); Securities
and Exchange Commission v. UBS Financial
Services Inc., Civil Action No. 11–CV–2885 (D.N.J.
May 4, 2011) (UBS agreed to settle Commission
charges of securities fraud for allegedly fraudulently
rigging over 100 municipal bond reinvestment
transactions) (‘‘UBS Settlement’’); Securities and
Exchange Commission v. J.P. Morgan Securities
LLC., Civil Action No. 11–CV–3877 (D.N.J. July 7,
2011) (J.P. Morgan agreed to settle Commission
charges of allegedly fraudulently rigging at least 93
municipal bond reinvestment transactions) (‘‘JP
Morgan Settlement’’); Securities and Exchange
Commission v. Wachovia Bank N.A, now known as
Wells Fargo bank, N.A., successor by merger., Civil
Action No. 2:11–cv–07135–WJM–MF (D.N.J.
December 8, 2011) (Wachovia Bank N.A. agreed to
settle Commission charges of allegedly fraudulently
rigging at least 58 municipal bond reinvestment
transactions) (‘‘Wachovia Settlement’’); and
Securities and Exchange Commission v. GE
Funding Capital Market Services, Inc., Civil Action
No. 2:11–cv–07465–WJM–MF (D.N.J. December 23,
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67489
Commission, therefore, believes it is in
the public interest and consistent with
the purposes of Section 15B to interpret
the definition of guaranteed investment
contract as described herein.
vii. Issuance of Municipal Securities
Section 15B(e)(4)(A) of the Exchange
Act provides in relevant part that a
municipal advisor includes a person
that provides advice to or on behalf of
a municipal entity or obligated person
with respect to the ‘‘issuance of
municipal securities,’’ including advice
with respect to ‘‘the structure, timing,
terms, and other similar matters’’
concerning such issues. Section 3(a)(29)
of the Exchange Act defines the term
‘‘municipal securities.’’ 288 The broad
statutory language in Section
15B(e)(4)(A) of the Exchange Act
regarding advice on ‘‘the structure,
timing, terms and other similar matters’’
concerning such issues suggests that
advice on a broad range of activities
potentially may be included within
advice with respect to the issuance of
municipal securities.
The scope of the concept of an
‘‘issuance of municipal securities’’ is
particularly relevant to the ‘‘advice’’
aspect of the municipal advisor
definition, as discussed previously
herein,289 because a person’s provision
of advice to a municipal entity or
obligated person only results in
municipal advisor status if the subject of
that advice involves either the ‘‘issuance
of municipal securities’’ or ‘‘municipal
financial products.’’ 290 Several
commenters recommended that the
Commission provide guidance on the
extent to which activities would be
2011). The reinvestment transactions in these cases
involved the reinvestment of municipal bond
proceeds in reinvestment instruments, including
guaranteed investment contracts, forward purchase
contracts, and repurchase agreements.
288 Specifically, Section 3(a)(29) of the Exchange
Act defines the term ‘‘municipal securities’’ to
mean ‘‘securities which are direct obligations of, or
obligations guaranteed as to principal or interest by,
a State or any political subdivision thereof, or any
agency or instrumentality of a State or any political
subdivision thereof, or any municipal corporate
instrumentality of one or more States, or any
security which is an industrial development bond
(as defined in section 103(c)(2) of the Internal
Revenue Code of 1954) the interest on which is
excludable from gross income under section
103(a)(1) of such Code if, by reason of the
application of paragraph (4) or (6) of section 103(c)
of such Code (determined as if paragraphs 4(A), (5),
and (7) were not included in such section 103(c)),
paragraph (1) of such section 103(c) does not apply
to such security.’’ See 15 U.S.C. 78c(a)(29)
(emphasis added). Section 3(a)(10) of the Exchange
Act defines the term ‘‘security.’’ See 15 U.S.C.
78c(a)(10).
289 See supra Section III.A.1.b.i. (discussing the
advice standard in general).
290 See supra Section III.A.1.b.iv. (discussing the
term ‘‘municipal financial products’’).
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considered ‘‘advice with respect to the
issuance of municipal securities.’’ 291
One commenter suggested that the
municipal advisor registration provision
in Section 975 of the Dodd-Frank Act is
intended to cover advice on certain
listed activities within broad categories,
including certain ‘‘strategic services,’’
‘‘transaction-related services, and ‘‘postissuance related services.’’ 292 One
commenter recommended that such
advice should be construed broadly,
from a timing perspective, to include
‘‘any advice provided in connection
with a municipal securities issue . . . at
any point during the pre-issuance
planning process as well as throughout
the life of the issuance through final
payment of principal and interest on the
securities (by reason of maturity, earlier
redemption, or otherwise, or for such
longer period due to delayed payment
such as the case of a payment default).
. . .’’ 293 Another commenter
recommended that such advice should
not extend to advice after the closing of
a specific bond issue.294
The Commission generally agrees that
activities covered by the subject of the
‘‘issuance of municipal securities’’
should be construed broadly as a matter
of statutory construction and policy to
ensure appropriate protection of
municipal entities with respect to
advice received relating in some way to
the issuance of municipal securities and
to limit the potential for circumvention
of the municipal advisor registration
provision. As discussed previously
herein, however, the determination of
whether any particular activity
constitutes ‘‘advice’’ in the first instance
for purposes of the municipal advisor
definition depends on all the facts and
circumstances.295 The Commission also
agrees that ‘‘advice with respect to the
issuance of municipal securities’’
should be construed broadly from a
timing perspective to include advice
throughout the life of an issuance of
municipal securities, from the preissuance planning stage for a debt
transaction involving the issuance of
municipal securities to the repayment
stage for those municipal securities.
This interpretation would afford
municipal entities and investors with
the protections of the municipal advisor
registration provision during a time
291 See,
e.g., MSRB Letter I and NAIPFA Letter I.
MSRB Letter II. Other commenters
discussed whether the types of covered activities
described by the MSRB should be narrower or
broader in the context of the underwriter exclusion.
See NAIPFA Letter II and Baum Letter.
293 See MSRB Letter I.
294 See NAIPFA Letter I.
295 See supra Section III.A.1.b.i. (discussing the
advice standard in general).
292 See
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frame that may involve advice on
significant matters affecting issues of
municipal securities. In this regard,
municipal issuers may make significant
decisions affecting the structure, timing,
terms, or other similar matters
concerning an issue of municipal
securities early in the planning stages of
a transaction and may make significant
decisions affecting ongoing compliance,
repayment, or refinancing throughout
the term of an outstanding bond issue.
In addition, the scope of the concept
of the issuance of municipal securities
also is particularly relevant to the
statutory exclusion to the municipal
advisor definition for broker-dealers
serving as underwriters, because the
underwriting function involves certain
activities that relate to the issuance of
municipal securities. The exclusion for
underwriters from the definition of
municipal advisor is limited to activities
that are within the scope of an
underwriting of a particular issuance of
municipal securities. For purposes of
the underwriting exclusion to the
municipal advisor definition, the
function of serving as underwriter on a
particular issuance of municipal
securities is more circumscribed and
encompasses services on a particular
transaction during a narrower time
frame than the overall focus of the
municipal advisor definition with
respect to advice on the issuance of
municipal securities (which involves a
broader focus and longer time frame), as
discussed further herein.296
viii. Investment Strategies
296 See generally infra Section III.A.1.c.iv.
(discussing the underwriter exclusion). The time
frame for the underwriter role generally begins
upon the municipal issuer’s engagement of the
underwriter for a particular issuance of municipal
securities and ends at the end of the underwriting
period for that issuance. See infra notes 589–591
and accompanying text.
297 15 U.S.C. 78o–4(e)(3).
298 See Proposal, 76 FR 830.
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Plans or Programs for the Investment of
the Proceeds of Municipal Securities
In the Proposal, the Commission
asked whether its interpretation of the
term ‘‘investment strategies’’ should be
modified or clarified in any way.300
Specifically, the Commission asked
whether it should exclude plans,
programs, or pools of assets that invest
funds that are not proceeds of the
issuance of municipal securities.301 The
Commission also asked how it would
determine when funds should no longer
be considered ‘‘proceeds of municipal
securities’’ if it were to limit investment
strategies to ‘‘plans or programs for the
investment of the proceeds of municipal
securities (other than municipal
derivatives and guaranteed investment
contracts) or the recommendation of or
brokerage of municipal escrow
investments.’’ 302
Commenters generally opposed the
proposed interpretation of investment
strategies. Many commenters stated that
the proposed interpretation was too
broad, because it covers any fund held
by a municipal entity, regardless of its
source.303 Some commenters asserted
that the proposed interpretation is
contrary to the language and intent of
the Dodd-Frank Act 304 and suggested
299 See
id.
id., at 835.
301 See id.
302 See id.
303 See, e.g., letter from Representative Kenny
Marchant, dated March 11, 2011 (‘‘Marchant
Letter’’); SIFMA Letter I; NABL Letter; American
Bankers Association Letter I; letter from Mike
Nicholas, Chief Executive Officer, Bond Dealers of
America, dated February 22, 2011 (‘‘Bond Dealers
of America Letter’’). See also letters from
Representative Todd Russell Platts, dated April 7,
2011 (‘‘Platts Letter’’); Representatives Peter Welch,
Thomas Petri and Bill Shuster, dated April 5, 2011
(‘‘Welch Letter’’); John Walsh, Acting Comptroller
of the Currency, Office of the Comptroller of the
Currency, dated May 24, 2011 (‘‘OCC Letter’’);
Senator Tim Johnson, dated June 9, 2011 (‘‘Johnson
Letter’’); Brian H. Graff, Craig P. Hoffman, Ilene H.
Ferenczy, Judy A. Miller, Mark Dunbar, and James
Paul, American Society of Pension Professionals &
Actuaries and the National Tax Sheltered Accounts
Association, dated April 15, 2011 (‘‘American
Society of Pension Professionals Letter’’); Brian D.
McCoubrey, President and Chief Executive Office,
The Savings Bank, dated February 17, 2011
(‘‘Savings Bank Letter’’); Celeste Embrey, Assistant
General Counsel, Texas Bankers Association, dated
February 21, 2011 (‘‘Texas Bankers Association
Letter’’). See also infra Section III.A.1.c.viii.
(discussing an exclusion from the definition of
‘‘municipal advisor’’ for banks).
304 See, e.g., Marchant Letter; SIFMA Letter I;
NABL Letter; Kutak Rock Letter; letter from Michael
B. Koffler, Sutherland Asbill & Brennan LLP on
behalf of Massachusetts Life Insurance Company,
300 See
Exchange Act Section 15B(e)(3)
provides that the term ‘‘investment
strategies’’ ‘‘includes’’ plans or
programs for the investment of the
proceeds of municipal securities that are
not municipal derivatives, guaranteed
investment contracts, and the
recommendation of and brokerage of
municipal escrow investments.297 The
Commission proposed to interpret the
term to mean that it includes, without
limitation, the investment of the
proceeds of municipal securities and
plans, programs, or pools of assets that
invest any other funds held by, or on
behalf of, a municipal entity.298 As
such, under the proposed interpretation
of the statutory definition, any person
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that provides advice with respect to
such funds would have to register as a
municipal advisor unless the person
was covered by an exclusion or
exemption.299
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that the definition be restricted so that
it applies only to the statutorilyidentified categories of investments of
proceeds of municipal securities and
recommendation of and brokerage of
municipal escrow investments.305 One
commenter stated that the ‘‘expanded
definition’’ of investment strategies is
not required or even implied by the
Dodd-Frank Act and would subject a
‘‘vast swath of activity—which was not
intended to be, and need not be, further
regulated—to additional regulation.’’ 306
On the other hand, one commenter
agreed with the Commission that the
use of the word ‘‘includes’’ in the
statutory definition of investment
strategies suggests that the term is not
limited to plans or programs for the
investment of the proceeds of municipal
securities.307 This commenter stated its
belief, however, that Congress intended
the definition to be limited to
investment activities that relate to the
securities and securities-like vehicles of
a municipal entity, rather than all
investment activities of municipal
entities.308
In a similar vein, commenters
suggested that the definition should
encompass only plans or programs for
investments in financial instruments, as
opposed to investments in, for example,
infrastructure, real estate, social welfare,
and other non-financial investments.309
Another commenter stated that, with
respect to the funds held by or on behalf
of a municipal entity, whether a person
is providing advice regarding the
‘‘investment of’’ those funds, not other
expenditure or use of the funds for noninvestment purposes, is the determining
factor for deciding that a person is a
municipal advisor.310
One commenter stated that a ‘‘plan or
program,’’ as used in the statutory
definition of investment strategies, is a
series of investment related actions that
Nationwide Life Insurance Company and The
Prudential Insurance Company of America, dated
February 22, 2011 (‘‘Insurance Companies Letter’’).
See also Platts Letter; Welch Letter; Johnson Letter;
American Society of Pension Professionals Letter.
Other than referring to statutory language, none of
these letters offered other evidence of such intent.
305 See, e.g., SIFMA Letter I; NABL Letter; ABA
Letter; Bond Dealers of America Letter; letter from
Karrie McMillan, General Counsel, Investment
Company Institute, dated February 22, 2011 (‘‘ICI
Letter’’). See also Marchant Letter and Platts Letter.
306 SIFMA Letter I. See also NABL Letter.
307 See MSRB Letter.
308 See id.
309 See NABL Letter. See also SIFMA Letter I
(stating that ‘‘the [Commission] should clarify that
the term [investment strategies], in any case, does
not include local government investment pools,
purchases of real estate or expenditures for, among
others, infrastructure, equipment and personnel,
which often are described as ‘infrastructure
investments’ ’’).
310 See SIFMA Letter I.
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would be generally akin to a financial
plan, not merely advice incidental to a
particular trade or investment.311
Another commenter urged the
Commission to limit investment
strategies to advice articulated as a part
of the investment plan for the proceeds
of a municipal securities offering at or
before the time the proceeds are
received.312
Some commenters asserted that
public pension plans, participant
directed investment programs or plans
such as 529 Savings Plans and 403(b)
and 457 plans were not intended to be
regulated under the Exchange Act or the
Dodd-Frank Act and should not be
covered under the definition of
investment strategies.313 According to
these commenters, the Dodd-Frank Act
was intended to regulate those who
provide advice regarding the issuance of
municipal bonds and the investment of
offering proceeds.314 Therefore, these
commenters argue, all governmental
retirement plans should be excluded
from the definition of investment
strategies. Alternatively, one commenter
suggested that, at the very least,
governmental retirement and savings
plans that are funded exclusively
through the contribution of the
employees as participants should be
excluded.315 Another commenter stated
that the phrase ‘‘plans or programs for
the investment of proceeds of municipal
securities’’ implies that the purpose of
the plan or program is to invest
311 See SIFMA Letter I. See also American
Bankers Association Letter I (stating that the term
‘‘investment strategy’’ by definition ‘‘contemplates
a series of steps to reach a particular investment
goal’’) and Financial Services Institute Letter.
312 See James S. Keller, Chief Regulatory Counsel,
The PNC Financial Services Group, Inc., dated
February 22, 2011 (‘‘PNC Financial Services
Letter’’).
313 See, e.g., Utah Retirement Systems Letter;
letter from Jeffrey W. States, State Investment
Officer, Nebraska Investment Council, dated
February 15, 2011 (‘‘Nebraska Investment Council
Letter’’); letter from Lisa Tate, Vice President,
Litigation & Associate General Counsel, dated
February 22, 2011 (‘‘ACLI Letter’’); letter from Gary
A. Sanders, Vice President—Securities & State
Government Relations, National Association of
Insurance and Financial Advisors, dated June 13,
2011 (‘‘National Association of Insurance and
Financial Advisors Letter’’); letter from Ethan E.
Kra, Vice President, Pension Practice Council and
William R. Hallmark, Chair, Public Plans
Subcommittee, American Academy of Actuaries,
dated June 15, 2011 (‘‘American Academy of
Actuaries Letter’’).
314 See American Society of Pension Professionals
Letter; American Academy of Actuaries Letter;
Fraser Stryker Letter.
One commenter stated that governmental
retirement plans should not be considered
investment strategies unless the employer funds
such plans with proceeds from the issuance of
pension obligation bonds. See Fraser Stryker Letter.
315 See American Society of Pension Professionals
Letter.
PO 00000
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67491
proceeds of municipal securities,
whereas the purpose of public pension
plans is to provide retirement
benefits.316 Another commenter
suggested that municipal securities
regulation was originally intended to
regulate the issuance of investment
instruments by a municipal entity under
which the municipal entity is required
to pay the investor in accordance with
the terms of the investment.317 The
commenter stated that state employee
pension plans, 529 Savings Plans, and
assets invested by the state are not
investment instruments issued by the
state to investors.318 As such, the
commenter stated that they were never
intended to be, nor should they now be,
regulated under the Exchange Act or the
Dodd-Frank Act.319
On the other hand, one commenter
stated that the term ‘‘investment
strategies’’ should include any type of
investment strategy or advice relating to
the investment of funds of investors or
other vested persons held in any plan,
program, or pool of assets sponsored or
established by a state, political
subdivision, or municipal corporate
instrumentality, or any agency,
authority, or instrumentality thereof,
such as those created in connection
with municipal fund securities,
including but not limited to 529 Savings
Plans and state and local government
investment pools.320 This commenter
further stated that public defined
contribution pension plans should also
fall within the definition, because these
plans share many of the same potential
impacts on third-party beneficiaries and
316 See
American Academy of Actuaries Letter.
Nebraska Investment Council Letter.
318 See id.
319 See id. This commenter pointed out that the
terms ‘‘securities’’ and ‘‘municipal securities’’ were
not changed by the Dodd-Frank Act. As such, this
commenter stated that, ‘‘[w]ith respect to the grant
of authority to the [Commission] over the ‘issuance
of municipal securities,’ there has been no change
under the Dodd-Frank Act to justify the expansion
of the [Commission’s] authority.’’ Further, the
commenter noted that the statutory definition of
investment strategies indicates that plans and
programs that are intended to be covered must
relate to the proceeds of municipal securities. The
commenter argued that the definition of municipal
entity was not intended to expand the types of
assets regulated by the Commission and stated that
‘‘[t]he underlying notion that the [Commission] is
still regulating ‘municipal securities’ should not be
disregarded without a clear Congressional mandate,
which must necessarily include a change to the
definition of ‘municipal security.’ ’’ Additionally,
this commenter stated that, since government plans
are specifically exempt from ERISA, ‘‘[t]he
proposed rule seems to be an end-run around
ERISA, now subjecting the fiduciaries of these state
plans to federal oversight without a Congressional
directive to do so.’’ But see infra note 320 and
accompanying text (discussing the MSRB Letter,
which argues that some 529 Savings Plans are
municipal fund securities).
320 See MSRB Letter.
317 See
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are generally exempt from the
protections afforded by ERISA to private
pension funds.321
The same commenter stated that
funds should cease to be subject to the
definition of investment strategies once
their investment is no longer governed
by legal documents or covenants
governing the use of such funds.322
Similarly, another commenter stated
that proceeds should mean proceeds
raised in securities offerings, until they
are used for the purposes described in
the use of proceeds section in the
offering document, or otherwise
commingled with the general funds of
the municipal entity.323 Additionally,
one commenter suggested that
‘‘proceeds’’ should not extend to
‘‘replacement proceeds’’ such as pledge
funds.324
The Commission has carefully
considered the issues raised by
commenters on the Proposal. As noted
above, Exchange Act Section 15B(e)(3)
defines investment strategies to include
plans or programs for the investment of
the proceeds of municipal securities
that are not municipal derivatives,
guaranteed investment contracts, and
the recommendation of and brokerage of
municipal escrow investments.325 In
response to comments on the proposed
definition of ‘‘investment strategies,’’
the Commission is adopting Rule
15Ba1–1(b), which defines ‘‘investment
strategies’’ as having ‘‘the same meaning
as in section 15B(e)(3) of the Act (15
U.S.C. 78o–4(e)(3)), and includes plans
or programs for the investment of
proceeds of municipal securities that are
not municipal derivatives or guaranteed
investment contracts, and the
recommendation of and brokerage of
municipal escrow investments.’’ 326
321 See
id.
id. This commenter stated that
professionals advising on, or executing investments
of, public funds that are not subject to specific
restrictions or covenants, other than municipal
derivatives or guaranteed investment contracts,
would instead be subject to existing applicable
investment adviser, broker-dealer, or bank
regulations governing such transactions.
323 See ABA Letter.
324 See NABL Letter.
325 The application of the term ‘‘municipal
financial products’’ to ‘‘municipal derivatives’’ and
‘‘guaranteed investment contracts’’ is discussed
above. See supra Sections II.A.1.b.v. and vi.,
respectively. The term ‘‘municipal escrow
investments’’ is described in more detail below in
this Section III.A.1.b.viii.
326 While the definition of ‘‘investment strategies’’
in Rule 15Ba1–1(b), as adopted, is consistent with
the definition of ‘‘investment strategies’’ in Section
15B(e)(3) of the Act, this definition, as adopted,
clarifies the Commission’s interpretation that
investment strategies specifically excludes
municipal derivatives and guaranteed investment
contracts, as these products are expressly included
in the definition of municipal financial product, as
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322 See
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While the Commission continues to
believe that the term ‘‘includes’’ is not
limiting,327 the Commission is adopting
a definition of ‘‘investment strategies’’
that, as compared to the definition in
the Proposal, focuses more narrowly on
the statutorily-identified categories of
‘‘proceeds of municipal securities’’ and
‘‘municipal escrow investments.’’ In this
regard, the Commission is adopting Rule
15Ba1–1(d)(3)(vii), which will
effectively narrow the focus of the term
‘‘investment strategies’’ to investments
of proceeds of municipal securities and
the recommendation of and brokerage of
municipal escrow investments.
Specifically, Rule 15Ba1–1(d)(3)(vii), as
adopted, exempts from the definition of
municipal advisor any person that
provides advice to a municipal entity or
obligated person with respect to
municipal financial products to the
extent that such person provides advice
with respect to investment strategies
that are not plans or programs for the
investment of the proceeds of municipal
securities or the recommendation of and
brokerage of municipal escrow
investments.
Pursuant to Section 15B(a)(4) of the
Exchange Act, the Commission may
exempt any class of municipal advisors
from any provision of Section 15B or the
rules and regulations thereunder, if it
finds that such an exemption is
consistent with the public interest, the
protection of investors, and the
purposes of Section 15B.328 The
Commission believes that providing the
exemption described above is consistent
with the public interest, the protection
of investors, and the purposes of Section
15B of the Exchange Act. The
exemption tailors protection of
municipal entities to those activities
related to the investment of the
proceeds of municipal securities and
related municipal escrow investments,
which are the specific categories of
activities that Congress identified in the
statutory definition of the term
‘‘investment strategies’’ and that the
Commission believes have the most
direct nexus to municipal securities and
the protection of investors and
municipal issuers in furtherance of the
purposes of Section 15B.
In the Proposal, the Commission
asked how it should determine when
funds should no longer be considered
proceeds of municipal securities, if it
defined by Section 15B(e)(5) of the Act and Rule
15Ba1–1(i), as adopted. This interpretation is
consistent with the Commission’s interpretation in
the Proposal. See Proposal, 76 FR 830–831.
327 Section 15B(e)(3) of the Exchange Act uses the
word ‘‘including’’ as expanding or illustrative, not
as exclusive or limiting.
328 See 15 U.S.C. 78o–4(a)(4).
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were to limit investment strategies to
proceeds of municipal securities or the
recommendation of or brokerage of
municipal escrow investments.329 While
the Exchange Act does not define the
term ‘‘proceeds of municipal
securities,’’ the Federal tax laws provide
a longstanding, known definition of
‘‘proceeds’’ of tax-exempt bonds issued
by State and local governments,
including related definitions of various
types of proceeds (including ‘‘gross
proceeds,’’ ‘‘sale proceeds,’’
‘‘investment proceeds,’’ and
‘‘transferred proceeds’’) under Section
148 of the Internal Revenue Code of
1986, as amended,330 and Section
1.148–1 through 1.148–11 of the
Regulations 331 for the purpose of the
arbitrage 332 investment restrictions
applicable to investments of proceeds of
tax-exempt municipal securities. The
arbitrage rules apply as long as the taxexempt municipal securities are
outstanding, and non-compliance with
the arbitrage rules can result in the loss
of the tax-exempt status of the interest
on the municipal securities retroactively
to the date of issuance. The Commission
believes that the well-developed
concept of proceeds of tax-exempt
329 See
Proposal, 76 FR 835.
U.S.C. 148.
331 26 CFR 148.1–148.11.
332 Arbitrage, in the municipal securities context,
is the profit earned by the municipal entity from
borrowing funds in the tax-exempt market and
investing them in the taxable market. The arbitrage
rules have two main branches. The yield restriction
branch of the rules generally limit the yield
permitted on investments of proceeds of tax-exempt
municipal securities to a yield that is not materially
higher than the yield on the municipal securities;
provided, however, specific exceptions permit
unrestricted investment during certain temporary
periods. The second branch of the arbitrage rules,
the rebate branch, requires that any arbitrage that
the municipal entity earns, including during a
temporary period, must be rebated to the federal
government, unless one of the several specific
exceptions to the rebate requirement applies to the
issue of municipal securities. Any issue of taxexempt municipal securities can be subject to yield
restriction, rebate, or both. The arbitrage rules and
the various exceptions are important factors in the
structuring of any tax-exempt issue of municipal
securities. Under the arbitrage rules, gross proceeds
include amounts covered by the following
interrelated definitions. Sale proceeds are the gross
cash amount paid by the purchasers for the
securities at the initial sale of the issue. Investment
proceeds are the amounts received from investing
the proceeds of the issue. If proceeds of a refunding
issue are used to pay off a prior issue, any
remaining proceeds of the prior issue become, for
tax purposes, transferred proceeds of the refunding
issue. Proceeds, then, are sales proceeds plus
investment proceeds plus transferred proceeds.
Replacement proceeds are amounts that may be
used to pay debt service. Gross proceeds are defined
as proceeds plus replacement proceeds. See
Frederic L. Ballard, Jr., ABCs of Arbitrage: Tax
Rules for Investment of Bond Proceeds by
Municipalities (Section of State and Local
Government Law, American Bar Association, 2007)
(‘‘Ballard, ABCs of Arbitrage’’).
330 26
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municipal securities under the arbitrage
rules is well-known to issuers and to the
professional participants in the
municipal marketplace.
Some commenters that discussed
‘‘proceeds of municipal securities’’ did
so by reference to Federal tax
regulations and terms defined
therein.333 Because the arbitrage rules
governing the investment of bond
proceeds are central to an issue of taxexempt municipal securities and wellknown in the municipal market, the
Commission has determined to define
proceeds of municipal securities in a
similar manner and to apply the term to
tax-exempt municipal securities and
also to taxable 334 municipal securities.
Therefore, for purposes of the
application of the definition of
investment strategies and in response to
comments raised on this issue,335 the
Commission is adopting Rule 15Ba1–
1(m)(1), which defines ‘‘proceeds of
municipal securities’’ as (i) monies
derived by a municipal entity from the
sale of municipal securities, (ii)
investment income derived from the
investment or reinvestment of such
monies, (iii) any monies of a municipal
entity or obligated person held in funds
under legal documents for the
municipal securities that are reasonably
expected to be used as security or a
source of payment for the payment of
the debt service on the municipal
securities, including reserves, sinking
funds, and pledged funds created for
such purpose,336 and (iv) the investment
income derived from the investment or
reinvestment of monies in such
333 See, e.g., NABL Letter. In addition, as
discussed below, some commenters suggested that
a municipal entity should have the responsibility
for tracking and characterizing proceeds because it
is already required to do so under certain tax laws,
implying that the definition of proceeds of
municipal securities should be consistent with such
definition under tax laws. See infra notes 361–362
and accompanying text.
334 Municipal issuers sometimes issue small
amounts of taxable bonds in combination with taxexempt bonds in the same offerings to finance costs
that are ineligible for tax-exempt bond financing.
The most significant recent type of taxable
municipal securities was the temporary stimulus
‘‘Build America Bond’’ program, with respect to
which approximately $181 billion were issued in
2009–2010 and the arbitrage rules on bond proceeds
notably applied directly to those taxable municipal
securities due to a Federal subsidy. The taxable
bond sector of the municipal securities market
represents a relatively small portion of the overall
municipal securities market. For example, less than
9% of new issues in the municipal securities
market in 2012 were taxable bonds, according to
Thomson-Reuters data.
335 See supra note 333 and accompanying text.
336 Such applicable legal documents include, for
example, the indentures, ordinances, or resolutions
of the issuer of the municipal securities, and the
resolutions, leases, loan agreements, or other
agreements of an obligated person.
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funds.337 Further, consistent with the
general definition of proceeds under the
arbitrage rules, Rule 15Ba1–1(m)(1) also
provides that when such monies are
spent to carry out the authorized
purposes of municipal securities, they
cease to be proceeds of municipal
securities.
Rule 15Ba1–1(m), however,
establishes an exception from the
definition of proceeds of municipal
securities. The exception provides that,
solely for purposes of Rule 15Ba1–1(m),
monies derived from a municipal
security issued by an education trust
established by a State under Section
529(b) of the Internal Revenue Code are
not proceeds of municipal securities.338
Although interests in 529 Savings Plans
may be municipal fund securities, and
therefore municipal securities, monies
derived from a municipal security
issued by an education trust established
under Section 529(b) come from
individuals making investments for the
purpose of prepaying or accumulating
savings for higher education costs, and
do not come from municipal entities.
Because these monies are derived from
individuals primarily for the benefit of
these individuals and not municipal
entities, the Commission does not
believe persons engaged in activities
with respect to these monies are
appropriately governed by this
registration regime.339
Rule 15Ba1–1(m) also states that in
determining whether or not funds to be
invested constitute proceeds of
municipal securities for purposes of
Rule 15Ba1–1(m), a person may rely on
representations in writing made by a
knowledgeable official of the municipal
entity or obligated person whose funds
are to be invested regarding the nature
of such funds, provided that the person
337 See Rule 15Ba1–1(m)(1). See also supra notes
330–331 and accompanying text (discussing Federal
tax laws and regulations related to the definition of
proceeds).
338 See Rule 15Ba1–1(m)(2). See also supra notes
313–319 (discussing comments regarding the
inclusion of certain plans under ‘‘investment
strategies’’).
339 Because monies in accounts of 529 Savings
Plans are not included in the definition of proceeds
of municipal securities for purposes of Rule 15Ba1–
1(m), persons providing advice with respect to the
investment of monies in 529 Savings Plans will not
be required to register as municipal advisors based
on this prong of the municipal advisor definition
to the extent their municipal advisory activities are
limited to such advice. See note 338 and
accompanying text. However, a person that advises
a municipal entity with respect to how to structure
a 529 Savings Plan may be required to register as
a municipal advisor. Interests in 529 Savings Plans
are municipal securities, and such a person would
be engaging in municipal advisory activities to the
extent he or she provides advice with respect to the
structure, timing, terms, or other similar matters
concerning such an issuance unless an exclusion or
exemption applies.
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67493
has a reasonable basis for such
reliance.340 This exemption is discussed
in more detail below.
The Commission notes that the
exemption from the definition of
‘‘municipal advisor’’ in Rule 15Ba1–
1(d)(3)(vii) does not permit a person to
avoid registering as a municipal advisor
by stating that its advice is isolated or
incidental and thus not within the
meaning of ‘‘plan or program’’ in the
definition of investment strategies. The
Commission is not persuaded by
commenters who have stated that ‘‘plan
or program’’ means a series of
investment decisions 341 and does not
agree that this would be an appropriate
interpretation of the statute. Any advice
or recommendation with respect to the
investment of proceeds not otherwise
subject to an exclusion or exemption 342
would be a municipal advisory activity,
even if such advice or recommendation
is not part of a series of investmentrelated actions or articulated as part of
the investment plan for the proceeds at
or before the time the proceeds are
received.343 For example, advice or a
recommendation with respect to a single
trade or investment not otherwise
subject to an exemption would be a
municipal advisory activity, and the
person providing such advice would not
be exempt from the definition of
municipal advisor pursuant to Rule
15Ba1–1(d)(3)(vii).
Commingling of Proceeds of Municipal
Securities With Other Funds and
Proceeds Determinations Generally
In the Proposal, the Commission
provided that commingled proceeds,
regardless of when they lose their
character as proceeds, would still
constitute ‘‘funds held by or on behalf
of a municipal entity,’’ but asked
whether that interpretation was too
broad.344 Additionally, the Commission
asked what obligations parties other
than a municipal entity should have in
determining whether funds held by or
on behalf of the municipal entity are
proceeds of municipal securities.345
The Commission received a number
of comments in response to these
questions. One commenter stated ‘‘[t]he
Commission’s proposed definition
effectively reads out the statutory
requirement to trace assets to the
340 See
341 See
Rule 15Ba1–1(m)(3).
supra notes 311–312 and accompanying
text.
342 See, e.g., infra Section III.A.1.c.iv. (discussing
an exemption for broker-dealers serving as
underwriters).
343 See supra notes 311–312 and accompanying
text.
344 See Proposal, 76 FR 836.
345 See id., at 835.
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proceeds of municipal securities[,]’’ and
‘‘[t]hus, an adviser providing advice to
a municipal entity with respect to any
plan, program or pool of assets—even if
the plan, program or pool of assets did
not consist of the proceeds of municipal
securities (such as, for example, 529
Savings Plans and public pension
plans)—would be required to register
with the Commission if no exclusion is
available.’’ 346 Some commenters stated
that once the proceeds of a municipal
offering are commingled with other
funds, they lose their character as
proceeds.347 Commenters also stated
that subsequent investments of proceeds
are not proceeds of municipal securities,
unless the subsequent investment is part
of the plan or program that was
developed at the time of, and in
connection with, the initial
investment.348
One commenter stated that a person
should not be considered to be
providing advice with respect to an
investment strategy if he reasonably
believes that the relevant funds are not
from an account specifically for the
proceeds of municipal securities
issuances, unless the municipal entity
or obligated person communicated
otherwise.349 This commenter also
stated that, depending on the
Commission’s interpretation of
investment strategies, the adviser
should only be considered a municipal
advisor if the funds invested are
proceeds of municipal securities, the
adviser is aware of this fact, and there
is no evidence of a sham.350 Another
commenter further suggested that a
municipal entity should have the
responsibility for tracking and
346 See ICI Letter. See also American Bankers
Association Letter I and American Society of
Pension Professionals Letter (stating that the
Proposal indicated that the expansive definition of
‘‘investment strategies’’ avoids the need to trace the
investment of proceeds of municipal securities
commingled with other public funds and that this
‘‘regulatory shortcut’’ exceeds the authority granted
under the Dodd-Frank Act).
347 See, e.g., SIFMA Letter I; NABL Letter; letter
from Catherine McClellan, Legal & Regulatory
Affairs, SunTrust Banks, Inc., dated February 22,
2011 (‘‘SunTrust Letter’’); and Financial Services
Roundtable Letter.
348 See SIFMA Letter I. See also American
Bankers Association Letter I.
349 See SIFMA Letter I. See also BNY Letter
(stating that ‘‘the Commission should clarify that a
person would not be considered to provide advice
that triggers municipal advisor status if the person
reasonably believes that the funds for the financial
activity on which the person is advising are from
an account of the municipal entity or obligated
person other than an account specifically for the
proceeds of municipal securities or escrow funds
that contains [sic] funds from multiple sources
other than the initial proceeds of a municipal
security’’).
350 See SIFMA Letter I.
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characterizing municipal proceeds.351
This commenter suggested that advisors
should be entitled to reasonably rely on
the municipal entity’s representation
since it is already required to track
proceeds under certain state and Federal
tax laws.352
One commenter stated that, in the
context of obligated persons, only the
investment of the proceeds of municipal
securities, and not all monies of the
obligated person, could be considered
proceeds of municipal securities, even if
the proceeds may be commingled with
other monies for investment
purposes.353 Further, another
commenter urged the Commission to
exclude investments of bond proceeds
for the accounts of obligated persons
when the investment is not pledged as
security for a municipal securities
issue.354 On the other hand, a different
commenter stated that in no event
should the definition of investment
strategies apply to engagements with
obligated persons, because obligated
persons’ funds are not held in plans,
programs, or pools of assets that invest
funds held by or on behalf of a
municipal entity.355
As discussed above, in response to
comments, the Commission is adopting
a definition of ‘‘proceeds of municipal
securities’’ for purposes of the term
‘‘investment strategies,’’ which is
consistent with Federal tax laws and
regulations related to the definition of
proceeds. This definition provides that
when monies are spent to carry out the
authorized purposes of the municipal
securities, they cease to be proceeds of
municipal securities.356 Under this
definition and except as otherwise
noted below, the mere fact that proceeds
are commingled with other funds
351 See Kutak Rock Letter. See also Financial
Services Roundtable Letter.
352 See Kutak Rock Letter (stating that
commingled proceeds are required by federal tax
laws (applicable to tax-exempt bonds) and state
laws to be traced for use and investment purposes).
Another commenter suggested that municipal
entities, and not their municipal advisors, should
have the responsibility for identifying any assets in
accounts maintained at banks or broker-dealers that
should be deemed proceeds. See Financial Services
Roundtable Letter.
353 See Kutak Rock Letter.
354 See NABL Letter. This commenter argued that,
‘‘[s]ince only a small portion of an obligated
person’s investible assets may represent unspent
proceeds of a municipal securities issue, and since
it would not be apparent to investment advisors
whether private entities are obligated persons
unless the Commission limits municipal financial
products to those pledged as security for a
municipal securities issue, any more expansive
reading of the term would impose an impossible
diligence burden on corporate investment
advisors.’’ Id.
355 See SIFMA Letter I.
356 See Rule 15Ba1–1(m)(1).
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generally does not cause such monies to
lose their character as proceeds.
However, once the proceeds are spent to
carry out an authorized purpose of the
issuance of municipal securities, and
the applicable legal documents or any
other agreement pertaining to the
investment of proceeds of municipal
securities are no longer in effect, such
funds will no longer constitute proceeds
of municipal securities.
The Commission does not agree with
those commenters who argued that once
the proceeds of a municipal offering are
commingled with other funds, they lose
their character as proceeds.357 The
adopted definition of ‘‘proceeds of
municipal securities’’ and the treatment
of commingled proceeds are familiar
concepts to market participants because
they are consistent with Federal tax
laws and regulations related to the
definition of proceeds. The Commission
believes this treatment of commingled
proceeds will help to ensure that
municipal advisors are registered and
regulated as such until commingled
proceeds are spent to carry out the
authorized purposes of the municipal
securities. Further, as discussed above,
to assist a person in determining
whether or not funds to be invested
constitute proceeds of municipal
securities, such person may rely on
representations in writing made by a
knowledgeable official of the municipal
entity or obligated person whose funds
are to be invested regarding the nature
of such funds, provided that the person
seeking to rely on such representations
has a reasonable basis for such
reliance.358 As noted below, municipal
entities and obligated persons generally
already track investments and ultimate
expenditures of proceeds of tax-exempt
municipal securities for authorized
purposes in order to comply with
certain state and tax Federal laws and
governing legal documents pertaining to
the investment of proceeds of municipal
securities.359
With respect to the tracing of
proceeds after commingling, Federal tax
arbitrage rules provide that if amounts
of proceeds constituting investment
earnings (excluding those of municipal
escrow investments) on certain taxexempt municipal securities
(particularly governmental bonds and
certain governmentally-owned private
activity bonds) are deposited in a
commingled fund with substantial tax
or other revenues from governmental
operations of the municipal issuer and
the amounts are reasonably expected to
357 See
supra note 347 and accompanying text.
Rule 15Ba1–1(m)(3).
359 See infra note 361 and accompanying text.
358 See
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be spent for governmental purposes
within six months from the date of the
commingling, those proceeds are treated
as spent at the time of commingling.360
This Federal tax arbitrage rule mainly
benefits general purpose municipal
entities (e.g., States, cities, and counties)
with respect to very short-term
investment practices involving their
general fund accounts. The Commission
likewise considers proceeds as spent at
the time of such commingling in the
context of municipal advisors because,
as noted above, arbitrage rules
governing the investment of bond
proceeds are central to an issue of tax
exempt municipal securities and are
well-known in the municipal market.
Because the approach the Commission
is taking today is consistent with
Federal tax arbitrage rules, it should be
consistent with the current practice of
municipal entities and obligated
persons related to tracing proceeds of
municipal securities. Further, because
such proceeds are reasonably expected
to be spent for governmental purposes
within six months from the date of
commingling, the Commission believes
these proceeds involve shorter term
investments and therefore are subject to
lower risk. As a result, they raise less
concern.
The Commission believes that any
person that does not satisfy the
conditions for an exclusion or
exemption from the definition of
municipal advisor should know
whether the person it is advising is a
municipal entity or obligated person
and whether the relevant funds
constitute proceeds of municipal
securities. As commenters stated,
municipal entities and obligated
persons generally already track
investments and ultimate expenditures
of proceeds of tax-exempt municipal
securities for authorized purposes in
order to comply with certain state and
Federal tax laws and governing legal
documents pertaining to the investment
of proceeds of municipal securities.361
Thus, with respect to the tracing of
proceeds of municipal securities to
investments and expenditures for
authorized purposes, the Commission
does not believe that the municipal
advisor registration regime will impose
any significant additional burden on
municipal entities, obligated persons, or
municipal advisors.362
360 See
Treas. Reg. § 1.148–6(d)(6).
Kutak Rock Letter. See also Financial
Services Roundtable Letter.
362 See, e.g., Kutak Rock Letter (noting that
‘‘[a]dvisors should be entitled to reasonably rely on
a municipal entity’s tracking and characterization of
the proceeds of municipal securities, as they are
361 See
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Reasonable Reliance on Representations
for Proceeds Determinations
As set forth in Rule 15Ba1–1(m)(3), in
determining whether or not relevant
funds constitute proceeds of municipal
securities for purposes of Rule 15Ba1–
1(m), a person may rely on
representations in writing made by a
knowledgeable official of the municipal
entity or obligated person whose funds
are to be invested regarding the nature
of such funds, provided the person has
a reasonable basis for such reliance.363
Under Rule 15Ba1–1(m)(3), a person
need not obtain a separate written
representation each time an investment
is made, and can instead rely on a prior
written representation if the person has
a reasonable basis for reliance. The
Commission believes that a
determination of whether or not a
person has a reasonable basis to rely on
a written representation requires
reasonable diligence, based on all the
facts and circumstances, including
review of the written representation and
other relevant information reasonably
available to the person. For example, a
person should not ignore information 364
in the person’s possession as a result of
which such person would know that the
representation is inaccurate. In such a
circumstance, the person seeking to rely
on the representation should make
further inquiry to verify the accuracy of
the representation in order to show a
reasonable basis for the reliance.
However, a person relying on a written
representation generally need not
independently verify all the information
underlying the representation.
Depending on the particular facts and
circumstances, however, a person
seeking to rely on such representations
should take into account other
information, including, but not limited
to, information that is reasonably
available to such person either as a
result of the person’s relationship with
the municipal entity or obligated person
or that is provided by other parties to
the relevant transaction.365
already entitled to do so under state and federal tax
laws’’).
363 See Rule 15Ba1–1(m)(3).
364 For example, such person may have acquired
other information as a result of its interaction with
the municipal entity or obligated person, either in
connection with the transaction with respect to
which it received the written representation or
otherwise.
365 The Commission notes that it has in other
contexts expressed similar views on whether a
person’s reliance on information is reasonable. For
example, under Regulation R, a bank or a brokerdealer satisfies its customer eligibility requirements
if the bank or broker-dealer ‘‘has a reasonable basis
to believe that the customer’’ is an institutional
customer or high net worth customer before the
time specified in the rule. See 17 CFR 247.701.
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67495
Municipal Escrow Investments
Section 15B(e)(3) of the Exchange Act
provides that the term investment
strategies includes, in part, ‘‘the
recommendation of and brokerage of
municipal escrow investments.’’ 366
However, Section 15B(e) of the
Exchange Act does not define the term
‘‘municipal escrow investments.’’
Several commenters discussed the
term ‘‘municipal escrow investments’’
as used in the context of investment
strategies and some asked for further
Commission guidance on the meaning
of this term.367 For example, one
commenter stated that Congress
intended the term to be limited to
accounts holding the proceeds of
municipal securities pending
deployment.368 Another commenter
stated that municipal escrow
investments means investments
deposited in an escrow account to
‘‘defease’’ 369 municipal securities.370
Another commenter stated that
municipal escrow investments are
When adopting Regulation R, the Commission
stated that a bank or broker-dealer would have a
‘‘reasonable basis to believe’’ if it obtains a signed
acknowledgment that the customer met the
applicable standards, unless it had information that
would cause it to believe that the information
provided by the customer was or was likely to be
false. See Definitions of Terms and Exemptions
Relating to the ‘‘Broker’’ Exceptions for Banks,
Securities Exchange Act Release No. 56501
(September 28, 2007), 72 FR 56514 (October 3,
2007).
366 15 U.S.C. 78o–4(e)(3).
367 See, e.g., ABA Letter and SIFMA Letter I.
368 See letter from Charles W. Cary, Jr., Chief
Investment Officer, Division of Investment Services,
Employees’ Retirement System of Georgia and
Teachers Retirement System of Georgia, dated
February 21, 2011 (‘‘Teachers Retirement System
Letter’’).
369 The MSRB provides the following definition
for ‘‘defeasance’’ or ‘‘defeased’’—‘‘Termination of
certain of the rights and interests of the
bondholders and of their lien on the pledged
revenues or other security in accordance with the
terms of the bond contract for an issue of securities.
This is sometimes referred to as a ‘legal defeasance.’
Defeasance usually occurs in connection with the
refunding of an outstanding issue after provision
has been made for future payment of all obligations
related to the outstanding bonds, sometimes from
funds provided by the issuance of a new series of
bonds. In some cases, particularly where the bond
contract does not provide a procedure for
termination of these rights, interests and lien other
than through payment of all outstanding debt in
full, funds deposited for future payment of the debt
may make the pledged revenues available for other
purposes without effecting a legal defeasance. This
is sometimes referred to as an ‘economic
defeasance’ or ‘financial defeasance.’ If for some
reason the funds deposited in an economic or
financial defeasance prove insufficient to make
future payment of the outstanding debt, the issuer
would continue to be legally obligated to make
payment on such debt from the pledged revenues.’’
See definition of ‘‘Defeasance’’ or ‘‘Defeased’’ in
Glossary of Municipal Securities Terms, MSRB (3d
ed. 2013), available at http://msrb.org/glossary.aspx
(‘‘MSRB Glossary’’).
370 See Kutak Rock Letter.
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investments of funds in a segregated
escrow account established by the
municipal entity or obligated person to
hold funds that have been allocated for
satisfying a specific and identified
obligation of the municipal entity or
obligated person and maintained by an
escrow agent for the municipal entity or
obligated person.371 One commenter
stated that the Commission should
recognize that the term ‘‘municipal
escrow investments’’ has a different and
narrower meaning than ‘‘proceeds of
municipal securities’’ and is limited to
investments held in an escrow
account.372 This commenter also
suggested that the Commission should
clarify that merely providing brokerage
of municipal escrow investments does
not make a person a municipal
advisor.373
The Commission has carefully
considered the issues raised by
commenters on the Proposal and has
determined to provide a definition for
‘‘municipal escrow investments.’’ 374
For purposes of the definition of
investment strategies, the Commission
is defining ‘‘municipal escrow
investments’’ as proceeds of municipal
securities and any other funds of a
municipal entity that are deposited in
an escrow account to pay the principal
of, premium, if any, and interest on one
or more issues of municipal
securities.375 Because it is a separate
component of the statutory definition of
investment strategies, the Commission
agrees with the comments that
‘‘municipal escrow investments’’ does
not necessarily have the same meaning
as ‘‘proceeds.’’ 376 At the same time,
however, municipal escrow investments
generally are funded with proceeds
raised from the issuance of municipal
securities in refunding or refinancing
transactions to be used to provide for
repayment of prior outstanding issues of
municipal securities and these escrows
also may include certain other funds,
such as an issuer’s cash contribution
derived from revenues.377 In addition,
371 See
SIFMA Letter I.
ABA Letter.
373 See id. Rather, the commenter asserted that
providing advice with respect to the
recommendation of, and brokerage of, municipal
escrow investments makes a person a municipal
advisor.
374 See Rule 15Ba1–1(h).
375 See Rule 15Ba1–1(h)(1).
376 See Rule 15Ba1–1(m) (defining proceeds of
municipal securities).
377 See, e.g., Ballard, ABCs of Arbitrage at 169 (‘‘A
refunding escrow is any fund that contains
proceeds of a refunding issue for use in paying
principal or interest on a prior issue. Normally, an
issuer will contribute either revenues or unspent
prior issue proceeds to a refunding escrow in
addition to proceeds of the refunding issue.). See
also Treas. Reg. § 1.148–1(b), which defines a
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municipal escrow investments may be
funded in part from equity-type funds
which may be viewed as equity or as a
broad category of proceeds as a result of
their escrow pledge to secure the
outstanding municipal securities to be
refinanced and their attendant close
nexus to those municipal securities.378
The definition of municipal escrow
investments provided herein, consistent
with Rule 15Ba1–1(d)(3)(vii), protects
funds that are used for payment of the
municipal securities issue, whether or
not they are derived from the sale of
municipal securities.
The Commission believes that this
definition of municipal escrow
investments is appropriate in order to
protect both investors in municipal
securities and municipal entities for
reasons discussed further below. These
municipal escrow investments typically
involve investments of significant
amounts of proceeds of municipal
securities for long periods of time linked
to call restrictions or maturities of
refunded debt. These features make
municipal escrow investments
particularly vulnerable to abuse, and in
fact significant investment pricing
abuses have occurred in the area of
municipal escrow investments in the
past and the potential for future pricing
abuses continues to exist in this area.379
In one particularly notable historic
example, pricing abuses involving
municipal escrow investments were the
subject of a major joint enforcement
initiative involving the Commission, the
Internal Revenue Service, and the U.S.
Attorney for the Southern District of
New York that affected a large number
of major broker-dealers with respect to
artificially high prices on U.S. Treasury
securities charged by such dealers in
sales of such securities to municipal
entities to fund municipal escrow
investments.380
The Commission notes that a person
merely providing brokerage of
municipal escrow investments would
not be a municipal advisor if such
‘‘refunding escrow’’ generally to mean ‘‘one or more
funds established as part of a single transaction or
a series of related transactions, containing proceeds
of a refunding issue and any other amounts to
provide for payment of principal or interest on one
or more prior issues.’’)
378 See Treas. Reg. § 1.148–1(b) (definitions of
‘‘proceeds’’ and ‘‘replacement proceeds,’’
respectively).
379 See generally Robert A. Fippinger, The
Securities Law of Public Finance (3rd Ed. 2012) at
§ 14:12 entitled ‘‘Markup Fraud: Yield Burning.’’
380 See SEC Press Release No. 2000–45 (April 6,
2000), in which the SEC announced a global
settlement with 17 broker-dealers with respect to
pricing abuses in municipal escrow investments.
The artificial pricing practices are known as ‘‘yieldburning’’ and this settlement is known as the
‘‘global yield-burning settlement.’’
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person does not provide advice with
respect to such investments.381 The
purchase and sale of escrow
investments upon the direction of an
obligated person or its financial advisor
without rendering advice is merely a
provision of brokerage services and does
not render such person a municipal
advisor. It is the provision of advice to
or on behalf of a municipal entity or
obligated person with respect to
municipal escrow investments that
renders a person a municipal advisor.382
Also, consistent with the definition of
proceeds of municipal securities that
the Commission is adopting, the
Commission is including a written
representation component in the
definition of municipal escrow
investments. Accordingly, Rule 15Ba1–
1(h)(2) states that, in determining
whether or not funds to be invested or
reinvested constitute municipal escrow
investments for purposes of Rule
15Ba1–1(h), a person may rely on
representations in writing made by a
knowledgeable official of the municipal
entity or obligated person whose funds
are to be invested or reinvested
regarding the nature of such
investments, provided that the person
seeking to rely on such representations
has a reasonable basis for such
reliance.383 As with the written
representation component under the
definition of proceeds of municipal
securities, under Rule 15Ba1–1(h), a
person need not obtain a separate
written representation each time an
investment is made, and can instead
rely on a prior written representation if
the person has a reasonable basis for
reliance. For this purpose, the same
standard and principles apply in
determining whether a person has a
reasonable basis for such reliance as
discussed previously with respect to
reliance on representations regarding
proceeds determinations.384
Other Comments on the Scope of the
Proposed Interpretation of ‘‘Investment
Strategies’’
In addition to responses to specific
requests for comment, the Commission
received a number of other comments
regarding its proposed interpretation of
the statutory definition of investment
381 See infra Section III.A.1.c.iv. at notes 642–645
and accompanying text (discussing that certain
routine selling activities would not constitute
municipal advisory activities).
382 See also infra notes 637–641 and
accompanying text (discussing when advice given
by a broker-dealer is considered to be ‘‘solely
incidental’’ to the conduct of his business as a
broker or dealer).
383 See Rule 15Ba1–1(h)(2).
384 See supra notes 364–365 and accompanying
text.
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strategies. For example, one commenter
requested that the Commission clarify
that the term ‘‘investment strategies’’
does not include separate accounts
supporting insurance contracts or their
underlying investment vehicles.385 The
commenter reasoned that the funds
invested in such insurance contracts are
not proceeds of municipal securities,
but are employer and employee
contributions.386 Another commenter
argued that the term ‘‘municipal
financial product’’ should not include
‘‘an insurance product tailored to a
municipal entity,’’ because ‘‘such
products . . . are already quite well
regulated.’’ 387
The Commission agrees that employee
contributions are not proceeds of
municipal securities because these
funds are derived from salary deduction
arrangements with individual
employees and not from the issuance of
a municipal security. Therefore, a
person providing advice with respect to
such contributions would be exempt
from the definition of municipal advisor
to the extent their municipal advisory
activities are limited to such advice.
Whether a person providing advice with
respect to employer contributions will
be exempt, however, will depend upon
whether such funds are proceeds of
municipal securities. In general, public
pension plans do not include proceeds
of municipal securities because
proceeds of tax-exempt municipal
securities generally cannot be spent to
fund investments for pension
liabilities.388 Further, the Commission
agrees that a person providing advice
with respect to other insurance products
385 See
Committee of Annuity Insurers Letter I.
id. The commenter explained that variable
annuity contracts issued by its members are
supported by insurance company separate accounts.
Insurance company separate accounts could be
limited to insurance contracts issued only to
governmental retirement plans. The commenter
noted that, if the Commission adopts its proposal
to define municipal entity as including 457 plans
and 403(b) plans, these insurance company separate
accounts could then be viewed as pooled
investment vehicles limited to municipal entity
investors (i.e., 457 plans and 403(b) plans). The
commenter noted that the definition of investment
strategies could be read to imply that an insurance
company separate account, whose assets are limited
to contributions from insurance contracts held by
governmental retirement plans, is an investment
strategy. The commenter stated that it has found no
indication in the legislative history that Congress
intended this result. The commenter noted that the
funds invested in these insurance contracts are not
proceeds of municipal securities, but rather
employer and employee contributions. In the case
of employee contributions from salary deduction
arrangements, such salary funds are equity funds of
the employees upon receipt, regardless of the
source of those salaries, and thus are not proceeds
of municipal securities.
387 See Kutak Rock Letter.
388 See 26 U.S.C. 148(a)(2) and Treas. Reg.
§ 1.148–1(e) (investment property definition).
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tailored to a municipal entity would not
be engaged in municipal advisory
activities if the insurance products do
not involve the investment of proceeds
of municipal securities because the final
rules narrow the focus of the term
‘‘investment strategies’’ to those
involving investments of proceeds of
municipal securities and municipal
escrow investments with a new
exemption in Rule 15Ba1–1(d)(3)(vii).
ix. Pooled Investment Vehicles
As discussed above, the Commission
proposed to interpret the statutory
definition of the term ‘‘investment
strategies’’ to include ‘‘pools of assets
that invest funds held by or on behalf
of a municipal entity.’’ 389 Further, as
part of the discussion of the term
‘‘investment strategies,’’ the
Commission noted in the Proposal that,
to the extent a person is providing
advice to certain pooled investment
vehicles in which a municipal entity
has invested funds along with other
investors, such pooled investment
vehicles would not be considered funds
‘‘held by or on behalf of a municipal
entity.’’ 390 Consequently, a person
providing advice to such vehicle would
not have to register as a municipal
advisor. However, the Commission
noted that, to the extent that the pooled
investment vehicle is a LGIP, the pooled
investment vehicle would be considered
to be funds ‘‘held by or on behalf of’’ a
municipal entity and a person providing
advice with respect to a LGIP would
have to register as a municipal advisor,
absent eligibility for some other
exclusion or exemption.391
The Commission requested comment
on whether it should modify or clarify
its proposed interpretation of the
circumstances under which a pooled
investment vehicle would be considered
to involve funds ‘‘held by or on behalf
of a municipal entity,’’ including
whether the proposed interpretation
should no longer apply if municipal
entities are not considered to be the
‘‘primary investors’’ in the pooled
investment vehicle or if funds of
municipal entities exceed a certain
threshold in the pooled investment
vehicle.392 The Commission received
several comment letters addressing the
interpretation.
One commenter supported the
Commission’s proposed interpretation,
without further request for
389 See supra Section III.A.1.b.viii. See also
proposed Rule 15Ba1–1(b).
390 See Proposal, 76 FR 830.
391 See id., at note 98.
392 See id., at 835.
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modification.393 Two commenters
opposed any approach to determine
municipal advisory status based on
whether municipal entities were the
‘‘primary investors’’ in the pooled
vehicle, citing the difficulty of making
such a determination on an ongoing
basis.394 Another commenter urged the
Commission to reiterate that an adviser
to a pooled investment vehicle in which
a municipal entity or obligated person
invests is not a municipal advisor by
virtue of providing advice to such a
vehicle, and that purchasing an interest
in a vehicle does not create an advisory
engagement between the investor and
the vehicle’s adviser.395 This
commenter suggested that, ‘‘so long as
there is at least one bona fide investor
that is not a municipal entity or
obligated person, the adviser to the
vehicle should not be a municipal
advisor.’’ 396 The commenter also stated
that not exempting advisors to pooled
vehicles would particularly limit
investment choices for public pension
funds.397
393 See American Bankers Association Letter I.
This commenter urged the Commission to reiterate
its position in the final rules and clarify that the
interpretation applies to collective investment
funds. A collective investment fund (‘‘CIF’’) is a
bank-administered trust that holds commingled
assets that meet specific criteria established by 12
CFR 9.18. The bank acts as a fiduciary for the CIF
and holds legal title to the fund’s assets. CIFs allow
banks to avoid costly purchases of small lot
investments for their smaller fiduciary accounts.
See Office of the Comptroller of the Currency,
Collective Investment Funds, available at http://
www.occ.treas.gov/topics/capital-markets/assetmanagement/collective-investment-funds/indexcollective-investment-funds.html. The Commission
notes that a CIF would have to contain no proceeds
of municipal securities or fall within an exclusion
or exemption to not require municipal advisor
registration. See infra Section III.A.1.c.viii.
(discussing the bank exemption).
394 See letter from Stuart J. Kaswell, Executive
Vice President and Managing Director, General
Counsel, Managed Funds Association, dated
February 22, 2011 (‘‘MFA Letter’’) (stating that
‘‘imposing such an artificial threshold would create
uncertainty for private fund managers, require
burdensome, ongoing monitoring of the level of
municipal entity investments, and limit or even
prevent municipal entities from investing in private
funds’’). See also Kutak Rock Letter (suggesting that
terminology involving the concept of ‘‘municipal
entities are the primary investors’’ not be utilized,
because ‘‘it is too difficult to determine just what
‘primary’ means[,]’’ and that too many difficult
questions regarding an objective, numbers-based
approach used to determine primary investorship
would arise).
395 See SIFMA Letter I.
396 Id.
397 See id. Specifically, the commenter stated that
absent the suggested exemptions, fewer pooled
investment vehicles would be offered to municipal
entities (particularly public pension plans) and
obligated persons, which would disserve municipal
entities and obligated persons by limiting their
access to important vehicles for the long-term
investment of their funds. The commenter also
stated that local government investment pools are
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The Commission has carefully
considered these comments and is not
adopting its proposed interpretation of
when a pooled investment vehicle will
be considered to be funds held by or on
behalf of a municipal entity. It is also
not adopting an interpretation that
would tie the determination of whether
a person providing advice to a pooled
investment vehicle is a municipal
advisor, to whether municipal entities
are the primary investors in the pooled
investment vehicle. Instead, consistent
with the narrowed approach that the
Commission is adopting for ‘‘investment
strategies,’’ the Commission is
interpreting a pooled investment vehicle
to be an investment strategy, and an
advisor to such a pool to be a municipal
advisor, when the pooled investment
vehicle contains proceeds of an issuance
of municipal securities, regardless of
whether all funds invested in the
vehicle are funds of municipal
entities.398 In such a case, an advisor to
such a pooled investment vehicle will
be required to register as a municipal
advisor, unless an exclusion or
exemption applies.
The Commission recognizes
commenters’ concerns that requiring
advisors to pooled investment vehicles
that include funds of municipal entities
to register as municipal advisors could
have the effect of limiting investment
choices for municipal entities, including
investment choices for public pension
funds. As noted above, however, the
Commission is exempting from the
definition of municipal advisor persons
that provide advice with respect to
investment strategies that are not plans
or programs for the investment of the
proceeds of municipal securities or the
recommendation of and brokerage of
municipal escrow investments.399
Contrary to the construction under the
proposed definition of ‘‘investment
strategies,’’ 400 under the definition of
‘‘investment strategies’’ as adopted and
the exemption in Rule 15Ba1–
1(d)(3)(vii), whether or not the funds
invested in a pooled investment vehicle
often the only available option for the short-term
investment of operating funds and are subject to
state laws, which often include a fiduciary duty.
The commenter stated that the Proposal likely
would reduce the number of local government
investment pool options available to municipalities.
398 See Rule 15Ba1–1(d)(1) (defining ‘‘municipal
advisor’’) and Rule 15Ba1–1(b) (defining
‘‘investment strategies’’ as including the statutorily
identified items: ‘‘plans or programs for the
investment of proceeds of municipal securities that
are not municipal derivatives or guaranteed
investment contracts, and the recommendation of
and brokerage of municipal escrow investments’’).
399 See supra Section III.A.1.b.viii. (discussing the
exemption as it relates to the application of the
statutory definition of ‘‘investment strategies’’).
400 See supra note 389 and accompanying text.
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are considered to be ‘‘funds held by or
on behalf of a municipal entity’’ does
not determine whether a person
providing advice to such a vehicle is
required to register as a municipal
advisor. Rather, under the rule as
adopted, the determination of whether a
person providing advice to a pooled
investment vehicle is required to
register as a municipal advisor depends
upon the narrower inquiry of whether
the funds in the pooled investment
vehicle constitute ‘‘proceeds of
municipal securities that are not
municipal derivatives or guaranteed
investment contracts, and the
recommendation of and brokerage of
municipal escrow investments.’’ 401
Also, the Commission notes that many
advisors to pooled investment vehicles
will be registered investment advisers or
employees of municipal entities.
Therefore, many advisors would or
could be either exempted or excluded
from registration as municipal
advisors.402 Moreover, the Commission
believes that this approach to pooled
investment vehicles appropriately
focuses protection on those activities
related to investment of the proceeds of
municipal securities and related escrow
investments, with respect to which
there has been significant enforcement
activity.403
One commenter expressed concern
that pooled investment vehicles whose
investors are limited to one or more
municipal entities (e.g., a government
retirement pension plan) would be
considered investment strategies under
the Proposal.404 This commenter
suggested that the term ‘‘investment
strategies’’ should not include insurance
company’s separate accounts supporting
variable annuity contracts (and their
underlying investment vehicles) offered
to or held by municipal entities, even if
the assets of the separate account are
limited only to contributions from
municipal entities.405
To the extent that an insurance
company’s separate accounts supporting
variable annuity contracts offered to or
held by municipal entities do not
include ‘‘proceeds of municipal
securities,’’ persons providing advice
with respect to such accounts would not
be required to register as municipal
advisors because they would be exempt
with respect to such municipal advisory
401 See
Rule 15Ba1–1(b).
infra Sections III.A.1.c.v. and III.A.1.c.i.
(discussing, respectively, the exclusion for
registered investment advisers and their associated
persons and an exemption for employees of
municipal entities and obligated persons).
403 See supra note 287.
404 See Committee of Annuity Insurers Letter I.
405 See id.
402 See
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activity.406 Specifically, the
Commission notes that, as a result of the
exemption in Rule 15Ba1–1(d)(3)(vii)
adopted today, a person providing
advice with respect to investment
strategies that are not ‘‘plans or
programs for the investment of the
proceeds of municipal securities or the
recommendation of and brokerage of
municipal escrow investments’’ will be
exempt from the definition of municipal
advisor with respect to such activities.
Further, the definition of ‘‘proceeds of
municipal securities’’ is limited to the
monies derived by a municipal entity
from the sale of municipal securities,
investment income derived from such
monies, and other monies of a
municipal entity (or obligated person)
held in funds under legal documents for
the municipal securities that are
reasonably expected to be used as
security or a source of payment for the
debt service on the municipal securities,
and investment income from the
investment or reinvestment of such
funds.407 If, however, such separate
accounts supporting variable annuity
contracts offered to or held by
municipal entities do include ‘‘proceeds
of municipal securities,’’ advice with
respect to such accounts would not be
eligible for the exemption in Rule
15Ba1–1(d)(3)(vii) and such activity
could be municipal advisory activity
triggering the registration requirement.
x. Solicitation of a Municipal Entity or
Obligated Person
The definition of municipal advisor in
Exchange Act Section 15B(e)(4) includes
a person that undertakes a solicitation of
a municipal entity or obligated person
on behalf of specified persons.408
Exchange Act Section 15B(e)(9)
provides that the term ‘‘solicitation of a
municipal entity or obligated person’’
406 See
Rule 15Ba1–1(d)(3)(vii).
supra Section III.A.1.b.viii. (discussing the
exemption pursuant to Rule 15Ba1–1(d)(3)(vii), and
the terms ‘‘investment strategies’’ and ‘‘proceeds of
municipal securities’’).
408 See 15 U.S.C. 78o–4(e)(4)(A)(ii). The
Commission notes that the definition of municipal
advisor under Section 15B(e)(4)(A) means, in part,
a person that ‘‘undertakes a solicitation of a
municipal entity.’’ Also, Section 15B(a)(1)(B),
which establishes the registration requirement,
specifically refers to solicitations of obligated
persons. Notwithstanding the omission of the term
‘‘obligated person’’ in the definition of municipal
advisor, the Commission interprets the definition of
municipal advisor to include a person who engages
in the solicitation of an obligated person acting in
the capacity of an obligated person for the reasons
discussed above. See supra note 138 and
accompanying text.
See also supra note 178 (citing Chapman and
Cutler Letter and discussing that an obligated
person does not become a municipal entity by
virtue of issuing securities with respect to which it
is an obligated person).
407 See
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means ‘‘a direct or indirect
communication with a municipal entity
or obligated person made by a person,
for direct or indirect compensation, on
behalf of a broker, dealer, municipal
securities dealer, municipal advisor, or
investment adviser (as defined in
section 202 of the Investment Advisers
Act of 1940 [15 U.S.C. 80b–2]) that does
not control, is not controlled by, or is
not under common control with the
person undertaking such solicitation for
the purpose of obtaining or retaining an
engagement by a municipal entity or
obligated person of a broker, dealer,
municipal securities dealer, or
municipal advisor for or in connection
with municipal financial products, the
issuance of municipal securities, or of
an investment adviser to provide
investment advisory services to or on
behalf of a municipal entity.’’ 409
In connection with the statutory
definition, the Commission discussed in
the Proposal its interpretation of
‘‘solicitation of a municipal entity or
obligated person’’ and stated in the
Proposal that, unless an exclusion
applies, any third-party solicitor that
seeks business on behalf of a broker,
dealer, municipal securities dealer,
municipal advisor, or investment
adviser from a municipal entity must
register as a municipal advisor.410 The
Commission noted that the
determination of whether a solicitation
of a municipal entity requires
registration is not based on the number,
or size, of investments that are
409 15 U.S.C. 78o–4(e)(9).
The Commission notes that Rule 15Ba1–1(n)
(which, as adopted, provides that the term
‘‘solicitation of a municipal entity or obligated
person’’ has the same meaning as Section 15B(e)(9)
of the Exchange Act, with certain exemptions) is
only applicable with respect to whether or not a
person meets the definition of municipal advisor
and therefore will be required to register with the
Commission (unless an exemption or exclusion
applies). The Commission is not otherwise altering
its interpretation of ‘‘solicitation’’ as used in other
contexts.
As the Commission has explained, the
Commission generally views solicitation, in the
context of broker-dealers, as including any
affirmative effort intended to induce transactional
business. See Registration Requirements for Foreign
Broker-Dealers, Securities Exchange Act Release
No. 27017 (July 11, 1989), 54 FR 30013, 30017–18
(July 18, 1989) (explaining that solicitation
includes, among other things, calls encouraging use
of a party to effect transactions).
410 See Proposal, 76 FR 831. Thus, as stated in the
Proposal, a third-party solicitor seeking business on
behalf of an investment adviser from a municipal
pension fund or LGIP would be required to register
as a municipal advisor.
In addition, depending on the facts and
circumstances, the third-party solicitor may also
need to register as a broker-dealer pursuant to
Section 15(a) of the Exchange Act. See 15 U.S.C.
78o(a)(1). See also supra note 409 (discussing
solicitation in the context of broker-dealer
regulation).
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solicited.411 The Commission also
specifically stated that the exclusion
from the definition of municipal advisor
for a broker-dealer serving as an
underwriter would not apply to a
broker-dealer acting as a placement
agent for a private equity fund that
solicits a municipal entity or obligated
person to invest in the fund.412
The Commission received
approximately 14 comment letters
regarding the definition of ‘‘solicitation
of a municipal entity or obligated
person.’’ As discussed in more detail
below, a number of commenters
requested further clarification regarding
the statutory definition of, and the
Commission’s proposed interpretations
of, that term. The Commission has
carefully considered issues raised by
commenters on its proposed
interpretation and is adopting a rule 413
to define ‘‘solicitation of a municipal
entity or obligated person.’’ The
Commission’s interpretation of
‘‘solicitation of a municipal entity or
obligated person’’ in Rule 15Ba1–1(n) is
substantially the same as its proposed
interpretation, and includes certain
clarifications discussed below designed
to address commenters’ concerns.414 In
addition, the Commission notes that,
both in its proposed interpretation and
adopted rule, a broker, dealer,
municipal securities dealer, municipal
advisor, or investment adviser,
soliciting on its own behalf, as
explained below 415—or an affiliate of a
broker, dealer, municipal securities
dealer, municipal advisor, or investment
adviser soliciting on behalf of such
entity—would not fall within the
definition of ‘‘solicitation of a municipal
entity or obligated person.’’
411 See Proposal, 76 FR 831. As discussed in the
Proposal, a solicitation of a single investment of any
amount from a municipal entity would require the
person soliciting the municipal entity to register as
a municipal advisor.
412 See id., at 832, note 108 and accompanying
text.
The Commission also noted that including such
activities within the scope of municipal advisory
activities is consistent with the Exchange Act. See
id. (citing Exchange Act Sections 15B(e)(4)(A) and
(B) (including placement agents and solicitors that
undertake a solicitation of a municipal entity in the
definition of municipal advisor); S. Rep. No. 176 at
148, 111th Cong., 2d. Sess. 148 (2010) (noting that
Section 975 would not prohibit solicitation of a
municipal entity, but would subject solicitors to the
registration requirement and MSRB regulation); and
letter from Senator Christopher J. Dodd, U.S. Senate
Committee on Banking, Housing and Urban Affairs,
to Elizabeth M. Murphy, Secretary, Commission,
dated February 2, 2010).
413 See Rule 15Ba1–1(n).
414 See id. See notes 419–420 and 446–447, and
accompanying text (discussing Rule 15Ba1–1(n)).
415 See text accompanying infra note 418.
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Accordingly, such person would not
need to register as a municipal advisor.
Mailings, Advertisements, and Other
General Information
Commenters stated that the
Commission should explicitly exclude
certain activities from the definition of
solicitation of a municipal entity or
obligated person. For example, one
commenter recommended that ‘‘generic
‘mass mailing’ solicitations, or
institutional advertising’’ should not be
considered solicitation under the
proposed rules, especially if such mass
mailings are not targeted to a small
group of particular municipal entities or
obligated persons.416 This commenter
noted that the same argument would
apply with respect to newspaper or
periodical ads, brochures, TV, radio, or
Internet ads.417
The Commission agrees with
commenters that advertisements 418 or
solicitations do not trigger an obligation
for a third-party to register as a
municipal advisor, provided such
activity is undertaken by a broker,
dealer, municipal securities dealer,
municipal advisor, or investment
adviser on behalf of itself as opposed to
on behalf of a third party. Accordingly,
the Commission is adopting Rule
15Ba1–1(n) with a clarification to
address advertising and the scope of the
rule with respect to solicitation of
obligated persons.419 Specifically, Rule
15Ba1–1(n), as adopted, clarifies that
‘‘solicitation of a municipal entity or
obligated person’’ does not include
‘‘advertising by a broker, dealer,
municipal securities dealer, municipal
advisor, or investment adviser.’’ 420
Assistance With Requests for Proposals
It is a relatively common industry
practice for municipal entities to request
that a financial advisor, bond counsel,
or other market professional assist in the
review of requests for proposals (‘‘RFP’’)
for underwriter, financial advisory, or
416 See
Kutak Rock Letter.
id.
418 See, e.g., FINRA Rule 2210(a)(5) (defining a
‘‘retail communication’’ as meaning ‘‘any written
(including electronic) communication that is
distributed or made available to more than 25 retail
investors within any 30 calendar-day period’’).
419 See Rule 15Ba1–1(n).
420 Id.
The Commission notes, however, that while such
communications would not trigger the requirement
to register as a municipal adviser under the
solicitation prong of the definition of ‘‘municipal
adviser,’’ depending on the facts and circumstances,
including the content of such communications,
such activity may be considered to be advice for
purposes of the registration requirement. See supra
Section III.A.1.b.i. (discussing the advice standard
in general).
417 See
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investment advisory services.421 A
person assisting a municipal entity or
obligated person in selecting a brokerdealer, investment adviser, or financial
advisor as part of an RFP process
established by the municipal entity or
obligated person would not be
considered to be undertaking a
solicitation for purposes of the
definition of municipal advisor in Rule
15Ba1–1(d)(1), because such person
would not be soliciting ‘‘on behalf of’’
such broker-dealer, investment adviser,
or financial advisor.422 Such person
could, however, be engaging in other
municipal advisory activities with
respect to assistance in the selection
process.423
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Endorsement of Financial Products and
Services by Associations
The Commission received
approximately nine comment letters
from various associations that endorse
third parties offering products and
services to the associations’ members
(‘‘endorsement arrangements’’).424
According to commenters, in these
endorsement arrangements, the third
parties, which typically include
investment advisers, broker-dealers, and
mutual fund companies, compensate the
associations or their for-profit
subsidiaries through a royalty
arrangement or through a marketing or
sponsorship fee, depending on the
421 For example, one commenter expressed
concern that an investment adviser providing
advice to a client regarding the selection or
retention of another investment manager could
constitute a solicitation of a municipal entity or
obligated person under Section 15B(e)(9) of the
Exchange Act. See infra note 705 and
accompanying text.
422 See Rule 15Ba1–1(n) (defining solicitation of
a municipal entity or obligated person).
423 See infra note 556 and accompanying text. See
also infra Section III.A.1.c.ii. (discussing generally
responses to RFPs and municipal advisor
registration). Moreover, such activity may constitute
investment advice under the Investment Advisers
Act. See, e.g., SEC v. Bolla, 401 F.Supp.2d 43
(D.D.C. 2005), aff’d in relevant part, SEC v.
Washington Investment Network, 475 F.3d 392
(D.C. Cir. 2007) (person selecting investment
advisers for clients meets the Investment Advisers
Act’s definition of ‘‘investment adviser’’).
424 See, e.g., letters from James D. Campbell, CAE,
Executive Director, Virginia Association of
Counties, dated June 22, 2011 (‘‘Virginia
Association of Counties Letter’’); Jeff Spartz,
Executive Director, Association of Minnesota
Counties, dated June 24, 2011 (‘‘Association of
Minnesota Counties Letter’’); Robert Hay, Jr.,
Manager, Public Policy, ASAE Center for
Association Leadership, dated July 8, 2011 (‘‘ASAE
Center for Association Leadership Letter’’); Steven
R. Michaud, President, Maine Hospital Association,
dated July 14, 2011 (‘‘Maine Hospital Association
Letter’’); Anthony Burke, President and CEO, AHA
Solutions, Inc., dated July 18, 2011 (‘‘AHA
Solutions Letter’’); Paul McIntosh, Executive
Director, California State Association of Counties,
dated July 29, 2011 (‘‘California State Association
of Counties Letter’’).
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association’s level of involvement in
providing information to its
members.425 The commenters expressed
concern that the associations’
compensated endorsement of
investment advisory, municipal
advisory, or broker-dealer businesses to
their members, some of whom are
municipal entities, could potentially be
interpreted as solicitation of a
municipal entity or obligated person.426
Many of these commenters believed that
the Proposal did not provide sufficient
guidance about the statutory definition
of ‘‘solicitation.’’ The statutory
definition of solicitation includes
‘‘direct or indirect communication with
a municipal entity or obligated person,’’
thus creating uncertainty regarding the
possible inclusion of such
endorsements.427 One commenter noted
that investment advisory, municipal
advisory, or broker-dealer businesses
that are endorsed by associations are not
directed specifically at municipal
entities, but rather are prepared and
circulated without regard to whether the
audience may include municipal
entities.428
Two commenters recommended that
the definition of solicitation exempt
‘‘advertisement, endorsement,
sponsorship, and similar services
offered by persons who are not
municipal advisors, brokers, dealers,
municipal securities dealers, or similar
persons engaged in the financial
advisory service industry.’’ 429 One
stated that compliance with the
registration rules would create a
significant administrative burden and
would not create any material public
benefits.430 The other commenter
requested that the Commission clarify
the meaning of ‘‘indirect
communication’’ within the definition
of solicitation.431 Similarly, other
commenters stated that the Commission
should exempt national and state
associations representing state and local
governments from municipal advisor
registration.432 These commenters
argued that their staffs do not directly
contact public employees or offer advice
425 See, e.g., ASAE Center for Association
Leadership Letter.
426 See ASAE Center for Association Leadership
Letter and Maine Hospital Association Letter.
427 See ASAE Center for Association Leadership
Letter; Maine Hospital Association Letter; AHA
Solutions Letter.
428 See ASAE Center for Association Leadership
Letter.
429 See Maine Hospital Association Letter; AHA
Solutions Letter.
430 See Maine Hospital Association Letter.
431 See AHA Solutions Letter.
432 See Virginia Association of Counties Letter
and California State Association of Counties Letter.
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to public agencies or public
employees.433
At this time, the Commission is not
providing a general exemption for
national and state associations that
engage in endorsement arrangements.
An organization that receives
compensation for endorsing a broker,
dealer, municipal securities dealer,
municipal advisor, or investment
adviser is soliciting a municipal entity
or obligated person within the meaning
of the statute. However, the Commission
notes that its interpretation in Rule
15Ba1–1(n) with respect to excluding
advertising from ‘‘solicitation of a
municipal entity or obligated person’’
may apply to some of these associations.
For example, if an association’s
‘‘endorsement’’ qualifies as
‘‘advertising’’ by a broker, dealer,
municipal securities dealer, municipal
advisor, or investment adviser, pursuant
to Rule 15Ba1–1(n), it would not be
required to register as a municipal
advisor. Such a determination, however,
would be based on the particular facts
and circumstances.
The Commission does not believe at
this time that it is appropriate to
provide a blanket exemption to
associations that are not able to take
advantage of Rule 15Ba1–1(n), because
these associations are being directly or
indirectly compensated for
recommending a broker, dealer,
municipal advisor, or investment
adviser to municipal entities or
obligated persons. In addition, these
associations may, in certain cases, be
compensated in direct relation to the
number of municipal entities that
engage the endorsed product or service
provider.
433 See Virginia Association of Counties Letter
and California State Association of Counties Letter.
These commenters stated that they do not directly
or indirectly engage in the offer or sale of particular
products or services to government employees, do
not make any product or investment
recommendations to existing or prospective clients,
give any investment advice on their own behalf or
on behalf of any third party supplier, or accept any
clients on behalf of any third party supplier. These
commenters also stated that the cost of registration
and compliance, along with unknown
consequences of state required registration due to
the rules promulgated by the Commission, would
unfairly disadvantage associations representing
public agencies.
One of the commenters stated that such
associations should receive an exemption in order
to offer their membership access to value-added
education and services through publicly solicited
contracts. The commenter noted that associations
representing non-governmental organizations are
not required to register under the proposed rule and
yet are able to endorse programs for their
memberships that meet their standards of approval.
See Virginia Association of Counties Letter.
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Uncompensated Recommendations
Some commenters stated that the
Exchange Act and the Proposal are
unclear about when uncompensated
recommendations might be deemed to
be solicitations for purposes of the
rule.434 Several commenters stated that
uncompensated recommendations
should not be considered to be
solicitations because the statutory text
only refers to ‘‘direct or indirect
compensation.’’ 435 One commenter
stated further that, if uncompensated
recommendations are interpreted to be
solicitations, it ‘‘will chill significantly
the provision of information to
municipal entities. . . .’’ 436 Other
commenters suggested that the
solicitation prong should not apply if
the municipal entity or obligated person
requests an introduction.437
The Commission notes that an
introduction is not necessarily a
solicitation. Moreover, whether an
introduction is a solicitation does not
depend on whether a municipal entity
or obligated person requests an
introduction or the introduction is
provided without request. Rather, for
purposes of Rule 15Ba1–1(n), the
solicitation determination is based on
whether the person providing the
introduction receives direct or indirect
compensation for providing the
introduction.438 For example, a person
could respond to a request from a
municipal entity with a particular
recommendation and then subsequently
receive payment from the recommended
entity. In this example, the solicitation
would trigger the registration
requirement.
The statutory definition of
‘‘solicitation of a municipal entity or
434 See, e.g., letters from Joy A. Howard,
Principal, WM Financial Strategies, dated February
21, 2011 (‘‘Joy Howard WM Financial Strategies
Letter’’); John Dotson, Vice President and General
Counsel, Chevron Energy Solutions, dated February
22, 2011 (‘‘Chevron Letter’’); Amy Natterson Kroll
and W. Hardy Calcott, Bingham McCutchen LLP, on
behalf of the National Association of Energy Service
Companies, dated February 22, 2011 (‘‘NAESCO
Letter’’); State of Indiana Letter.
435 See Chevron Letter; NAESCO Letter.
436 See NAESCO Letter.
437 See, e.g., letter from Deron S. Kintner,
Executive Director, Indianapolis Local Public
Improvement Bond Bank, dated February 22, 2011
(‘‘Indianapolis Local Public Improvement Bond
Bank Letter’’) (stating that a person who solicits
advice from individuals should be free to solicit
advice and recommendations without having to
either engage those individuals and compensate
them or subject them to fiduciary duties).
438 See Rule 15Ba1–1(n) and 15 U.S.C. 78o–4(e)(9)
(which defines ‘‘solicitation of a municipal entity
or obligated person’’ as ‘‘a direct or indirect
communication with a municipal entity or
obligated person made by a person, for direct or
indirect compensation’’ made on behalf of certain
specified entities).
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obligated person’’ provides that the
solicitation must be performed for
‘‘direct or indirect compensation.’’ 439
Thus, persons that are not compensated
for soliciting a municipal entity or
obligated person would not be required
to register as municipal advisors. The
Commission notes, however, that
Commission staff has broadly construed
the term ‘‘direct or indirect
compensation’’ in other contexts.440 In
addition, as noted in the Proposal, other
regulatory agencies have interpreted
indirect compensation to include nonmonetary compensation.441
Solicitation of Obligated Persons
Exchange Act Section 15B(e)(9)
provides, in part, that the term
‘‘solicitation of a municipal entity or
obligated person’’ is ‘‘for the purpose of
obtaining or retaining an engagement
. . . of a broker, dealer, municipal
securities dealer, or municipal advisor
for or in connection with municipal
financial products . . . .’’ 442 One
commenter asked the Commission to
clarify that the meaning of ‘‘municipal
financial products’’ with respect to the
‘‘solicitation of an obligated person’’
includes municipal derivatives,
guaranteed investment contracts, and
investment strategies of the municipal
entity only, and not of the obligated
person.443 The commenter stated that
obligated persons may include large
entities with numerous and varied
funds and investments, many of which
may have nothing to do with the
transactions pursuant to which they
have become obligated persons.444 In
addition, the commenter stated that if
the municipal advisor definition
includes persons who advise obligated
persons or solicit obligated persons with
respect to the funds, securities, or
investment strategies of the obligated
person, ‘‘the reach of the registration
requirement would expand in
potentially unpredictable ways.’’ 445
The Commission agrees with the
comment that solicitation with respect
to an obligated person applies only
439 See
15 U.S.C. 78o–4(e)(9).
example, under the Investment Advisers
Act, Commission staff has taken the position that
compensation generally includes the receipt of any
economic benefit, whether in the form of an
advisory fee, some other fee relating to services
rendered, a commission, or some combination of
the foregoing. See Applicability of the Investment
Advisers Act to Financial Planners, Pension
Consultants, and Other Persons Who Provide
Investment Advisory Services as a Component of
Other Financial Services, Investment Advisers Act
Release No. 1092 (October 8, 1987).
441 See Proposal, 76 FR 832, note 113.
442 15 U.S.C. 78o–4(e)(9).
443 See ABA Letter.
444 See id.
445 Id.
440 For
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67501
when an obligated person is acting in its
capacity as an obligated person.446 The
Commission is, therefore, adopting Rule
15Ba1–1(n), which clarifies that, in the
case of solicitation of an obligated
person, the definition of ‘‘solicitation of
a municipal entity or obligated person’’
does not include solicitation of an
obligated person ‘‘if such obligated
person is not acting in the capacity of
an obligated person or the solicitation of
the obligated person is not in
connection with the issuance of
municipal securities or with respect to
municipal financial products.’’ 447
As discussed above, with respect to
the definition of obligated person, the
Commission believes that the municipal
advisor registration regime should apply
in the same manner to advisors of
obligated persons as to advisors of
municipal entities.448 The Commission
further notes that, because they are
committed by contract or other
arrangement to support the payment of
all or part of the obligations on
municipal securities, obligated persons
serve the same role as municipal entities
with regard to municipal securities.449
Therefore, pursuant to the
Commission’s clarification in Rule
15Ba1–1(n), a person soliciting an
obligated person with respect to the
issuance of municipal securities or
municipal financial products will not
meet the definition of municipal advisor
as a result of such activity unless the
obligated person is acting in its capacity
as such.450
One commenter asked when a person
should know whether he or she is
soliciting an obligated person.
Specifically, with respect to the
application of the proposed rules to
persons who undertake a solicitation of
an obligated person, the commenter
stated that a person should be
considered to have engaged in such
activities only when it has actual
knowledge that it is (a) soliciting an
obligated person, acting in its capacity
as an obligated person, and (b) engaging
in solicitation with respect to the
issuance of municipal securities or
proceeds of municipal securities.451
Further, this commenter stated that a
person must be rendering services with
446 The Commission also discusses above when a
person is an ‘‘obligated person.’’ See supra Section
III.A.1.b.iii.
447 See Rule 15Ba1–1(n). The solicitation could
require the solicitor to register with the Commission
as a broker-dealer. See generally Securities
Exchange Act Release No. 27017 (July 11, 1989), 54
FR 30013 (July 18, 1989) (discussing solicitation).
448 See supra note 227 and accompanying text.
449 See supra Section III.A.1.b.iii.
450 See id.
451 See SIFMA Letter I.
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respect to the types of activities or
instruments that make a person a
municipal advisor.452 Lastly, the
commenter suggested that a person need
not affirmatively inquire as to the
potential obligated person’s status or the
funds’ status.453
The Commission believes that the
commenter’s suggestion, if adopted,
would allow the municipal advisor
registration regime to be too easily
circumvented. An advisor could always
argue that it did not have ‘‘actual
knowledge’’ that it was soliciting an
obligated person and therefore is not
subject to regulation. The Commission
instead believes that a person that is
soliciting an obligated person should
make a reasonable inquiry to a person
in a position to know as to whether it
is soliciting for services related to the
issuance of municipal securities or
municipal financial products, and
whether the person being solicited is an
obligated person. For example, a person
may rely on the written representation
of the obligated person, unless such
person has information that would
cause a reasonable person to question
the accuracy of the representation.454 In
such a case, a person could not ignore
the information and would need to
make further reasonable inquiry to
verify the accuracy of the
representation.455
Other Exclusions and Exemptions From
the Definition of ‘‘Solicitation of a
Municipal Entity or Obligated Person’’
Some commenters stated that the
Commission should explicitly exclude
certain entities from the solicitation
definition altogether. For example,
several commenters stated that
placement agents for pooled investment
vehicles should not be considered
solicitors.456 Another commenter
452 See
id.
id.
454 See Rule 15Ba1–1(m). Also, a person would
only be a municipal advisor as a result of soliciting
an obligated person when such obligated person is
acting in the capacity of an obligated person. See
supra note 446 and accompanying text.
455 See also supra Section III.A.1.b.viii. at note
363 and accompanying text (discussing the
requirement to know when advice relates to the
proceeds of municipal securities).
456 See, e.g., SIFMA Letter I (stating that Section
975 of the Dodd-Frank Act does not define
‘‘solicitation’’ to include solicitation of a municipal
entity or obligated person by a placement agent for
a pooled investment vehicle, such as a private
equity fund, hedge fund, LGIP, or mutual fund, all
of which involve the sale of securities by registered
broker-dealers); ICI Letter (stating that a ‘‘placement
agent soliciting a municipal entity to invest in a
pooled investment vehicle acts on behalf of the
pooled investment vehicle only, not on behalf of the
adviser to the vehicle nor on behalf of any of the
other four enumerated categories of persons
contained in the definition’’).
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453 See
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recommended that an investment
adviser’s employees who solicit
municipal entities as part of their
regular responsibilities should not be
considered solicitors.457 The
Commission has carefully considered
issues raised by commenters and has
determined not to provide specific
exemptions from the definition of
‘‘solicitation of a municipal entity or
obligated person.’’ 458
Section 15B(e)(4)(A) of the Exchange
Act states that the definition of
municipal advisor includes a person
that undertakes a solicitation of a
municipal entity.459 Section
15B(e)(4)(B) of the Exchange Act states
that the definition of municipal advisor
includes a number of listed types of
market participants (specifically
financial advisors, guaranteed
investment contract brokers, third-party
marketers, placement agents, solicitors,
finders, and swap advisors) if such
persons otherwise meet the definition of
a municipal advisor under Exchange
Act Section 15B(e)(4)(A). In relevant
part, Exchange Act Section
15B(e)(4)(A)(ii) provides that a
municipal advisor includes a person
that, on behalf of certain types of thirdparties, undertakes a solicitation of a
municipal entity to engage such parties
to perform certain specified
activities.460 In the case of placement
agents, the Commission agrees with
commenters that a placement agent for
a pooled investment vehicle that is not
a municipal entity (e.g., a hedge fund or
mutual fund) and that ‘‘solicits’’ a
municipal entity to invest in the fund
does not, with respect to such activity,
meet the statutory definition of the term
‘‘solicitation of a municipal entity or
obligated person’’ in Exchange Act
Section 15B(e)(9). Such a placement
agent does not meet the statutory
definition of the term because it is not
soliciting on behalf of a third-party
broker, dealer, municipal securities
dealer, municipal advisor, or investment
adviser to obtain or retain an
engagement by a municipal entity or
obligated person of such third-party
457 See letter from Monique S. Botkin, Assistant
General Counsel, Investment Adviser Association,
dated February 22, 2011 (‘‘IAA Letter’’) (stating that
‘‘[i]t would be illogical and contravene the statutory
intent of the Dodd-Frank Act for such an exclusion
to apply to an affiliate of an investment adviser and
its employees soliciting on behalf of its affiliated
adviser, but not for the same analysis to apply to
an investment adviser and its own employees
soliciting on their employer’s behalf’’).
458 See infra note 465 and accompanying text.
459 See Exchange Act Section 15B(e)(9). See also
Rule 15Ba1–1(n).
460 See supra note 409 and accompanying text
(setting forth the definition of ‘‘solicitation of a
municipal entity or obligated person’’).
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broker, dealer, municipal securities
dealer, municipal advisor, or investment
adviser. Whether the placement agent
otherwise meets the definition of
‘‘municipal advisor’’ with respect to any
activity related to or in connection with
its ‘‘solicitation’’ activity (that does not,
as discussed above, meet the statutory
definition of solicitation in Exchange
Act Section 15B(e)(9)) would depend on
the facts and circumstances.461 By
contrast, a placement agent that
undertakes a solicitation of a municipal
entity for the purpose of obtaining an
engagement by the municipal entity of
an unaffiliated investment adviser to
provide investment advisory services to
the municipal entity is a municipal
advisor because it is soliciting on behalf
of an unaffiliated adviser to provide
investment advisory services.462 The
Commission also agrees with
commenters that employees of a broker,
dealer, municipal securities dealer,
municipal advisor, or investment
adviser that solicit municipal entities as
part of their regular duties on behalf of
their employer or an affiliate of such
employer are not municipal advisors, if
they are acting within the scope of their
employment. Specifically, as provided
in Exchange Act Section 15B(e)(9), the
term ‘‘solicitation of a municipal entity
or obligated person’’ means, in part, ‘‘a
direct or indirect communication with a
municipal entity or obligated person
made by a person . . . on behalf of a
broker, dealer, municipal securities
dealer, municipal advisor, or investment
adviser . . . that does not control, is not
controlled by, or is not under common
control with the person undertaking
such solicitation . . . .’’ 463 As such, the
term applies only to third-party
solicitors, and not to an entity acting on
its own behalf or on behalf of its
affiliate. Employees acting in their
capacity as such on behalf of their
461 See infra notes 625–629 and accompanying
text (discussing when a placement agent may be a
municipal advisor and when it may, or may not,
qualify for the exclusion for underwriters).
462 With respect to solicitations on behalf of
investment advisers, the relevant portion of the
definition of a ‘‘solicitation of a municipal entity or
obligated person’’ in Exchange Act Section 15B(e)
limits the scope of covered solicitations to those
involving solicitations for the purpose of obtaining
or retaining an engagement by a municipal entity
or by an obligated person ‘‘of an investment adviser
to provide investment advisory services to or on
behalf of a municipal entity.’’ See also S. Rep. No.
111–176 at 148 (2010) (‘‘Rather than effectively
prohibiting such third-party solicitation for
investment advisory services, this section would
provide that activities of a municipal advisor,
broker, dealer, or municipal securities dealer to
solicit a municipal entity to engage an unrelated
investment adviser to provide investment advisory
services to a municipal entity . . . would be subject
to regulation by the MSRB.’’)
463 15 U.S.C. 78o–4(e)(9).
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employer are acting as the agent of their
employer and, consequently, are not
third-party solicitors that fall within the
definition of municipal advisor as a
result of their solicitation activity.
Pursuant to Rule 15Ba1–1(d)(3)(viii)
and consistent with the exemption from
the definition of municipal advisor
under Rule 15Ba1–1(d)(3)(vii) for a
person that provides advice with respect
to investment strategies that are not
plans or programs for the investment of
the proceeds of municipal securities or
the recommendation of and brokerage of
municipal escrow investments,464 the
Commission is exempting from the
definition of municipal advisor under
Rule 15Ba1–1(d)(1) any person that
undertakes a ‘‘solicitation of a
municipal entity or obligated person’’
(as defined in Rule 15Ba1–1(n) (17 CFR
240.15Ba1–1(n)) for the purpose of
obtaining or retaining an engagement by
a municipal entity or by an obligated
person of a broker, dealer, municipal
securities dealer, or municipal advisor
for or in connection with municipal
financial products that are investment
strategies, to the extent that such
investment strategies are not plans or
programs for the investment of the
proceeds of municipal securities or the
recommendation of and brokerage of
municipal escrow investments.465 As
with respect to the exemption in Rule
15Ba1–1(d)(3)(vii), the Commission
believes that the exemption in Rule
15Ba1–1(d)(3)(viii) is consistent with
the public interest, the protection of
investors, and the purposes of Section
15B of the Exchange Act, because the
exemption tailors protection of
municipal entities to those activities
related to the investment of the
proceeds of municipal securities and
related escrow investments.466
Marketing of Insurance Contracts
One commenter stated that
solicitation should not include the
marketing of insurance contracts by
broker-dealers to retirement plans
established by municipal entities.467
The Commission agrees that the
marketing of insurance contracts by
broker-dealers is not solicitation for
purposes of the municipal advisor
definition if it is not performed on
behalf of a third-party broker, dealer,
investment adviser, municipal securities
dealer, or municipal advisor. As
described above, the definition of
‘‘solicitation of a municipal entity or
obligated person’’ only applies to third464 See
supra Section III.A.1.b.viii.
Rule 15Ba1–1(d)(3)(viii).
466 See note 328 and accompanying text.
467 See Committee of Annuity Insurers Letter I.
465 See
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party solicitations on behalf of these
specific kinds of entities.468
c. Exclusions and Exemptions From the
Definition of ‘‘Municipal Advisor’’
In addition to the exemption
described above for persons providing
advice or soliciting engagements with
respect to certain financial products, the
Commission discusses below its
interpretations of certain statutory
exclusions, as well as specific activitiesbased exemptions it is granting from the
definition of ‘‘municipal advisor.’’ 469
Also, the Commission discusses below
exemptions of general applicability to
the extent a person is responding to an
RFP or a request for qualifications
(‘‘RFQ’’) or to the extent a municipal
entity or obligated person is otherwise
represented by a registered municipal
advisor, subject to certain conditions.
i. Public Officials and Employees of
Municipal Entities and Obligated
Persons
Exchange Act Section 15B(e)(4)(A)
provides that the term ‘‘municipal
advisor’’ excludes employees of a
municipal entity.470 As noted in the
Proposal, one commenter suggested that
the Commission clarify that this
exclusion would include any person
serving as an appointed or elected
member of the governing body of a
municipal entity, such as a board
member, county commissioner or city
councilman.471 This commenter stated
that, because these persons are not
technically ‘‘employees’’ of the
municipal entity (but rather ‘‘unpaid
volunteers’’), they would not fall within
the exclusion from the definition of
municipal advisor for ‘‘employees of a
municipal entity.’’ 472
The Commission stated in the
Proposal that the exclusion from the
definition of municipal advisor for
‘‘employees of a municipal entity’’
should include any person serving as an
elected member of the municipal
entity’s governing body to the extent
that the person is acting within the
scope of his or her role as an elected
member. The Commission also stated
that ‘‘employees of a municipal entity’’
468 See supra note 463 and accompanying text.
See also Rule 15Ba1–1(n).
469 For the exclusions and exemptions that were
discussed in the Proposal and that the Commission
is adopting today, the Commission has made minor,
non-substantive changes to provide greater clarity
and consistency throughout the rules related to
exclusions and exemptions.
470 15 U.S.C. 78o–4(e)(4)(A).
471 See Proposal, 76 FR 834, n.140 and
accompanying text (citing letter from John P.
Wagner, Kutak Rock LLP, to Elizabeth M. Murphy,
Secretary, Commission, dated September 28, 2010).
472 See id. See also 15 U.S.C. 78o–4(e)(4)(A).
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should include a governing body’s
appointed members to the extent such
appointed members are ex officio
members by virtue of holding an
elective office.473 The Commission
stated its concern that appointed
members are not directly accountable
for their performance to the citizens of
the municipal entity.474
In the Proposal, the Commission
requested comment on: (1) Whether
there are any persons who engage in
uncompensated municipal advisory
activities, or municipal advisory
activities for indirect compensation, that
the Commission should exclude from
the definition of municipal advisor; (2)
whether ‘‘employees of a municipal
entity’’ should include elected members
of a governing body of a municipal
entity, and appointed members of a
municipal entity’s governing body to the
extent such appointed members are ex
officio members of the governing body
by virtue of holding an elective office,
is appropriate; and (3) whether there are
other persons associated with a
municipal entity who might not be
‘‘employees’’ of a municipal entity but
that the Commission should exclude
from the definition of municipal
advisor.475
The Commission received over 600
comment letters on its interpretation of
‘‘employee of a municipal entity.’’
Commenters represented a wide array of
individuals and entities, including
representatives of: city and state
governments; 476 city and state
retirement systems; 477 state university
473 This would include persons appointed to fill
the remainder of the term for an elective office.
474 See Proposal, 76 FR 834.
475 See Proposal, 76 FR 837.
476 See, e.g., letter from Stevan Gorcester,
Association of Washington Cities, dated February
22, 2011; letter from William G. Dressel, Jr.,
Executive Director, New Jersey League of
Municipalities, dated January 27, 2011; letter from
Ken Miller, Oklahoma State Treasurer, dated
February 7, 2011; letter from Steve Ritter, Assistant
Finance Director, City of Huntsville, Texas, dated
January 10, 2011; letter from Jim D. Dunaway, City
Manager, City of Taylor, Texas, dated January 13,
2011; letter from Jacqueline M. Kovilaritch,
Assistant City Attorney, City of St. Petersburg,
Florida, dated January 19, 2011 (‘‘City of St.
Petersburg Letter’’); letter from Judith Hetherly,
Mayor, City of Lampasas, Texas, dated January 20,
2011; letter from Gary Herbert, Governor, State of
Utah, Salt Lake City, Utah, dated February 17, 2011;
and National Association of State Treasurers Letter.
477 See, e.g., Utah Retirement Systems Letter;
letter from R. Dean Kenderdine, Executive Director
and Secretary to the Board, Maryland State
Retirement and Pension System, dated February 17,
2011; letter from Ann Fuelberg, Executive Director,
Employees Retirement System of Texas, dated
February 18, 2011; letter from Anthony B. Ross,
Chairperson and Stephen C. Edmonds, Executive
Director, City of Austin Employees Retirement
System, dated February 18, 2011; and Alaska
Retirement Management Board Letter.
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systems; 478 state housing, development,
and port authorities; 479 city transit
authorities; 480 special districts (such as
healthcare, water, sanitation, and other
districts); 481 public utility boards and
associations; 482 airports, and airport
authorities and commissions; 483 and
478 See, e.g., letter from Frank T. Brogan,
Chancellor, State University System of Florida,
dated February 21, 2011; letter from Calvin J.
Anthony, Chairman, Oklahoma State University/
Agricultural and Mechanical Colleges Board of
Regents, dated January 7, 2011 (‘‘Oklahoma State
University/Agricultural and Mechanical Colleges
Board of Regents Letter’’); letter from Francisco G.
Cigarroa, M.D., Chancellor, The University of Texas
System, dated February 7, 2011; letter from Michael
D. McKinney, Chancellor, The Texas A&M
University System and Kent Hance, Chancellor,
Texas Tech University System, dated February 14,
2011; letter from Richard D. Legon, President,
Association of Governing Boards of Universities
and Colleges, dated February 15, 2011; letter from
Dr. Brian McCall, Chancellor of the Texas State
University System, dated February 17, 2011; and
letter from Peter J. Taylor, Executive Vice
President—Chief Financial Officer, The Regents of
the University of California, dated February 18,
2011 (‘‘UCLA Regents Letter’’).
479 See, e.g., letter from Rebecca L. Peace, Chief
Counsel, Pennsylvania Housing Finance Agency,
Jayne B. Blake, Chief Counsel, Pennsylvania
Infrastructure Investment Authority, Stephen M.
Drizos, Executive Director, Pennsylvania Economic
Development Financing Authority, Carol A.
Longwell, Deputy Chief Counsel, Pennsylvania
Economic Development Financing Authority, and
Doreen A. McCall, Chief Counsel, Pennsylvania
Turnpike Commission, dated February 15, 2011
(‘‘Pennsylvania Housing Finance Agency Letter’’);
and letter from Tracy V. Drake, Chairman, Ohio
Council of Port Authorities and CEO, Columbiana
County Port Authority, dated February 4, 2011.
480 See, e.g., letter from Carol B. Keefe, General
Counsel, Washington Metropolitan Area Transit
Authority, Washington, District of Columbia, dated
February 14, 2011; and letter from David Levinger,
Chief Financial Officer, Dallas Area Rapid Transit,
dated February 22, 2011.
481 See, e.g., letter from John ‘‘Chip’’ Taylor,
Executive Director, Colorado Counties Inc., Sam
Mamet, Executive Director, Colorado Municipal
League, and Ann Terry, Executive Director, Special
District Association of Colorado, dated January 26,
2011; letter from Kathleen Durham, Chairman,
South Broward Hospital District, dated February 8,
2011; letter from James F. Heekin, Counsel, Citrus
County Hospital Board, Southeast Volusia Hospital
District, West Orange Healthcare District, February
14, 2011; letter from Walt Sears, Jr., General
Manager, Northeast Texas Municipal Water District,
dated January 24, 2011; and letter from Robert M.
Ball, A. A. E., Executive Director, Lee County Port
Authority, dated February 18, 2011; and letter from
Edward G. Henifin, General Manager and Steven G.
deMik, Director of Finance, Hampton Roads
Sanitation District, dated February 22, 2011.
482 See, e.g., letter from David Modisette,
California Municipal Utilities Association, dated
February 22, 2011; letter from John S. Bruciak,
Brownsville Public Utilities Board, dated February
18, 2011; letter from David H. Wright, City of
Riverside, dated February 23, 2011; and letter from
Susan N. Kelly, Senior Vice President of Policy
Analysis and General Counsel and Diane Moody,
Director, Statistical Analysis, American Public
Power Association, dated February 22, 2011
(‘‘American Public Power Association Letter’’).
483 See, e.g., letter from Jeffery P. Fegan, Chief
Executive Officer, Dallas/Fort Worth International
Airport, dated January14, 2011, letter from Phillip
N. Brown, A.A.E., Executive Director, Greater
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individual volunteer or appointed board
members.484
The comments dealt predominantly
with the Commission’s proposed view
that ‘‘employees of a municipal entity’’
should include elected members of a
municipal entity’s governing body, and
appointed members, to the extent such
appointed members are ex officio
members of the governing body by
virtue of holding an elective office.
Many commenters asserted that the
Commission’s proposed interpretation
of municipal advisor is overly broad or
overreaching and should exclude all
members of a municipal entity’s
governing board.
The majority of commenters stated, in
particular, that appointed board
members should not be treated
differently from elected board members
or officials and disagreed with the
Commission’s statement that appointed
board members are not directly
accountable. Many of the commenters
asserted that state and local laws
applicable to officials of a municipal
entity do not distinguish between
appointed or elected members and that
all members are subject to the same
legal obligations, including fiduciary
duties, codes of conduct, open meeting
laws, and conflicts of interest and ethics
laws.485 For example, commenters
asserted that appointed officials of
municipal non-profit corporations,
trusts, and pension funds have a duty to
Orlando Aviation Authority, dated February 8,
2011; letter from Emily Neuberger, Senior Vice
President & General Counsel, Wayne County
Airport Authority, Michigan, dated February 14,
2011 (‘‘Wayne County Airport Authority Letter’’);
letter from Elaine Roberts, President & CEO,
Columbus Regional Airport Authority, dated
February 16, 2011; letter from Thomas W.
Anderson, General Counsel, Metropolitan Airports
Commission, dated February 17, 2011; and letter
from Breton K. Lobner, General Counsel, San Diego
County Regional Airport Authority, dated February
22, 2011.
484 See, e.g., letter from Richard R. Vosburg,
Chartered Financial Analyst, Germantown,
Tennessee, dated January 24, 2011 (‘‘Vosburg
Letter’’); and letter from William Dalton, dated
February 28, 2011 (‘‘Dalton Letter’’).
485 See, e.g., Darrell Buchbinder, The Port
Authority of New York and New Jersey, dated
February 18, 2011; National Association of State
Treasurers Letter; Letter from Martin R. Hopper,
General Manager, M–S–R Public Power Agency,
dated February 18, 2011 (‘‘M–S–R-Power Agency
Letter’’); letter from Meredith J. Jones, NYCEDC,
dated February 18, 2011 (‘‘NYCEDC Letter’’); and
UCLA Regents Letter; letter from Laura King,
Minnesota State Colleges and Universities, dated
February 22, 2011.
Many of these commenters also explained that
certain municipal entity governing boards are
established or operating pursuant to state or local
statute. See id. See also letter from JoAnn E. Levin,
Chief Solicitor, City of Baltimore, dated February 3,
2011; and letter from Mark Page, Director of
Management and Budget, The City of New York,
dated February 22, 2011 (‘‘NYC Management and
Budget Letter’’).
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act in the interests of the corporation,
trust, or the fund.486 Many commenters
also asserted that appointed board
members are accountable to the elected
officials that appointed them or for
whom they work.487 Many also noted
that appointed board members may be
removed for cause 488 and are subject to
civil suit.489 Others observed that
appointed board members are more
accountable than elected officials.490
Additionally, many commenters
asserted that board members are the
decision and policy makers who receive
advice from third parties who are paid
for providing services and that board
members themselves are not
486 See, e.g., letter from Acting Governor Earl Ray
Tomblin, Chairman of the Board; Glen B. Gainer,
Auditor of the State of West Virginia and Roger
Hunter, Chairman of the Investment Committee,
and Guy Bucci, Chairman of the Legal Committee,
West Virginia Investment Management Board, dated
February 22, 2011; and letter from Joanne Handy,
President and CEO, Aging Services of California,
dated February 22, 2011; letter from Charles R. Noll,
President, Pennsylvania Local Government
Investment Trust, dated February 18, 2011
(‘‘Pennsylvania Local Government Investment Trust
Letter’’); letter from Keith Bozarth, Executive
Director, State of Wisconsin Investment Board,
dated February 22, 2011; and letter from Peter H.
Mixon, California Public Employees’ Retirement
System, dated February 22, 2011 (‘‘CALPERS
Letter’’).
487 See, e.g., letter from John Murphy, Executive
Director, National Association of Local Housing
Finance Agencies, dated January 27, 2011; NYC
Management and Budget Letter; and letter from Bob
A. Newmark, Housing Finance Authority, dated
February 11, 2011.
488 See, e.g., letter from Gottlieb Fisher PLLC, on
behalf of the Boards of Trustees for King County
Rural Library District, Fort Vancouver Intercounty
Rural Library District, Pierce County Rural Library
District LaConner Rural Partial-County Library
District, Sno-Isle Intercounty Rural Library District,
Spokane County Rural Library District, Walla Walla
County Rural Library District, and Whitman County
Rural Library District, dated February 11, 2011
(‘‘Gottlieb Fisher Letter’’); letter from Linda Beaver,
Nebraska Educational Finance Authority, dated
February 16, 2011 (‘‘Nebraska Educational Finance
Authority Letter’’); Alaska Retirement Management
Board Letter; Robert W. Barnes, Idaho Falls
Redevelopment Agency, dated February 18, 2011;
and letter from Jeffrey W. Letwin, Esq., Partner,
Schnader Harrison Segal Lewis LLP, Pittsburgh,
Pennsylvania, dated February 8, 2011.
489 See, e.g., letter from Jeffrey W. Letwin, Esq.,
Partner, Schnader Harrison Segal Lewis LLP,
Pittsburgh, Pennsylvania, dated February 8, 2011;
letter from Gary Kimball, President, Specialized
Public Finance, Inc., dated February 22, 2011
(‘‘Specialized Public Finance Letter’’); letter from
Gary Parsons, General Manager, Texas Municipal
Power Agency, dated February 22, 2011 (‘‘Texas
Municipal Power Agency Letter’’); and letter from
John W. Rubottom, General Counsel, Lower
Colorado River Authority, dated February 15, 2011.
490 See, e.g., letter from Bill Lockyer, Treasurer,
State of California, dated February 22, 2011
(‘‘California State Treasurer’s Office Letter’’); Texas
Municipal Power Agency Letter; letter from John D.
Clark, III, Executive Director/CEO, Indianapolis
Airport Authority, dated February 22, 2011; and
letter from Victor Vandergriff, Chairman, North
Texas Tollway Authority, dated February 11, 2011.
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‘‘advisors.’’ 491 Many commenters
asserted that members of governing
boards are the intended beneficiaries of
the proposed regulation.492 Further,
some commenters asserted that the
Proposal would usurp state laws
governing duties and responsibilities of
appointed board members of municipal
entities.493 Many commenters also
stated that, in its current form, the
Proposal would deter much needed
citizen volunteers from serving on
governing boards of municipal entities
or would chill the deliberative process
of such boards. These commenters
reasoned that volunteers would fear that
their participation in votes on, or
discussions of, financial matters will be
deemed ‘‘advice’’ that would subject
them to registration.494
Commenters also stated that the
Proposal is unclear with respect to
491 See, e.g., letter from Michael D. Nosler,
General Counsel and Assistant Attorney General,
Colorado State University System, dated February
21, 2011; letter from Barbara J. Thompson,
Executive Director, National Council of State
Housing Agencies, dated February 22, 2011; letter
from Luther Strange, Attorney General, State of
Alabama, dated February 22, 2011; CALPERS
Letter; letter from Ronnie G. Jung, Executive
Director, Teacher Retirement System of Texas,
dated February 22, 2011; Stephanie L. Hamlett,
Executive Director, Virginia Resources Authority,
dated February 22, 2011; and Dalton Letter.
492 See, e.g., letter from David R. Fine, City
Attorney, Denver, dated February 9, 2011 (‘‘Denver
Letter’’); letter from James F. Zay, Chairman, Du
Page Water Commission, dated February 11, 2011;
letter from Angela I. Carmon, City Attorney, City of
Winston-Salem, North Carolina, dated February 14,
2011; letter from David J. Kincaid, City Manager,
City of Safford, Arizona, dated February 14, 2011
(‘‘City of Safford Letter’’); and letter from Donald
Dicklich, County Auditor-Treasurer, Duluth,
Minnesota, dated February 16, 2011.
493 See, e.g., letter from Steven J. Baumgardt,
Finance Director, City of Tolleson, Arizona, dated
March 3, 2011 (‘‘City of Tolleson Letter’’); letter
from Joe Pizzillo, Vice Mayor, City of Goodyear,
Arizona, dated February 14, 2011 (‘‘City of
Goodyear Letter’’); letter from Patricia Branya,
Director, Miami-Dade County, dated February 14,
2011; and letter from Elwood G. ‘‘Woody’’ Farber,
President, New Mexico Educational Assistance
Foundation, dated February 15, 2011. One
commenter questioned whether, if an appointed
member of a governing body is deemed a municipal
advisor, the federal fiduciary obligations to the
municipal entity override state and local law
provisions for exculpation, indemnification, and
other protections of board members. See NABL
Letter.
494 See, e.g., City of Tolleson Letter; City of
Goodyear Letter; letter from Richard D. Legon,
President, Association of Governing Boards of
Universities and Colleges, dated February 15, 2011;
letter from Edward G. Henifin, General Manager
and Steven G. deMik, Director of Finance, Hampton
Roads Sanitation District, dated February 22, 2011;
letter from Scott Jordan, Executive Office for
Administration and Finance, dated February 22,
2011; letter from Granger Vinall, Chairman of the
Board of Directors and Kevin J. Burns, Chief
Executive Officer, UA Healthcare, Inc., dated
February 22, 2011; and letter from Ronald H. Paydo,
President, Medina County Port Authority, dated
February 18, 2011.
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whether: (1) Appointed, rather than
elected, officials (such as city
controllers, managers, and
commissioners) would be
‘‘employees;’’ 495 (2) the employee of
one municipal entity (such as an
employee of a municipal entity that is
the sponsor of a pension plan) would be
covered by the exclusion when serving
as an appointed member of the board of
another municipal entity (such as on the
board of the sponsored pension plan) or
otherwise performing services for other
related municipal entities; 496 and (3)
board members that were ‘‘elected,’’ but
were not elected by the citizens of the
municipal entity, would be considered
‘‘employees of a municipal entity.’’ 497
Some commenters stated that designees
495 See, e.g., Cynthia M. Davenport, Attorney at
Law, Flynn & Davenport, LLC, Troy, Missouri,
dated January 18, 2011; City of St. Petersburg Letter;
Denver Letter; and City of Safford Letter.
496 See, e.g., letter from Michael Hairston, EFRC,
dated February 22, 2011; NYC Management and
Budget Letter; M–S–R-Power Agency Letter
(explaining that the M–S–R Public Power Agency
uses the services of employees of its member
municipal entities to sit on standing committees of
the agency and to fulfill the duties of offices of the
agency; and commenting that employees of its
members that are seconded to the agency should
have the same exemption when they perform
services for the agency as when the employees are
acting within the scope of their employment
responsibilities providing services for the benefit of
the member entity); letter from Hawkins Delafield
& Wood LLP, dated February 16, 2011 (commenting
that ‘‘an employee of municipal entity A who
provides services to, but is not an employee of,
municipal entity B, should be exempt under
Section 15B(e)(4)(A) if both entities operate for the
benefit of the same governmental unit, whether at
the state, county, or municipal level’’); letter from
Susan Combs, Texas Comptroller of Public
Accounts, dated February 22, 2011 (describing that
employees of Texas’s Office of the Comptroller may
provide advice to other municipal entities within
the state in connection with their duties to the
Office of the Comptroller); and letter from Amadeo
Saenz, Texas Department of Transportation, dated
February 22, 2011 (commenting that employees of
the Texas Department of Transportation that are
appointed to the non-profit entity that issues bonds
on behalf of the Texas Transportation Commission
should be excluded because they are employees
assuming a decision-making responsibility based on
the duties of their employment).
One commenter also stated that the Proposal is
unclear, in the case of a non-profit entity formed for
the benefit of a municipal entity, whether
employees of the municipal entity that sit on the
board of such non-profit would be excluded from
the definition of ‘‘municipal advisor’’ as
‘‘employees’’ of the municipal entity. See, e.g.,
letter from Angela I. Carmon, City Attorney on
behalf of North Carolina Municipal Leasing
Corporation, dated February 22, 2011.
The term ‘‘municipal entity’’ means, in part, ‘‘any
State, political subdivision of a State, or corporate
instrumentality.’’ See Rule 15Ba1–1(g). The
Commission notes that such employees would be
‘‘employees of a municipal entity,’’ and therefore
excluded from the definition of municipal advisor,
to the extent the non-profit entity is itself a
municipal entity (e.g., if the non-profit entity is a
corporate instrumentality of a State).
497 See, e.g., Pennsylvania Local Government
Investment Trust Letter.
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of board members should also be
covered by the exclusion.498 One
commenter suggested that ‘‘employees
and board members of a municipal
entity should be excluded [from the
definition of municipal advisor] to the
extent they provide advice to an
obligated person (and acting in the
purview of their duties).’’ 499
Many commenters also stated that
boards of municipal entities are legally
inseparable from the municipal
entity.500 One commenter stated that if
the governing body of a municipal
entity, as a whole, is not a part of the
‘‘municipal entity,’’ then any third party
soliciting or providing advice to the
governing body with respect to
municipal financial products or the
issuance of municipal securities would
not be subject to the registration
requirements.501
Additionally, some commenters
asserted that the Proposal would restrict
municipal entities from soliciting advice
from citizens, and would subject to the
registration requirements members of
the general public submitting written
comments or giving oral statements to
the board of a municipal entity.502
Another commenter stated that the
Proposal would require registration of a
former board member, if the Chairman
of the current board contacts that former
board member with questions about a
prior issuance.503
After considering the comments, the
Commission has determined to exempt
from the definition of municipal
advisor, pursuant to its authority under
Section 15B(a)(4), all members of a
municipal entity’s governing body, its
advisory boards and its committees, as
well as persons serving in a similar
official capacity with respect to the
municipal entity, to the extent they are
acting within the scope of their official
capacity, regardless of whether such
members or officials are employees of
the municipal entity. Specifically, Rule
15Ba1–1(d)(3)(ii) exempts from the
definition of municipal advisor ‘‘[a]ny
498 See, e.g., NYC Management and Budget Letter;
and letter from Tim Kenny, Nebraska Investment
Finance Authority, dated February 22, 2011.
499 Kutak Rock Letter. This commenter was
concerned that otherwise, the municipal entity and
obligated person would not be able to coordinate
with respect to a financing for the obligated person.
500 See, e.g., Utah Retirement Systems Letter;
Nebraska Educational Finance Authority Letter;
State of Indiana Letter; NABL Letter; and letter from
Gregory W. Smith, General Counsel/Chief Operating
Officer, Colorado Public Employees’ Retirement
Association, dated February 22, 2011.
501 See Utah Retirement Systems Letter.
502 See, e.g., letter from Annise D. Parker, Mayor,
City of Houston, Texas, dated February 22, 2011;
Squire Sanders & Dempsey Letter.
503 See Indianapolis Local Public Improvement
Bond Bank Letter.
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person serving as a member of a
governing body, an advisory board, or a
committee of, or acting in a similar
official capacity with respect to, or as an
official of, a municipal entity or
obligated person 504 to the extent that
such person is acting within the scope
of such person’s official capacity’’ 505
and ‘‘any employee of a municipal
entity or obligated person to the extent
that such person is acting within the
scope of such person’s employment.’’ 506
The Commission agrees with
commenters that like employees, a
municipal entity’s officials, as well as
members of a municipal entity’s
governing body and other officials
serving in a similar capacity (including
members of advisory boards and
committees), whether or not employed
by a municipal entity, typically act on
behalf of the municipal entity. The
Commission also believes that if a local
government official or appointed board
member of a municipal entity, in the
scope of his or her duties to that
municipal entity, provides advice to
another municipal entity, such advice
would not require the person to register
as a municipal advisor because such
person would be acting within the scope
of his or her duties to the municipal
entity. Rule 15Ba1–1(d)(3)(ii) also
clarifies the Commission’s
interpretation of the statutory exclusion
from the definition of ‘‘municipal
advisor’’ for employees of municipal
entities by providing that such
employees are exempt ‘‘to the extent
that such person is acting within the
scope of such person’s employment.’’ 507
Consequently, as described above with
respect to governing board members and
officials, an employee of one municipal
entity that provides advice, within the
scope of his or her employment as such,
to another municipal entity or obligated
person would be exempt from the
definition of ‘‘municipal advisor.’’
The exemption in Rule 15Ba1–
1(d)(3)(ii) would extend to all designees
of public officials or members of a
municipal entity’s governing body, to
the extent such designation is made
pursuant to existing rules of the
municipal entity for designating or
delegating authority. The Commission
believes that under such scenario, the
designee would be serving ‘‘in a similar
official capacity’’ 508 as the person for
whom they are acting. Further, the
504 Comments regarding the treatment of such
governing persons and employees of obligated
persons, and how this exemption addresses such
comments, are separately discussed further below.
505 Rule 15Ba1–1(d)(3)(ii)(A).
506 Rule 15Ba1–1(d)(3)(ii)(B).
507 See Rule 15Ba1–1(d)(3)(ii).
508 See id.
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Commission notes that the exemption
from registration includes members of
advisory boards 509 and committees,510
acting within the scope of their capacity
as such 511 because, as with respect to
members of the governing body or other
government officials, when acting
within the scope of their official
capacity such persons are acting on
behalf of the municipal entity.
The Commission does not intend to
impede the deliberative process that
municipal entities engage in with their
citizens. Accordingly, the registration
requirement for municipal advisors does
not apply to persons who comment on
municipal financial products or the
issuance of municipal securities by
making use of public comment forums
provided by municipal entities or other
public forums. Additionally, responding
to factual questions about a past
issuance by a former board member
would not constitute municipal
advisory activities, because providing
such information in response to
questions under such circumstances is
factual and therefore does not constitute
advice with respect to such issuance.512
The Commission agrees with
commenters that individuals who
engage in deliberative and decisionmaking functions with respect to
municipal financial products or the
issuance of municipal securities as part
of their duties as members of a
governing body should not have to
register as municipal advisors. Such
individuals represent the municipal
509 Commenters provided some examples of
advisory board composition and activities. See, e.g.,
Combs Letter (describing that the ‘‘Comptroller’s
Investment Advisory Board,’’ which advises the
state’s trust company which in turn manages state
funds, is unlike an investment adviser in that it
doesn’t assist with the selection of specific
investments or investment professionals; that it
provides general guidance but has no control over
what purchases and sales are made with state
funds; and that although the board members have
no fiduciary duty, they also have no
decisionmaking power); and letter from Gregg
Abbott, State of Texas, dated February 22, 2011
(‘‘State of Texas Letter’’) (noting that distinguishing
between governing boards and advisory boards is
unworkable as some advisory boards are
subcommittees of governing boards, some are made
up of a combination of governing board members
and other citizen volunteers, and some have no
governing board members).
510 Some municipal entity boards also have
committees that may or may not be comprised of
members of the board. See, e.g., letter from Jerome
Cochrane, University of Pittsburgh, dated February
22, 2011 (certain committees of the boards of
certain Pennsylvania State universities include
‘‘non-voting committee members, representing
members of the public, alumni, faculty, staff and
student bodies’’).
511 The Commission notes that the exemption for
advisory board and committee members includes
volunteer members of such boards and committees.
512 See supra Section III.A.1.b.1. (discussing the
advice standard in general).
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entity that is the intended recipient of
the protections of the municipal advisor
registration regime, and the Commission
does not consider such deliberative and
decision-making functions to be advice.
Additionally, board members and other
officials (appointed and elected alike, as
well as their duly appointed designees)
may be subject to state and local law,
including fiduciary duties and ethics
laws, and the statutory qualifications for
such members’ board positions may be
significant to the mission of the
municipal entity. Accordingly, the
Commission does not believe that
imposing an additional layer of
regulation, including the fiduciary duty
imposed upon municipal advisors,513
would provide a significant additional
benefit. The Commission agrees with
commenters that whether a public
official or other member of a governing
body of a municipal entity is appointed
or elected is not the sole factor in
determining whether such individual is
accountable to the municipal entity he
or she serves. Board members, officials,
and employees would be required to
register, however, if they are engaged by
other municipal entities or obligated
persons to provide services as
compensated advisors in addition to
their normal duties as an employee,
official, or board member of the
municipal entity.514
For the reasons described above, the
Commission finds it consistent with the
public interest, the protection of
investors, and the purposes of Section
15B of the Exchange Act, to use its
authority pursuant to Exchange Act
Section 15B(a)(4) to exempt any person
serving as a member of a governing
body, an advisory board, or a committee
of, or acting in a similar official capacity
with respect to, or as an official of, a
municipal entity to the extent that such
person is acting within the scope of
such person’s official capacity.515
Accordingly, such persons are not
required to register as municipal
advisors.
Employees and Officials of Obligated
Persons
Section 15B(e)(4) of the Exchange Act
excludes from the definition of
municipal advisor persons who are
employees of a municipal entity, but
does not extend such exclusion to
employees of obligated persons. In the
513 Section 15B(c)(1) of the Exchange Act (as
amended by the Dodd-Frank Act) imposes a
fiduciary duty on municipal advisors when
advising municipal entities. See Proposal, 76 FR
827, note 60 and accompanying text.
514 Compare with supra note 507 and
accompanying text.
515 See Rule 15Ba1–1(d)(3)(ii)(A).
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Proposal, the Commission asked
whether employees of obligated persons
should be excluded, to the extent they
are providing advice to the obligated
person, acting in its capacity as an
obligated person, in connection with
municipal financial products or the
issuance of municipal securities.516 In
addition, the Commission asked
whether there are types of persons,
other than employees of obligated
persons, who should be excluded from
the definition of municipal advisor.517
In response, the Commission received
several comments.
Some commenters stated that
employees, officers, and directors of
obligated persons should be excluded
from the definition of municipal advisor
when they provide advice to the
obligated person with respect to
municipal financial products or the
issuance of municipal securities.518
More specifically, some commenters
stated that board members of obligated
persons acting within the scope of their
duties do not give ‘‘advice’’ and that it
is the obligation of board members to
communicate with fellow board
members and staff.519 For example, one
commenter stated that municipal
advisors typically have multiple clients,
hold themselves out as advisors, and
generally do not exercise decision
making authority for the municipal
entity or obligated person.520 On the
other hand, according to this
commenter, directors and employees of
obligated persons act on behalf of and
in the interest of entities with which
they are affiliated and do not hold
themselves out as advisors.521 They act
for obligated persons in connection with
municipal offerings only as part of their
responsibilities to the obligated
516 See
Proposal, 76 FR 837.
id.
518 See, e.g., NABL Letter; ABA Letter; letter from
Duncan Gallagher, EVP and Chief Financial Officer,
Allina Health System, dated February 22, 2011
(‘‘Allina Health System Letter’’; letter from Jeffrey
S. Bromme, Senior Vice President and Chief Legal
Officer and C. Robert Foltz, Associate Chief Legal
Officer—Treasury, Adventist Health System
Sunbelt Healthcare Corporation, dated February 11,
2011 (‘‘Adventist Health System Letter’’).
519 See, e.g., letter from Charles A. Samuels,
Mintz Levin Cohn Ferris Glovsky & Popeo, P.C., on
behalf of the National Association of Health &
Educational Facilities Finance Authorities, dated
February 17, 2011 (‘‘National Association of Health
& Educational Facilities Finance Authorities
Letter’’). See also Allina Health System Letter;
Chapman and Cutler Letter; letter from Latham &
Watkins, dated February 22, 2011 (‘‘Latham &
Watkins Letter’’); and letter from David W. Lowden,
Chair, the Committee on Non-Profit Organizations,
Association of the Bar of the City of New York,
dated February 14, 2011 (‘‘New York City Bar
Letter’’).
520 See Latham & Watkins Letter.
521 See id.
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person.522 Other commenters stated that
members of governing boards of
obligated persons are already subject to
state and federal laws, such as laws
governing non-profit entities, conflict of
interest laws, ethics laws, and open
meeting laws.523 Commenters also made
similar statements with respect to
employees of obligated persons.524
Further, some commenters stated that
officers, directors, and employees of
obligated persons are no different from
those of municipal entities,525 and an
obligated person can only act through
its board and employees.526 One
commenter suggested, however, that
individual board members and
employees should not be exempt from
registration if they are engaged to
provide services for a nonprofit
organization as compensated
advisors.527
Several commenters stated that the
MSRB Study,528 the legislative history
of the Dodd-Frank Act, and the Proposal
indicate that the term ‘‘municipal
advisor’’ is meant to capture
professionals that offer advisory services
in a financial marketplace.529 One
522 See
id.
e.g., Kutak Rock Letter; National
Association of Health & Educational Facilities
Finance Authorities Letter; Latham & Watkins
Letter; letter from Susan Ellen Wagner, Executive
Director, Healthcare Trustees of New York State,
dated February 16, 2011 (‘‘Healthcare Trustees of
New York State Letter’’); William C. Daroff, Vice
President for Public Policy & Director of the
Washington Office, Jewish Federations of North
America, dated February 25, 2011 (‘‘Jewish
Federations of North America Letter’’).
524 See, e.g., National Association of Health &
Educational Facilities Finance Authorities Letter;
Latham & Watkins Letter; New York City Bar Letter;
and letter from Corinne Johnson, Executive
Director, Colorado Health Facilities Authority, Cris
White, Executive Director, Colorado Housing and
Finance Authority, Jo Ann Soker, Executive
Director, Colorado Educational and Cultural
Facilities Authority, dated February 18, 2011
(‘‘Colorado Health Facilities Letter’’).
525 See, e.g., South Lake County Hospital District
Letter. See also Latham & Watkins Letter.
526 See, e.g., Squire Sanders & Dempsey Letter.
See also Latham & Watkins Letter; MSRB Letter.
527 See New York City Bar Letter.
528 In April 2009, the MSRB issued a study titled
‘‘Unregulated Municipal Market Participants: A
Case for Reform,’’ in which the MSRB advocated for
the regulation of intermediaries in the municipal
securities market (such as swap advisors and
financial advisors). This study was referenced by
the Commission in the Proposal. See Proposal, 76
FR 825, n.8.
529 See, e.g., letters from Michael B. Koffler and
James K. Hasson, Jr., Sutherland Asbill & Brennan
LLP on behalf of Universities, dated February 22,
2011 (‘‘Universities Letter’’); Richard D. Legon,
President, Association of Governing Boards of
Universities and Colleges, dated February 15, 2011
(‘‘Association of Governing Boards of Universities
and Colleges Letter’’) (stating that board members
and employees of obligated persons are not
discussed in the preamble and cost estimates of the
Proposal). See also letters from Molly Corbett
Broad, President, American Council on Education,
523 See,
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67507
commenter stated that for decades, in
regulating the market for financial
advice, Congress and the Commission
have expressly declined to regulate
internal advice provided by employee to
employer.530 The commenter stated that
a departure from this established
practice should not be inferred, absent
a clear indication from Congress, and
nothing in the language or history of the
Dodd-Frank Act signals that Congress
intended to affect a fundamental shift in
policy.531
Some commenters stated that the
proposed rules would make it difficult
for obligated persons to recruit and
retain board members and
employees,532 discourage officers and
board members from engaging in
matters that are traditionally within
their purview,533 and disrupt the
process of borrowing and operations of
borrowers and issuers.534 Other
commenters stated that the proposed
rules could substantially increase the
cost of financing 535 and could cause a
potential borrower to forego projects
using the economic development
options offered by states and avoid the
issuance of municipal bonds.536
As discussed above, one commenter
suggested that ‘‘employees and board
members of a municipal entity should
be excluded from regulation to the
extent they provide advice to an
obligated person (and acting in the
dated February 22, 2011 (‘‘American Council on
Education Letter’’); Daniel G. Kirch, M.D., President
and CEO, Association of American Medical
Colleges, dated February 16, 2011 (‘‘Association of
American Medical Colleges Letter’’).
530 See American Council on Education Letter
(providing as an example in support of their
statement that existing registration requirements,
such as those under the Investment Advisers Act,
cover firms and persons in the business of
providing advice, and that the requirements do not
regulate employment relationships). See also
Association of Governing Boards of Universities
and Colleges Letter (noting that Commission staff
has taken the position, in the context of a No-Action
Letter under the Investment Advisers Act, that
internal relationships are unlike the commercial
relationships between an investment adviser and its
clients that the Investment Advisers Act was
intended to regulate).
531 See American Council on Education Letter.
532 See, e.g., letter from Richard L. Clarke, DHA,
FHFMA, President and CEO, Healthcare Financial
Management Association, dated February 22, 2011
(‘‘Healthcare Financial Management Association
Letter’’); Latham & Watkins Letter; and New York
City Bar Letter.
533 See, e.g., Association of American Medical
Colleges Letter; and New York City Bar Letter.
534 See, e.g., National Association of Health &
Educational Facilities Finance Authorities Letter.
535 See, e.g., letter from Christopher B. Meister,
Executive Director, Illinois Finance Authority,
dated February 22, 2011 (‘‘Illinois Finance
Authority Letter’’). See also SIFMA Letter I.
536 See, e.g., State of Indiana Letter; National
Association of State Treasurers Letter; and New
York City Bar Letter.
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purview of their duties).’’ 537 Likewise,
employees and board members of an
obligated person should be excluded
from regulation to the extent they
provide advice to a municipal entity.538
On the other hand, another commenter
stated that employees, officers, and
directors of an obligated person should
be exempt to the extent they provide
advice solely to the obligated person
and not to a municipal entity.539 One
other commenter stated that when an
obligated person solicits conduit issuers
to issue bonds on behalf of the obligated
person, such solicitation should not
require the obligated person or its board
members or employees to register as
municipal advisors.540
After considering the comments, the
Commission agrees with commenters
that board members, officers, and
employees of obligated persons should
be treated in the same manner as board
members, officers, and employees of
municipal entities and is using its
statutory authority to provide an
exemption for such persons that is
parallel to the exemption with respect to
municipal entities described above.541
The Commission believes that this
exemption is appropriate, because such
individuals, when acting in the scope of
their duty to the obligated person, are
accountable to the obligated person.
Further, board members, officers, and
employees of obligated persons serve
similar functions as board members,
officers, and employees of municipal
entities. Consequently, the Commission
is exempting from the definition of
municipal advisor any employee of an
obligated person acting within the scope
of such person’s employment, as well as
any person serving as a member of a
governing body, an advisory board, or a
committee of, or acting in a similar
official capacity with respect to, or as an
official of, an obligated person to the
extent they are acting within the scope
of their duties.542 The Commission
537 See
supra note 499 and accompanying text.
Kutak Rock Letter.
539 See ABA Letter.
540 See NABL Letter. See also letter from James
E. Potvin, Chair and Robert W. Giroux, Executive
Director, Vermont Educational and Health
Buildings Financing Agency, dated February 22,
2011 (‘‘Vermont Educational and Health Buildings
Financing Agency Letter’’); and National
Association of State Treasurers Letter; letter from
Paul Goldstein, Vice President of Finance,
Treasury/Accounting and Chief Financial Officer,
Orlando Health, Inc., dated February 18, 2011
(‘‘Orlando Health Letter’’). Some commenters stated
generally that obligated persons should not be
required to register as municipal advisors. See, e.g.,
Latham & Watkins Letter.
541 See Rule 15Ba1–1(d)(3)(ii); and supra notes
504–505 and accompanying text.
542 See Rule 15Ba1–1(d)(3)(ii). See also notes 504
and 506 and accompanying text.
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believes that, like municipal entities,
obligated persons and persons who
perform decision-making functions for,
or otherwise act on behalf of, obligated
persons, when fulfilling their duty to
the obligated person, are also the
intended beneficiaries of the protections
afforded by the municipal advisor
registration requirement. As with
respect to municipal entities, board
members, officials, and employees of
obligated persons would be required to
register, however, if they are engaged by
other municipal entities or obligated
persons to provide services as
compensated advisors in addition to
their normal duties as an employee,
official, or board member of the
obligated person.543
For the reasons described above, the
Commission finds it consistent with the
public interest, the protection of
investors, and the purposes of Section
15B of the Exchange Act, to use its
authority pursuant to Exchange Act
Section 15B(a)(4) to exempt any:
(1) Person serving as a member of a
governing body, an advisory board, or a
committee of, or acting in a similar
official capacity with respect to, or as an
official of, an obligated person to the
extent that such person is acting within
the scope of such person’s official
capacity; and (2) employee of an
obligated person to the extent that such
person is acting within the scope of
such person’s employment.544
Accordingly, such persons are not
required to register as municipal
advisors.
With regard to the application of the
rules to employees or governing body
members of an obligated person who
solicit conduit issuers to issue bonds on
behalf of the obligated person, the
Commission notes that these persons are
not acting as advisors.545 Instead, they
act as principals seeking an issuance of
municipal securities by a municipal
entity on behalf of the obligated person
pursuant to an arm’s-length loan (or
similar) agreement under which the
obligated person will be required to pay
debt service and other costs upon bond
issuance. The Commission notes that
these individuals would not be required
to register as municipal advisors,
543 As described above, a local government
official or appointed board member of a municipal
entity would not be required to register as a
municipal advisor if he or she provides advice, in
the scope of his or her duties to that municipal
entity employer, to another municipal entity. See
supra notes and 496 and 507 accompanying text. In
contrast, if such a person is engaged and
compensated outside the scope of such duties, he
or she would not be eligible for the exemption and
would be required to register.
544 See Rule 15Ba1–1(d)(3)(ii).
545 See supra note 540 and accompanying text.
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because they are not advising a
municipal entity with respect to the
issuance of municipal securities or
soliciting a municipal entity on behalf
of a broker, dealer, municipal securities
dealer, municipal advisor, or investment
adviser for the purpose of obtaining or
retaining an engagement for such
person. However, an employee,
governing board member or other
official of an obligated person could still
be deemed to be engaged in municipal
advisory activities (which include
solicitation activities) if his or her
recommendations cannot be properly
characterized as negotiations of the
terms by which the obligated person is
agreeing to engage in the borrowing
through the municipal entity.546
Regardless of an individual’s title as
a member of a governing body, an
employee, or other official (appointed or
elected) of a municipal entity or
obligated person, the Commission notes
that the exemptions described above do
not apply to the extent such individual
acts outside of the scope of authority of
his or her position.547
ii. Responses to Requests for Proposals
or Requests for Qualifications
In the Proposal, the Commission
requested comment about banks that
respond to municipal entities’ RFPs
regarding investment products offered,
such as money market mutual funds or
other exempt securities.548 The
Commission received a number of
comments regarding responses to RFPs
or RFQs by banks and other entities.549
Several commenters stated that
responses to RFPs and RFQs should not
require a person to register as a
municipal advisor. For example, one
commenter suggested that, with respect
to municipal derivatives, responding to
RFPs or RFQs from a municipal entity
or obligated person does not constitute
‘‘advice.’’ 550 Similarly, another
commenter stated generally that certain
546 See supra Section III.A.b.i. (discussing the
advice standard in general) and Section III.A.b.x.
(discussing solicitation of a municipal entity or
obligated person).
547 The exemption only applies ‘‘to the extent
such person is acting within the scope of such
person’s official capacity’’ or ‘‘employment,’’ as
applicable. See Rule 15Ba1–1(d)(3)(ii).
548 See Proposal, 76 FR 837.
549 See also supra notes 421–423 and
accompanying text (discussing RFPs and RFQs in
the context of the solicitation prong, including
whether a market professional’s activities assisting
a municipal entity or obligated person in their
selection of another market professional as part of
an RFP process constitute municipal advisory
activities); and infra Section III.A.1.c.vii.
(discussing the treatment of responses by attorneys
to RFPs from municipal entities and obligated
persons).
550 See BNY Letter.
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activities should be expressly excluded
from the definition of ‘‘advice,’’
including responding to RFPs or RFQs
and providing terms on which a
financial institution would be prepared
to enter into a transaction or purchase
securities issued by a municipal
entity.551 This commenter also stated
that bid documents submitted in
response to a municipal entity’s request
for private financing proposals should
not constitute advice.552 Another
commenter concurred that responses to
RFPs should not be treated as advice.553
The Commission has carefully
considered the issues raised by
commenters on the Proposal and agrees
that responses to RFPs or RFQs alone do
not constitute municipal advisory
activities.554 Therefore, the Commission
is adopting Rule 15Ba1–1(d)(3)(iv),
which exempts from the definition of
municipal advisor ‘‘[a]ny person
providing a response in writing or orally
to a request for proposals or
qualifications from a municipal entity or
obligated person for services in
connection with a municipal financial
product or the issuance of municipal
securities; provided however, that such
person does not receive separate direct
or indirect compensation for advice
provided as part of such response.’’ 555
Responses to RFPs or RFQs are
provided at the request of, and
established by, a municipal entity or
obligated person as part of a competitive
process. Therefore, it is reasonable to
believe that the municipal entity or
obligated person would understand that
service providers respond to RFPs and
RFQs in order to obtain business and
551 See Letter from Nick Butcher, Senior
Managing Director, Macquarie Capital Advisors,
dated February 22, 2011 (‘‘Macquarie Letter’’).
552 See Macquarie Letter.
553 See OCC Letter. This commenter stated,
among other things, that banks respond to RFPs on
a competitive basis, and many municipalities are
required by statute to issue RFPs to banks for their
operating accounts. See id.
554 For a discussion of RFPs and RFQs in the
context of the solicitation prong, see supra notes
421–423 and accompanying text.
555 The Commission notes that FINRA applies a
similar approach in connection with the application
of its suitability rule to broker-dealers. See FINRA
Rule 2111. In a recent Regulatory Notice, FINRA
explained that, where a registered representative
makes a recommendation to purchase a security to
a potential investor, the suitability rule would apply
to the recommendation if that individual executes
the transaction through the broker-dealer with
which the registered representative is associated or
the broker-dealer receives or will receive, directly
or indirectly, compensation as a result of the
recommended transaction. See FINRA Regulatory
Notice 12–55. For purposes of the municipal
advisor registration rules, if a person is selected as
a result of an RFP or RFQ, any applicable law or
rule (e.g., fair dealing, suitability, fiduciary duty)
will apply to that person’s activities in the role for
which the person was selected.
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would not rely on such responses as it
would on advice from its advisor.
Further, persons who respond to RFPs
or RFQs are likely to be already
regulated entities, such as registered
municipal advisors, brokers, dealers, or
investment advisers. Accordingly, their
responses may be subject to fair dealing,
suitability, or other standards.
Moreover, if a person is selected by a
municipal entity or obligated person as
a result of an RFP or RFQ, such person
could be required to register as a
municipal advisor for its subsequent
activities.
For the same reasons discussed above
for other RFPs, the exemption pursuant
to Rule 15Ba1–1(d)(3)(iv) also includes
responses to so-called ‘‘mini-RFPs’’ that
might only be distributed to service
providers that have been pre-screened
or pre-qualified by the municipal entity
or obligated person. For the exemption
to apply, a person providing advice in
response to an RFP or RFQ may not be
separately compensated for advice given
as part of the RFP or RFQ process.
Further, the compensation such person
receives, if hired as a result of the RFP
or RFQ, is not direct or indirect
compensation for the advice provided as
part of the RFP or RFQ. However,
assisting with the preparation of an RFP
or RFQ on behalf of a municipal entity
or obligated person, or assisting in the
selection of a broker-dealer, investment
adviser, or financial advisor as part of
an RFP process, could constitute
municipal advisory activity.
Specifically, in assisting in the
preparation of an RFP or RFQ, a person
could provide advice with respect to the
parameters of such RFP or RFQ, such as
the potential use of municipal financial
products or the issuance of municipal
securities. Further, in assisting in the
selection of a broker-dealer, investment
adviser, or municipal advisor as part of
an RFP process, a person could provide
advice with respect to the responses to
the RFP, including responses related to
the use of municipal financial products
or the issuance of municipal
securities.556
For the foregoing reasons, the
Commission finds it consistent with the
556 A person assisting a municipal entity or
obligated person in selecting a broker-dealer,
investment adviser, or financial advisor as part of
an RFP process established by the municipal entity
or obligated person would not, however, be
considered to be undertaking a solicitation for
purposes of the definition of municipal advisor in
Rule 15Ba1–1(d)(1), because such person would not
be soliciting ‘‘on behalf of’’ such broker-dealer,
investment adviser, or financial advisor. See supra
Section III.A.1.b.x. (discussing generally solicitation
of a municipal entity or obligated person). See also
Rule 15Ba1–1(n) (defining solicitation of a
municipal entity or obligated person).
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67509
public interest, the protection of
investors, and the purposes of Section
15B of the Exchange Act, to use its
authority pursuant to Exchange Act
Section 15B(a)(4) 557 to exempt persons
responding to RFPs and RFQs from the
definition of municipal advisor, subject
to the limitations described above.
iii. Municipal Entity or Obligated
Person Represented by an Independent
Municipal Advisor
In the Proposal, the Commission
sought comment on whether it should
provide other exclusions from the
definition of municipal advisor.558
Several commenters suggested that a
person providing advice with respect to
municipal financial products or the
issuance of municipal securities should
not be regulated as a municipal advisor
if the municipal entity or obligated
person is otherwise represented by a
municipal advisor with respect to the
transaction.559 One commenter argued
that the Commission should provide
that a person will not be regulated as a
municipal advisor to a municipal entity
or obligated person if such municipal
entity or obligated person is or will be
represented by an ‘‘independent
advisor’’ that is a registered municipal
advisor (or that is eligible for an
exception) and any relevant
documentation states that: (1) The
person is not acting as an ‘‘advisor;’’ and
(2) the municipal entity or obligated
person is not relying on any advisory
communications from such person.560
According to another commenter,
‘‘when a municipality has engaged an
independent financial advisor in
connection with a proposed transaction,
unaffiliated counterparties or potential
counterparties to the transaction should
not be deemed to be providing advice to
the municipality as it has already
elected an entity to fulfill that role.’’ 561
Another commenter stated that, in most
cases where a bank is ‘‘providing a
municipal derivative or other bank
products and services to a municipal
entity or obligated person, a third party
557 Pursuant to Section 15B of the Exchange Act,
the Commission may exempt any class of municipal
advisors from any provision of Section 15B or the
rules and regulations thereunder, if it ‘‘finds that
such exemption is consistent with the public
interest, the protection of investors, and the
purpose of [Section 15B].’’ See 15 U.S.C. 78o–
4(a)(4).
558 See Proposal, 76 FR 838.
559 See, e.g., SIFMA Letter I; letter from Adella M.
Heard, Senior Vice President and Assistant General
Counsel, First Tennessee Bank National
Association, dated February 18, 2011 (‘‘First
Tennessee Bank National Association Letter’’); BNY
Letter.
560 See SIFMA Letter I.
561 See First Tennessee Bank National Association
Letter.
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advisor is providing advice on the
transaction to the municipal entity or
obligated person.’’ 562 This commenter
suggested that the existence of such a
third party relationship should be
viewed as evidence that the municipal
entity or obligated person is not relying
on the bank for advice.563
The Commission has carefully
considered these comments and is
adopting Rule 15Ba1–1(d)(3)(vi), which
exempts from the municipal advisor
definition any person engaging in
municipal advisory activities in a
circumstance in which a municipal
entity or obligated person is otherwise
represented by an independent
registered municipal advisor with
respect to the same aspects of a
municipal financial product or an
issuance of municipal securities,
provided that the following
requirements are met.564 First, an
independent registered municipal
advisor must be providing advice with
respect to the same aspects of the
municipal financial product or issuance
of municipal securities as the person
seeking to rely on Rule 15Ba1–
1(d)(3)(vi).565 For purposes of Rule
15Ba1–1(d)(3)(vi), the term
‘‘independent registered municipal
advisor’’ means a municipal advisor
registered pursuant to Section 15B of
the Exchange Act and the rules and
regulations thereunder and that is not,
and within at least the past two years
was not, associated 566 with the person
seeking to rely on Rule 15Ba1–
1(d)(3)(vi). The Commission believes
that a two year cooling-off period
represents an appropriate period of time
to help remove any actual or perceived
influence over a municipal advisor’s
ability to exercise independent
judgment when engaging in municipal
advisory activities.567 Second, a person
562 See
BNY Letter.
BNY Letter.
564 See Rule 15Ba1–1(d)(3)(vi).
565 See Rule 15Ba1–1(d)(3)(vi)(A).
566 For purposes of the definition of ‘‘independent
registered municipal advisor’’ in Rule 15Ba1–
1(d)(3)(vi), the criteria for association set forth in
Section 15B(e)(7) (15 U.S.C. 78o–4(e)(7)) will apply.
See Rule 15Ba1–1(d)(3)(vi)(A).
567 A two-year period is also used to determine
whether an individual is a ‘‘public representative’’
for purposes of MSRB Board membership.
Specifically, for purposes of determining whether
an individual is a public representative, the MSRB
defined the term ‘‘no material business
relationship’’ to mean that, at a minimum, the
individual is not and, within the last two years, was
not associated with a municipal securities broker,
municipal securities dealer, or municipal advisor,
and that the individual does not have a relationship
with any municipal securities broker, municipal
securities dealer, or municipal advisor, whether
compensatory or otherwise, that reasonably could
affect the independent judgment or decision making
of the individual. See Securities Exchange Act
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563 See
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seeking to rely on this exemption must
receive from the municipal entity or
obligated person a representation in
writing that it is represented by, and
will rely on the advice of, an
independent registered municipal
advisor, and such person has a
reasonable basis for relying on the
representation.568 Third, such person
must provide the required disclosures to
the municipal entity or obligated
person, and provide a copy of such
disclosures to the municipal entity’s or
obligated person’s independent
registered municipal advisor. With
respect to a municipal entity, such
person must disclose in writing to the
municipal entity that, by obtaining such
representation from the municipal
entity, such person is not a municipal
advisor and is not subject to the
fiduciary duty established in Section
15B(c)(1) of the Exchange Act with
respect to the municipal financial
product or issuance of municipal
securities.569 With respect to an
obligated person, such person must
disclose in writing to the obligated
person that, by obtaining such
representation from the obligated
person, such person is not a municipal
advisor with respect to the municipal
financial product or issuance of
municipal securities.570 The rule also
requires that each such disclosure must
be made at a time and in a manner
reasonably designed to allow the
municipal entity or obligated person to
assess the material incentives and
conflicts of interest that such person
may have in connection with the
municipal advisory activities.571 The
Release No. 63025 (September 30, 2010), 75 FR
61806, 61808 (October 6, 2010) (SR–MSRB–2010–
08). Further, Rule 206(4)–5(a)(1) under the
Investment Advisers Act prohibits investment
advisers from receiving compensation for providing
advice to a ‘‘government entity’’ within two years
after a ‘‘contribution’’ to an ‘‘official’’ of the
government entity has been made by the investment
adviser or by any of its ‘‘covered associates.’’ See
17 CFR 275.206(4)–5(a)(1). In adopting this rule, the
Commission stated that the two-year time out is
intended to discourage advisers from participating
in pay-to-play practices by requiring a cooling off
period during which the effects of a political
contribution on the selection process can be
expected to dissipate. See Political Contributions
Final Rule, 75 FR 41026.
568 See Rule 15Ba1–1(d)(3)(vi)(B). The same
standards and principles apply in determining
whether a person has a reasonable basis for reliance
as discussed previously with respect to reliance on
representations regarding proceeds determinations.
See supra notes 364–365 and accompanying text.
569 See Rule 15Ba1–1(d)(3)(vi)(C)(1).
570 See Rule 15Ba1–1(d)(3)(vi)(C)(2).
571 See Rule 15Ba1–1(d)(3)(vi)(C)(3). The CFTC’s
business conduct standards for swap dealers and
major swap participants contain similar standards
for disclosure to counterparties. Specifically, CFTC
Rule 23.431(a) states that: ‘‘At a reasonably
sufficient time prior to entering into a swap, a swap
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level and timing of disclosure required
may vary according to the issuer’s
knowledge or experience.572
The requirement that a copy of the
disclosure be provided to the
independent registered municipal
advisor is not intended to alter the
nature of the duty owed by the
municipal advisor to its municipal
entity or obligated person client or the
nature of such municipal advisor’s
engagement.
The Commission believes that
exempting persons advising a municipal
entity or obligated person from the
definition of municipal advisor when
the municipal entity or obligated person
is represented by an independent
registered municipal advisor is
consistent with the public interest, the
protection of investors, and the
purposes of Section 15B of the Exchange
Act. The Commission believes that Rule
15Ba1–1(d)(3)(vi) will allow parties to a
municipal securities transaction and
others who are not registered municipal
advisors to share advice with municipal
entities and obligated persons so long as
the municipal entity or obligated person
is represented by an independent
registered municipal advisor. A
municipal entity represented by an
independent registered municipal
advisor will have the benefits associated
with the regulation of municipal
advisors. Such benefits include, but are
not limited to, standards of conduct,
training, and testing for municipal
dealer or major swap participant shall disclose to
any counterparty to the swap (other than a swap
dealer, major swap participant, security-based swap
dealer, or major security-based swap participant)
material information concerning the swap in a
manner reasonably designed to allow the
counterparty to assess [risks, characteristics, and
conflicts of interest related to the swap.]’’ 17 CFR
23.431(a).
572 The Commission believes that some municipal
advisors are already familiar with this disclosure
level and timing standard. See Interpretive Notice
Concerning the Application of MSRB Rule G–17 to
Underwriters of Municipal Securities (August 2,
2012), available at http://www.msrb.org/Rules-andInterpretations/MSRB-Rules/General/Rule-G17.aspx?tab=2 (stating that ‘‘[t]he level of disclosure
required may vary according to the issuer’s
knowledge or experience with the proposed
financing structure or similar structures, capability
of evaluating the risks of the recommended
financing, and financial ability to bear the risks of
the recommended financing, in each case based on
the reasonable belief of the underwriter’’); MSRB
Notice 2013–08 (March 25, 2013) MSRB Answers
Frequently Asked Questions (FAQS) Regarding an
Underwriter’s Disclosure Obligations to State and
Local Government Issuer Under Rule G–17,
available at http://www.msrb.org/Rules-andInterpretations/Regulatory-Notices/2013/201308.aspx (referencing the requirement under the
Interpretive Notice Concerning the Application of
MSRB Rule G–17 that the arm’s length nature of the
relationship be provided ‘‘At the earliest stages of
the relationship, generally at or before a response
to a request for proposals or promotional materials
are delivered to an issuer.’’).
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advisors that may be required by the
Commission or the MSRB, other
requirements unique to municipal
advisors that may be imposed by the
MSRB,573 and fiduciary duty. While
independent registered municipal
advisors do not owe a fiduciary duty to
obligated persons, the Commission
notes that they have a duty to deal fairly
with obligated persons under MSRB
Rule G–17.574 Also, as noted by
commenters, the engagement by a
municipal entity or obligated person of
an independent registered municipal
advisor indicates that the municipal
entity or obligated person intends to
rely on the advice of that advisor. Rule
15Ba1–1(d)(3)(vi) requires that this
intention be further evidenced by a
written representation that the
municipal entity or obligated person
will rely on the advice of an
independent registered municipal
advisor. Further, Rule 15Ba1–1(d)(3)(vi)
requires the person receiving such
representation to have a reasonable
basis for relying on the representation.
So long as a municipal entity or
obligated person is represented by and
relies on an independent registered
municipal advisor, the Commission
believes it is appropriate to allow
municipal entities and obligated
persons to receive as much advice and
information as possible from a variety of
sources, even if the providers of such
advice are not subject to a fiduciary
duty. The Commission does not seek to
curtail the receipt of important advice
and information so long as the
municipal entities and obligated
persons are represented by and rely on
independent registered municipal
advisors who are subject to a fiduciary
or other duties and who can help the
municipal entities and obligated
persons evaluate the advice and identify
potential conflicts of interest. Further,
the requirement that a person seeking to
rely on this rule provide a copy of the
disclosures under Rule 15Ba1–
1(d)(3)(vi)(C) to the independent
registered municipal advisor will help
timely inform the independent
registered municipal advisor that the
municipal entity or obligated person is
receiving advice from a person seeking
to rely on Rule 15Ba1–1(d)(3)(vi).
In addition, certain persons that may
engage in municipal advisory activities
could also be counterparties to a
municipal entity or obligated person,
such as swap dealers and security-based
swap dealers. The requirement for such
persons to register as municipal
advisors could be inconsistent with
573 See
574 See
supra note 190.
MSRB Rule G–17.
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their roles as counterparties to the
municipal entity or obligated person.
While the Commission is separately
providing certain exemptions for
counterparties of municipal entities and
obligated persons,575 such persons may
also consider whether they can rely on
this exemption.
iv. Broker, Dealer, or Municipal
Securities Dealer Serving as an
Underwriter
Exchange Act Section 15B(e)(4)(C)
provides that the term ‘‘municipal
advisor’’ does not include a broker,
dealer, or municipal securities dealer
serving as an underwriter (as defined in
Section 2(a)(11) of the Securities Act)
(the ‘‘underwriter exclusion’’).576 In the
Proposal, the Commission proposed to
interpret this statutory underwriter
exclusion to apply solely to a broker,
dealer, or municipal securities dealer
serving as an underwriter in connection
with the issuance of municipal
securities.577 Further, the Commission
proposed that this exclusion would not
apply when such persons are acting in
a capacity other than as an underwriter,
and that, for example, this exclusion
would not apply to advice with respect
to the investment of bond proceeds or
municipal derivatives.578
In the Proposal, the Commission
requested comment on whether its
interpretation of the statutory exclusion
from the definition of municipal advisor
for a broker, dealer, or municipal
securities dealer serving as an
underwriter was appropriate.579 The
Commission received approximately 20
comment letters addressing the scope of
this underwriter exclusion. Most
commenters suggested that this
exclusion should cover broker-dealer
activities already subject to
regulation,580 and some commenters
575 See, e.g., infra Section III.A.1.c.vi. (discussing
an exemption for swap dealers).
576 See 15 U.S.C. 78o–4(e)(4)(C).
577 See Proposal, 76 FR 832 and proposed Rule
15Ba1–1(d)(2)(ii). See also Temporary Registration
Rule Release, 75 FR 54467, note 19. In the Proposal,
the Commission stated its belief that Congress
excluded from the definition of municipal advisor
a broker, dealer, or municipal securities dealer
acting as an underwriter on behalf of a municipal
entity or obligated person in connection with the
issuance of municipal securities because such
activity is already subject to MSRB rules. See
Proposal, 76 FR 832, note 107.
578 See Proposal, 76 FR 832.
579 See id., at 836.
580 See, e.g., letter from JoAnn Bourne, Senior
Executive Vice President, Global Treasury
Management, Union Bank, N.A., dated February 18,
2011 (‘‘Union Bank Letter’’) (stating the belief that,
while the Dodd-Frank Act only provided an
exclusion for brokers and dealers when they are
serving as underwriters, Congress did not intend to
impose an additional level of regulation on brokerdealers when they are providing advice that is
PO 00000
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67511
suggested that it should cover brokerdealer activities that are solely
incidental to underwriting an issuance
of municipal securities.581 By contrast,
other commenters supported a more
limited scope for the underwriter
exclusion, stating, for example, that
‘‘[u]nless the Commission recognizes
and implements in an appropriate
manner the narrow character of the
underwriter definition referenced in the
Dodd-Frank Act, the Commission will
be diminishing otherwise important
protections for municipal entities and
obligated persons provided in that
Act.’’ 582 Another commenter suggested
that the Commission clarify that an
underwriter is not permitted to provide
‘‘advice’’ with respect to the structure,
timing, or terms of the bond issue it
seeks to purchase and distribute.583
The Commission has carefully
considered comments submitted about
the underwriter exclusion in the
Proposal, as discussed further below,
and is adopting its proposed
interpretation of the statutory
underwriter exclusion, with
modifications and clarifications
designed to address commenters’
concerns. Specifically, Rule 15Ba1–
1(d)(2)(i) provides that the term
‘‘municipal advisor’’ shall not include a
‘‘broker, dealer, or municipal securities
dealer serving as an underwriter of a
particular issuance of municipal
securities to the extent that the broker,
dealer, or municipal securities dealer
engages in activities that are within the
scope of an underwriting of such
issuance of municipal securities.’’
Under the Commission’s modified
interpretation of the underwriter
exclusion, if a broker, dealer, or
municipal securities dealer is serving as
an underwriter of a particular issuance
of municipal securities, the underwriter
exclusion would include advice
provided by that underwriter within the
scope of underwriting and would
generally include advice with respect to
the structure, timing, terms, and other
similar matters concerning that issuance
of municipal securities.
already subject to regulation); SIFMA Letter I; and
letter from Noreen Roche-Carter, Chair, Tax &
Finance Task Force, Large Public Power Council,
dated February 22, 2011 (‘‘Large Public Power
Council Letter’’) (stating that ‘‘[b]y limiting that
exemption to instances where the broker-dealer is
acting as an underwriter, we are concerned this will
limit the types of services provided to our members
by broker-dealers compared to what has
traditionally been provided to our members’’).
581 See infra note 637 and accompanying text.
582 See, e.g., letter from Robert Doty, AGFS, dated
February 22, 2011 (‘‘Doty Letter I’’).
583 See letter from Colette-Irwin Knott, CIPFA,
President, National Association of Independent
Public Finance Advisors, dated February 22, 2011
(‘‘NAIPFA Letter’’).
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It is important to note that the
following advice would be outside the
scope of an underwriting for purposes of
this exclusion: (1) Advice on investment
strategies; (2) advice on municipal
derivatives; and (3) advice otherwise
identified by the Commission to be
outside the scope of an underwriting.584
Such advice generally is not within the
scope of serving as an underwriter on an
issuance of municipal securities and can
raise issues that implicate the policy
objectives of municipal advisor
registration. For example, municipal
entities suffered significant losses in the
financial crisis related to advice on
complex municipal derivatives,585 and
advice on investments,586 such as
refunding escrow investments provided
by underwriters 587 and investments
involving fraud in investment bidding
procedures,588 has been the subject of
significant enforcement activity. In
other circumstances, such advice may
create conflicts of interest for an
underwriter, such as when the advice
addresses whether to issue debt or
whether to conduct a competitive sale
instead of a negotiated underwriting. In
addition, as discussed further below, the
underwriter exclusion does not include
all activities that may be solely
incidental to an underwriting, such as
advice on investment strategies or
advice on municipal derivatives,
because these activities are not within
the scope of an underwriting and are
activities for which municipal entities
and obligated persons require the
protections afforded by municipal
advisors.
Although, as noted above, ‘‘issuance
of municipal securities’’ should be
construed broadly,589 the Commission
believes that, in order for a person to be
‘‘serving as an underwriter’’ 590 with
respect to an issuance of municipal
securities, there must be a relationship
to a particular transaction.591 For
example, a contractual engagement by a
municipal entity of a broker-dealer to
serve as underwriter on a specific
584 See
infra note 612 and accompanying text.
supra note 3 and accompanying text.
586 See supra note 106 and accompanying text.
587 See supra note 380 and accompanying text.
588 See supra note 287 and accompanying text.
589 See supra Section III.A.1.b.vii (discussing the
term ‘‘issuance of municipal securities’’).
590 See Rule 15Ba1–1(d)(2)(i).
591 See, e.g., In re Laser Arms Corp. Sec. Litig.,
794 F.Supp. 475, 484 (S.D.N.Y. 1989) (citing L.
LOSS, THE FUNDAMENTALS OF SECURITIES
REGULATION 278 (1983)). As set forth in Section
2(11) of the Securities Act, the definition of a
statutory underwriter turns on the relationship of
the party and the offering. Professor Loss has
observed that ‘‘[t]he term ‘underwriter’ is defined
not with reference to the particular person’s general
business but on the basis of his relationship to the
particular offering.’’
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planned transaction for the issuance of
municipal securities would constitute
the requisite engagement on a particular
issuance of municipal securities. By
contrast, an engagement by a municipal
entity of a broker-dealer to serve as
underwriter for some period of time or
to serve as a member of an underwriting
‘‘pool’’ without specifying the brokerdealer’s assignment expressly to serve as
underwriter on one or more particular
planned transactions would not
constitute serving as an underwriter on
a particular issuance of municipal
securities. Further, an underwriter
providing advice with respect to related
transactions or tranches on which it is
not engaged would be acting within the
scope of the underwriter exclusion only
if such advice is also related to the
tranche or transaction on which the
underwriter is engaged. For example, an
underwriter may give advice about the
timing of a sale of a related transaction
on which it is not engaged by noting
that shifting the timing of such sale will
have a positive impact on market
demand for the transaction on which it
is engaged. Such advice would fall
within the underwriter exclusion
because such advice concerns the
timing of the particular issuance of
municipal securities for which it is
acting as underwriter and is not
regarded by the Commission as being
outside the scope of an underwriting.
The Commission recognizes, however,
that a municipal entity issuer may wish
to request advice on an issuance of
municipal securities from a brokerdealer serving as a member of its
underwriting ‘‘pool’’ that does not yet
have a specific assignment or from a
broker-dealer engaged on related
transactions or tranches. In such
circumstances, the broker-dealer could
respond within the requirements of one
of the other exemptions of general
applicability discussed above. For
example, if the municipal entity issuer
was seeking the advice in response to a
‘‘mini-RFP’’ sent to members of the
underwriting pool, the broker-dealer
could respond and provide advice
within the limitations of the exemption
for responses to RFPs and RFQs.592 In
addition, if the municipal entity is
represented by an independent
registered municipal advisor with
respect to such issuance of municipal
securities, the broker-dealer could
respond and provide advice if the
requirements of the exemption available
when a municipal entity is otherwise
represented by an independent
registered municipal advisor with
respect to the same aspects of the
592 See
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issuance of municipal securities were
satisfied.593 Finally, depending on the
nature of the requested information and
the response, it might be considered a
communication or effort to win business
that is not municipal advisory
activity.594
In response to commenters that
suggested that underwriters should not
be permitted to provide ‘‘advice’’ with
respect to the structure, timing and
terms of the bond issue it seeks to
purchase and distribute,595 the
Commission points out that, subsequent
to the Proposal, the MSRB provided
additional interpretive guidance under
MSRB Rule G–17, which requires that
brokers, dealers, and municipal
securities dealers acting as underwriters
make certain disclosures to municipal
issuers about the roles of underwriters
in negotiated sales of municipal
securities, including disclosures about
their duty of fair dealing with a
municipal issuer (but not a fiduciary
duty to a municipal issuer) and their
actual or potential, material conflicts of
interest. The Commission continues to
believe that allowing underwriters to
give advice within the scope of an
underwriting with respect to the
structure, timing, terms, and other
similar matters concerning an issuance
is consistent with the aim of improving
the quality of advice that municipal
entities and obligated persons receive,
because these Rule G–17 disclosure
requirements should assist them in
clarifying the duties of underwriters to
municipal issuers, identifying conflicts
of interest, and appropriately evaluating
the advice they receive from
underwriters with that informed
perspective.596
The Commission continues to believe
that a broker, dealer, or municipal
securities dealer engaging in municipal
advisory activities outside the scope of
underwriting a particular issuance of
municipal securities should be subject
to municipal advisor registration, absent
the availability of another exemption or
exclusion. With respect to the treatment
of advice on municipal derivatives as
593 See
594 See
supra Section III.A.1.c.iii.
infra notes 615–618 and accompanying
text.
595 See,
e.g., NAIPFA Letter.
MSRB Notice 2012–25 (May 7, 2012)
(Securities and Exchange Commission Approves
Interpretive Notice on the Duties of Underwriters to
State and Local Government Issuers). In response to
comments on this Rule G–17 interpretive guidance,
the MSRB also indicated that it would continue to
study whether to impose a suitability standard on
the types of financial products (including types of
bond structures) that may be sold to municipal
entities. See letter from Margaret Henry, General
Counsel, Market Regulation, MSRB, dated February
13, 2012, available at http://www.sec.gov/
comments/sr-msrb-2011-09/msrb201109-24.pdf.
596 See
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outside the underwriter exclusion, the
Commission notes that one purpose of
the municipal advisor provision in the
Dodd-Frank Act was to address
concerns about advice to municipalities
on complex municipal derivatives in
which municipalities suffered
significant losses in the financial
crisis.597
Several commenters requested
additional guidance from the
Commission regarding the types of
activities that would fall within the
Commission’s interpretation of the
statutory underwriter exclusion for
activity within the scope of an
underwriting of an issuance of
municipal securities. For example, one
commenter stated that the exclusion
should clearly extend to a full range of
activities ‘‘closely related’’ to the
underwriting.598 Another commenter
asserted that certain municipal advisory
activities and, in particular, certain
‘‘transaction-related services’’ provided
by underwriters are integral to fulfilling
the function of an underwriter in a
professional manner but did not specify
which activities were integral.599 A few
commenters stated that the Proposal did
not provide sufficient guidance
regarding the scope of the underwriter
597 See
S. Rep. No. 111–176, at 38 (2010).
SIFMA Letter I. This commenter
recommended that covered activities for the
underwriter exclusion should include: (1) Advice
regarding the issuance of municipal securities,
municipal financial products, or any other
securities in the context of an underwriting; (2)
advice on the advisability of a municipal derivative
(including entering into a new derivative or
amending or terminating an existing derivative) in
connection with an underwriting; (3) advice in the
capacity of a member of the municipal entity or
obligated person’s underwriting pool, even if not in
the context of a particular deal, or other services
after the closing of an issuance of municipal
securities but which relate to the issuance for which
the underwriter acted as an underwriter; (4)
communications and analyses that are part of an
effort or presentation to obtain business from the
municipal entity or obligated person, or otherwise
part of seeking to serve as an underwriter on future
transactions; (5) assistance on related transactions
and related tranches of the offering; and (6) service
as a dealer-manager on a related tender or exchange
offer for outstanding securities.
599 See letter from Alan Polsky, Chair, MSRB,
dated November 9, 2011 (‘‘MSRB Letter II’’)
(including a listing of transaction-related services of
which, according to the commenter, some may be
appropriately performed by a broker-dealer as part
of an underwriting). See also letter from Robert K.
Dalton, Vice Chairman, George K. Baum &
Company, dated December 20, 2011 (the ‘‘Baum
Letter’’) (noting that in the text of their November
9, 2011 letter the MSRB noted that not only
transaction-related services are integral to an
underwriting). But see NAIPFA Letter and letter
from Colette Irwin-Knott, President, NAIPFA, dated
November 30, 2011 (‘‘NAIPFA Letter II’’) (stating its
belief that certain of such transaction-related
services listed in the MSRB’s letter are not so
‘‘integrally related’’ to an underwriter’s duties to
warrant exclusion from regulation as a municipal
advisor).
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598 See
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exclusion and requested further
clarification.600
Set forth below are non-exclusive
examples of activities that the
Commission considers to be within or
outside the scope of the underwriter
exclusion to the municipal advisor
definition, respectively.
Examples of Activities Within the Scope
of Serving as an Underwriter of a
Particular Issuance Municipal Securities
for Purposes of the Underwriter
Exclusion
The Commission agrees with those
commenters 601 that stated that it is not
possible to provide an exhaustive list of
all activities that would be considered
to be within the scope of an
underwriting. As a general matter, the
Commission considers activities that are
integral to the purchase and distribution
of a particular issuance of municipal
securities on which a broker, dealer, or
municipal securities dealer is engaged
to serve in the capacity as underwriter
to be within the scope of the
underwriter exclusion. The Commission
also considers activities that are integral
to fulfilling the role of an underwriter,
such as the obligations of underwriters
under the antifraud provisions of the
federal securities laws and obligations
of underwriters under MSRB rules, to be
within the scope of an underwriting.602
The Commission considers the
following activities, identified by
commenters,603 to be within the scope
of the underwriting exclusion: 604 (1)
advice regarding the structure, timing,
terms, and other similar matters
concerning a particular issuance of
municipal securities (except as
otherwise provided herein with respect
to advice on investment strategies,
municipal derivatives, or other activities
600 See, e.g., letter from Robert J. Stracks, Counsel,
BMO Capital Markets GKST Inc., dated February
22, 2011 (‘‘BMO Capital Markets Letter’’) (stating
that the Commission has made no attempt to clarify
the myriad of confusing issues it has raised with
respect to the exclusion for underwriters); Joy
Howard WM Financial Strategies Letter (stating that
‘‘it is unclear what trigger event would create an
underwriting relationship as opposed to a
municipal advisory relationship’’); Bond Dealers of
America Letter (noting that the underwriter
exclusion is not clearly defined).
601 See, e.g., MSRB Letter II.
602 See Securities Exchange Act Release No.
26985 (June 28, 1989), 54 FR 28799, 2811–28812
(July 10, 1989); Securities Exchange Act Release No.
62184A (May 27, 2010), 75 FR 33100, 33123–33125
(June 10, 2010); See also MSRB Rules G–17 and G–
19.
603 See, e.g., MSRB Letter II; NAIPFA Letter;
NAIPFA Letter II; SIFMA Letter I; and Baum Letter.
604 This list of activities includes examples of
activities that the Commission considers to be
within the scope of an underwriting; the list does
not purport to cover all possible activities
qualifying for the underwriter exclusion.
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identified by the Commission as outside
the scope of an underwriting); (2)
preparation of rating strategies and
presentations related to the issuance
being underwritten; (3) preparations for
and assistance with investor ‘‘road
shows’’ and investor discussions related
to the issuance being underwritten; (4)
advice regarding retail order periods
and institutional marketing if the
municipal entity has determined to
engage in a negotiated sale; (5)
assistance in the preparation of the
preliminary and final official statements
for the municipal securities; (6)
assistance with the closing of the
issuance of municipal securities,
including negotiation and discussion
with respect to all documents,
certificates, and opinions needed for
such closing; (7) coordination with
respect to obtaining CUSIP numbers and
the registration of the issue of municipal
securities with the book-entry only
system of the Depository Trust
Company; (8) preparation of post-sale
reports for such municipal securities;
and (9) structuring of refunding escrow
cash flow requirements necessary to
provide for the refunding and
defeasance of an issue of municipal
securities (provided, however, that the
recommendation of and brokerage of
particular municipal escrow
investments is outside the scope of the
underwriting exclusion).
Examples of Activities Outside the
Scope of Serving as an Underwriter of
a Particular Issuance of Municipal
Securities for Purposes of the
Underwriter Exclusion
Several commenters 605 also requested
clarification as to whether certain
strategic, transaction-related, and postissuance activities would be considered
acting within the scope of the
underwriter exclusion. The Commission
notes that an underwriter providing
certain advice outside the scope of the
underwriter exclusion would not be
required to be registered as a municipal
advisor in order to provide that advice
if: (a) the advice does not relate to a
municipal financial product 606 or the
issuance of municipal securities,607 (b)
the advice is given in response to a
request for proposal 608 or is otherwise
permitted when seeking to obtain
605 See,
e.g., NAIPFA Letter.
supra Section III.A.1.b.iv. (discussing the
definition of ‘‘municipal financial products’’).
607 See supra Section III.A.1.b.vii. (discussing the
term ‘‘issuance of municipal securities’’).
608 See supra Section III.A.1.c.ii. (discussing the
exemption for responses to RFPs and RFQs).
606 See
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business,609 or (c) the advice is given
when the municipal entity has engaged
an independent registered municipal
advisor.610
The Commission considers the
following activities, identified by
commenters,611 to be outside the scope
of the underwriter exclusion: 612 (1)
advice on investment strategies; (2)
advice on municipal derivatives
(including derivative valuation
services); (3) advice on what method of
sale (competitive sale 613 or negotiated
sale 614) a municipal entity should use
for an issuance of municipal securities;
(4) advice on whether a governing body
of a municipal entity or obligated
person should approve or authorize an
issuance of municipal securities; (5)
advice on a bond election campaign; (6)
advice that is not specific to a particular
issuance of municipal securities on
which a person is serving as
underwriter and that involves analysis
or strategic services with respect to
overall financing options, debt capacity
constraints, debt portfolio impacts,
analysis of effects of debt or
expenditures under various economic
assumptions, or other impacts of
funding or financing capital projects or
working capital; (7) assisting issuers
with competitive sales, including bid
verification, true interest cost (TIC)
calculations and reconciliations,
verifications of bidding platform
calculations, and preparation of notices
of sale; (8) preparation of financial
feasibility analyses with respect to new
609 See infra notes 615 and 616 and
accompanying text (discussing communications or
efforts to win business).
610 See supra Section III.A.1.c.iii. (discussing the
exemption when the municipal entity or obligated
person is represented by an independent municipal
advisor).
611 See, e.g., MSRB Letter II; NAIPFA Letter;
NAIPFA Letter II; SIFMA Letter I; and Baum Letter.
612 For broker-dealers serving as underwriters for
a particular issuance of municipal securities, these
activities would not be excluded from the definition
of municipal advisor because they are not within
the scope of an underwriting of such issuance of
municipal securities. This list of activities includes
examples of activities that the Commission
considers to be outside the scope of the underwriter
exclusion; the list does not purport to cover all
possible activities not qualifying for the underwriter
exclusion.
613 Competitive sale is a method of sale chosen by
an issuer, requesting underwriters to submit a firm
offer to purchase a new issue of municipal
securities. The issuer awards the municipal
securities to the ‘‘winning’’ underwriter or
syndicate presenting a bid complying with the
terms of a Notice of Sale that provides the lowest
interest rate cost according to stipulated criteria set
forth in the Notice of Sale. See definition of
‘‘Competitive Sale’’ in MSRB Glossary.
614 Negotiated sale is the sale of a new issue of
municipal securities by an issuer directly to an
underwriter or underwriting syndicate selected by
the issuer. See definition of ‘‘Negotiated Sale’’ in
MSRB Glossary.
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projects; (9) budget planning and
analyses and budget implementation
issues with respect to debt issuance and
collateral budgetary impacts; (10) advice
on an overall rating strategy that is not
related to a particular issuance of
municipal securities on which a person
is serving as an underwriter, including
advice and actions taken on behalf of a
municipal entity or obligated person
between financing transactions; (11)
advice on overall financial controls that
are not related to a particular issuance
of municipal securities on which a
person is serving as an underwriter; or
(12) advice regarding the terms of
requests for proposals or requests for
qualification for the selection of
underwriters or other professionals for a
project financing and advice regarding
review of responses to such requests,
including matters regarding
compensation of such underwriters or
other professionals.
The Commission believes the abovelisted activities are not within the scope
of the underwriter exclusion because
the activities are either not specific to a
particular issuance of municipal
securities for which a broker, dealer or
municipal securities dealer could be
serving as an underwriter or the
activities are not integral to fulfilling the
role of an underwriter.
Communications or Efforts to Win
Business
A few commenters asked whether
communications and analyses that are
part of an effort to win business would
be considered municipal advisory
activity.615 The Commission notes that
not all communications with a
municipal entity or obligated person
constitute municipal advisory activities.
If the person has identified himself or
herself as seeking to obtain business,
such as serving as an underwriter on
future transactions, whether such
communications and analyses constitute
municipal advisory activities or the
provision of general information (as
discussed further above 616) will depend
on the specific facts and circumstances.
For example, pursuant to the
Commission’s interpretation of the
treatment of the provision of general
information, the Commission believes
615 See SIFMA Letter I. See also letter from
Nathan R. Howard, Esq., Municipal Advisor, WM
Financial Strategies, dated February 22, 2011
(‘‘Nathan R. Howard WM Financial Strategies
Letter’’) (stating that when the services provided by
a broker-dealer are merely informational nonmunicipal advisory services, the broker-dealer
should be excluded from the definition of
municipal advisor).
616 See supra Section III.A.1.b.i. (discussing,
among other things, the provision of general
information).
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that a broker-dealer who provides
information to a municipal entity
regarding its underwriting capabilities
and experience or general market or
financial information that might
indicate favorable conditions to issue or
refinance debt likely would not be
treated as engaging in municipal
advisory activity.
On the other hand, for purposes of
this rule and in response to
comments,617 the Commission does not
consider advice rendered by a brokerdealer in its capacity as a member of an
‘‘underwriting pool’’ for a municipal
entity or obligated person (and in the
absence of a designation of that brokerdealer to serve as underwriter on the
particular issuance of municipal
securities on which the advice is given)
to be advice within the scope of the
underwriting exclusion. An
underwriting pool generally includes a
group of underwriters selected by a
municipal entity pursuant to an RFP or
other process 618 from which the
municipal entity may select one or more
firms to underwrite a specific
transaction. As noted above, a brokerdealer that is merely a part of an
underwriting pool is not engaged to
underwrite any particular issuance, and
therefore, is not acting as an
underwriter. As described above,
however, depending on the particular
facts and circumstances, the brokerdealer’s activities as part of an
underwriting pool may be within the
requirements of one of the exemptions
of general applicability,619 may be
considered to be an effort to obtain
underwriting business on its own
behalf, or may be otherwise exempt,
which would not require municipal
advisor registration.
Post-Offering Services
Commenters asked whether postoffering work performed by an
underwriter would qualify for the
underwriter exclusion or whether it
would constitute municipal advisory
activity requiring registration.620 For
purposes of this rule, the Commission
considers post-offering work performed
by an underwriter to be municipal
advisory activity unless it is a request
for information or services that would
have been provided as part of the
underwriting (such as resending cash
flow and other similar information
related to the offering) or is required for
an underwriter to fulfill its regulatory
617 See
SIFMA Letter I.
infra Section III.A.1.c.ii.
619 See supra notes 592 and 593 and
accompanying text.
620 See, e.g., SIFMA Letter I.
618 See
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underwriters play in assisting issuers.626
This commenter also noted that ‘‘[a]ny
uncertainty with respect to a private
placement agent’s role can be
adequately clarified to municipal
issuers or obligors through mandatory
disclosures.’’ 627
The Commission believes that any
registered broker-dealer who
participates in a particular issuance of
municipal securities, whether the
broker-dealer is acting as agent (such as
in a best-efforts offering) or is acting as
principal (such as in a firm commitment
offering) would not have to register as
a municipal advisor if facts and
circumstances indicate that the
registered broker-dealer is performing
municipal advisory activities that
otherwise would be considered within
the scope of the underwriting of a
particular issuance of municipal
securities as discussed above.628
Registered broker-dealers are subject to
regulation under the Exchange Act,
regardless of whether they act as
principal or agent in a municipal
securities offering. The Commission
does not believe that the underwriter
exclusion should be limited to a
particular type of underwriting or
particular type of offering.629 Therefore,
if a registered broker-dealer, acting as a
Broker-Dealers Acting as Placement
placement agent, performs municipal
Agents, Dealer-Managers, and
advisory activities that otherwise would
Remarketing Agents
be considered within the scope of the
A few commenters emphasized the
underwriting of a particular issuance of
similarity between private placement
municipal securities as discussed above,
agents and underwriters, and suggested
the broker-dealer would not have to
that private placement agents should be register as a municipal advisor.
included in the underwriter
In addition, the Commission has
exclusion.625 One commenter stated that determined that a broker-dealer acting
a private placement agent offering
as a dealer-manager for a tender offer,
securities of a municipal entity or
without more,630 would not be
obligated person in a private placement
under the Securities Act, even if the
626 See Piper Jaffray Letter.
agent is not serving as an underwriter
627 See id.
628 A registered broker-dealer acting as a
within the strict meaning of Section
placement agent in the issuance of non-municipal
2(a)(11) of the Securities Act, serves
securities, however, would not be able to rely on
almost exactly the same role
obligations as underwriter.621 If an
issuance has closed and the
underwriting period 622 has terminated,
the broker-dealer cannot be considered
to be acting as an underwriter with
respect to the issuance of municipal
securities. Therefore, any advice or
recommendation with respect to the
issuance of municipal securities or a
municipal financial product given after
the termination of the underwriting
period generally would be municipal
advisory activities. Accordingly, brokerdealers should consider whether
particular post-offering work they
provide would constitute advice with
respect to the issuance of municipal
securities or a municipal financial
product.
The Commission notes that assisting a
municipal entity or obligated person
with filing annual financial information,
audited financial statements, or material
event notices, as required by Rule 15c2–
12,623 after an issuance has closed and
after the underwriting period has
terminated, would generally be outside
the scope of the underwriting exclusion.
A determination as to whether or not
these activities would constitute advice
would be based on all the facts and
circumstances.624
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621 See
Securities Exchange Act Release No.
26985 (June 28, 1989), 54 FR 28799, 28805, 2811–
28812 (July 10, 1989); Securities Exchange Act
Release No. 62184A (May 27, 2010), 75 FR 33100,
33123–33125 (June 10, 2010); See also MSRB Rules
G–17; G–19 and G–32.
622 For purposes of MSRB rules and Exchange Act
Rule 15c2–12, the underwriting period is the period
in connection with a primary offering of municipal
securities ending on the later of the closing of the
underwriting or the sale of the last of the securities
by the syndicate. See definition of ‘‘Underwriting
Period’’ in MSRB Glossary.
623 17 CFR 240.15c2–12.
624 See supra Section III.A.1.b.i (discussing the
advice standard in general).
625 See SIFMA Letter I; Chapman & Cutler Letter
(concurring with SIFMA that the duties of
placement agents with respect to the sale and
pricing of municipal securities are similar to the
duties of underwriters); Piper Jaffray Letter.
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the underwriter exclusion and, based on the facts
and circumstances, might be engaged in solicitation
activity. See supra note 462 and accompanying text
(discussing when a placement agent for an
investment adviser to a pooled-investment vehicle
would be considered a third-party solicitor that falls
within the definition of municipal advisor). In
addition, a placement agent may have other duties,
including a fiduciary duty to its client, that arise as
a matter of common law or another statutory or
regulatory regime.
629 Whether or not a particular offering would be
a distribution for purposes of Section 2(a)(11) of the
Securities Act is a facts and circumstances
determination. Whether there is a ‘‘distribution’’
does not affect the role of a registered broker-dealer
in a municipal securities offering for purposes of
this underwriter exclusion.
630 However, if, for example, the registered
broker-dealer provides advice as to the benefits of
a tender offer in comparison to the alternative of
issuing refunding bonds, then, depending on the
facts and circumstances, they might be engaged in
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municipal advisory activity because
tender offers typically involve only the
purchase of municipal securities and
the purchase is not itself an advisory
activity. Similarly, a broker-dealer
acting as a dealer-manager for an
exchange offer would generally involve
only two transactions—the purchase of
one security in the tender offer and the
underwriting of a particular issuance of
municipal securities in exchange for
such tendered securities. Since the
purchase itself is not advisory activity
and the underwriting of the new issue
of municipal securities would be
excluded under the underwriter
exclusion, neither component of the
exchange offer would be considered
municipal advisory activity.631
A few commenters also suggested that
remarketing agents should be included
in the underwriter exclusion.632
Generally, the Commission also would
not consider a remarketing agent 633
acting only in its capacity as a
remarketing agent to be a municipal
advisor because the mere remarketing of
bonds likely would not constitute an
issuance of municipal securities. If,
however, the remarketing constitutes a
primary offering,634 then the
municipal advisory activity outside the scope of an
underwriting.
631 Any advice or recommendations to undertake
such a tender or exchange offer, or regarding the
timing or terms of such tender or exchange offer,
would have to be evaluated in the context of that
issuance or the issuance of other securities to
determine if the advice was advice with respect to
the structure, timing, terms, or other similar matters
concerning an issuance being underwritten, and
thus within the underwriter exclusion.
632 See SIFMA Letter I (stating that activities in
which a remarketing agent engages when it resells
an issuance in the secondary market are similar to
those of an underwriter of a primary issuance by
a municipal entity or obligated person); Chapman
& Cutler Letter (concurring with SIFMA that the
duties of remarketing agents with respect to the sale
and pricing of municipal securities are similar to
the duties of underwriters).
633 A remarketing agent is a municipal securities
dealer responsible for reselling to investors
securities (such as variable rate demand obligations
and other tender option bonds) that have been
tendered for purchase by their owner. The
remarketing agent also typically is responsible for
resetting the interest rate for a variable rate issue
and may act as tender agent. See definition of
‘‘Remarketing Agent’’ in MSRB Glossary.
634 Whether a remarketing is a ‘‘primary offering’’
of the municipal securities and whether the
remarketing agent is an underwriter for purposes of
the Securities Act of 1933 will depend on, among
other matters, the level of issuer involvement in the
remarketing. Whether a particular remarketing is a
primary offering by the issuer of the securities
requires an evaluation of relevant provisions of the
governing documents, the relationship of the issuer
to the other parties involved in the remarketing
transaction, and other facts and circumstances
pertaining to such remarketing, particularly with
respect to the extent of issuer involvement. See,
e.g., Securities Exchange Act Release No. 62184A
(May 27, 2010), 75 FR 33100, 33103 (June 10, 2010).
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remarketing agent would need to
evaluate its activities to determine if an
exemption or exclusion from
registration (such as the underwriter
exclusion) applies. A primary offering is
an issuance of municipal securities for
purposes of the municipal advisor
registration regime.635 Similarly, if the
activities of a remarketing agent include
providing advice (such as advice with
respect to the investment of proceeds)
beyond merely determining a
remarketing price for bonds that have
already been issued and that are not
being reoffered, the remarketing agent
would need to evaluate its activities to
determine if an exception to registration
(such as the investment adviser
exclusion) applies.
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Solely Incidental Services
Many commenters recommended that
the municipal advisor registration rules
include an exclusion for broker-dealers
that is similar in scope to the brokerdealer exclusion under Section
202(a)(11)(C) of the Investment Advisers
Act.636 Specifically, these commenters
stated that the Commission should
exclude from registration broker-dealers
that provide advice that is solely
incidental to a transaction.637 These
Although not applicable in determining whether an
offering is a primary offering for purposes of the
Securities Act of 1933, the Commission also notes
that for purposes of Rule 15c2–12, a ‘‘primary
offering’’ is defined to mean ‘‘an offering of
municipal securities directly or indirectly by or on
behalf of an issuer of such securities, including any
remarketing of municipal securities’’ that meets
certain specified conditions. See 17 CFR 240.15c2–
12(f)(7). See also Securities Exchange Act Release
No. 34961 (November 10, 1994), 59 FR 59590
(November 17, 1994).
635 See supra Section III.A.1.b.vii. (discussing the
term ‘‘issuance of municipal securities’’). The
Commission notes that, although it is likely in such
a circumstance for the underwriter exemption to
apply, if the agent is engaging in municipal
advisory activity that is outside of the scope of
underwriting activity and no other exemption or
exclusion applies, such agent would be required to
register as a municipal advisor.
636 Section 202(a)(11)(C) of the Investment
Advisers Act excludes from the definition of
‘‘investment adviser’’ a broker or dealer ‘‘whose
performance of [advisory] services is solely
incidental to the conduct of his business as a broker
or dealer who receives no special compensation
therefor.’’ 15 U.S.C. 80b–2(a)(11)(C).
637 See, e.g., Union Bank Letter (stating that
advice supplied that is ‘‘solely incidental to the
conduct of his business as a broker or dealer and
who receives no special compensation therefor’’
(Section 202(a)(11) of the Investment Advisers Act)
should be excluded from the definition of
‘‘advice’’); SIFMA Letter I (stating that ‘‘brokerdealers providing advice that is solely incidental to
a transaction should be excluded from the
definition of municipal advisor for the same reason
that registered investment advisers are excluded (in
some instances): they are already regulated’’);
Financial Services Institute Letter (stating that
broker-dealers should be treated as in the
Investment Advisers Act, i.e., where a municipal
entity enters into an ordinary brokerage transaction,
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commenters generally noted that brokerdealers are already regulated by the
Commission and should not be subject
to additional or duplicative
regulation.638
The Commission is not adopting an
exemption from the definition of
municipal advisor for a broker-dealer
that engages in municipal advisory
activities that are solely incidental to
the conduct of its business as a brokerdealer because the Commission believes
that it has otherwise addressed
commenters’ concerns regarding
duplicative regulation. As discussed
above, the Commission is exempting
from the definition of municipal advisor
persons that provide advice with respect
to investment strategies that are not
plans or programs for the investment of
the proceeds of municipal securities and
the recommendation of and brokerage of
municipal escrow investments.639 As
discussed below, based on the
application of the adopted rules, brokerdealers that sell securities to municipal
entities and obligated persons would
generally not be engaging in municipal
advisory activity.640 The application of
the adopted rules limits the range of
municipal financial products to which
duplicative regulation could apply. As
noted above, the Commission believes
that registered broker-dealers that
engage in municipal advisory activities
by advising on the investment of
proceeds of municipal securities or
municipal escrow investments should
not be exempt from municipal advisor
registration.641
any incidental advice provided in the scope of that
relationship should not require the broker-dealer to
register as a municipal advisor).
638 See, e.g., Union Bank Letter (stating that
Congress did not intend for broker-dealers and
registered investment advisers that already engage
in regulated activities for their municipal clients to
be subject to the additional layer of regulation that
would accompany municipal advisor registration);
ICI Letter (noting that broker-dealers that are
underwriters are already subject to MSRB Rule G–
37 and are also regulated by the Commission as
broker-dealers); SIFMA Letter I.
639 See supra note 327 and accompanying text
and Rule 15Ba1–1(d)(3)(vii).
640 See infra note 644 and accompanying text.
641 See supra Section III.A.1.b.viii. (discussing the
Commission’s views on why advice with respect to
the investment of proceeds of municipal securities
should be subject to municipal advisor registration
notwithstanding the existence of other regulatory
regimes). See also infra Section III.A.1.c.v.
(discussing, among other things, the Commission’s
position that registered investment advisers
engaging in municipal advisory activities are only
excluded from registration to the extent their
activities are investment advice). Likewise, the
Commission believes that broker-dealers that
engage in municipal advisory activities that are
outside of the scope of the underwriting of a
particular issuance of municipal securities should
be regulated and registered as municipal advisors.
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Broker-Dealers Selling Securities to
Municipal Entities and Obligated
Persons
Several commenters suggested that,
based on the Proposal, the Commission
appears to conclude that ‘‘a brokerdealer that sells a security to a
municipal entity where it is not serving
as an underwriter’’ is engaged in
municipal advisory activity, because
advice is integral to the sale of
securities.642 That is not the conclusion
of the Commission. The municipal
advisor registration requirement does
not apply in the absence of advice (or
solicitation). As noted above, for
purposes of the municipal advisor
definition, ‘‘advice’’ includes, without
limitation, a recommendation that is
particularized to the needs and
circumstances of a municipal entity or
obligated person with respect to
municipal financial products or the
issuance of municipal securities, based
on all the facts and circumstances.643
Thus, a broker-dealer that effects a
transaction that it has not recommended
will not be a ‘‘municipal advisor’’ with
respect to such activity.644 However, the
sale of a security to a municipal entity
or obligated person constitutes a
municipal advisory activity if: (1) the
monies used to purchase such security
are proceeds of municipal securities; 645
and (2) in executing such transaction,
the broker-dealer also recommends the
investment or otherwise offers advice to
the municipal entity or obligated person
about which securities to purchase or
sell.
Another commenter urged the
Commission to exclude broker-dealers
affiliated with life insurance companies
from municipal advisor registration,
642 See Insurance Companies Letter (stating that
the Commission appears to conclude that every
time a broker-dealer sells a security to a municipal
entity where it is not serving as an underwriter, it
must register as a municipal advisor, and that such
an approach seems inconsistent with Congressional
intent due to pre-existing broker-dealer regulation).
See also ICI Letter (stating that the Commission
proposed that the broker-dealer exclusion means
that a broker, dealer or municipal securities dealer
would be eligible for the exclusion only when
acting in its capacity as an underwriter; and
suggesting that the broker-dealer exclusion should
include brokers, dealers, and municipal securities
dealers who engage in additional activities while
serving as underwriters to municipal entities or
obligated persons); and Large Public Power Council
Letter (expressing concern that the Commission is
limiting the broker-dealer exemption to situations
in which the broker-dealer is acting as an
underwriter).
643 See supra Section III.A.1.b.i. (discussing the
advice standard in general).
644 See supra note 162 (discussing the term
‘‘advice’’ in contexts outside of the municipal
advisor definition).
645 See supra notes 330–343 and accompanying
text (discussing the definition of ‘‘proceeds of
municipal securities’’).
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because such ‘‘limited service’’ brokerdealers are substantively different from
‘‘full service’’ broker-dealers.646 The
Commission notes that broker-dealers
affiliated with insurance companies are
only required to register as municipal
advisors to the extent their activities
constitute advice to (or solicitation of) a
municipal entity or obligated person
with respect to municipal financial
products or the issuance of municipal
securities. The mere fact that a brokerdealer is affiliated with a life insurance
company and may not sell as wide a
range of securities as other brokerdealers is not determinative as to
whether such broker-dealer must
register as a municipal advisor. As
noted in the paragraph above, such
broker-dealers may sell securities to a
municipal entity without triggering
municipal advisor registration.
Broker-Dealers Providing Advice to
Individual Plan Participants in a Public
Employee Benefit Plan
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One commenter expressed concern
that broker-dealers that provide
investment advice (such as asset
allocation) to individual plan
participants in the context of a 403(b)
retirement plan or a similar defined
contribution plan might trigger
municipal advisor registration. This
commenter recommended that such
broker-dealers be specifically excluded
from registration.647
The definition of municipal advisor
states that a municipal advisor is a
person that provides advice ‘‘to or on
behalf of a municipal entity or obligated
person.’’ As described above, advice
related to investment strategies that
would require registration is limited to
advice with respect to ‘‘the investment
of proceeds of municipal securities . . .
and the recommendation of and
brokerage of municipal escrow
investments.’’ 648 Thus, the provision of
investment advice to individual plan
participants in a public employee
benefit plan is not a municipal advisory
activity, as long as the individual plan
participant is not a municipal entity.649
646 See ACLI Letter (stating that the range of
products offered by these limited purpose brokerdealers is typically narrow and focuses upon the
distribution of variable insurance contracts and
mutual funds; and that such broker-dealers
primarily elicit orders from variable contract and
mutual fund purchasers).
647 See letter from Adym W. Rygmyr, Associate
General Counsel, TIAA–CREF Individual &
Institutional Services, LLC, dated February 22, 2011
(‘‘TIAA–CREF Letter’’).
648 Rule 15Ba1–1(b) and Rule 15Ba1–1(d)(3)(vii).
649 See supra Section III.A.1.b.viii. (distinguishing
individual contributions from municipal entity
contributions to 529 Savings Plans and public
retirement plans, among other plans).
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v. Registered Investment Advisers
Exchange Act Section 15B(e)(4)(C)
excludes from the definition of
municipal advisor ‘‘any investment
adviser registered under the Investment
Advisers Act of 1940, or persons
associated with such investment
advisers who are providing investment
advice.’’ 650 The Commission proposed
in Rule 15Ba1–1(d)(2)(ii) to interpret the
statutory exclusion for registered
investment advisers from the definition
of municipal advisor.651 Specifically,
the Commission proposed that the term
‘‘municipal advisor’’ shall not include
‘‘[a]n investment adviser registered
under the Investment Advisers Act of
1940 . . . or a person associated with
such registered investment adviser,
unless the registered investment adviser
or person associated with the
investment adviser engages in
municipal advisory activities other than
providing investment advice that would
subject such adviser or person
associated with such adviser to the
Investment Advisers Act of 1940.’’ 652
In the Proposal, the Commission
stated that a registered investment
adviser or an associated person of a
registered investment adviser would fall
within the definition of municipal
advisor and be required to register with
the Commission as a municipal advisor
if the adviser or associated person
engages in any municipal advisory
activities (including solicitation) that
would not be investment advice subject
to the Investment Advisers Act.653 In
the Proposal, the Commission stated its
belief that this interpretation is in
furtherance of the goals of the DoddFrank Act to regulate persons that
engage in municipal advisory
activities.654
As discussed further below, the
Commission received several comments
in response to its proposed
interpretation of the statutory exclusion
relating to investment advisers. After
careful consideration, to address
commenters’ concerns, the Commission
is modifying proposed Rule 15Ba1–
1(d)(2)(ii) to provide certain
clarifications. Specifically, Rule 15Ba1–
1(d)(2)(ii), as adopted, provides that the
definition of municipal advisor
excludes ‘‘[a]ny investment adviser
registered under the Investment
Advisers Act of 1940 . . . or any person
associated with such registered
investment adviser to the extent that
650 15
U.S.C. 78o–4(e)(4)(C).
proposed Rule 15Ba1–1(d)(2)(ii).
652 See id. See also Temporary Registration Rule
Release, 75 FR 54467.
653 See Proposal, 76 FR 833.
654 See id.
651 See
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67517
such registered investment adviser or
such person is providing investment
advice in such capacity.’’ Moreover, the
Commission clarifies in Rule 15Ba1–
1(d)(2)(ii) that ‘‘investment advice,’’
solely for purposes of this rule, ‘‘does
not include advice concerning whether
and how to issue municipal securities,
advice concerning the structure, timing,
and terms of an issuance of municipal
securities and other similar matters,
advice concerning municipal
derivatives, or a solicitation of a
municipal entity or obligated
person.’’ 655
Interpretation of the Statutory Language
Several commenters stated that the
Commission’s proposed interpretation is
contrary to the plain meaning of the
statute and exceeds its intended
scope.656 One commenter stated that the
statute excludes ‘‘any’’ registered
investment adviser—without
limitation.657 Similarly, another
commenter stated that the phrase ‘‘who
are providing investment advice’’ refers
only to the immediately previous
phrase, ‘‘persons associated with such
investment advisers’’—not to ‘‘such
registered advisers’’ themselves.658 As
such, this commenter also encouraged
the Commission to interpret the
exclusion for investment advisers to
apply to all registered investment
advisers, not just those who are
providing investment advice.659 Yet
another commenter stated that the
statute’s exclusion of investment
advisers ‘‘who are providing investment
advice’’ cannot be interpreted to only
exclude advisers providing ‘‘investment
advice’’ subject to the Investment
Advisers Act, because not all
‘‘investment advice’’ requires
registration under the Investment
Advisers Act (e.g., advice with respect
to instruments that are not
securities).660 This commenter stated
that the Commission’s interpretation
would mean that ‘‘[a Commission]registered investment adviser would be
excepted from municipal advisor
registration for only some, but not all, of
its investment activities.’’ 661 The
commenter described the Commission’s
655 See
Rule 15Ba1–1(d)(2)(ii).
e.g., IAA Letter; ICI Letter; SIFMA Letter
I; and letter from Heidi Stam, Managing Director
and General Counsel, The Vanguard Group, Inc.,
dated February 22, 2011 (‘‘Vanguard Letter’’).
657 See Vanguard Letter. See also ICI Letter.
658 See ICI Letter. See also IAA Letter.
659 See ICI Letter.
660 See SIFMA Letter I. See also text
accompanying infra notes 682 and 683.
661 SIFMA Letter I.
656 See,
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interpretation as ‘‘without an apparent
reason or policy justification.’’ 662
In commenting that registered
investment advisers should be excluded
broadly from municipal advisor
registration, one commenter stated that
the municipal advisor registration
requirement established by the DoddFrank Act was ‘‘primarily aimed at
registering unregulated persons.’’ 663
Registered investment advisers, in the
view of some commenters, are ‘‘already
subject to the fiduciary duties and
comprehensive registration and
disclosure requirements mandated by
the Investment Advisers Act.’’ 664 The
proposal would therefore subject them
to ‘‘duplicative and overlapping
regulation.’’665
Some commenters stated that the
Commission’s proposed interpretation
of the exclusion ‘‘interjects ambiguity’’
on how to determine whether registered
investment advisers must also register
as municipal advisors.666 These
commenters stated that the
Commission’s interpretation would
create ‘‘widespread uncertainty’’ 667
among investment advisers regarding
whether certain of their activities are
subject to regulation as municipal
advisory activities. One commenter
stated that the uncertainty would be
compounded by the lack of a definition
concerning the kind of investment
advice that would exempt a registered
investment adviser from the municipal
advisor registration requirement.668
One commenter requested that the
Commission include a non-exclusive
interpretation that ‘‘any advice provided
by a registered investment adviser
pursuant to a written agreement with a
municipal entity to whom the adviser
owes a fiduciary duty as an investment
adviser constitutes the rendering of
investment advice.’’ 669 The requested
interpretation would thereby exempt the
investment adviser from registration as
a municipal advisor.670
As stated above, the Commission is
adopting a revised Rule 15Ba1–
1(d)(2)(ii). Under the rule the
Commission is adopting today, a
registered investment adviser could
provide advice concerning the
investment of proceeds in securities
without registering as a municipal
advisor because it would be ‘‘providing
investment advice’’ in its capacity as a
662 Id.
663 See
Vanguard Letter.
See also MFA Letter.
665 See Vanguard Letter.
666 See, e.g., Vanguard Letter.
667 MFA Letter.
668 See Vanguard Letter.
669 Id.
670 See id.
664 Id.
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registered investment adviser. Further,
if the advice is provided pursuant to an
advisory agreement that extends to
investments in both securities and nonsecurity financial instruments, such
advice would still be excluded, because
investment advice provided pursuant to
the advisory agreement would be
investment advice for purposes of Rule
15Ba1–1(d)(2)(ii).671
However, the Commission notes that,
solely for purposes of the municipal
advisor registration rules, pursuant to
Rule 15Ba1–1(d)(2)(ii), ‘‘investment
advice’’ does not include advice
concerning whether and how to issue
municipal securities, advice concerning
the structure, timing, and terms of an
issuance of municipal securities and
other similar matters, advice concerning
municipal derivatives, or a solicitation
of a municipal entity or obligated
person. Notwithstanding that these
activities may constitute advice under
the Investment Advisers Act, the
Commission believes that this approach
is appropriate given that Section 15B(e)
of the Exchange Act expressly
designates these activities as requiring
municipal advisor registration.672
Accordingly, a registered investment
adviser that provides these types of
advice to municipal entities or obligated
persons would need to register as a
municipal advisor.
The Commission interprets the
statutory language, which provides an
exclusion for registered investment
advisers and associated persons ‘‘who
are providing investment advice,’’ as
evidence that Congress did not intend to
grant a blanket exemption from
municipal advisor registration for all
registered investment advisers and their
associated persons regardless of the
671 As discussed below, solely for purposes of the
municipal advisor registration rules, ‘‘investment
advice’’ does not include advice concerning
whether and how to issue municipal securities,
advice concerning the structure, timing, and terms
of an issuance of municipal securities and other
similar matters, advice concerning municipal
derivatives, or a solicitation of a municipal entity
or obligated person, even if such activities are
under an advisory agreement. Also, investment
advice provided pursuant to the advisory agreement
would be subject to the anti-fraud provisions of the
Investment Advisers Act. See 15 U.S.C. 80b–6(1)
and 80b–6(2). The Supreme Court has construed
Investment Advisers Act Sections 206(1) and (2) as
establishing a fiduciary standard for investment
advisers that imposes the ‘‘affirmative duty of
‘utmost good faith, and full and fair disclosure of
all material facts,’ as well as an affirmative
obligation to ‘employ reasonable care to avoid
misleading’’ ’ their clients. SEC v. Capital Gains
Research Bureau, Inc., 375 U.S. 180, 194 (1963).
672 See 15 U.S.C. 78o–4(e)(4). The Commission
notes that this interpretation of the term investment
advice relates solely to whether a registered
investment adviser, or an associated person of such
adviser, would need to register as a municipal
advisor.
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activities in which they are engaged.
The Commission believes the phrase
‘‘who are providing investment advice’’
limits the exclusion. Under this
interpretation, if an associated person or
a registered investment adviser engages
in municipal advisory activities that do
not constitute ‘‘investment advice’’ for
purposes of Rule 15Ba1–1(d)(2)(ii), both
the registered investment adviser and
the associated person of such adviser
engaging in the municipal advisory
activities would be ‘‘municipal
advisors’’ unless eligible for another
exclusion or exemption.673
The Commission further notes that
the municipal advisor registration and
regulatory regime relates to issues that
are unique to municipal advisory
activities—particularly the advice
concerning utilization of municipal
derivatives, whether and how to issue
municipal securities, and the structure,
timing, and terms of issuances of
municipal securities and other similar
matters. The registration of registered
investment advisers as municipal
advisors, to the extent they engage in
these activities, whether or not already
subject to the Investment Advisers Act,
is necessary to provide the benefits
associated with the regulation of
persons who engage in municipal
advisory activities. Such benefits
include, but are not limited to,
standards of conduct, training, and
testing for municipal advisors that may
be required by the Commission or the
MSRB, and other requirements unique
to municipal advisors that may be
imposed by the MSRB.674
The Commission believes that the
clarifications described above address
the comments that the Commission’s
interpretation introduces ‘‘ambiguity’’
and will lead to ‘‘widespread
uncertainty’’ among registered
investment advisers. In particular,
permitting a Commission-registered
investment adviser to rely on the
exclusion when providing any advice
under an investment advisory
agreement that is subject to the
Investment Advisers Act, as long as
such advice is not specifically excluded
from the definition of ‘‘investment
advice’’ under Rule 15Ba1–1(d)(2)(ii),
will allow registered investment
advisers to achieve greater certainty
about the scope of the exclusion at the
time they enter into an advisory
673 Consequently, both the registered investment
adviser and the associated person would be
required to register, unless the associated person
meets the requirements of the exemption from
registration in Rule 15Bc4–1 discussed below. See
infra Section III.A.7.
674 See supra note 190.
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agreement.675 If an investment adviser
firm engages in a municipal advisory
activity that is not within the registered
investment adviser exclusion, such as
advice concerning the issuance of
municipal securities or the utilization of
swaps by municipalities, the mere fact
that the firm is registered under the
Investment Advisers Act would not
exempt that firm from registration as a
municipal advisor.676
As discussed above in Section
III.A.1.b.viii., the Commission is
narrowing the application of the term
‘‘investment strategies’’ from all plans,
programs, or pools of assets that invest
funds held by or on behalf of a
municipal entity to plans or programs
for the investment of the proceeds of
municipal securities and the
recommendation of and brokerage of
municipal escrow investments.
Accordingly, the municipal advisor
registration regime, as adopted, will
provide appropriate protection for
advice with respect to proceeds of
municipal securities while mitigating
many of the commenters’ concerns with
respect to funds of municipal entities
other than proceeds of municipal
securities. Moreover, because advice
provided to fewer types of plans,
programs, or pools of assets would
require municipal advisor registration,
the Commission’s exemption for
persons providing advice with respect
to certain investment strategies will
result in fewer registered investment
advisers having to register as municipal
advisors compared to Rule 15Ba1–1(b)
as originally proposed.677 For example,
under the narrow scope of investment
strategies, investment advisers who
provide advice to public employee
benefit plans, participant-directed
investment plans such as 529, 403(b) or
457 plans that do not include proceeds
of municipal securities would not be
required to register as municipal
advisors.
As noted above, one commenter
suggested that any advice pursuant to a
written agreement between an
investment adviser and a municipal
675 See also Ancillary or Additional Advisory
Services Provided by Investment Advisers section
below.
676 The Commission acknowledges commenters’
concerns that there will be overlapping
requirements for registered investment advisers that
engage in municipal advisory activities, just as
there are for investment advisers that engage in
broker-dealer activities. The Commission notes that
it is permitting investment advisers that have
already filed a Form ADV with the Commission to
incorporate by reference in their Form MA certain
information that they have already supplied in
Form ADV. See infra Sections II.A.2.
677 See supra Section III.A.1.b.viii. (discussing the
term ‘‘investment strategies’’ and the exemption
pursuant to Rule 15Ba1–1(d)(3)(vii)).
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entity to whom the adviser owes a
fiduciary duty should be considered
investment advice and thus exclude the
adviser from registration as a municipal
advisor.678 In the Commission’s view,
this approach fails to recognize that the
regulatory regime for municipal
advisors set forth in the Dodd-Frank Act
includes more than a fiduciary duty.679
Accordingly, unless an exclusion or
exemption applies, a municipal advisor
must register with the Commission and
comply with the applicable MSRB
rules.680
Ancillary or Additional Advisory
Services Provided by Investment
Advisers
Several commenters urged the
Commission to carve out from the
definition of municipal advisor certain
investment advisers that provide
various specific kinds of advice to
municipal entities. For example, some
commenters noted that a registered
investment adviser may provide clients
with services ancillary to its investment
advice in ‘‘the normal course of its
advisory services.’’ 681 Such ancillary
service includes advice regarding
investments other than securities (e.g.,
bank deposits, currencies, real estate,
futures, and forward contracts),682
research, and reports.683 One
commenter stated that such services
may not subject the adviser providing
such services to the Investment
Advisers Act but would require the
provider to register as a municipal
advisor. According to the commenter,
an adviser would have to ‘‘segregate its
activities into those that are exempt and
those which require registration as a
municipal advisor and follow
potentially conflicting rules.’’ 684
Another commenter stated that
managers at investment adviser firms
‘‘would need to regularly monitor each
service they provide to municipal
entities,’’ which would be ‘‘burdensome
for a private fund manager or other
investment manager’’ and ‘‘would divert
678 See supra notes 669–670 and accompanying
text (discussing the Vanguard Letter).
679 See 15 U.S.C. 78o–4(c)(1). As noted above,
benefits associated with the regulation of municipal
advisors also include, but are not limited to, the
application of standards of conduct, training, and
testing for municipal advisors that may be required
by the Commission or the MSRB, and other
requirements unique to municipal advisors that
may be imposed by the MSRB. See supra note 190.
680 See, e.g., MSRB Rule G–17 (Conduct of
Municipal Securities and Municipal Advisory
Activities).
681 See, e.g., MFA Letter.
682 See, e.g., MFA Letter and ICI Letter. See also
SIFMA Letter I and American Bankers Association
Letter I.
683 See, e.g., MFA Letter.
684 American Bankers Association Letter I.
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67519
resources from the performance of
[their] core advisory services.’’ 685 The
commenter stated that the proposed
rules could also cause some managers to
‘‘choose to reduce the types of services
they provide,’’ which could ‘‘harm fund
managers and their municipal entity
clients.’’ 686
Another commenter suggested an
exemption for a ‘‘particularized
recommendation regarding the
structuring or issuance of municipal
securities’’ when such advice is
provided in the context of the
investment adviser providing
investment advisory services.687 For
example, according to this commenter,
an investment adviser would be exempt
if it recommends changes to the terms
of a municipal entity’s proposed bond
offering so that the municipal entity can
pay a lower interest rate on the
securities and invest the proceeds in
less risky investment vehicles.688
The Commission carefully considered
the comments received, including
comments regarding the burden for firm
managers to monitor each service
provided by the firm to determine
whether it would require municipal
advisor registration. The Commission,
however, is not exempting from the
definition of municipal advisor a
registered investment adviser that
engages in municipal advisory activities
that are ‘‘in the ordinary course of’’
investment advice or ‘‘ancillary’’ to such
investment advice. The determination of
whether a particular activity is ‘‘in the
ordinary course of’’ or ‘‘ancillary’’ is
very much based on facts and
circumstances. Thus, the Commission is
concerned that such a standard could be
easily circumvented and could create a
pretext for abuse.689
The Commission interprets the
registered investment adviser exclusion
to include any advice provided
pursuant to an advisory agreement.
However, Rule 15Ba1–1(d)(2)(ii)
excludes from ‘‘investment advice’’
advice concerning: (1) Whether and how
to issue municipal securities; (2) the
structure, timing, and terms of issuances
of municipal securities and other
similar matters; and (3) municipal
derivatives. Additionally, the registered
investment adviser exclusion does not
cover solicitation of a municipal entity
or obligated person, as defined in Rule
15Ba1–1(n). The Commission does not
believe that it is necessary to adopt most
685 See
MFA Letter.
686 Id.
687 SIFMA
Letter I.
id.
689 See supra Section III.A.1.c.iv. (discussing
broker-dealers selling securities and solely
incidental services).
688 See
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of the interpretations or carve-outs from
the municipal advisor definition that
commenters suggested because it
anticipates that most of these additional
services would be covered by advisory
agreements. For example, as discussed
above, a registered investment adviser
that advises a municipal entity to invest
the proceeds of an issuance of
municipal securities in an asset class
other than securities will not be
required to register as a municipal
advisor, if that advice is provided
pursuant to an advisory agreement
between the registered investment
adviser and the municipal entity.
Similarly, if ancillary services are
provided pursuant to an advisory
agreement and these services are not of
the type specifically excluded from
‘‘investment advice’’ under Rule 15Ba1–
1(d)(2)(ii), the investment adviser
exclusion would apply. The
Commission believes that its
interpretation of the investment adviser
exclusion should mitigate commenters’
concerns regarding segregating activities
into those that are exempt and those
that are not and following potentially
conflicting rules.690 The Commission
also believes that its interpretation
should mitigate commenters’ concerns
regarding the burden for a firm to
monitor its activities 691 because a firm
would only need to monitor for the
specific types of activities that are
excluded from ‘‘investment advice’’
under Rule 15Ba1–1(d)(2)(ii) and the
activities that are not covered by
advisory agreements.
The Commission is also not adopting
a commenter’s suggestion to create a
specific exemption for ‘‘a particularized
recommendation regarding the
structuring or issuance of municipal
securities.’’ 692 The Commission
believes that an adviser offering advice
regarding the issuance of municipal
securities, including advice with respect
to the structuring, timing, terms, and
other similar matters, clearly is a
municipal advisor because the statutory
definition of municipal advisor
expressly includes such activities.
Affiliates of Investment Advisers
Providing Municipal Advisory Services
As discussed above, Exchange Act
Section 15B(e)(4)(A)(ii) includes in the
definition of municipal advisor a person
that ‘‘undertakes a solicitation of a
municipal entity.’’ 693 Section 15B(e)(9),
however, excludes a person that
690 See
supra note 684 and accompanying text.
691 See supra notes 685–686 and accompanying
text.
692 See supra notes 687–688 and accompanying
text.
693 15 U.S.C. 78o–4(e)(4)(A)(ii).
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controls, is controlled by, or is under
common control with a registered
investment adviser 694 from the
requirement to register as a municipal
advisor when it solicits municipal
entities or obligated persons on behalf of
the affiliated investment adviser.695
Thus, an affiliate of a registered
investment adviser may engage in such
solicitation without registering as a
municipal advisor. Neither the statute
nor the rules, as proposed, otherwise
exclude an affiliate of a registered
investment adviser from the definition
of municipal advisor.
One commenter stated that registered
investment advisers ‘‘often assign or
delegate management of a portion of
their client’s assets to an affiliated entity
. . . when they seek specialized
expertise for particular regions,
strategies, or products.’’ 696 The
commenter stated that such affiliated
entities ‘‘are typically part of the same
organization as the registered adviser
and are subject to the same or similar
compliance and management
structures.’’ 697 Further, they are usually
‘‘organized as separate legal entities
rather than branch offices’’ for ‘‘tax or
other purposes.’’ 698 The commenter
stated that, because the registered
investment advisers themselves are
exempt from registration as municipal
advisors when they provide investment
advice, it would be incongruous to
require their affiliates to register as
municipal advisors.699 The commenter
further stated that registration would
‘‘simply add costs to the industry and
regulators without additional public
policy benefits.’’ 700
The Commission disagrees that there
should be a general exemption for
affiliates of registered investment
advisers that engage in municipal
advisory activities. The Commission
notes that Congress explicitly exempted
affiliates from the solicitation prong of
the municipal advisor definition, but
not from the prong relating to advisory
and other activities. Accordingly, the
Commission believes that the statute
does not contemplate exempting
affiliates from municipal advisor
registration, except when an affiliate
specifically solicits business for its
affiliated entity.
Further, as discussed below, the
Commission does not believe that any
694 For purposes of this discussion, the term
‘‘affiliate of a registered investment adviser’’ means
such a person.
695 See 15 U.S.C. 78o–4(e)(9).
696 See MFA Letter.
697 Id.
698 Id.
699 Id.
700 Id.
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additional exemption is necessary or
appropriate. In the case of solicitations,
the Commission notes that, although the
statute excludes solicitation by an
affiliate from the definition of municipal
advisor,701 the Commission would still
have regulatory authority over the entity
on whose behalf the affiliate is
soliciting, as a municipal advisor, if it
engages in municipal advisory
activities. If the entity is also a
registered investment adviser and falls
under the investment adviser exclusion
in Rule 15Ba1–1(d)(2)(ii), the
Commission would continue to have
regulatory authority over that entity as
a registered investment adviser. In a
case where an affiliate of a registered
investment adviser is engaged in
municipal advisory activities as a
municipal advisor, however, the
Commission would not necessarily have
regulatory authority outside of the
municipal advisor registration regime.
Also, as discussed more fully above, the
Commission’s exemption for persons
that provide advice with respect to
investment strategies that are not plans
or programs for the investment of the
proceeds of municipal securities or the
recommendation of and brokerage of
escrow investments 702 should reduce
the likelihood that specialized expertise
from affiliates, such as foreign affiliates,
will require registration.
Investment Adviser Solicitations and
Referrals
Some commenters requested
clarification on the exclusion for
investment advisers from the
solicitation prong of the municipal
advisor definition. One commenter
requested that the Commission confirm
that the exclusion for investment
advisers applies to the investment
adviser and its employees ‘‘who may
solicit municipal entities as part of their
regular responsibilities to market the
adviser’s investment advisory services
or who may incidentally discuss the
adviser’s advisory services with
municipal entities.’’ 703
The Commission agrees with this
comment and notes that a registered
investment adviser that solicits on its
own behalf does not fall within the
‘‘solicitation’’ prong of the municipal
advisor definition. Exchange Act
Section 15B(e)(9) provides that the term
‘‘solicitation of a municipal entity or
obligated person’’ means a
701 See 15 U.S.C. 78o–4(e)(9) (defining
‘‘solicitation of a municipal entity or obligated
person’’).
702 See supra Section III.A.1.b.viii. (discussing the
Commission’s application of the term ‘‘investment
strategies’’).
703 See IAA Letter.
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communication ‘‘on behalf of a broker,
dealer, municipal securities dealer,
municipal advisor, or investment
adviser . . . that does not control, is not
controlled by, or is not under common
control with the person undertaking
such solicitation.’’ 704 Thus, Section
15B(e)(9) permits a registered
investment adviser and its employees,
who market the adviser’s investment
advisory services, to solicit municipal
entities or obligated persons, including
discussing the adviser’s advisory
services, without triggering regulatory
obligations, to the extent such
solicitation is on behalf of the registered
investment adviser. As discussed above,
the same is true for affiliates of
registered investment advisers.
One commenter expressed concern
that an investment adviser providing
advice to a client regarding the selection
or retention of another investment
manager could constitute a solicitation
of a municipal entity or obligated
person under Section 15B(e)(9) of the
Exchange Act.705 The Commission
confirms that a registered investment
adviser will not be required to register
as a municipal advisor in this scenario,
unless it receives direct or indirect
compensation and acts on behalf of the
recommended investment adviser.
Absent such facts, the registered
investment adviser is not soliciting on
behalf of another broker, dealer,
municipal securities dealer, municipal
advisor, or investment adviser, and thus
would not be engaging in solicitation
requiring municipal advisor
registration.706
State-Registered Investment Advisers
As a result of changes in the threshold
for registration as an investment adviser
with the Commission,707 certain entities
are not required to register as
investment advisers under the
Investment Advisers Act and instead are
subject to state registration
requirements.708 In the Proposal, the
Commission sought comment on
whether state-registered investment
advisers should be exempt from the
municipal advisor definition to the
extent they are providing advice that
otherwise would be subject to the
Investment Advisers Act, but for the
operation of a prohibition on, or
exemption from, Commission
registration.709
Several commenters supported an
exemption for state-registered
investment advisers.710 One commenter,
for example, stated that ‘‘Congress has
recognized the efficacy of state
regulation of investment advisers.’’ 711
Therefore, ‘‘the Commission should
similarly recognize the efficacy of state
regulation of investment advisers,
particularly since the provision of
advice to municipal entities is a matter
of special interest to state
authorities.’’ 712 Another commenter
stated that state-registered investment
advisers are already subject to
significant regulation by state regulators,
including fiduciary obligations with
respect to investment management
activities. Consequently, the commenter
stated that ‘‘imposing an additional
layer of regulation on these persons
would not provide an appreciable
regulatory benefit or increase the
protection of municipal entities or
obligated persons.’’ 713
After considering the commenters’
views, the Commission is not adopting
an exemption for state-registered
investment advisers at this time. The
Commission notes that the statutory
definition of municipal advisor
excludes only federally-registered
investment advisers. The Commission
also notes that state regulation of
investment advisers is not always
similar to regulation under the
Investment Advisers Act. For example,
state-registered investment advisers are
not subject to the Commission’s pay-toplay rule.714 Furthermore, because the
Commission is limiting the kinds of
advice with respect to ‘‘investment
strategies’’ that would require a person
to register as a municipal advisor,715 the
Commission believes that fewer stateregistered investment advisers will be
required to register as municipal
advisors than as originally proposed.716
709 See
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704 15
U.S.C. 78o–4(e)(9).
705 See Insurance Companies Letter.
706 However, such advice may be considered
investment advice under the Investment Advisers
Act. See supra note 423.
707 See 15 U.S.C. 80b–3a(a).
708 See Investment Advisers Act Release No. 3221
(June 22, 2011), 76 FR 42950 (July 19, 2011)
(implementing the statutory shift to the states the
responsibility for oversight of investment advisers
that have between $25 million and $100 million of
assets under management). Approximately 2,400
Commission-registered investment advisers
withdrew their registrations and registered with
state securities authorities in 2012 and 2013.
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Proposal, 76 FR 836.
e.g., ABA Letter; MFA Letter; SIFMA
Letter I; letter from Rex A. Staples, General Counsel,
North American Securities Administrators
Association, Inc., dated March 15, 2011 (‘‘NASAA
Letter’’).
711 ABA Letter.
712 Id.
713 SIFMA Letter I.
714 See Investment Advisers Act Release No. 3043
(July 1, 2010), 75 FR 41018, 41019 (July 14, 2010)
(‘‘Political Contributions Final Rule’’).
715 See supra Section III.A.1.b.viii.
716 For example, under the exemption pursuant to
Rule 15Ba1–1(d)(3)(vii), state-registered investment
advisers who provide advice to public employee
710 See,
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67521
Exempt Reporting Advisers
Finally, the Commission is not
adopting the suggestion of one
commenter to exempt the category of
‘‘Exempt Reporting Advisers’’ from
registration as municipal advisors.717
The commenter stated that the Exempt
Reporting Advisers exemption from
registration under the Investment
Advisers Act indicates that policy
makers have determined that ‘‘such
investment advisers are not of the type
that must register with the
[Commission] and be subject to
Commission oversight as a registered
investment adviser.’’ 718 The commenter
stated that it would be ‘‘consistent with
these policy determinations to similarly
exempt these advisers from the
definition of municipal advisor in
connection with providing investment
advice to a municipal entity.’’ 719
The Commission does not agree. The
Commission believes that, if Exempt
Reporting Advisers engage in municipal
advisory activities, consistent with the
protection of municipal entities and
obligated persons, and consistent with
the policy objectives of Congress and
this rulemaking, they should not be
exempt from the municipal advisor
registration requirement based on status.
Specifically, while Congress determined
that Exempt Reporting Advisers do not
need to be registered in connection with
their investment advisory activities, that
does not suggest that Exempt Reporting
Advisers should similarly be exempt
from regulation as municipal advisors.
Therefore, Exempt Reporting Advisers
who are exempt from registration as
investment advisers must register as
municipal advisors if they engage in
municipal advisory activities, unless
they qualify for an exclusion or
exemption. However, as discussed
above, the Commission is exempting
from the definition of municipal advisor
persons that provide advice with respect
to investment strategies that are not
benefit plans (including participant directed plans
or plans such as 529 Savings Plans, 403(b) plans,
and 457 plans) that do not include proceeds of
municipal securities would not be required to
register as municipal advisors.
717 See MFA Letter (citing Investment Advisers
Act Release No. 3111 (November 19, 2010), 75 FR
77190 (December 10, 2010) (Proposed Exemptions
for Advisers to Venture Capital Funds, Private Fund
Advisers with Less Than $150 Million in Assets
Under Management, and Foreign Private Advisers)).
The Commission subsequently adopted the
exemption from registration under the Investment
Advisers Act for Exempt Reporting Advisers. See
Investment Advisers Act Release No. 3222 (June 22,
2011), 76 FR 39646 (July 6, 2011) (Exemptions for
Advisers to Venture Capital Funds, Private Fund
Advisers With Less Than $150 Million in Assets
Under Management, and Foreign Private Advisers).
718 MFA Letter.
719 Id.
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plans or programs for the investment of
the proceeds of municipal securities or
the recommendation of and brokerage of
municipal escrow investments.720
Accordingly, the Commission believes
that fewer Exempt Reporting Advisers
will be required to register as municipal
advisors than as originally proposed.
For example, under the narrow scope of
investment strategies, Exempt Reporting
Advisers who provide advice to private
funds that do not include proceeds of
municipal securities would not be
required to register as municipal
advisors.
vi. Registered Commodity Trading
Advisors; Swap Dealers
Exchange Act Section 15B(e)(4)(C)
excludes from the definition of
municipal advisor any commodity
trading advisor registered under the
Commodity Exchange Act or persons
associated with a commodity trading
advisor who are providing advice
related to swaps. In the Proposal, the
Commission interpreted the statutory
exclusion for registered commodity
trading advisors and their associated
persons to apply only to such persons
when they are providing advice related
to swaps, as that term is defined in
Section 1a(47) of the Commodity
Exchange Act and Section 3(a)(69) of the
Exchange Act,721 and any rules and
regulations promulgated thereunder.722
As proposed in Rule 15Ba1–1(d)(2)(iii),
a commodity trading advisor, or an
associated person of a commodity
trading advisor, would be required to
register with the Commission as a
municipal advisor if the commodity
trading advisor, or an associated person
of the commodity trading advisor,
engages in any municipal advisory
activities that are not advice related to
swaps.723 Further, a commodity trading
advisor would be required to register
with the Commission if the advisor
provides advice with respect to swaps
on behalf of a municipal entity or
obligated person, but is not registered as
720 See
supra Section III.A.1.b.viii.
U.S.C. 1a(47) and 15 U.S.C. 78c(a)(69).
Consistent with the statutory exclusion, the
Commission’s proposed interpretation of the
statutory exclusion would not apply when such
persons are providing advice with respect to
security-based swaps.
722 See Proposal, 76 FR 833. See also Temporary
Registration Rule Release, 75 FR 54467.
723 See Proposal, 76 FR 833. As an example, the
Commission noted that if an advisor is providing
advice to a municipal entity with respect to
engaging in a swap transaction and provides advice
to the municipal entity with respect to the structure
of a municipal securities offering, the advisor
would have to register with the Commission as a
municipal advisor and would be subject to
regulation by the MSRB as a municipal advisor. See
id.
a commodity trading advisor under the
Commodity Exchange Act or is not a
person associated with a registered
commodity trading advisor providing
advice related to swaps.724
The Commission requested comment
on, and received several comments
regarding, its interpretation of the
exclusion for commodity trading
advisors.725 One commenter agreed that
the exclusion should only be available
when the registered commodity trading
advisor is providing advice related to
swaps.726 This commenter believed that
Congress intended a single
comprehensive municipal advisor
regulatory structure to govern advice to
municipal entities, particularly in, but
not necessarily limited to, the context of
a municipal securities offering.727
Another commenter expressed
concern that the Commission’s
proposed interpretation of the exclusion
could have the unintended consequence
of requiring commodity trading advisors
to register as municipal advisors if, ‘‘in
connection with providing advice about
swaps, [a commodity trading advisor]
provide[s] clients or prospective clients
with research or advice about
instruments other than swaps.’’ 728 The
commenter expressed concern that a
registered commodity trading advisor
would need to register as a municipal
advisor if these ancillary services fall
within the scope of municipal advisory
activities and are not deemed to be the
type of advice described in the
exclusion. According to the commenter,
the types of ancillary services that a
commodity trading advisor may provide
to a municipal entity would be subject
to ‘‘regular oversight by the
[Commission] and CFTC.’’ 729 In
addition, the commenter stated that the
rules would create widespread
uncertainty among registered
commodity trading advisors regarding
whether the services they perform
would require registration as municipal
advisors.730 According to the
commenter, in order to comply with the
proposed rules, managers would need to
regularly monitor each service they
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721 7
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724 See
id.
id., at 837.
726 See MSRB Letter.
727 See id.
728 MFA Letter.
729 Id. According to the commenter, such
ancillary services include providing clients or
prospective clients with research or advice about
instruments other than swaps in connection with
providing advice about swaps.
The Commission notes that providing certain
general information to clients or prospective clients,
such as research and general information about
products, would not be municipal advisory activity.
See supra Section III.A.1.b.i.
730 See MFA Letter.
725 See
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provide to municipal entities, determine
which of the services are municipal
advisory activities, and further
determine which of the services, if any,
may not be deemed to be advice related
to swaps.731
Another commenter urged the
Commission to ‘‘honor a waiver, noaction letters or other remedy from the
CFTC regarding the requirement to
register as a commodity trading
advisor.’’ 732 The same commenter
stated that ‘‘the CFTC has established a
‘private advisor’ limited exemption from
commodity trading advisor
registration.’’ 733 Under this exemption,
a person does not have to register as a
commodity trading advisor if it has not
provided commodity trading advice to
more than fifteen persons during the
preceding twelve months and does not
hold itself out to the public as a
commodity trading advisor.734 The
commenter suggested that the
Commission should implement a
similar exemption for purposes of
determining when a person must
register as a municipal advisor.735 In
addition, the commenter stated that
creating an exemption for providing
advice to a de minimis number of
entities would help distinguish between
entities whose principal business is to
be a municipal advisor and others.736
This commenter also expressed
concern that a person must register,
regardless of the type of swap advice
that may be contemplated and
irrespective of the relationship between
the municipal entity and the person
seeking to offer advice.737 The
commenter urged the Commission to
consider exclusions based on both: (1)
The types of swaps (specifically,
limiting municipal derivatives to
securities-based swaps); and (2) the
types of relationships between the
municipal entity and the person who is
providing the advice (specifically,
providing an exclusion where the
advisor acts as an agent and fiduciary of
the municipal entity).
Exclusion for Commodity Trading
Advisors
The Commission is adopting the
interpretation of the statutory exclusion
for commodity trading advisors
substantially as proposed, with some
modifications to provide additional
clarity on the scope of advice that
731 See
id.
Power Marketing Letter.
733 See id. (citing Section 4m(1) of the Commodity
Exchange Act).
734 See id.
735 See id.
736 See id.
737 See id.
732 ACES
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would be excluded, in response to
commenters’ concerns. As adopted,
Rule 15Ba1–1(d)(2)(iii) provides that the
term ‘‘municipal advisor’’ shall not
include any commodity trading advisor
registered under the Commodity
Exchange Act or person associated with
a registered commodity trading
advisor,738 to the extent that such
registered commodity trading advisor or
such person is providing advice that is
related to swaps (as defined in Section
1a(47) of the Commodity Exchange Act
(7 U.S.C. 1a(47)) and Section 3(a)(69) of
the Exchange Act (15 U.S.C. 78c(a)(69)),
and any rules and regulations
thereunder).739 The final rule reflects
minor, non-substantive modifications to
provide greater clarity and consistency
with other organizational changes the
Commission is making to the exclusions
and exemptions. Accordingly, the
exclusion from the municipal advisor
definition will not be available to a
registered commodity trading advisor,
or an associated person of a registered
commodity trading advisor, to the
extent it engages in municipal advisory
activities that are not providing advice
related to swaps.740 As noted in the
Proposal, while a registered commodity
trading advisor generally could provide
advice related to swaps without
registering as a municipal advisor, a
commodity trading advisor that is not a
registered commodity trading advisor
would be required to register as a
municipal advisor if it provides advice
related to swaps to a municipal
entity.741 Similarly, as noted in the
Proposal, if a registered commodity
trading advisor provides advice with
respect to an issuance of municipal
securities or any municipal financial
738 The Commission notes that Section
15B(e)(4)(C) excludes from the definition of
municipal advisor ‘‘any commodity trading advisor
registered under the Commodity Exchange Act or
persons associated with a commodity trading
advisor who are providing advice related to swaps.’’
The Commission believes it is reasonable to
interpret this exclusion to apply to registered
commodity trading advisors and persons associated
with a registered commodity trading advisor, as
opposed to persons associated with any registered
or unregistered commodity trading advisor. The
Commission notes that a commenter also suggested
this change. See MSRB Letter.
739 See Rule 15Ba1–1(d)(2)(iii).
740 The Commission notes, however, that to the
extent a registered commodity trading advisor
registers as a municipal advisor, its associated
persons that are natural person municipal advisors
would be exempt from registration if he or she is
an associated person of an advisor that is registered
with the Commission pursuant to Section 15B(a)(2)
of the Act and the rules and regulations thereunder
and engages in municipal advisory activities solely
on behalf of a registered municipal advisor. See
supra Section III.A.7. (discussing Rule 15Bc4–1).
741 See Proposal, 76 FR 833.
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product other than the swap, the advisor
must register as a municipal advisor.742
The Commission is not exempting
from municipal advisor registration
persons that have received no-action
letters from the CFTC or are otherwise
exempt from registration as commodity
trading advisors.743 For example, a
person may be exempted from
registration as a commodity trading
advisor precisely because it engages in
the types of activities that are more akin
to activities in which municipal
advisors engage. Thus, the Commission
does not believe that a blanket
exemption is appropriate at this time.
The Commission notes, however, that
such entities could apply for no-action
or exemptive relief.744
The Commission is also not adopting
an exemption for services provided by
a commodity trading advisor that are
solely incidental or ancillary to the
commodity trading advisor’s advice
related to swaps.745 To the extent the
commodity trading advisor is providing
general information, however, such
activities would not be municipal
advisory activities that would subject
the advisor to registration as a
municipal advisor.746
Swap Dealers
Section 15B(e)(4)(C) of the Exchange
Act does not include an exclusion from
the definition of municipal advisor for
swap dealers or security-based swap
dealers. In its Proposal, the Commission
requested comment generally as to
whether there are exclusions from the
definition of ‘‘municipal advisor,’’ other
than those proposed, that the
Commission should consider.747
742 See id. The commodity trading advisor must
also consider whether its activities constitute
‘‘solicitation of a municipal entity or obligated
person.’’ See supra Section III.A.1.b.x. (discussing
solicitation of a municipal entity or obligated
person).
743 See supra notes 732–735 and accompanying
text (discussing comments related to CFTC no
action letters and exemptions related to commodity
trading advisor registration).
744 Exchange Act Section 15B(a)(4) provides that
the Commission, by rule or order, upon its own
motion or upon application, may conditionally or
unconditionally exempt any municipal advisor or
class of municipal advisors from any provision of
Section 15B or the rules or regulations thereunder,
if the Commission finds that such exemption is
consistent with the public interest, the protection
of investors, and the purposes of Section 15B. See
15 U.S.C. 78o–4(a)(4). When requesting exemptive
relief pursuant to Section 15B(a)(4), a person may
follow the procedures for requesting exemptive
relief pursuant to Section 36 of the Exchange Act,
as set forth in Rule 0–12 under the Exchange Act.
See 17 CFR 240.0–12.
745 See supra notes 728–729 and accompanying
text.
746 See supra Section III.A.1.b.i. (providing
guidance on ‘‘advice’’ and discussing the provision
of general information).
747 See Proposal, 76 FR 838.
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67523
Some commenters suggested that the
exclusion should be extended to swap
dealers and security-based swap dealers
because, otherwise, registration as a
municipal advisor would be
duplicative.748 One such commenter
noted that Sections 731 and 764 of the
Dodd-Frank Act have provisions
requiring registration by swap dealers
and security-based swap dealers with
the CFTC and the Commission,
respectively, and provisions specifically
covering such dealers’ activities when
acting as advisors to ‘‘special entities,’’
which include state and local
governments.749 Another commenter
stated that persons that will be
considered municipal advisors will
often be engaged in business activities
other than providing advice to or on
behalf of a municipal entity or obligated
person.750 The commenter expressed
concern that regulated persons, such as
swap dealers, that may also provide
advice to a municipal entity or obligated
person in connection with their
business as swap dealers, may be
required to register as municipal
advisors.751 The commenter stated that
it would be best to avoid dual or
multiple regulations by exempting any
advice that is related to, or given in
connection with, another regulated
activity. The commenter also provided
that, in the alternative, the Commission
should coordinate the definition of
‘‘advice’’ with that of other regulatory
regimes.752
In its Business Conduct Standards for
Swaps, the CFTC adopted certain
standards for swap dealers in their
dealings with counterparties to swap
transactions, as well as for any swap
dealer that acts an advisor to a special
entity.753 The CFTC’s adopted standards
also include a safe harbor from the
heightened protections that would
otherwise apply when a swap dealer
acts as an advisor to a special entity, if:
748 See,
e.g., Kutak Rock Letter; SIFMA Letter I.
Kutak Rock Letter. This commenter
suggested that the Proposal should be harmonized
with other provisions of the Dodd-Frank Act
specifically addressing swap practices.
750 See SIFMA Letter I. The commenter stated that
a swap dealer that provides advice in connection
with its other business activity may be subject to
CFTC regulation and, absent an exemption, would
become subject to additional regulation as a
municipal advisor. See id.
751 See id.
752 See id. In this context, this commenter cited
as an example the proposed CFTC business conduct
standards for swaps.
753 CFTC Rule 23.440(c)(1) provides that a swap
dealer that acts as an advisor to a special entity has
‘‘a duty to make a reasonable determination that
any swap or trading strategy involving a swap
recommended by the swap dealer is in the best
interests of the Special Entity [as defined in CFTC
Rule 23.401(c)].’’
749 See
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such swap dealer does not express an
opinion as to whether the special entity
should enter into a recommended swap
or trading strategy involving a swap that
is tailored to the particular needs or
characteristics of the special entity; the
special entity represents in writing that
it will not rely on recommendations
provided by the swap dealer, and will
rely on advice from an independent
representative; and the swap dealer
discloses to the special entity that it is
not undertaking to act in the best
interests of the special entity as
otherwise required under the CFTC’s
standards.754 Consistent with this
approach and for the reasons described
below, the Commission believes that it
is appropriate to provide an exemption
for certain swap dealers.
Specifically, to address commenters’
concerns, the Commission is exempting
any swap dealer registered under the
Commodity Exchange Act or associated
person of the swap dealer
recommending a municipal derivative
or a trading strategy that involves a
municipal derivative, so long as the
registered swap dealer or associated
person is not ‘‘acting as an advisor’’ to
the municipal entity or obligated person
with respect to the municipal derivative
or trading strategy pursuant to Section
4s(h)(4) of the Commodity Exchange Act
and the rules and regulations
thereunder.755 For purposes of
determining whether a swap dealer is
‘‘acting as an advisor’’ under Rule
15Ba1–1(d)(3)(v), the municipal entity
or obligated person involved in the
transaction will be treated as a ‘‘special
entity’’ 756 under Section 4s(h)(2) of the
Commodity Exchange Act and the rules
and regulations thereunder (regardless
of whether such municipal entity or
obligated person is otherwise a ‘‘special
entity’’).757
The Commission believes an
exemption for swap dealers is
appropriate because, as discussed
below, the exemption will apply the
standards that are applicable under the
CFTC’s existing regulatory regime. As
under such regime, the exemption will
also preserve consistent and comparable
protections for municipal entities and
754 See Business Conduct Standards for Swaps,
supra note 275. See also CFTC Rule 23.440 (17 CFR
23.440).
755 See Rule 15Ba1–1(d)(3)(v)(A).
756 Special entity is defined in Section 4s(h)(2)(C)
of the Commodity Exchange Act and the rules and
regulations thereunder. See 17 CFR 23.401(c)
(defining ‘‘special entity,’’ for purposes of business
conduct requirements for swap dealers and major
swap participants) and supra note 275 (discussing
the protections provided by the Dodd-Frank Act for
special entities with respect to derivative
transactions).
757 See Rule 15Ba1–1(d)(3)(v).
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obligated persons. For example, for the
exemption for registered swap dealers to
apply, a municipal entity or obligated
person must have an independent
representative who is subject to a duty
to act in the best interests of its
client.758 The Commission notes that
independent representatives would
likely be commodity trading advisors,
municipal advisors, investment
advisers, or ERISA fiduciaries 759 that
are also subject to, or may become
subject to,760 a fiduciary duty to their
clients.761 Moreover, regardless of
whether a municipal entity or obligated
person is a special entity, the swap
dealer will need to comply with any
applicable suitability standards and
disclosure requirements, which should
offer another measure of protection for
municipal entities and obligated
persons in addition to those noted
above. Further, in the context of
interactions between swap dealers and
municipal entities and obligated
persons, the exemptions will
incorporate the standards provided by
the CFTC’s Business Conduct Standards
for Swaps, which include a requirement
that the swap dealer disclose that it is
not undertaking to act in the best
interest of the special entity.762
Therefore, municipal entities and
certain obligated persons may already
be familiar with the notion that exempt
swap dealers are not undertaking to act
in their best interest when
recommending a swap or a trading
strategy involving a swap and could
more appropriately evaluate such
recommendation. In addition, the
Commission believes the standards
provided by the CFTC’s Business
Conduct Standards for Swaps are
appropriate for the swap dealer
exemption from the definition of
municipal advisor, because they will
help provide clarity about: (1) when a
758 This
is consistent with the blanket exemption
where a municipal entity or obligated person is
represented by an independent registered
municipal advisor. See Rule 15Ba1–1(d)(3)(vi).
759 See Business Conduct Standards for Swaps, 77
FR 9738.
760 The Commission notes that the CFTC has
indicated that it is ‘‘considering developing rules
for [commodity trading advisors] that are
comparable to rules adopted by the [Commission]
or the MSRB for municipal advisors.’’ See Business
Conduct Standards for Swaps, 77 FR 9739.
Additionally, the CFTC has stated that it believes
it has harmonized its rules with the regulatory
regime for municipal advisors and will continue to
work with the Commission as the Commission’s
proposed rules for the registration of municipal
advisors are finalized. Id.
761 Municipal advisors, investment advisers, and
ERISA fiduciaries all owe fiduciary duties to their
clients.
762 See supra note 754 (setting forth the
disclosure requirements for swap dealers under
CFTC Rule 23.440).
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swap dealer must register as a
municipal advisor; and (2) its
relationship with municipal entities and
obligated persons.
For these reasons, the Commission
finds it consistent with the public
interest, the protection of investors, and
the purposes of Section 15B of the
Exchange Act, to use its authority
pursuant to Exchange Act Section
15B(a)(4) to exempt swap dealers from
the definition of municipal advisor,
subject to the limitations described
above, and therefore not require such
dealers to register as municipal
advisors.
The Commission is not adopting, at
this time, an exemption for securitybased swap dealers. As a general matter,
the Commission understands that
municipal entities currently do not
typically enter into security-based swap
transactions.763 The Commission also
notes security-based swap dealers may,
to the extent they would otherwise meet
the definition of ‘‘municipal advisor,’’
qualify for a different exemption, such
as the exemption in Rule 15Ba1–
1(d)(3)(vi) when the municipal entity or
obligated person is otherwise
represented by an independent
registered municipal advisor. Further,
the Commission notes that such entities
could apply for no-action or exemptive
relief.764 When the Commission
considers adopting external business
conduct rules for security-based swap
dealers, the Commission may also
consider amending the municipal
advisor definition to include an
exemption for security-based swap
dealers that is similar to the exemption
for swap dealers.765
vii. Accountants, Attorneys, Engineers
and Other Professionals
The definition of municipal advisor in
Exchange Act Section 15B(e)(4)
excludes attorneys offering legal advice
or providing services of a traditional
legal nature and engineers providing
engineering advice.766 As discussed
more fully below, the Commission
proposed interpretations of the attorney
and engineer exclusions and also
763 See, e.g., Transcript of the U.S. Securities and
Exchange Commission Birmingham Field Hearing
on the State of the Municipal Securities Market at
241 and 244.
764 See, e.g., supra note 744.
765 The Commission has proposed standards for
security-based swap dealers that are similar to those
that the CFTC has adopted. See Business Conduct
Standards for Security-Based Swaps. Comments
received by the Commission on this proposal are
available at http://www.sec.gov/comments/s7-2511/s72511.shtml.
766 See 15 U.S.C. 78o–4(e)(4)(C).
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proposed a limited exemption for
accountants.767
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Accountants Providing Attest Services
Exchange Act Section 15B(e)(4) does
not explicitly exclude accountants from
the definition of municipal advisor. In
the Proposal, however, the Commission
proposed to interpret the statutory
definition of municipal advisor to
exempt any accountant, unless the
accountant engages in municipal
advisory activities other than preparing
or auditing financial statements or
issuing letters for underwriters. In other
words, the Commission proposed to
exempt from the municipal advisor
definition accountants preparing
financial statements, auditing financial
statements, or issuing letters for
underwriters for, or on behalf of, a
municipal entity or obligated person.768
In the Proposal, the Commission noted
that it was not appropriate to exempt
accountants entirely, because
accountants may provide advice to
municipal entities that includes advice
about the structure, timing, terms, and
other similar matters concerning the
issuance of municipal securities.769
The Commission requested comment
on its proposed exemption for
accountants. In particular, the
Commission requested comment on
whether the Commission should
provide this exemption and whether
there are additional types of accounting
services that should fall under the
exemption.770
The Commission received
approximately 11 comment letters that
addressed the proposed accountant
exemption. Two commenters expressed
support for the accountant exemption as
proposed and did not suggest any
changes.771 Several commenters,
however, believed that the proposed
767 See proposed Rule 15Ba1–1(d)(2)(iv)–(vi) and
Proposal, 76 FR 833–834.
768 See proposed Rule 15Ba1–1(d)(2)(vi).
769 See Proposal, 76 FR 833. The Commission
noted that accountants may also be engaged by
municipal entities to provide other services, such
as conducting feasibility studies or preparing
financial projections and that, in defining
municipal advisor in Exchange Act Section
15B(e)(4), Congress only excluded attorneys offering
legal advice or services of a traditional legal nature
or engineers providing engineering advice. See id.,
at 833, notes 127–128 and accompanying text.
770 See id., at 837.
771 See MSRB Letter (agreeing that the exemption
should apply solely when an accountant is
preparing financial statements, auditing financial
statements, or issuing bring down, comfort or
‘‘agreed upon procedures’’ letters for underwriters);
letter from Kim M. Whelan, Co-President, Acacia
Financial Group, Inc., dated February 22, 2011
(‘‘Acacia Financial Group Letter’’) (stating that ‘‘[t]o
the extent accountants or engineers provide advice
regarding municipal financial products or issuance
of municipal securities, accountants and engineers
should be considered Municipal Advisors’’).
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accountant exemption was too narrow
and recommended including additional
services under the exemption.772
Several commenters recommended
that attest, not just audit, services
should be part of the accountant
exemption.773 The performance of attest
services is generally limited to certified
public accountants by state regulation
and professional standards.774 One
commenter noted that audit services are
a subset of the broader category of attest
services and both are subject to similar
professional standards, including an
‘‘independence’’ requirement.775
Another commenter also provided
examples of services in this broader
category of attest services, all of which
it believed would be subject to
professional standards: (1)
Examinations, compilations, or agreedupon procedures engagements on
projections or forecasts using AICPA
Statements on Standards for Attestation
772 See, e.g., State of Indiana Letter; letters from
Deloitte LLP, dated February 22, 2011 (‘‘Deloitte
Letter’’); Gerald G. Malone, H.J. Umbaugh &
Associates, dated February 22, 2011 (‘‘Umbaugh
Letter’’); letter from Susan S. Coffey, Senior Vice
President, Member Quality and International
Affairs, American Institute of Certified Public
Accountants (‘‘AICPA’’), dated February 25, 2011
(‘‘AICPA Letter’’); and Gary Higgins, President,
Registered Municipal Accountants Association of
New Jersey, dated February 22, 2011 (‘‘RMAA
Letter’’).
773 See, e.g., Deloitte Letter (stating that ‘‘[a]udit
services are a subset of the broader category of attest
services. . . and we see no reason for the final rule
to distinguish between the two’’); Umbaugh Letter
(stating that attest services and tax services (e.g.,
arbitrage rebate calculations on behalf of issuers) do
not appear to fit the ‘‘municipal advisor’’
definition); letter from KPMG LLP, dated February
22, 2011 (‘‘KPMG Letter’’) (recommending that the
Commission include, at a minimum, specific
exemptions for attest services in the accountant
exemption).
Commenters referred to the definition of the term
‘‘attest engagements’’ by the AICPA as
‘‘engagements . . . in which a certified public
accountant in the practice of public accounting . . .
is engaged to issue or does issue an examination,
a review, or an agreed-upon procedures report on
subject matter, or an assertion about the subject
matter . . . that is the responsibility of another
party.’’ See Deloitte Letter (citing AICPA Attestation
Standards AT § 101.01). The Uniform Accountancy
Act, which has been used as a basis for state
regulation of certified public accountants,
incorporates similar concepts. (See, e.g., Section
14(a) of The Uniform Accountancy Act (5th ed.
2007), available at http://www.aicpa.org/Advocacy/
State/StateContactInfo/uaa/
DownloadableDocuments/UAA_Fifth_Edition_
January_2008.pdf).
774 See, e.g., AICPA Code of Professional Conduct
ET 201.01, 202.01; see also AICPA Attestation
Standards AT § 101.06 (providing that ‘‘[a]ny
professional service resulting in the expression of
assurance must be performed under AICPA
professional standards that provide for the
expression of such assurance’’); see also, e.g., The
Uniform Accountancy Act (5th ed. 2007), available
at http://www.aicpa.org/Advocacy/State/
StateContactInfo/uaa/DownloadableDocuments/
UAA_Fifth_Edition_January_2008.pdf.
775 See Deloitte Letter.
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67525
Engagements (‘‘SSAEs’’); (2)
performance of other types of agreedupon procedures engagements; (3)
compliance audits (e.g., opinions on
compliance with federal, state, or local
compliance requirements); and (4)
review of debt coverage requirements on
outstanding bonds and verification of
calculations of escrow account
requirements for advance refunding of
bonds.776
Further, one commenter asked if the
following services would be included or
excluded from the accountant
exemption: (1) The preparation of
unaudited annual financial statements;
(2) the provision of annual independent
audits of a municipal entity; (3) the
review and preparation of pro forma
maturity schedules of principal and
interest on proposed bond issues; (4) the
provision of budget, audit, and other
information to credit rating agencies;
and (5) the preparation of the ‘‘front
end’’ of offering statements and
financial and demographic
information.777
Several commenters also
recommended extending the exemption
to services that non-certified public
accountants can provide but are subject
to regulation and professional
standards. For example, two
commenters stated that advice related to
Generally Accepted Accounting
Principles (‘‘GAAP’’) and tax advice
related to municipal securities and
derivatives should also fall under the
accountant exemption.778
In addition to these services, another
commenter recommended, more
generally, that the Commission extend
the accountant exemption to the
provision of non-attest services, such as
certain tax and actuarial services.779
Two other commenters stated that
accountants and other consultants who
provide feasibility studies should not be
considered municipal advisors.780
One commenter suggested that
accountants of conduit borrowers
should be exempt as municipal
advisors.781
The Commission has carefully
considered issues raised by commenters
on the Proposal and is expanding the
accountant exemption to include
accountants providing audit or other
attest services. Specifically, Rule
15Ba1–1(d)(3)(i), as adopted, provides
that the term ‘‘municipal advisor’’ shall
776 See
AICPA Letter.
RMAA Letter.
778 See KPMG Letter; AICPA Letter.
779 See Deloitte Letter.
780 See Gilmore & Bell Letter; State of Indiana
Letter.
781 See South Lake County Hospital Letter.
777 See
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not include any accountant to the extent
that the accountant is providing audit or
other attest services, preparing financial
statements, or issuing letters for
underwriters for, or on behalf of, a
municipal entity or obligated person.782
To the extent commenters requested
clarification regarding whether specific
activities would be exempted, such
activities would be exempted if they
constitute audit or other attest
services,783 the preparation of financial
statements, or the issuance of letters for
underwriters for, or on behalf of, a
municipal entity or obligated person.
The Commission believes that it is
appropriate to include attest services in
general, and not just audit services in
particular, among the services that fall
under the exemption. Both audit and
other attest services are generally
subject to regulation and professional
standards,784 including independence
requirements. Such independence
requirements could potentially conflict
with municipal advisors’ fiduciary duty
to the municipal entities they advise.785
Accountants providing attest services
are also required to meet general
standards related to adequate technical
training and proficiency, adequate
knowledge of subject matter, suitability
and availability of criteria, and the
exercise of due professional care.786
Accordingly, the Commission believes
that attest services, and not just audit
services, exemplify the types of services
typically performed by accountants that
should not constitute the provision of
advice within the meaning of Exchange
Act Section 15B(e)(4)(A)(i).787
The Commission has considered
whether various non-attest services
should also be included in the
accountant exemption, such as tax
services (including arbitrage rebate
782 See Rule 15Ba1–1(d)(3)(i). In addition to
adopting an expanded accountant exemption, as
compared to the Proposal, the Commission is also
making minor, non-substantive modifications to
provide greater clarity and consistency with other
organizational changes the Commission is making
to the exclusions and exemptions.
783 See supra notes 776–777.
784 See, e.g., AICPA Code of Professional Conduct
ET 201.01, 202.01; see also AICPA Attestation
Standards AT § 101.06 (providing that ‘‘[a]ny
professional service resulting in the expression of
assurance must be performed under AICPA
professional standards that provide for the
expression of such assurance’’).
785 See AICPA Attestation Standards AT § 101.35
(‘‘The practitioner must maintain independence in
mental attitude in all matters relating to the
engagement.’’), 101.36 (‘‘The practitioner should
maintain the intellectual honesty and impartiality
necessary to reach an unbiased conclusion about
the subject matter or the assertion. This is a
cornerstone of the attest function.’’).
786 See AICPA Attestation Standards AT § 101.19
to 101.41.
787 See 15 U.S.C. 78o–4(e)(4)(A)(i).
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services 788) and advice relating to
GAAP. While the Commission
acknowledges that such non-attest
services may represent activities
provided by accountants, such services
are neither necessarily provided by
certified public accountants, nor
necessarily subject to similar regulation
and professional standards as attest
services. The Commission does not
believe it is appropriate to expand the
exemption to cover activities or services
that non-accountants could perform.
Accordingly, the Commission is not
including non-attest services in the
accountant exemption. Nevertheless, a
person providing non-attest services
would only be required to register as a
municipal advisor if such services are
within the scope of the municipal
advisory activities definition.
Several commenters noted that nonattest services should be included
because accountants are already subject
to other regulatory regimes, including
those of state boards of accountancy, the
Commission, and the Public Company
Accounting Oversight Board.789 The
Commission does not believe those
regimes, which are principally focused
on the certified public accountant’s
provision of attest services,790 are
sufficient to warrant further expansion
of the accountant exemption.
As stated above and in the Proposal,
accountants may provide advice to
municipal entities, including advice
about the structure, timing, terms, and
other similar matters, and such advice
may be the basis for an issuance of
municipal securities. Therefore, the
Commission does not believe that it is
appropriate to exempt accountants from
the definition of municipal advisor
entirely. In addition, although attest
services are often included as part of
larger engagements, such as the
examination of prospective financial
information that is included as part of
a feasibility study or acquisition
study,791 the accountant exemption
includes only the attest portion of these
engagements and does not cover all
services that comprise such
engagements.792
788 See,
e.g., supra note 773.
789 See, e.g., KPMG Letter.
790 See Sarbanes-Oxley Act of 2002, as amended
by Section 982 of the Dodd-Frank Act. 15 U.S.C.
7201 et seq. See, specifically, Section 102 of the
Sarbanes-Oxley Act of 2002. 15 U.S.C. 7212.
791 See AICPA Attestation Standards AT § 101.05.
792 For example, the exemption would not apply
to accountants that provide consulting services to
municipal entities, including advice with respect to
the structure, timing, terms, or other similar matters
concerning an issuance of municipal securities or
a municipal financial product, modeling future debt
service coverage, suggesting future rate schedules,
tax advice related to municipal securities and
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The Commission also notes that,
according to the exemption provided by
Rule 15Ba1–1(d)(3)(i), feasibility studies
concerning the issuance of municipal
securities or municipal financial
products for which an accountant
provides only audit or attest services
would not require the accountant to
register as a municipal advisor.793
Lastly, with respect to accountants of
obligated persons, the Commission
notes that such accountants will be
treated consistently with accountants of
municipal entities.794
For these reasons, the Commission
finds it consistent with the public
interest, the protection of investors, and
the purposes of Section 15B of the
Exchange Act, to use its authority
pursuant to Exchange Act Section
15B(a)(4) to exempt accountants from
the definition of municipal advisor,
subject to the limitations described
above.
Attorneys Offering Legal Advice or
Providing Services of a Traditional
Legal Nature
Section 15B(e)(4)(C) of the Exchange
Act excludes from the municipal
advisor definition attorneys offering
legal advice or providing services that
are of a traditional legal nature. In the
Proposal, the Commission proposed to
interpret the exclusion to mean that the
term ‘‘municipal advisor’’ shall not
include any attorney, unless the
attorney engages in municipal advisory
activities other than offering legal
advice or providing services that are of
a traditional legal nature to a client of
the attorney that is a municipal entity or
obligated person.795 In addition, the
Commission proposed to interpret
advice from an attorney to his or her
client with respect to the structure,
timing, terms, and other similar matters
concerning the issuance of municipal
securities or municipal financial
products to be services of a traditional
legal nature, if such advice is provided
within an attorney-client relationship
specifically related to the issuance of
municipal securities or such municipal
derivatives, and other non-attest services that
constitute municipal advisory activities. The scope
of the accountant exemption is different from the
scope of the investment adviser exclusion because,
unlike accountant engagements that include attest
as well as other services, investment advice
provided pursuant to an advisory agreement would
be subject to the anti-fraud provisions of the
Investment Advisers Act and a fiduciary duty. See
supra note 671.
793 This is consistent with the approach for
engineers that provide feasibility studies discussed
below in this section.
794 See Rule 15Ba1–1(d)(3)(i). See also South Lake
County Hospital Letter.
795 See Proposal, 76 FR 833–834. See also
proposed Rule 15Ba1–1(d)(2)(iv).
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financial products in conjunction with
related legal advice.796 Further, in the
Proposal, the Commission indicated
that, for example, the following advice
would be considered to be services of a
traditional legal nature: (1) Advice
comparing the structures, terms, or
associated costs of issuance of different
types of securities or financial
instruments (such as fixed rate bonds or
variable rate demand obligations) given
by an attorney hired to advise a
municipal entity client embarking on a
bond offering; (2) advice concerning the
tax consequences of alternative
financing structures; or (3) advice
recommending a particular financing
structure due to legal considerations,
such as the limitations included in
existing contracts and indentures to
which the issuer is a party.797 The
Commission, however, also stated in the
Proposal that the following advice
would not be services of a traditional
legal nature: (1) advice concerning the
financial feasibility of a project or a
financing; (2) advice estimating or
comparing the relative cost to maturity
of an issuance, depending on various
interest rate assumptions, or (3) advice
recommending a particular structure as
being financially advantageous under
prevailing market conditions.798
The Commission requested comment
on numerous aspects of the attorney
exclusion, including whether the
exclusion should only apply to legal
services to an attorney’s municipal or
obligated person client; whether the
Commission should provide an
exclusion for all an attorney’s activities
as long as that attorney has an attorneyclient relationship with the municipal
entity or obligated person; and whether
the meaning of the term ‘‘services of a
traditional legal nature’’ is sufficiently
clear.799
The Commission received
approximately 20 comment letters
regarding the attorney exclusion. Two
commenters generally supported the
proposed interpretation of the
796 As an example, the Commission stated that
advice comparing the structures, terms, or
associated costs of the issuance of different types
of securities or financial instruments (such as fixed
rate bonds or variable rate demand obligations)
given by an attorney hired to advise a municipal
entity client embarking on a bond offering, would
be considered to be services of a traditional legal
nature, as would advice concerning the tax
consequences of alternative financing structures or
advice recommending a particular financing
structure due to legal considerations such as the
limitations included in existing contracts and
indentures to which the issuer is a party. See
Proposal, 76 FR 834.
797 See id.
798 See id.
799 See id., at 837.
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exclusion,800 although one of these
commenters recommended that the
Commission continue to refine the
attorney exemption. The commenter
suggested that exempted activity
‘‘consists of advice on legal matters such
as the legal ramifications of such
structure, timing, terms and other
matters, the appropriate documentation
thereof, and matters of a similar legal
nature.’’ 801 Meanwhile, two other
commenters stated that they did not
support the exclusion because advice
provided by attorneys to financing
teams is generally financial in nature
and represents municipal advisory
activity.802
The majority of commenters did not
support the proposed interpretation of
the statutory exclusion, stating that the
interpretation is too limited in scope.803
800 See MSRB Letter I (supporting the language of
the attorney exclusion, ‘‘including in particular that
such exclusion applies solely when an attorney is
providing legal advice or services that are of a
traditional legal nature to a client that is a
municipal entity or obligated person’’); letter from
Robert Doty, AGFS, dated March 1, 2011 (‘‘Doty
Letter II’’) (stating that: ‘‘[i]n the municipal
securities market . . . it has long been recognized
that attorneys providing other services are stepping
beyond their recognized roles’’).
801 See MSRB Letter I.
802 See letter from John J. Haas, President, Ranson
Financial Consultants, LLC, dated February 17,
2011 (‘‘Ranson Financial Consultants Letter’’)
(‘‘How an attorney can give advice on whether an
entity should be rated or not, and/or to walk and
[sic] entity through the rating process without being
a registered Municipal Advisor is not
understandable . . . . The Commission, in principal
[sic], is allowing bond attorney and local attorneys
to continue to act as Municipal Advisors without
the requirement to be registered as one.’’); Acacia
Financial Group Letter (stating that attorney advice
comparing the structures, terms or associated costs
of issuance of different types of securities or
financial instruments (such as fixed rate bonds or
variable rate demand obligations) is not service that
should be included in the definition of traditional
legal services as it is at the heart of the advice that
a municipal advisor provides and is directly
financial in nature).
803 See, e.g., NABL Letter (‘‘[A]ttorneys have an
obligation to give frank advice to their clients and
. . . not to limit their advice to strictly legal issues
if their clients otherwise would be prejudiced . . .
. The attorney should be free to discuss the possible
pros and cons of different transaction structures if
more than one is legally authorized, including
practical consequences that are financial in nature
. . . . [T]he exclusion for attorneys should not be
afforded only for advice given to clients, but should
apply to all advice that one must be licensed as an
attorney to give or that is given as part of a
traditional legal nature, or that is incidental to such
services.’’); letter from Wm. Raymond Manning,
President & CEO, Manning Architects, dated
February 21, 2011 (‘‘Manning Architects Letter’’)
(‘‘[B]y requiring attorneys for the government entity
to register if they stray beyond pure legal advice
. . . the SEC will be chilling some of the most
effective advice that a lawyer can provide.
Attorneys often challenge the analysis of experts
and other advisors to their clients and if that
challenge strays beyond the purely legal, then those
lawyers may be fearful to fully and ably represent
their clients. The Commission should consider
carefully if chilling a lawyer’s advice to a client
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67527
One commenter sought clarification that
the statutory exclusion for attorneys
covers all ‘‘legal advice’’ and that the
‘‘traditional legal nature’’ limitation
applies only to ‘‘services’’ provided by
attorneys.804 Some commenters noted
the difficulty of separating ‘‘services of
a traditional legal nature’’ from advice
that could be considered ‘‘financial’’ in
nature.805 These commenters also noted
that roles of outside counsel are not
neatly compartmentalized, and that
municipal clients benefit from
attorneys’ ‘‘financial’’ advice.806 Other
commenters indicated that attorneys
should feel free to provide advice to
municipal entities and obligated
persons without fear of falling subject to
municipal advisor registration.807 Some
commenters questioned whether
registration of attorneys was necessary,
even if they provided financial advice.
These commenters reasoned that
attorneys already have a fiduciary duty
to their clients, in addition to state
ethics laws and well-established
disciplinary processes for those who
breach their fiduciary duties.808
Several commenters stated that the
attorney exclusion should not depend
on a pre-existing attorney-client
serves the interests it seeks to protect.’’); Sherman
& Howard Letter (‘‘We believe that in so limiting the
exemption for attorneys, the Commission is going
beyond what Congress intended, as shown by the
language of the Act, and beyond what Congress has
authorized.’’).
804 See NABL Letter.
805 See, e.g., letter from Joe B. Allen, Allen Boone
Humphries Robinson LLP, dated February 21, 2011
(‘‘Allen Boone Humphries Robinson Letter’’)
(‘‘‘[S]ervices that are of a traditional legal nature’ is
vague, especially for bond counsel. Bond counsel’s
consultation with a client necessarily includes
‘structure, timing, terms and other similar
matters.’’’).
806 See, e.g., American Municipal Power Letter;
Squire Sanders & Dempsey Letter (‘‘[C]ertain advice
and services the Commission may identify as
financial in nature are in fact an integral part of and
inseparable from legal advice and services that
attorneys have traditionally been expected to
provide to their clients in connection with
municipal finance transactions’’ and attorneys
should be excluded from the application of the
proposed rules ‘‘when the attorney is providing
legal advice or services, including ancillary
financial or related advice or services relating to a
municipal finance transaction or municipal
financial product, or providing information
concerning developments in the municipal
marketplace.’’); letter from Edward G. Henifin,
General Manager and Steven G. de Mik, Director of
Finance, Hampton Roads Sanitation District, dated
February 22, 2011 (‘‘Hampton Roads Sanitation
District Letter’’).
807 See, e.g., NABL Letter; American Municipal
Power Letter; Hampton Roads Sanitation District
Letter; Rose Letter; letter from Susan Combs, Texas
Comptroller of Public Accounts, dated February 22,
2011 (‘‘Texas Comptroller of Public Accounts
Letter’’).
808 See, e.g., NABL Letter; State of Indiana Letter;
Squire Sanders & Dempsey Letter.
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relationship.809 Some commenters
generally noted that attorneys are often
expected to provide counsel to all
financing team members, and not only
to the attorney’s clients that are
municipal entities and obligated
persons.810 One commenter stated that
‘‘others in the bond issue clearly rely
upon the legal advice of bond counsel,
including the . . . obligated person in a
conduit financing. The very role of bond
counsel is to provide advice to the
entire group relative to the state law
authority for the issuance of the bonds
(the approving legal opinion) and the
federal and state tax status of the
interest on the bonds.’’ 811 Similarly,
another commenter noted that bond
counsel has at times been described as
representing ‘‘the transaction’’ rather
than any particular party to an
offering.812 Accordingly, the commenter
asked the Commission to clarify if in
such instance the bond counsel would
be viewed as having a municipal entity
or obligated person as a client. Finally,
commenters also stated that attorneys
representing parties other than
municipal entities and obligated
persons, such as underwriter’s counsel,
are called upon to provide their views
or advice to the entire team, yet the
attorney exclusion, as proposed, would
not pertain to these attorneys.813
Some commenters noted that, if an
attorney is required to register as a
municipal advisor in order to provide
advice to non-clients on the financing
team, the resulting municipal advisory
relationship would create a fiduciary
duty for the attorney to the non-client.
According to these commenters, such a
fiduciary duty would directly conflict
809 See, e.g., State of Indiana Letter (‘‘Not all
attorneys who are integrally involved in a typical
municipal finance transaction have an attorney/
client relationship with the municipal entity
issuing the bonds . . . . The responsibilities of
these counsel are relatively standard at the core, but
can be varied in accordance with the agreements of
the various parties to the transaction to produce the
most efficient and effective final product for the
municipal entity . . . . All these attorneys need
absolute comfort that their contributions will not be
considered municipal advisory services which are
outside the scope of the exemption simply because
they are not engaged by the municipal entity.’’);
Squire Sanders & Dempsey Letter (stating that
imposing a federal fiduciary duty upon an attorney
with respect to a non-client municipal entity or
obligated person will create potential ethical
dilemmas regarding conflicts of interest rules under
state professional conduct rules that already impose
a prior competing fiduciary duty in favor of the
attorney’s client); Chapman and Cutler Letter;
Gilmore & Bell Letter; Sherman & Howard Letter;
and Texas Comptroller of Public Accounts Letter.
810 See, e.g., Gilmore & Bell Letter; NABL Letter.
811 See Gilmore & Bell Letter.
812 See MSRB Letter.
813 See, e.g., State of Indiana Letter; Squire
Sanders & Dempsey Letter; Sherman & Howard
Letter; NABL Letter.
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with the attorney’s pre-existing
fiduciary duties to its clients, and thus
potentially infringe upon state rules of
professional responsibility.814
Other commenters indicated that
many law firms provide to both clients
and non-clients educational material
about municipal bond financings
through newsletters and emails and
expressed concern that such activity
would not be covered under the
proposed interpretation of the attorney
exclusion.815 Moreover, some
commenters indicated that attorneys
typically provide legal advice to a
client, both before a formal attorneyclient relationship is formed and after
the attorney-client relationship has
ended (e.g., upon the closing of a bond
transaction).816 One commenter noted
that it is often asked to provide its view
or advice on matters relating to prior
transactions for which it served as bond
counsel or in another legal capacity.817
The Commission has carefully
considered issues raised by commenters
on the Proposal and is modifying its
interpretation of the statutory attorney
exclusion to provide that attorneys are
excluded from the definition of
municipal advisor to the extent that the
attorney is offering legal advice or
providing services that are of a
traditional legal nature with respect to
the issuance of municipal securities or
municipal financial products to a client
of such attorney that is a municipal
entity, obligated person, or other
participant in the transaction. The
Commission recognizes that legal advice
and services of a traditional legal nature
in the area of municipal finance
inherently involves a financial advice
component. By contrast, to the extent an
attorney represents himself or herself as
a financial advisor or financial expert
regarding the issuance of municipal
securities or municipal financial
products, the attorney is not excluded
with respect to such financial activities
under Rule 15Ba1–1(d)(2)(iv) as this
type of advice and services would be
outside the statutory exclusion.818
814 See, e.g., NABL Letter (recommending that the
Commission clarify the attorney exclusion to
prevent the imposition of fiduciary duties to issuers
that are inconsistent with the duties of lawyers
under their state professional conduct rules);
Sherman & Howard Letter; Squire Sanders &
Dempsey Letter.
815 See, e.g., NABL Letter; Squire Sanders &
Dempsey Letter; Sherman & Howard Letter.
816 See, e.g., State of Indiana Letter; Squire
Sanders & Dempsey Letter; NABL Letter.
817 See Squire Sanders & Dempsey Letter.
818 Rule 15Ba1–1(d)(2)(iv). In addition to the
modifications discussed above, the Commission is
adopting the attorney exclusion with minor, nonsubstantive modifications to provide greater clarity
and consistency with other organizational changes
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By revising its interpretation of the
exclusion in this way and providing
guidance, the Commission intends to
clarify that all legal advice or services of
a traditional legal nature involving the
issuance of municipal securities or a
municipal financial product are covered
under the attorney exclusion. This
approach addresses many comments
received by the Commission noting the
negative impacts of requiring attorneys
in municipal finance transactions to
limit their advice and services to those
related strictly to legal issues and
describing the difficulty involved in
complying with such limitations given
the nature of the legal advice and
services attorneys traditionally have
provided, and are expected to provide,
in municipal finance transactions.819 In
addition, if another participant in the
issuance or transaction, who is not a
client of the attorney, receives and acts
upon the legal advice the attorney
provides to its client, the attorney will
not have to register as a municipal
advisor. In this situation, the attorney is
still only advising its client, even if the
advice affects the actions of other
participants in the transaction. This
approach addresses commenters’
concerns that bond counsel and other
attorneys routinely share their views
with non-client parties in a municipal
finance transaction in the context of
working group discussions.820 Because
such attorney would not be required to
register as a municipal advisor, he or
she would not be subject to an
additional fiduciary duty that could
potentially conflict with the attorney’s
existing fiduciary duty to his or her
client.821 By revising its interpretation
of the exclusion to include a client of
such attorney that is a municipal entity,
obligated person, or other participant in
the transaction, the Commission intends
to be responsive to the comments
received that attorneys representing
participants other than a municipal
entity or obligated person should be
included in the exemption.822
the Commission is making to the exclusions and
exemptions.
819 See supra notes 803–807 and accompanying
text.
820 See supra notes 809–813 and accompanying
text (discussing comments on the role of bond
counsel in a municipal securities transaction and
the expectation that attorneys share their advice
with the financing team).
821 See supra notes 809 and 814 and
accompanying text (discussing comments on
potentially conflicting duties if an attorney is not
counsel to the municipal entity or obligated person,
but would be required to register as a municipal
advisor to the extent they provide advice on the
transaction).
822 See supra note 813 and accompanying text
(discussing role of underwriter’s counsel in a
municipal securities transaction).
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If, however, in connection with the
issuance of municipal securities or
municipal financial products, an
attorney represents himself or herself as
a ‘‘financial advisor’’ or ‘‘financial
expert,’’ the attorney will be required to
register as a municipal advisor if the
attorney engages in municipal advisory
activities. As provided in the Proposal,
the Commission would consider an
attorney to be representing himself or
herself as a ‘‘financial advisor’’ or
‘‘financial expert’’ if the attorney
provides advice that is primarily
financial in nature, such as: (1) The
financial feasibility of a project or
financing; (2) advice estimating or
comparing the relative cost to maturity
of an issuance of municipal securities
depending on various interest rate
assumptions; (3) advice recommending
a particular structure as being
financially advantageous under
prevailing market conditions; (4) advice
regarding the financial aspects of
pursuing a competitive sale versus a
negotiated sale; and (5) other types of
financial advice that are not related to
the attorney’s provision of legal advice
and services of a traditional legal
nature.823 In these examples, attorneys
would be providing services that are
primarily financial in nature and that
are beyond their traditional legal roles
and outside of the statutory exclusion.
The Commission believes that if an
attorney represents himself or herself as
a financial advisor or expert and
engages in municipal advisory
activities, the attorney is acting outside
the scope of the statutory exclusion (i.e.,
the attorney is not offering legal advice
or providing services that are of a
traditional legal nature).824
The Commission recognizes that
analysis, discussion, negotiation, and
advice regarding the legal ramifications
of the structure, timing, terms, and other
provisions of a financial transaction by
an attorney to a client are essential to
the development of a plan of finance. In
turn, these services become, among
other things, the basis for a transaction’s
basic legal documents, the preparation
and delivery of the official statement or
other disclosure document that
describes the material terms and
provisions of the transaction, the
preparation of the various closing
certificates that embody the terms and
provisions of the transaction, the
preparation and delivery of the
attorney’s legal opinion with respect to
the transaction that is relied upon by the
client and investors in the municipal
securities marketplace, and advice and
823 See
824 See
Proposal, 76 FR 834.
15 U.S.C. 78o–4(e)(4)(C).
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documentation with respect to postclosing policies and procedures that are
necessary for compliance with federal
and state law during the term of the
municipal securities or municipal
financial product. Similarly, attorneys
often provide legal advice and related
legal services regarding Federal tax
requirements for issues of municipal
securities, such as, for example, legal
advice and services in determining
ongoing compliance of an issue of
municipal securities with the Federal
tax law requirement to ‘‘rebate’’ excess
arbitrage earnings on investments of taxexempt bond proceeds to the Federal
Government at periodic intervals during
the term of the bond issue. The legal
advice and legal services described in
this paragraph would be within the
attorney exclusion to the municipal
advisor definition. Thus, attorneys
providing this advice or these services
would not be required to register as
municipal advisors.
In addition, the Commission
recognizes that attorneys seeking to
represent municipal entities and
obligated persons are often required to
respond to RFPs and RFQs, and to
participate in interviews during which
they are requested to, and do, offer
advice regarding the structure, timing,
terms, and other provisions of a
proposed offering of municipal
securities or municipal financial
products before being retained as
counsel and that these requests may not
be limited to legal questions. As
discussed above in Section III.A.1.c.ii,
the Commission does not believe that a
response to an RFP or RFQ is advice
with respect to the issuance of
municipal securities or municipal
financial products, and the Commission
is adopting an exemption from the
definition of municipal advisor for any
person providing a response to an RFP
or RFQ, provided such person does not
receive separate direct or indirect
compensation for advice provided as
part of such RFP or RFQ. The
Commission notes that responses to
RFPs and RFQs are provided at the
request of the municipal entity or
obligated person. Thus, anyone
responding to an RFP or RFQ in
accordance with the exemption,
including an attorney, will not have to
register as a municipal advisor.
The Commission also recognizes that
attorneys who represent municipal
entities or obligated persons with
respect to the issuance of municipal
securities or municipal financial
products are often asked to provide
interpretation of the provisions of the
legal documents throughout the term of
the municipal securities or municipal
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67529
financial products, including before and
after the formal attorney-client
relationship with respect to the issuance
or municipal financial product exists.825
Although the attorney-client
relationship may not be in existence, if
the advice is with respect to an issuance
or transaction in connection with which
the municipal entity was or will be a
client of the attorney, the Commission
considers such advice to be ‘‘to a
client.’’ Accordingly, such advice will
not require the attorney to register as a
municipal advisor.
Finally, as discussed above, the
Commission is clarifying that provision
of general information, including the
provision of educational materials to an
attorney’s clients and non-clients does
not constitute advice, and therefore, will
not require the attorney to register as a
municipal advisor.826
Engineers Providing Engineering Advice
Section 15B(e)(4)(C) of the Exchange
Act excludes engineers providing
engineering advice from the municipal
advisor definition. In the Proposal, the
Commission proposed to interpret this
exclusion to mean that the term
‘‘municipal advisor’’ shall not include
‘‘[a]ny engineer, unless the engineer
engages in municipal advisory activities
other than providing engineering
advice.’’ 827 In the Proposal, the
Commission stated that costing out
engineering alternatives would not
subject an engineer to registration
because such activity would be
considered ‘‘engineering advice.’’ 828
The Commission, however, further
proposed that this exclusion would not
include circumstances in which the
engineer is engaging in municipal
advisory activities, including cash flow
modeling or the provision of
information and educational materials
relating to municipal financial products
or the issuance of municipal securities,
even if those activities are incidental to
the provision of engineering advice.829
The Commission also proposed that the
exclusion would not include preparing
feasibility studies concerning municipal
financial products or the issuance of
municipal securities that provide
analysis beyond the engineering aspects
of the project. Therefore, under the
Proposal, engineers engaging in the
types of activities described above
825 See
supra notes 816–817 and accompanying
text.
826 See supra Section III.A.1.b.i. (discussing the
provision of general information) and note 815 and
accompanying text.
827 See proposed Rule 15Ba1–1(d)(2)(v).
828 See Proposal, 76 FR 834.
829 See id.
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would have been required to register as
a municipal advisor.830
The Commission requested comment
on whether it should expand its
proposed interpretation of the statutory
exclusion beyond engineers providing
engineering advice.831 The Commission
also asked how the term ‘‘engineering
advice’’ should be interpreted and
whether the engineering exclusion
should include circumstances in which
the engineer is preparing feasibility
studies concerning municipal financial
products or the issuance of municipal
securities that include analysis beyond
the engineering aspects of the project.832
The Commission received
approximately 32 comment letters
regarding the proposed interpretation of
the statutory engineering exclusion.
Some commenters supported the
proposed interpretation of the
exclusion.833 One commenter stated that
the Commission ignored the statutory
exclusion altogether.834 Most
commenters, however, suggested that
the Commission’s proposed
interpretation of the engineering
exclusion was too narrow and that
activities such as cash flow analyses and
feasibility studies represent an integral
part of an engineer’s services.835 Some
830 See
id.
id., at 837.
832 See id.
833 See MSRB Letter (‘‘The MSRB supports the
language of proposed Rule 15Ba1–1(d)(2)(v)
regarding the exclusion for engineers, including in
particular that such exclusion applies solely when
an engineer is providing engineering advice. Thus,
to the extent that an engineer provides advice with
respect to municipal financial products, the
issuance of municipal securities or other financing
structure that is not considered engineering advice
(such as advice on how to structure an issue to
cover the costs of a project), the engineer would be
considered a municipal advisor.’’) and Acacia
Financial Group Letter.
834 See letter from Spencer Bachus, Chairman,
United States House of Representatives, Committee
on Financial Services, dated February 23, 2011
(‘‘Bachus Letter’’).
835 See, e.g., letters from David King, President,
Virginia/DC/Maryland Chapter, American Public
Works Association, dated February 16, 2011
(‘‘APWA Letter’’) (stating that engineering
professional services for infrastructure evaluations,
studies, and design contracts by their very nature
involve and require cost analyses); David A.
Raymond, President & CEO, American Council of
Engineering Companies, dated February 18, 2011
(‘‘ACEC Letter’’) (stating that in many cases,
analysis of cash flow requirements is inextricable
from the design of an engineering project, and that
engineers often provide guidance regarding
alternative phasing of projects to match available
revenues or to maximize the infrastructure given
limited resources); Parsons Brinckerhoff Inc., dated
February 18, 2011 (‘‘Parsons Brinckerhoff Letter’’)
(noting that in the engineering context, cash-flow
modeling often involves (1) a cost-loaded design
and construction schedule, or (2) a record-keeping
cash flow analysis that facilitates periodic
reporting); Kutak Rock Letter (stating that the
Commission should treat an engineer’s preparation
of a project feasibility study as a part of routine
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831 See
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commenters suggested that the terms
‘‘cash flow analysis’’ and ‘‘feasibility
studies’’ have very specific meanings
within the engineering industry.836 One
commenter specifically recommended
that engineering firms reporting on the
condition of water and sewer systems
should be excluded from the definition
of municipal advisor.837 Another
commenter noted that the Brooks
Act,838 which was enacted in 1972,
delineates what constitutes
‘‘engineering services.’’ 839
A number of commenters highlighted
energy services and solar energy
companies, in particular, as a sector of
the engineering industry that would be
especially affected by the Commission’s
proposed interpretation.840 Three
engineering advice); Honeywell Letter (stating that
‘‘the provision of such [feasibility studies and other
activities that currently do not fall under the
engineer exemption] is simply necessary for the
municipality to initially understand the costs
associated with a proposed engineering project and
the range of potential options for financing such
project, not to assist it in specifically evaluating or
recommending financing options’’); NAESCO Letter
(stating that ‘‘engineering includes a continuum of
services . . . including the provision of general and
specific information about financing options for
energy projects, preparation of studies including
information about cash-flows and other financial
projections, and identification of, and introduction
to brokers, dealers, municipal advisors (including
financial advisors) and municipal securities dealers
with expertise in financing energy service
projects’’); letter from David A. Raymond, President
& CEO, HNTB Holdings Ltd, dated February 22,
2011 (‘‘HNTB Holdings Letter’’) (stating that ‘‘[t]he
conception of engineering advice expressed in the
proposing release does not reflect engineering as it
is practiced today, particularly in the context of
infrastructure projects, and excludes many
activities that are intrinsic to the profession of
engineering’’).
836 See, e.g., Parsons Brinkerhoff Letter.
837 See letter from Mark Page, Director of
Management and Budget, The City of New York,
dated February 22, 2011 (‘‘NYC Management and
Budget Letter’’). This commenter also stated that
sewer rate consultants issuing reports relating to the
sufficiency of water and sewer rates to satisfy
obligations of a city’s water authority are not
providing advice relating to municipal securities or
municipal financial products; and that rate
consultants providing advice regarding rates and
revenues should, like engineers providing
engineering advice, be excluded from the definition
of ‘‘municipal advisor.’’
838 40 U.S.C. 1102. The Brooks Act is a federal
law that sets forth policies and certain procedures
for selection by the federal government of
engineering and architecture firms and related
services.
839 See letter from Mark A. Casso, President,
Construction Industry Round Table, dated February
22, 2011 (‘‘Construction Industry Round Table
Letter’’).
840 See, e.g., letters from Senator Daniel Coats,
Congressmen Dan Burton, Larry Bucshon, Todd
Rokita, and Todd Young, dated May 27, 2011
(‘‘Senator Coats et al. Letter’’) (highlighting the
‘‘unnecessarily dire impacts’’ that the proposed rule
would have on energy services companies); Senator
Landrieu, Senator Coons, and Chairman Bingaman,
United States Senate Committee on Energy and
Natural Resources, dated June 22, 2011 (‘‘Senator
Landrieu et al. Letter’’) (stating that ‘‘the
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commenters suggested that energy
service companies should be able to
provide disclosure statements to
municipalities without being considered
municipal advisors,841 and one
commenter suggested that solar energy
companies acting in an engineering role
and providing just information and
education related to cost savings
integral to solar engineering should be
included in the exemption.842
The Commission has carefully
considered the issues raised by
commenters on the Proposal and is
adopting its interpretation of the
statutory engineering exclusion,
substantially as proposed, to provide
that engineers are excluded from the
definition of municipal advisor ‘‘to the
extent that the engineer is providing
engineering advice,’’ 843 with
modifications and clarifications
regarding the scope of its interpretation
of the statutory exclusion in response to
public comment.844 In general, the
Commission believes activities within
the scope of the engineering exclusion
may include feasibility studies, cash
flow analyses, and similar activities;
provided, however, that the engineering
exclusion does not cover activities in
which an engineer provides advice to a
municipal entity or obligated person
regarding municipal financial products
or the issuance of municipal securities,
as discussed further herein.
Activities within the scope of the
engineering exclusion include, among
other things, certain activities discussed
below. The Commission believes that
this exclusion covers an engineer’s
provision of certain information to its
client regarding a project schedule and
anticipated funding requirements of the
project. The Commission further
Commission’s proposal undermines [the
engineering] exemption by suggesting that any
[energy services company] that so much as provides
a cash flow analysis or feasibility study to a
municipality would not be providing ‘engineering
advice’ and would therefore be subject to
registration as a ‘municipal advisor’’’); Honeywell
Letter; letter from Katherine Gensler, Director,
Regulatory Affairs, and Emily J. Duncan, Policy
Specialist, Solar Energy Industries Association,
dated November 9, 2011 (‘‘Solar Energy Industries
Association Letter’’).
841 See NAESCO Letter; Honeywell Letter;
Chevron Letter.
842 See Solar Energy Industries Association Letter.
For purposes of the engineering exclusion
discussion, the Commission treats energy services
and solar energy companies as engineering
companies.
843 See Rule 15Ba1–1(d)(2)(v). The Commission is
adopting the engineering exclusion with minor,
non-substantive modifications from the version
proposed to provide greater clarity and consistency
with other organizational changes the Commission
is making to the exclusions and exemptions.
844 See supra notes 835–836 and accompanying
text (discussing comments related to cash flow
analyses and feasibility studies).
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believes that the provision of
engineering feasibility studies that
include certain types of projections,
such as projections of output capacity,
utility project rates, project market
demand, or project revenues that are
based on considerations involving
engineering aspects of a project are
within the scope of the engineering
exception.
For example,845 an engineer who
provides funding schedules and cash
flow models that anticipate the need for
funding at certain junctures in a project
or engineering feasibility studies based
on analysis of engineering aspects of the
project will fall within the
Commission’s interpretation of the
statutory engineering exclusion from the
municipal advisor definition. An
engineering feasibility study, for
example, might include a discussion of
how much power might be generated by
the installation of solar panels, and such
a discussion would not constitute a
municipal advisory activity. Similarly,
recommendations about how to increase
power output based on factors such as
the placement of the panels or the
number of panels would also not
constitute a municipal advisory activity.
Moreover, an engineer might provide
estimates of water delivery capacity or
a road’s traffic capacity without
engaging in municipal advisory activity.
Engineers who report on the physical
condition of infrastructure, such as
roads, bridges or water and sewer
systems, would also not be engaged in
municipal advisor activity.846 Absent
other facts and circumstances which
indicate that an engineer is providing
advice to a municipal entity or obligated
person regarding the issuance of
municipal securities, an engineer’s use
of assumptions provided by a municipal
entity or obligated person regarding
interest rates or debt levels in preparing
an engineering feasibility study or cash
845 See,
e.g., supra note 835 and accompanying
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text.
846 See supra note 837. Whether a rate consultant
providing advice regarding rates and revenues
would be a ‘‘municipal advisor’’ will depend upon
the facts and circumstances. For example, if such
consultant provides advice on whether certain rates
and revenues would support debt service on an
issue of municipal securities, such activity would
be municipal advisory activity that would subject
the consultant to the registration requirement.
Although the Commission is not adopting an
exemption for persons performing such activities,
the Commission notes that like all persons, such
entities could apply for no-action or exemptive
relief. As noted above, when requesting exemptive
relief pursuant to Section 15B(a)(4), a person may
follow the procedures for requesting exemptive
relief pursuant to Section 36 of the Exchange Act,
as set forth in Rule 0–12 under the Exchange Act.
See 17 CFR 240.0–12.
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flow analysis alone will not result in
municipal advisory activity.
With respect to services related to
cash flow analysis, a municipal entity
might seek input from an engineering
company about whether a project could
be accomplished with estimated
available funding, including the timing
of such funding. As noted above,
engineers that provide input about the
anticipated funding requirements of a
project would not be engaging in a
municipal advisory activity.847 Thus, an
engineer could advise a municipal
entity about whether a project could be
safely or reliably completed with the
available funds and provide engineering
advice about other alternative projects,
cost estimates, or funding schedules
without engaging in municipal advisory
activity. Further, the Commission would
consider an engineering company that
informs a municipal entity or obligated
person of potential tax savings,
discounts, or rebates on supplies to be
acting within the scope of the
engineering exclusion.
By contrast, however, activities of
engineers are outside the scope of the
engineering exclusion if they include
advice to a municipal entity or obligated
person regarding municipal financial
products or the issuance of municipal
securities, including advice with respect
to the structure, timing, terms, or other
similar matters concerning such
products or issuances. For example, an
engineer that is engaged by a municipal
entity or obligated person to prepare
revenue projections to support the
structure of an issuance of municipal
securities would be providing advice
outside the scope of the engineering
exclusion and would be engaging in
municipal advisory activity. Further,
while the inclusion of an engineering
feasibility study in an official statement
or other offering document for an
issuance of municipal securities alone
does not cause an engineer’s activities
with respect to the feasibility study to
be treated as municipal advisory
activity, other facts and circumstances,
such as the inclusion of revenue
projections and debt service coverage
calculations in the feasibility study, may
suggest municipal advisory activity.
Engineering companies may also
provide advice to their clients regarding
financing of products and services
delivered to such clients. As noted
previously, the Commission is clarifying
that provision of general information
that does not involve a recommendation
847 In the Proposal, the Commission gave as an
example of activity that would be engineering
advice the costing out of engineering alternatives.
See Proposal, 76 FR 834.
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regarding municipal financial products
or the issuance of municipal securities
(including general information with
respect to financing options) would not
be municipal advisory activity.848
Depending on all the facts and
circumstances, however, the provision
of information describing financing
alternatives that may meet the needs of
a municipal entity or obligated person
may be considered a recommendation
with respect to municipal financial
products or the issuance of municipal
securities that would be municipal
advisory activity.849
One commenter stated that another
standard service offered by engineers
involves the provision of introductions
of municipal entities to brokers, dealers,
municipal advisors, and municipal
securities dealers and that such
introductions should be within the
engineering exclusion.850 One
commenter recommended that the
Commission ‘‘refine its approach’’ to
register only those solicitors that receive
compensation for introductions to
funding sources.851
The Commission does not believe it is
necessary or appropriate to provide a
separate exemption for engineers
engaging in introductions. The
Commission notes that introductions
provided by engineers would be subject
to the same analysis as any other
‘‘solicitation of a municipal entity or
obligated person.’’ 852 Thus, if an
introduction does not result in direct or
indirect compensation to the engineer,
the introduction will not constitute such
a solicitation and the engineer will not
be required to register as a municipal
advisor.
Finally, as discussed previously, the
Commission is providing an exemption
for advice given to municipal entities
and obligated persons in circumstances
in which the municipal entity or
obligated person separately is
represented by an independent
registered municipal advisor.853
848 See supra note 168 and accompanying text.
See also supra Section III.A.1.b.i. (providing
guidance on the term ‘‘advice’’ and discussing the
provision of general information).
849 See supra Section III.A.1.b.i. (providing
guidance on the term ‘‘advice’’ and discussing the
provision of general information).
850 See NAESCO Letter.
851 See letter from Jennifer Schafer, Coordinator,
Federal Performance Contracting Coalition, dated
February 22, 2011 (‘‘Federal Performance
Contracting Coalition Letter’’).
852 See supra Section III.A.1.b.x. (discussing
‘‘solicitation of a municipal entity or obligated
person’’).
853 See supra Section III.A.1.c.iii. (discussing the
exemption when a ‘‘municipal entity or obligated
person represented by an independent municipal
advisor’’).
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Engineers may provide advice beyond
engineering advice when such an
independent registered municipal
advisor is present without triggering the
requirement to register as a municipal
advisor.
Vendors Generally
Some commenters who commented
on other aspects of the Proposal also
provided information with respect to
purchases from vendors made by
municipal entities that could potentially
involve the issuance of municipal
securities. One commenter stated that
most municipalities, for example, do not
purchase a solar installation upfront,
but rather enter into a purchase or lease
agreement with the solar company.854
Another commenter referenced leaseleaseback arrangements and preferred
provider or performance contract
arrangements.855
The Commission notes that municipal
entities and obligated persons purchase
a wide range of products from vendors,
including, for example, computers,
office furnishings and supplies, car,
truck and school bus fleets, telephone
systems, and a multitude of other
products. The Commission believes that
the activities of vendors in advertising,
promoting, and selling their products to
municipal entities are generally outside
the scope of municipal advisory
activities because these activities
generally do not involve advice with
respect to the issuance of municipal
securities or municipal financial
products.856
The Commission understands,
however, that sometimes municipal
entities and obligated persons may
finance the purchase of products from
vendors through the use of instruments
such as installment purchase contracts,
installment sale contracts, leasepurchase agreements, or loans. The
Commission notes that the provision of
advice and recommendations by
vendors (or any other person including,
for example, lease financing companies
affiliated with vendors) to municipal
entity or obligated person clients
regarding specific financing options for
the purchase of products could,
depending on the facts and
circumstances, be a municipal advisory
activity. For example, certain
financings, depending on how they are
structured, could constitute the issuance
of a security 857 by a municipal entity
854 See
Solar Energy Industries Association Letter.
NAESCO Letter.
856 See supra note 143 and accompanying text
(discussing the term ‘‘municipal advisory
activities’’).
857 See Reves v. Ernst & Young, Inc., 494 U.S. 56
(1990), where the U.S. Supreme Court established
855 See
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and, therefore, could constitute the
issuance of a municipal security.858 The
provision of advice and
recommendations regarding such an
issuance would constitute municipal
advisory activity unless an exclusion or
exemption applies.
Actuaries
Section 15B(e)(4)(C) of the Exchange
Act does not include an exclusion for
actuaries from the municipal advisor
definition. The Commission received
approximately five comment letters
concerning a possible exemption for
actuaries.859
One commenter stated that if the term
‘‘investment strategies’’ extends beyond
proceeds of municipal securities to
include funds held in pension plans,
actuarial services for pension plans
would potentially require municipal
advisor registration.860 The same
commenter recommended that the
Commission exempt from the municipal
advisor definition enrolled actuaries
and members of the five U.S.-based
actuarial organizations that have
adopted the actuarial Code of
Professional Conduct (including the
American Academy of Actuaries, the
American Society of Pension
Professionals and Actuaries, the
Casualty Actuarial Society, the
Conference of Consulting Actuaries, and
the Society of Actuaries).861 This
commenter suggested that such
exemption should apply to actuaries
providing actuarial services that are
governed by the Actuarial Standards of
Practice and the Code of Professional
Conduct.862 Further, another
commenter recommended that actuaries
providing actuarial services to public
pension plans, 403(b) plans, and 457(b)
plans generally should also be
exempt.863 Additionally, one
commenter recommended that the
Commission clarify whether actuaries
who perform actuarial and/or consulting
services for certain other governmental
benefit plans and trusts, such as retiree
medical plans, voluntary employee
benefit associations and related trusts
(‘‘VEBAs’’), and other post-employment
benefits (‘‘OPEB’’) plans and trusts
a multi-factor test to distinguish securities from
instruments that are not securities.
858 See 15 U.S.C. 78c(a)(29) (defining ‘‘municipal
securities’’).
859 See, e.g., Fraser Stryker Letter; State of Indiana
Letter; letter from Maria Sarli, Resource Actuary,
and Lynn Cook, Towers Watson, dated February 22,
2011 (‘‘Towers Watson Letter’’); American Society
of Pension Professionals Letter; and American
Academy of Actuaries Letter.
860 See American Academy of Actuaries Letter.
861 See id.
862 See id.
863 See Towers Watson Letter.
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would be municipal advisors.864
Finally, another commenter stated that
actuarial studies should not be
considered to be ‘‘municipal advisory
activities.’’ 865
For the reasons discussed below, the
Commission does not believe that it is
necessary or appropriate to exempt
actuaries from the municipal advisor
registration regime as suggested by
commenters. However, as discussed in
other sections of the release, the
Commission is making several changes
to the final rule text and its
interpretations that would also address
some of the concerns raised by
commenters. As discussed above in
Section III.A.1.b.viii, the Commission is
exempting from the definition of
municipal advisor persons that provide
advice with respect to investment
strategies that are not plans or programs
for the investment of the proceeds of
municipal securities or the
recommendation of and brokerage of
municipal escrow investments. Thus,
persons who provide advice with
respect to a plan, such as a public
employee benefit plan (including 403(b)
plans and 457(b) plans, to the extent the
plans do not contain proceeds of
municipal securities) will not be
required to register as municipal
advisors. To the extent that a plan
contains proceeds of municipal
securities, the Commission understands
that an actuary’s service does not
generally involve advice with respect to
the investment of such proceeds. As
such, an actuary’s services with respect
to such plan generally would not
constitute municipal advisory activities
and would not require the actuary to
register as a municipal advisor.
In addition, the provision of actuarial
studies that are used as the basis for a
municipal entity to engage in a
financing will not be considered a
municipal advisory activity if the
actuarial study only uses clientprovided investment return
assumptions and does not make any
recommendations about how such
municipal entity might address an
unfunded liability, including a
discussion of the advisability of an
issuance of municipal securities or a
municipal financial product. Further, in
order for the provision of actuarial
studies that form the basis for disclosure
with respect to an issuance of municipal
securities to not constitute a municipal
advisory activity, it must not include a
discussion of the advisability of an
issuance of municipal securities or a
municipal financial product. Such
864 See
865 See
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actuarial studies only provide
calculations using data from the client
and do not involve the provision of any
advice. An actuary may be deemed to be
engaged in a municipal advisory activity
if the facts and circumstances indicate
that the actuary tailored its actuarial
study to support an issuance of
municipal securities or to support
entering into a municipal financial
product.
viii. Banks
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In the Proposal, the Commission
discussed a commenter’s suggestion that
the Commission exempt from the
definition of ‘‘municipal advisor’’ banks
providing ‘‘traditional banking services’’
and banks and trust companies that
provide ‘‘investment advisory
services.’’866 The Commission noted
that Congress included in the statutory
definition of municipal advisor a
limited number of exclusions, and such
exclusions did not include banks in any
capacity.867 In addition, as discussed
more fully above,868 the Commission
proposed to interpret the term
‘‘investment strategies’’ to include
‘‘plans, programs, or pools of assets that
invest in funds held by or on behalf of
a municipal entity.’’ 869 In connection
with its proposed interpretation of
‘‘investment strategies,’’ the
Commission stated that, because every
bank account of a municipal entity is
comprised of funds ‘‘held by or on
behalf of a municipal entity,’’ money
managers that provide advice to
municipal entities regarding their bank
866 See letter from Carolyn Walsh, Vice President
and Senior Counsel, Center for Securities, Trust and
Investments, American Bankers Association, and
Deputy General Counsel, ABA Securities
Association, dated October 13, 2010. See also
Proposal, 76 FR 834, notes 143–144 and
accompanying text. As support, this commenter
stated that banks are currently well-regulated and
banks that offer trustee services are subject to
rigorous and frequent examination, as well as
extensive regulation by the various federal or state
banking regulators.
The commenter also listed the following activities
as examples of the types of activities in which bank
and trust companies engage: providing direct loans,
checking accounts, and CDs; responding to RFPs
regarding investment products offered by the bank,
such as interest bearing deposits, money market
mutual funds, or other exempt securities; investing
in securities issued by municipalities and providing
credit, or through their affiliates, underwriting
services to municipalities (such as when the
municipality wants to buy a fire truck or build a
school); providing fiduciary services to municipal
entities (such as by managing investment accounts
for local towns or acting as trustee with respect to
bond proceeds, escrow accounts, governmental
pension plans and other similar capacities). See
Proposal, 76 FR 834, n.143.
867 See id., at 835.
868 See supra Section III.A.1.b.viii.
869 See Proposal, 76 FR 830.
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accounts could be municipal
advisors.870
The Commission requested comment
on whether it should exempt banks
providing advice to a municipal entity
or obligated person concerning
transactions that involve a ‘‘deposit’’ (as
defined in Section 3(l) of the Federal
Deposit Insurance Act 871) at an
‘‘insured depository institution’’ (as
defined in Section 3(c)(2) of the Federal
Deposit Insurance Act 872). The
Commission stated that, if adopted,
banks would be exempted from the
definition of municipal advisor to the
extent they provide advice to a
municipal entity or obligated person
with respect to such banking products
as insured checking and savings
accounts and certificates of deposit.
However, banks would not be exempted
if they engage in other municipal
advisory activities.873
In response to request for comment,
the Commission received over 300
letters from commenters, many of them
commercial banks and banking
associations. The commenters stated
that, because the Commission was
proposing to interpret the term
‘‘investment strategies’’ to encompass
any funds ‘‘held’’ by a municipal entity,
regardless of whether such funds are
related to the issuance of municipal
securities or investment of bond
proceeds, the definition would
potentially cover what commenters
termed ‘‘traditional banking products
870 See
id.
U.S.C. 1813(l).
872 12 U.S.C. 1813(c)(2). See Proposal, 76 FR 835.
The Commission also requested on comment on
whether to exclude banks performing certain other
specific activities, including, for example: banks
responding to RFPs from municipal entities
regarding other investment products offered by the
banking entity, such as money market mutual funds
or other exempt securities; banks that provide to a
municipal entity a listing of the options available
from the bank for the short-term investment of
excess cash (for example, interest-bearing bank
accounts and overnight or other periodic
investment sweeps) and negotiate the terms of an
investment with the municipal entity; banks that
provide to a municipal entity the terms upon which
the bank would purchase for the bank’s own
account (to be held to maturity) securities issued by
the municipal entity, such as bond anticipation
notes, tax anticipation notes, or revenue
anticipation notes; banks that direct or execute
purchases and sales of securities or other
instruments with respect to funds in a trust account
or other fiduciary account in accordance with
predetermined investment criteria or guidelines,
including on a discretionary basis; banks and trust
companies that provide other fiduciary services to
municipal entities, such as acting as trustees with
respect to governmental pension plans and other
similar capacities; and banks and trust companies
to the extent they are providing advice that
otherwise would subject them to registration under
the Investment Advisers Act, but for the operation
of a prohibition to or exemption from registration.
See Proposal, 76 FR 837.
873 See id., at 835.
871 12
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67533
and services.’’ 874 According to the
commenters, such services include
deposit accounts, cash management
products, and loans to municipalities,
all of which are already subject to
supervision by federal bank
regulators.875 As a result, these
commenters stated that banks providing
such products and services would have
to register as municipal advisors, adding
‘‘a new layer of regulation on bank
products for no meaningful public
purpose.’’ 876 One commenter noted that
‘‘the OCC and the other federal banking
agencies have an existing regulatory
framework and oversight over
traditional banking products and
services, which include bank deposit
transactions * * * The OCC also
already evaluates the ability of bank
management to monitor and control
traditional banking products and
services, including the administration of
deposit accounts, through regular and
extensive on-site examinations.’’ 877
Other commenters recommended that
municipal advisor registration should
874 See, e.g., American Bankers Association Letter
I (the SEC’s proposed interpretation would regulate
‘‘already-regulated traditional banking products,
such as deposit, cash management and lending
activities, and trust or custody products with or on
behalf of municipalities’’); Union Bank Letter; Form
Letter A (of the approximately 300 comment letters
that addressed the topic of commercial bank
regulation, 170 were submitted in Form Letter A
format) (the SEC’s proposed interpretation would
cover ‘‘traditional bank products and services, such
as deposit accounts, cash management products,
and loans to municipalities’’). See also Form Letter
D (36 comment letters were submitted in this form)
(the SEC’s proposed interpretation ‘‘would label as
‘‘municipal advisors’’ banks and many bank
employees providing essential and traditional bank
services to their local municipalities, including dayto-day deposit, cash management, custody, trustee,
and lending services—a result we do not believe
furthers any legitimate policy goal . . .’’).
875 See, e.g., American Bankers Association Letter
I; Union Bank Letter; Form Letter A.
876 See, e.g., Form Letter A. See also Form Letter
D (36 comment letters were submitted in this
format) (stating that ‘‘the rule would result in . . .
additional, redundant layers of multiple rules by
the SEC and Municipal Securities Rulemaking
Board (MSRB) for the very same products and
services for which we are already comprehensively
supervised by the prudential banking regulators’’);
BOK Financial Corp. Letter (stating that
‘‘[e]xpanding the . . . registration requirement to
providers of traditional banking services is
unnecessary because it provides no additional
protection to municipalities or investors in
municipal securities beyond existing regulation and
oversight’’); American Bankers Association Letter I
(stating that ‘‘[d]eposit accounts, cash management
products, loans, and trust and custody products are
but four broad types of [municipal financial
products]’’ and that ‘‘[a]ll are extensively regulated,
and the institutions providing them are supervised
and regularly examined by the federal bank
regulators’’).
877 See OCC Letter.
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instead only apply to currently
unregulated entities.878
Many commenters focused, in
particular, on the potential effects of the
proposed rules on ‘‘community
banks.’’ 879 Many other commenters
claimed that the additional regulatory
burden of registering as a municipal
advisor would raise costs, which would
either discourage community banks
from offering their full array of products
and services to municipalities 880 or lead
community banks to pass on added
costs and expenses to their municipal
entity customers.881
Commenters stated that ‘‘traditional
banking products and services’’ are not
the intended focus of the municipal
advisor registration provision of the
Dodd-Frank Act and that banks that
provide these services should not be
subject to this provision.882 For
example, one commenter noted that
products such as deposit accounts and
cash management products do not
warrant municipal advisor registration,
because ‘‘[t]hese types of products
merely are extension [sic] of more
traditional deposit products, such as
savings accounts, checking accounts
and CDs, and do not constitute ‘advice’
878 See, e.g., SIFMA Letter I; American Bankers
Association Letter I (stating that ‘‘as drafted, the
proposal goes far beyond legislative intent or public
policy need by purporting to regulate alreadyregulated traditional banking products, such as
deposit, cash management and lending activities,
and trust and custody products with or on behalf
of municipalities’’); Union Bank Letter (stating that
Congress intended to regulate a heretofore
unregulated group that advises municipal entities,
and not banks that are already regulated).
879 Entities referring to themselves as
‘‘community banks’’ include, for example First
Bank of Owasso; ACB Bank, Cherokee; First
National Bank of Bastrop, Texas; and The First
National Bank of Suffield. See letter from Dominic
Sokolosky, President, First Bank of Owasso, dated
February 14, 2011; letter from Kari Roberts,
President/CCO, ACB Bank, Cherokee, dated
February 15, 2011; letter from Reid Sharp,
President/CEO, First National Bank of Bastrop,
Texas, Bastrop, Texas, dated February 16, 2011;
letter from George W. Hermann, President/CEO,
The First National Bank of Suffield, dated February
17, 2011.
The OCC defines ‘‘community banks’’ generally
as ‘‘banks with less than $1 billion in total assets
and may include limited-purpose chartered
institutions, such as trust banks and community
development banks.’’ See Comptroller’s Handbook,
Community Bank Supervision (2010) available at
http://www.occ.gov/publications/publications-bytype/comptrollers-handbook/cbs.pdf at 1.
880 See, e.g., Form Letter A.
881 See, e.g., Hancock Holding Co. Letter.
However, none of the commenters provided any
data on the dollar cost that would be imposed by
the proposed rules.
882 See, e.g., Form Letter A, Form Letter D,
American Bankers Association Letter I,
Independent Community Bankers of America
Letter, and OCC Letter.
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under any reasonably accepted
definition of the term.’’ 883
Other commenters listed specific
banking products and services that, in
their view, should not be encompassed
within municipal advisor registration.
For example, one commenter stated
that, ‘‘[a]t a minimum, the Commission
should clarify that banks providing
municipal entity customers advice
regarding traditional banking products
including deposit accounts, savings
accounts, certificates of deposit, bankers
acceptances, bank loans and letters of
credit, and certain loan participations
do not need to register as municipal
advisors.’’ 884 This commenter also
stated that the Commission should
clarify that ‘‘banks providing the terms
for the purchase of municipal securities
for the bank’s own account shall be
excluded from registration as ‘municipal
advisors’’’ and explained that ‘‘banks
are authorized to purchase municipal
securities for their own account subject
to extensive regulation and
oversight.’’ 885 Another commenter also
argued that banks extending credit,
‘‘whether through loans, letters of credit
or otherwise,’’ should be excluded from
the definition of municipal advisor.886
Meanwhile, another commenter
recommended that the Commission
adopt an exclusion for providing advice
concerning (or soliciting) transactions
that involve a ‘‘deposit’’ at an ‘‘insured
depository institution,’’ as defined in
Section 3(c)(2) of the Federal Deposit
Insurance Act, including advice with
respect to: (1) Insured checking and
savings accounts and certificates of
deposit; (2) directing or executing
purchases and sales of securities or
other instruments in a trust, fiduciary,
or investment management account in
accordance with predetermined
883 See Independent Community Bankers of
America Letter. As examples of short-term
investment of cash, this commenter listed ‘‘interestbearing bank accounts and overnight or other
periodic investment sweeps.’’ See id.
See also letter from Charles V. Motil, Capital One
Financial Corporation, dated February 22, 2011
(stating that ‘‘a bank teller would be caught under
the [municipal advisor] definition when helping an
employee of the municipal entity deposit money
into the entity’s checking account if the teller,
seeing that the account carries a high balance,
recommends a savings account or certificate of
deposit that would give the entity a higher rate of
return’’).
884 See OCC Letter.
885 See id. See also Independent Community
Bankers of America Letter (stating that the
Commission should exclude from the definition of
‘‘municipal advisor’’ banks that provide ‘‘to a
municipal entity the terms upon which the bank
would purchase for [its] own account securities
. . . issued by the municipal entity,’’ and arguing
that ‘‘[s]uch activities do not involve the
safeguarding of public funds’’).
886 See Independent Community Bankers of
America Letter.
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investment criteria or guidelines,
including on a discretionary basis; (3)
providing other services to municipal
entities, such as acting as trustees with
respect to governmental pension plans
and other similar capacities; (4)
providing advice concerning (or
soliciting) transactions that are subject
to an exemption under Regulation R
under the Exchange Act, or transactions
otherwise excluded from the definition
of broker-dealer activities under the
Exchange Act, including bank brokerdealer exceptions relating to third-party
networking arrangements, trust and
fiduciary activities, deposit ‘‘sweep’’
activities, custody and safekeeping
activities and certain securities lending
transactions; (5) and serving as trustee
to a pooled investment vehicle.887
Another commenter recommended that
the municipal advisor definition only
cover the services of advisors with
respect to the investment of proceeds of
municipal securities and exclude the
deposit and cash management services
traditionally provided by ‘‘community
banks.’’ 888 Another commenter
suggested that ‘‘investment strategies’’
not include products and services in the
categories of deposit accounts insured
by the FDIC (up to $250,000) or bank
activities that the Commission has
exempted from the definitions of
‘‘broker’’ under Section 3(a)(4)(B) of the
Exchange Act.889
The Commission is exempting from
the definition of municipal advisor
persons that provide advice with respect
to ‘‘investment strategies that are not
plans or programs for the investment of
the proceeds of municipal securities or
the recommendation of and brokerage of
municipal escrow investments.’’ 890
Accordingly, the performance of many
of the bank activities and services about
which commenters were concerned
would not require banks to register as
municipal advisors. In addition, as
discussed further below, the
Commission is exempting from
registration banks that perform certain
activities.
Specifically, the Commission is
exempting from the definition of
municipal advisor ‘‘[a]ny bank, as
defined in section 3(a)(6) of the Act (15
U.S.C. 78c(a)(6)), to the extent the bank
provides advice with respect to the
following: (A) [a]ny investments that are
held in a deposit account, savings
account, certificate of deposit, or other
887 See
SIFMA Letter I.
First Bank of Owasso Letter.
889 See First Tennessee Bank National Association
Letter.
890 See Rule 15Ba1–1(d)(3)(vii). See also supra
Section III.A.1.b.viii.
888 See
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deposit instrument issued by a bank; (B)
[a]ny extension of credit by a bank to a
municipal entity or obligated person,
including the issuance of a letter of
credit, the making of a direct loan, or
the purchase of a municipal security by
the bank for its own account; (C) [a]ny
funds held in a sweep account that
meets the requirements of Section
3(a)(4)(B)(v) of the Act (15 U.S.C.
78c(a)(4)(B)(v)); or (D) [a]ny investment
made by a bank acting in the capacity
of an indenture trustee 891 or similar
capacity.’’ 892 The Commission believes
that advice by banks to municipal
entities and obligated persons with
respect to these products and services
would not subject municipal entities
and obligated persons to the kinds of
risks that the municipal advisor
registration regime is intended to
mitigate.
The Commission notes that the
products and services included in the
exemption, such as deposit accounts
and certain other short-term cash
investments like sweep accounts, and
extensions of credit by a bank (whether
by direct loan or otherwise),893 are
transactions in which there should be
no confusion as to the role of the bank
or its employees. Similarly, the
Commission notes that banks that
purchase securities from municipal
entities or obligated persons for their
own account (without providing advice
to the municipal entities or obligated
persons with respect to other issues or
municipal products) are not engaging in
municipal advisory activities. Instead,
they are acting as principals in purchase
transactions.894 In the case of
891 For purposes of this rule, an indenture trustee
acts as an order-taker at the direction of the
municipal entity that issued the municipal
securities, within the investment parameters set
forth in the indenture, ordinance, resolution, or
similar instrument, and, therefore, acts in a
constrained capacity, because the indenture trustee
is responsible for making sure that any investments
it undertakes fall within the investment parameters
of the indenture.
892 Rule 15Ba1–1(d)(3)(iii).
893 The Commission notes that the examples of
extensions of credit set forth in Rule 15Ba1–
1(d)(3)(iii) are not intended to be exhaustive, and
that the exemption would also apply to banks
providing advice to a municipal entity or obligated
person with respect to other extensions of credit by
a bank such as a banker’s acceptance or a
participation in a loan which the bank or an affiliate
of the bank (other than a broker or dealer) funds,
participates in, or owns.
894 Specifically, banks providing municipal
entities or obligated persons with the terms under
which they would purchase securities for their own
account are not engaging in municipal advisory
activities.
The Commission notes that, in this context, such
banks may, however, depending on the facts and
circumstances, be subject to regulation as
‘‘municipal securities dealers.’’ See Sections
3(a)(30) and 15B of the Exchange Act and the rules
and regulations thereunder.
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investments made by an indenture
trustee, the bank acts at the direction of
the municipal entity or obligated
person.
Accordingly, Rule 15Ba1–1(d)(3)(iii)
provides an exemption from the
definition of municipal advisor for
banks that provide advice with respect
to certain enumerated products and
services that the Commission believes
do not pose the types of risks that the
Dodd-Frank Act was designed to
address. Moreover, the Commission
notes that the narrower focus of the
‘‘investment strategies’’ definition on
investments of proceeds of municipal
securities and municipal escrow
investments discussed above is
intended to be responsive to comments
about the impact of the municipal
advisor registration requirement on the
provision of products and services
offered by banks. The Commission
believes that, together, these exemptions
to the definition of ‘‘municipal advisor’’
generally will cover banks with respect
to advice that they provide regarding the
types of products and services that
commenters referred to as ‘‘traditional
banking products and services.’’ 895 For
example, commenters identified deposit
accounts, which municipal entities
typically use for short-term investments
of revenues, as one type of traditional
banking product. Under the final rules,
banks that provide advice regarding
deposit accounts generally will be
explicitly exempt from the definition of
municipal advisor for this type of
account. Similarly, banks will be
explicitly exempt with respect to other
identified products and services such as
letters of credit and sweep accounts.
Additionally, although the final rules
would not explicitly exempt certain
products and services such as custody
accounts and trust services (unless the
bank is serving in the capacity of an
indenture trustee or a similar capacity),
a bank providing advice with respect to
such products or services would not be
required to register as a municipal
advisor, as a result of the narrower
approach with respect to investment
strategies, unless such accounts contain
proceeds of municipal securities or
municipal escrow investments.
By contrast, however, the Commission
is not exempting from registration banks
that engage in municipal advisory
activities, including without limitation
banks that provide advice to municipal
entities or obligated persons with
respect to the issuance of municipal
securities, or banks that provide advice
895 See, e.g., supra notes 874 and 875, and
accompanying text. See also supra note 884 and
accompanying text (discussing the OCC Letter).
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with respect to municipal derivatives,
unless the bank qualifies for another
exclusion or exemption, such as under
the limited circumstances described
above with respect to the exemption for
certain swap dealers.896 As discussed
above in the context of the definition of
municipal derivatives and the
exemption for certain swap dealers,
with the Dodd-Frank Act, Congress
established heightened protection with
respect to swaps and security-based
swaps,897 and the Commission therefore
does not believe that a blanket
exemption for banks with respect to
such activities would be appropriate.
The Commission believes it is important
to emphasize that the bank exemption
does not apply to advice on municipal
derivatives, which is a significant
problem area identified in the financial
crisis in which municipal entities
suffered significant losses,898 and
further, the bank exemption does not
apply to advice on the issuance of
municipal securities, which is a core
focus of the protections to municipal
entities in the municipal advisor
registration provision and is an area in
which a blanket exemption to banks
would result in a potential
inappropriate competitive advantage to
banks over other financial advisors.899
The Commission believes that the
exemption it is providing for banks will
help ensure that parties engaging in key
municipal advisory activities are
registered, while permitting banks to
continue to provide products and
services to municipal entities and
obligated persons that do not pose the
types of risks that the Dodd-Frank Act
was designed to address. Therefore, for
these reasons and the reasons described
above, the Commission finds that it is
consistent with the public interest, the
protection of investors, and the
purposes of Section 15B of the Exchange
Act, to use its authority pursuant to
Exchange Act Section 15B(a)(4) to
exempt banks engaging in certain
municipal advisory activities from the
definition of municipal advisor
pursuant to the limitations described
above. Accordingly, such banks are not
required to register as municipal
advisors.
896 See supra Section III.A.1.b.v. (discussing the
definition of municipal derivatives) and Section
III.A.1.c.vi. (discussing an exemption for certain
swap dealers). See also supra note 275 (discussing
generally the protections afforded to special entities
under the Dodd-Frank Act with respect to swap and
security-based swap transactions).
897 See id.
898 See supra note 3 and accompanying text.
899 See infra Section VIII.D.6.b. (discussing
alternatives to the exemptions from the definition
of municipal advisor).
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Separately Identifiable Departments or
Divisions
Sections 3(a)(30) and 15B(b)(2)(H) of
the Exchange Act provide for the MSRB
to define a separately identifiable
department or division of a bank
(‘‘SID’’) for purposes of whether a bank
is a municipal securities dealer and
must register as such.900 In the Proposal,
the Commission specifically requested
comment on whether the Commission
should permit SIDs (providing a bank’s
municipal advisory activities) to register
as a municipal advisor, rather than the
bank itself.901 The Commission
requested comment on suggested rule
text relating to SIDs, based on MSRB
Rule G–1 relating to SIDs engaged in
municipal securities dealer activities,902
and asked: whether such a rule would
provide appropriate conditions for
determining whether and when a SID
engaged in municipal advisory activities
may register as a municipal advisor;
whether there were reasons the language
based on MSRB Rule G–1 should not be
used for SIDs engaging in municipal
advisory activities; and whether the
language should be modified or clarified
in any way, or if there was alternative
language the Commission should
consider.903 The Commission notes that
the concept of separate treatment for
SIDs exists in the current regulatory
regimes for both municipal securities
dealers and investment advisers, which
both permit the SID to be the regulated
entity.904
Although as discussed above many
commenters recommended that the
Commission create a blanket exemption
for banks,905 some commenters
900 Exchange Act Section 3(a)(30)(B) provides that
the term ‘‘municipal securities dealer’’ does not
include banks, unless the bank is engaged in the
business of buying and selling municipal securities
for its own account other than in a fiduciary
capacity, provided, however that if the bank is
engaged in such activities through a separately
identifiable department or division, the department
or division, and not the bank itself, shall be deemed
to be the municipal securities dealer. Exchange Act
Section 15B(b)(2)(H) provides for the MSRB to
‘‘define the term ‘separately identifiable department
or division’, as that term is used in [Exchange Act
Section 3(a)(30)], in accordance with specified and
appropriate standards to assure that a bank is not
deemed to be engaged in the business of buying and
selling municipal securities through a separately
identifiable department or division unless such
department or division is organized and
administered so as to permit independent
examination and enforcement of applicable
provisions of [the Exchange Act], the rules and
regulations thereunder and the rules of the
[MSRB].’’
901 See Proposal, 76 FR 838.
902 See id.
903 See Proposal, 76 FR 838.
904 See supra note 900 and infra note 909,
respectively.
905 See supra notes 874–878 and accompanying
text.
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specifically recommended that, to the
extent a bank provides products or
services that would not be excluded, the
Commission should allow a bank to
register a SID if its municipal advisory
services or actions are performed
through such a SID.906 A few
commenters 907 additionally stated that
permitting registration of SIDs would be
consistent with the registration scheme
for municipal securities dealers 908 and
investment advisers.909
The Commission has carefully
considered issues raised by commenters
on its proposal and is adopting Rule
15Ba1–1(d)(4) to permit a SID that meets
the requirements of the rule to register
as a municipal advisor instead of the
bank. The Commission agrees with
commenters that it is appropriate to
treat banks performing municipal
advisory activities through a SID in a
manner consistent with their treatment
under the investment adviser and
municipal securities dealer registration
906 See, e.g., Kutak Rock Letter (stating in
response to the Commission’s request for comment
with respect to SIDs that ‘‘a bank creating a SID
should be exempted in all its other activities from
registration as an advisor); SIFMA Letter 1
(encouraging the Commission to permit SIDs to
register instead of the entire banking entity); Union
Bank Letter (recommending that the Commission
permit registration of SIDs on a voluntary basis,
because given the dispersion of public finance
activities throughout a bank, a bank may not be able
to consolidate the activities in a single department
or division as is contemplated in the analogous
language for municipal dealer SIDs); ABA Letter
(supporting the concept of permitting banks to
register, when required to register at all, SIDs).
907 See Financial Services Roundtable Letter
(requesting that, if banks are required to register as
municipal advisors, they should only be required to
register those department actually providing
municipal advisory services, consistent with the
exclusion from the definition of ‘‘municipal
securities dealer’’ for banks under Section
3(a)(30)(B) of the Exchange Act); First Tennessee
Bank National Association Letter (stating that
registration as a SID would be consistent with the
registration scheme for bank municipal securities
dealers and bank investment advisers to investment
companies); and letter from Kurt R. Bauer,
President/CEO, Wisconsin Bankers Association,
dated February 21, 2011 (noting the discrepancy
between the municipal advisor registration regime
for municipal securities dealers that are banks, in
that the Dodd-Frank Act did not provide for
registration of SIDs).
908 See supra note 900.
909 See Section 202(a)(11)(A).
The Commission notes that the Investment
Advisers Act excepts from the definition of
‘‘investment adviser’’ ‘‘a bank, or any bank holding
company as defined in the Bank Holding Company
Act of 1956, which is not an investment company,’’
but provides that the exception does not apply to
‘‘any bank or bank holding company to the extent
that such bank or bank holding company serves or
acts as an investment adviser to a registered
investment company.’’ The Investment Advisers
Act also provides that ‘‘if in the case of a bank, such
services or actions are performed through a
separately identifiable department or division, the
department or division, and not the bank itself,
shall be deemed to be the investment adviser’’ See
Section 202(a)(11) of the Investment Advisers Act.
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regimes.910 Thus, to the extent a bank
provides advice with respect to a
municipal derivative or engages in any
other non-exempted municipal advisory
activity, if such advice is provided
through a SID that meets the
requirements of Rule 15Ba1–1(d)(4), the
SID, rather than the bank itself, shall be
deemed to be the municipal advisor.911
The Commission believes that
permitting SIDs to register is in the
public interest, because it will ensure
that municipal entities and obligated
persons receive the regulatory
protection intended by the statute,
while addressing commenters’ general
concerns about duplicative regulation
for banks and the impact of imposing
the municipal advisor registration
regime on banks in general.912
Specifically, as adopted, Rule 15Ba1–
1(d)(4) provides that ‘‘[i]f a bank engages
in municipal advisory activities through
a separately identifiable department or
division that meets the requirements of
[Rule 15Ba1–1(d)(4)], the determination
of whether those municipal advisory
activities cause any person to be a
municipal advisor may be made
separately for such department or
division. In such event, that department
or division, rather than the bank itself,
shall be deemed to be the municipal
advisor.’’ For purposes of Rule 15Ba1–
1(d)(4), a SID of a bank is defined as
‘‘that unit of the bank which conducts
all of the municipal advisory activities
of the bank’’ provided that certain
specific requirements are met. In the
Proposal, the Commission suggested
defining SID as such term is defined in
Section 3(a)(30) of the Exchange Act. To
910 One commenter stated that, ‘‘given the
dispersion of municipal advisory activities
throughout the bank, banks may not be able to
consolidate the activities in a single department or
division as is contemplated in the analogous
language for municipal dealer SIDs’’ and, as a
result, does ‘‘not think the referenced language is
workable.’’ This commenter also stated that the
Commission should not dictate the structure of a
bank’s municipal business. See American Bankers
Association Letter I.
The Commission notes that it is not requiring
banks to consolidate their municipal advisory
activities into a SID. Rather, to the extent that a
bank does not otherwise qualify for an exclusion or
exemption (such as the exemption for banks with
respect to certain activities described above), the
bank may choose to consolidate its municipal
advisory activities into a SID. In such case, only the
SID, and not the bank itself, would be required to
register as a municipal advisor. Also, as discussed
further below, Rule 15Ba1–1(d)(4) would not
preclude a finding that a bank has a SID if the
bank’s municipal advisory activities are conducted
in more than one geographic organizational or
operational unit, so long as all such units are
identifiable and otherwise meet the requirements of
the rule with respect to each such unit.
911 See Rule 15Ba1–1(d)(4).
912 See, e.g., notes 874–889 and accompanying
text.
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provide additional clarity, however, the
Commission is eliminating the specific
reference to Section 3(a)(30) of the
Exchange Act in the definition of SID
that it is adopting because, while based
on that definition, Section 3(a)(30)
relates specifically to activities of
municipal securities dealers, as opposed
to municipal advisory activities. The
Commission is also clarifying,
consistent with the definition for SIDs
suggested in the Proposal, that the fact
that directors and senior officers of the
bank may from time to time set broad
policy guidelines affecting the bank as
a whole and which are not directly
related to the day-to-day conduct of the
bank’s municipal advisory activities,
shall not disqualify such unit or require
that such directors or officers be
considered as part of such unit. Further,
the fact that the bank’s municipal
advisory activities are conducted in
more than one geographic
organizational or operational unit of the
bank shall not preclude a finding that
the bank has a separately identifiable
department or division for purposes of
Rule 15Ba1–1(d)(4), provided, however,
that all such units are identifiable and
that the requirements of Rule 15Ba1–
1(d)(4) are met with respect to each such
unit. All such geographic,
organizational or operational units of
the bank shall be considered in the
aggregate as the separately identifiable
department or division of the bank for
purposes of this paragraph Rule 15Ba1–
1(d)(4).913 With the exception of the
reference to Section 3(a)(30) and the
removal from the rule text of the
Commission’s guidance with respect to
the activities of directors and senior
officers and multiple geographic
locations, the other applicable
requirements are substantively identical
to those suggested in the proposal and
based on the rules applicable to
municipal securities dealer SIDs.914
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2. Rule 15Ba1–2
a. Application for Municipal Advisor
Registration
Section 15B(a)(1)(B) of the Exchange
Act provides that it shall be unlawful
for a municipal advisor to provide
advice to or on behalf of a municipal
entity or obligated person with respect
to municipal financial products or the
issuance of municipal securities, or to
undertake a solicitation of a municipal
913 The Commission notes that it is not including
this clarification in Rule 15Ba1–1(d)(4) itself as
suggested in the Proposal. See supra note 902.
914 See Rule 15Ba1–1(d)(4)(i)(A)–(B). See also
supra note 902 and accompanying text. The other
differences between the definition suggested in the
Proposal and the adopted definition are technical
and organizational in nature.
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entity or obligated person, unless the
municipal advisor is registered in
accordance with the relevant provisions
of the statute. A ‘‘municipal advisor’’ is
defined in Section 15B(e)(4) of the
Exchange Act to mean, with certain
exceptions, ‘‘a person’’ that ‘‘provides
advice to or on behalf of a municipal
entity or obligated person . . . . or
undertakes a solicitation of a municipal
entity.’’ 915 In the Proposal, the
Commission indicated that the type of
information it should gather from firms
versus individuals for registration
purposes may be different.916 As such,
the Commission proposed two different
registration forms: Form MA for
‘‘municipal advisory firms’’ and Form
MA–I for ‘‘natural person municipal
advisors.’’ 917
In connection with these forms, the
Commission also proposed Rule 15Ba1–
2(a) and 15Ba1–2(b) for the registration
of municipal advisory firms and natural
person municipal advisors, respectively.
Rule 15Ba1–2(a), as proposed, required
a ‘‘person, other than a natural person,
including a sole proprietor’’ 918 applying
for registration with the Commission as
a municipal advisor to complete Form
MA in accordance with the instructions
to the form and to file the form
electronically with the Commission.
Rule 15Ba1–2(b), as proposed, required
a ‘‘natural person (including a sole
proprietor)’’ 919 applying for registration
with the Commission as a municipal
advisor to complete Form MA–I in
accordance with the instructions to the
form and to file the form electronically
with the Commission. This proposed
requirement applied to, among others,
each individual employee of a firm who
meets the definition of municipal
advisor. The two proposed provisions
915 See
supra Section III.A.1.a. (discussing the
definition of the term ‘‘municipal advisor’’).
916 Id.
917 Id. A ‘‘municipal advisory firm,’’ as defined in
the Glossary of Terms for the forms and used
hereinafter, is ‘‘any organized entity that is a
municipal advisor, including sole proprietors.’’ A
‘‘natural person municipal advisor,’’ as was defined
in the Glossary, as proposed, and used hereinafter,
is ‘‘any natural person that is a municipal advisor,
including sole proprietors,’’ with the further
clarification that ‘‘[a] sole proprietor that is a
municipal advisor is also a municipal advisory
firm.’’ See also infra notes 918 and 919.
918 This language in proposed paragraph 15Ba1–
2(a) is equivalent to the simpler term, ‘‘municipal
advisory firm’’ used in the forms and herein, see
supra note 917. The formulation of the rule
language was intended to preclude any
misinterpretation of the word ‘‘firm’’ as excluding
sole proprietors.
919 The category to which proposed paragraph
15Ba1–2(b) applied is identical to the ‘‘natural
person municipal advisor’’ defined above. See
supra note 917. The formulation of the rule
language was intended to preclude any
misinterpretation that would exclude sole
proprietors.
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67537
read together required a sole proprietor
to complete both Form MA and Form
MA–I.
The Commission requested comments
on proposed Rule 15Ba1–2(a) and Form
MA. The Commission received no
comments directly on proposed Rule
15Ba1–2(a) and is adopting this
provision substantively 920 as
proposed.921
The Commission also requested
comments on proposed Rule 15Ba1–2(b)
and Form MA–I. Specifically, the
Commission solicited comments on the
effects of a separate registration
requirement for natural persons and
firms and the relative advantages and
disadvantages for firms, municipal
advisor employees, municipal entities,
obligated persons, investors, and
regulators, of requiring separate
registration for natural person
municipal advisors.922 The Commission
also asked, if the Commission were to
only require registration of municipal
advisory firms, would inclusion of
information regarding the firm’s
employees on the firm’s Form MA cause
confusion for municipal entities,
obligated persons, and investors.923
Finally, the Commission also asked
what, if any, legal ramifications may
result for firms, and/or for natural
persons, based on a registration regime
that allows natural person municipal
advisors that are employees of a
municipal advisory firm to be registered
by their firms as opposed to separate
registration.924
The Commission received several
comment letters regarding the proposed
requirement for individual registration
of natural person municipal advisors on
920 The adopted rule, however, is phrased
differently. Rule 15Ba1–2(a), as adopted, provides:
‘‘A person applying for registration with the
Commission as a municipal advisor pursuant to
section 15B of the Act (15 U.S.C. 78o–4) must
complete Form MA (17 CFR 249.1300) in
accordance with the instructions in the Form and
file the Form electronically with the Commission.’’
The adopted rule no longer includes the phrase
‘‘person, other than a natural person, including a
sole proprietor’’ to describe the person subject to
registration on Form MA. As discussed below,
under the adopted rules, natural persons that
engage in municipal advisory activities solely on
behalf of a firm with which they are associated
(generally, as employees) are exempted from
registration. Thus, such persons do not need to be
excluded from Rule 15Ba1–2(a), which applies to
municipal advisors ‘‘applying for registration.’’ In
addition, sole proprietors do not need to be
identified specifically among the persons who are
required to complete Form MA.
921 As discussed in the Proposal at 76 FR 838,
Rule 15Ba1–2(a) requires firms that are currently
registered on Form MA–T to register anew on Form
MA.
922 See Proposal, 76 FR 851.
923 Id.
924 Id.
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Form MA–I.925 One commenter asserted
that the Commission should not require
individuals to register separately on
Form MA–I.926 This commenter stated
such requirement would not only
impose significant burden and costs on
municipal advisory firms and their
individual associated persons but also
would ‘‘force the SEC to devote
substantial resources to processing
many individual applications for
registration’’ in addition to processing
municipal advisory firms’ registrations
on Form MA.927 This commenter noted
that the Commission expected
approximately 21,800—if not more—
individuals to register as municipal
advisors on Form MA–I 928 and that
‘‘[t]he sheer number of registrations
would place significant strain on the
SEC’s budget and personnel, especially
if it plans to review all applications for
municipal advisors that are filed under
the permanent registration program.’’ 929
The commenter questioned ‘‘whether
the incremental regulatory benefit
(which [the commenter] does not
believe would be significant) stemming
from the public availability of the
information that would be produced by
a system of individual registration
would justify this massive resource
commitment by both applicants and the
SEC.’’ 930 Another commenter also
suggested that the Commission
eliminate individual registration of
registrants’ employees.931
Two commenters argued that the
statute does not require individual
registration of natural person municipal
advisors.932 One of these commenters
925 See, e.g., Deloitte Letter; JPMorgan Chase & Co.
Letter; MSRB Letter I; and SIFMA Letter I.
926 SIFMA Letter I. The commenter also argued
that the separate registration requirement would be
‘‘excessively burdensome and costly.’’ Although
this description was made primarily in the context
of the commenter’s belief that the information
requested by Form MA–I regarding individuals
‘‘largely duplicates Form MA’s disclosures
regarding a municipal advisor’s associated
persons,’’ the Commission believes that the
commenter also intended it as a reason to eliminate
individual registration regardless of the extent of
the information required on the form. Regarding the
commenter’s concern about duplication, see infra
notes 1171–1173 and accompanying discussion.
927 See SIFMA Letter I.
928 Id. The commenter added that ‘‘[t]his would
be in addition to the 800 municipal advisory firms
that have already registered with the SEC on Form
MA–T and would be required to re-register on Form
MA, and at least 200 additional firms that are also
expected to register.’’ For the basis of the referenced
Commission’s estimate, see Proposal, 76 FR 865.
929 See SIFMA Letter I.
930 Id.
931 See JPMorgan Chase & Co. Letter. This
commenter also advocated the ‘‘simplification of
Form MA’’ and more broadly criticized the scope
of the proposed rules.
932 See SIFMA Letter I (asserting that ‘‘the
registration of individuals in the manner proposed
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asserted that the statute appears to
intend that registration of municipal
advisors be limited to entities (including
partnerships, unincorporated
organizations, and sole proprietors).933
This commenter also stated that such
entities would provide the critical
information about individuals
(including associated persons of the
municipal advisor entity) during the
registration process.934
Another commenter believed that
‘‘dual reporting’’ on Forms MA and
MA–I ‘‘could lead to confusion’’ and
that ‘‘there could be inadvertent
inconsistencies in the information.’’ 935
In particular, the commenter noted that,
under the Proposal, natural persons
would be required to maintain and
comply with recordkeeping and
inspection requirements, which, in the
commenter’s view, would be ‘‘a
significant burden’’ without ‘‘any
meaningful benefit.’’ The commenter
suggested that the Commission
eliminate registration for natural
persons altogether, or at least require
natural persons to register as ‘‘registered
representatives,’’ without recordkeeping
and inspection requirements.936
Similarly, another commenter believed
that, rather than introducing a new
Form MA–I to provide for registration of
natural persons, FINRA’s Form U4
should be adapted to allow for
registration of individuals.937
The Commission has carefully
considered the issues raised by
commenters on the Proposal. In
response to these comments, the
Commission is modifying its approach
in the final rules and is not adopting
Rule 15Ba1–2(b) and Form MA–I as
proposed. Specifically, the Commission
is exempting certain natural persons
from the requirement to register as
municipal advisors 938 and is modifying
by the SEC is not called for in any respect by
Section 975’’) and MSRB Letter I.
933 See MSRB Letter I.
934 Id. The commenter further maintained that
forms relating to individuals at municipal advisor
firms should be viewed as officially submitted by
the municipal advisor entity. (To clarify, however,
the commenter was questioning why individuals
within a firm that is itself acting as a registered
municipal advisor should be viewed as municipal
advisors rather than as associated persons of a
municipal advisor.)
935 Deloitte Letter. This letter, like SIFMA Letter
I, see supra note 926, tied the argument against
separate registration for individuals to its belief that
‘‘separate registration for natural persons is largely
redundant.’’
936 See id.
937 See Financial Services Roundtable Letter. See
also infra note 992 and accompanying text for
information concerning Form U4 and further
discussion.
938 See Rule 15Ba1–3, as adopted, which
provides: ‘‘A natural person municipal advisor shall
be exempt from section 15B(a)(1)(B) of the Act (15
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Rule 15Ba1–2(b) and Form MA–I
accordingly. Rule 15Ba1–3, as adopted,
exempts from municipal advisor
registration natural persons who are
associated persons of a registered
municipal advisor and who engage in
municipal advisory activities solely on
behalf of a registered municipal
advisor.939 In practical terms, this
exemption means that employees of
municipal advisory firms who do not
engage in municipal advisory activities
independently of their firms (e.g., by
engaging in municipal advisory
activities on the side as a sole
proprietor) will not be required to
register as municipal advisors.
While the Commission is not
requiring municipal advisor registration
for these natural persons, the
Commission is requiring municipal
advisory firms to provide the
Commission with information relating
to these exempted natural persons. In
this regard, Rule 15Ba1–2(b), as
adopted, requires the municipal advisor
to complete and file with the
Commission Form MA–I for each of its
natural persons who are associated with
the municipal advisor and engaged in
municipal advisory activities on its
behalf.940 While Form MA–I, as
adopted, is not a form for individual
registration of natural persons, adopted
Form MA–I requires municipal advisory
firms to provide similar information
regarding its associated natural persons
as proposed Form MA–I required (with
some modifications, as discussed
below).
The Commission believes that the
information obtained from Form MA–I
is necessary and appropriate to assist
U.S.C. 78o–4(a)(1)(B)) if he or she: (a) [I]s an
associated person of an advisor that is registered
with the Commission pursuant to section 15B(a)(2)
of the Act (15 U.S.C. 78o–4(a)(2)) and the rules and
regulations thereunder; and (b) [e]ngages in
municipal advisory activities solely on behalf of a
registered municipal advisor.’’
939 This exemption does not include sole
proprietors, who must register as a municipal
advisor on Form MA and also file a Form MA–I.
940 See Rule 15Ba1–2(b), as adopted, which
provides: ‘‘(1) A person applying for registration or
registered with the Commission as a municipal
advisor pursuant to section 15B of the Act (15
U.S.C. 78o–4) must complete Form MA–I (17 CFR
249.1310) with respect to each natural person who
is a person associated with the municipal advisor
(as defined in section 15B(e)(7) of the Act (15 U.S.C.
78o–4(e)(7))) and engaged in municipal advisory
activities on its behalf in accordance with the
instructions in the Form and file the Form
electronically with the Commission. (2) A natural
person applying for registration with the
Commission as a municipal advisor pursuant to
section 15B of the Act (15 U.S.C. 78o–4), in
addition to completing and filing Form MA
pursuant to paragraph (a), must complete Form
MA–I (17 CFR 249.1310) in accordance with the
instructions in the Form and file the Form
electronically with the Commission.’’
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the Commission in assuring compliance
with Section 15B of the Exchange Act
and the rules thereunder. The
Commission believes that exempting
certain natural persons from registration
and requiring municipal advisors to
complete and file a Form MA–I for
certain exempted natural persons
retains the benefits of individual
registration discussed in the Proposal
while also addressing the concerns
raised by commenters. Specifically, the
final rules and forms mitigate
commenters’ concerns about imposing
registration obligations upon the large
number of individuals without negating
the important disclosures and other
benefits that the Commission believes
would be obtained through Form MA–
I.941 For example, as discussed in the
Proposal, the information provided by
Form MA–I would help the Commission
(i) manage its regulatory and
examination programs by assisting the
Commission in identifying municipal
advisors and understanding their
business structures; (ii) prepare for its
inspection and examination of
municipal advisors; and (iii) oversee the
municipal securities market and
investigate possible wrongdoing.942 This
approach would also provide municipal
entities, obligated persons, investors,
and other regulators with information
that would inform them as to the
relevant municipal advisory experience
and history of each natural person for
whom the municipal advisor completed
and filed a Form MA–I.943
This approach also would help to
streamline the manner of gathering
pertinent information, reduce confusion
in the disclosure process, and reduce
inconsistencies in the information
reported because the municipal
advisory firm will be required to
complete and file Form MA and Form
MA–I for each of the associated natural
persons engaged in municipal advisory
activities on its behalf.944 Indeed,
commenters observed that a registered
municipal advisory firm should provide
critical information about its employees
who engage in municipal advisory
activities, rather than require the
individual’s separate registration.945
Accordingly, as adopted, Rule 15Ba1–
2(b), Rule 15Ba1–3, and Form MA–I will
serve this purpose. Finally, the
941 See,
e.g., SIFMA Letter I.
Proposal, 76 FR 850.
943 See id., at 851.
944 This approach does not address the argument
of commenters that Form MA–I is redundant of
Form MA. That issue is addressed in the discussion
below regarding the information requested in Form
MA–I. See infra notes 1171–1173 and
accompanying text.
945 See, e.g., MSRB Letter I.
942 See
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Commission also believes that
eliminating the requirement for
individual municipal advisors to
separately register addresses
commenters’ concerns regarding
regulatory efficiency, as it will allow the
Commission to direct resources that
would have otherwise been required to
review many thousands of these
individuals’ applications to other
regulatory matters.
As stated above, one commenter
argued against individual registration,
claiming that, under the Proposal,
natural persons would be required to
maintain and comply with
recordkeeping and inspection
requirements, which, in the
commenter’s view, would be ‘‘a
significant burden’’ without ‘‘any
meaningful benefit.’’ 946 The
Commission notes, however, that the
recordkeeping obligations imposed by
the Proposal always applied only to
municipal advisory firms.947
The Commission recognizes that the
rule, as adopted, places on municipal
advisory firms an obligation to file a
Form MA–I for each individual
employee that acts as a municipal
advisor on its behalf. The Commission
notes that, in the context of brokerdealer regulation, Form U4, which is
required of individual employees and
asks for much the same information as
Form MA–I, is generally filed by the
employees’ firms.948 Indeed,
commenters appeared to favor a regime
in which firms submit information
regarding their employees rather than
one in which each employee submits
information separately.949
946 See
id.
947 As proposed, the text of Rule 240.15Ba1–7(a)
provided: ‘‘Every person, other than a natural
person, including sole proprietors, registered or
required to be registered under Section 15B of the
Securities Exchange Act . . . shall make and keep
true, accurate, and current the following books and
records relating to its municipal advisory activities
. . . . ’’ (emphasis added). See Proposal, 76 FR 883.
The highlighted language is retained in the
recordkeeping rule, as adopted, which has been
renumbered as Rule 240.15Ba1–8. See infra Section
III.C.
948 The Commission notes, moreover, that Form
U4 is used for registration. Under the rules as
adopted Form MA–I is not a registration form. It is
a form to obtain information about persons who
engage in municipal advisory activities on behalf of
the firm.
949 See, e.g., MSRB Letter I and citation at supra
note 934. See also Deloitte Letter, stating:
‘‘Alternatively, if the SEC does not eliminate
separate registration for natural persons, the
Commission should require such persons to register
as registered representatives of municipal advisors,
as is done in the broker-dealer context, rather than
as municipal advisors.’’ Although the commenter is
suggesting an alternative kind of registration for
natural persons, and does not specifically state that
the applications for registration of such persons
would be filed by their firms, the analogy to the
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67539
The Commission notes further that, as
described below,950 the information that
firms will need to obtain to complete
Form MA–I is primarily the individual’s
full legal and other names, social
security number, and employment and
residential history, other business
activities in which the employee is
engaged, and his or her disciplinary
history. The Commission notes that, in
any case, a firm generally must obtain
information regarding any relevant
criminal, regulatory, or civil judicial
history concerning any of its associated
persons 951 in order to accurately
complete Form MA for purposes of its
own registration.952 In addition, to help
ensure adequate regulatory oversight,
aid the prosecution of wrongdoing, and
benefit municipal entities and investors,
the final Form MA–I collects
substantially the same information as
required under the proposed form.953
Moreover, although under the adopted
rules employees of municipal advisory
firms are not required to register
independently, they are otherwise not
exempt from any other provision
relating to municipal advisors.
The Commission received no
comments on the requirement, under
the Proposal, for a sole proprietor to file
both Form MA and Form MA–I.
Accordingly, the Commission is
retaining this requirement in the rules,
although, in view of the other changes
described above, a provision has been
added to set forth explicitly that a
natural person applying for registration
must file Form MA–I in addition to
Form MA.954
broker-dealer context suggests that the proposed
alternative would operate in a similar manner,
where firms file an individual’s Form U4.
950 See infra Section III.A.2.c., ‘‘Information
Requested in Form MA–I.’’
951 See infra note 1054 for the meaning of
‘‘associated persons’’ in this context.
952 See infra Section III.A.2.b., under ‘‘Item 9:
Disclosure Information and Related DRPs.’’ Thus,
for purposes of completing an employee’s Form
MA–I, a firm will additionally need to obtain the
information required by the form concerning
investigations of the employee; customer
complaints, arbitration, and civil litigation relating
to municipal advisor-related or investment-related
matters involving the employee; terminations of the
employee; and outstanding judgments or liens
against the employee. This information is
substantially the same as required by Form MA–I
under the Proposal, with the modifications
discussed below. See infra Section III.A.2.c.,
‘‘Information Requested in Form MA–I.’’
953 See id.
954 See Rule 15Ba1–2(b)(2) of the adopted rules,
17 CFR 240.15Ba1–2(b)(2), which provides: ‘‘A
natural person applying for registration with the
Commission as a municipal advisor pursuant to
section 15B of the Act (15 U.S.C. 78o–4), in
addition to completing and filing Form MA
pursuant to paragraph (a), must complete Form
MA–I (17 CFR 249.1310) in accordance with the
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The Commission stated in the
Proposal that it was considering
whether Form MA and Form MA–I
should be submitted through the
Commission’s Electronic Data
Gathering, Analysis, and Retrieval
System (‘‘EDGAR’’) or otherwise.955 The
Commission requested comment on
whether the electronic registration
system to be established should have
the ability to cross-check other
electronic systems, such as IARD and
CRD, and whether requiring the filing of
forms on EDGAR would be an
appropriate means to make the
requested information available.956
Two commenters favored the use of
FINRA’s electronic registration system
for CRD and IARD or some similar
system for the registration of municipal
advisors.957 One commenter stated that
this system would ‘‘allow regulators to
easily find filings for firms and
individuals, as well as cross reference
between the CRD and IARD
systems.’’ 958 The commenters believed
that use of FINRA’s system would allay
concerns that EDGAR would subject
registration information to ‘‘unnecessary
public scrutiny’’ 959 and ‘‘compromise
the confidentiality of operating
performance data for privately held
Municipal Advisors.’’ 960
After carefully considering the
comments, the Commission has
determined to require the forms to be
submitted through EDGAR.961 Although
instructions in the Form and file the Form
electronically with the Commission.’’ The addition
of Rule 15Ba1–2(b)(2), which relates to sole
proprietors, was necessary because Rule 15Ba1–
2(b)(1), as adopted, is worded specifically to require
municipal advisors that are firms to file Form MA–
I with respect to associated persons who engage in
municipal advisory activities on their behalves, and
would not by definition apply to sole proprietors.
955 See Proposal, 76 FR 839.
956 See id.
957 See NASAA Letter and letter from Gary
Kimball, President, Specialized Public Finance,
Inc., dated February 22, 2011 (‘‘Specialized Public
Finance Letter’’).
958 See NASAA Letter.
959 See Specialized Public Finance Letter. In this
regard, the commenter mentioned specifically
social security numbers.
960 Id.
961 As discussed in the Proposal, because the
registration forms will be required to be submitted
through EDGAR, the electronic filing requirements
of Regulation S–T will apply. See generally 17 CFR
232 (governing the electronic submission of
documents filed with the Commission). The
Commission will provide, in the municipal
securities area of its Web site, full instructions on
how applicants for municipal advisor registration
that are not currently EDGAR filers can acquire
authorized codes to access the system. These
instructions have now also been added to the
General Instructions for the Form MA series.
General information about EDGAR is available at
http://www.sec.gov/info/edgar.shtml, where the
EDGAR Filer Manual can also be accessed. The
Commission recommends that applicants read this
filer manual before they begin using the system.
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EDGAR is known primarily as the
vehicle through which public
companies file their annual and
quarterly reports and other disclosures,
the Commission has adapted EDGAR for
other information gathering purposes.962
Further, collecting information
regarding municipal advisors through
EDGAR should enable the Commission
to efficiently retrieve and analyze data
in a cost-effective manner to carry out
its oversight of municipal advisors and
their municipal advisory activities. The
Commission notes that, while IARD,
which is an electronic filing system that
facilitates investment adviser
registration, is funded through user
fees,963 there is no comparable
provision in Section 975 of the DoddFrank Act authorizing the Commission
to charge municipal advisors (or to
authorize another entity to collect)
registration fees. Accordingly, the
Commission has determined to leverage
its existing technology to serve as a
mechanism by which municipal
advisors can register with the
Commission. The Commission further
notes that EDGAR is a widely utilized
resource that is already familiar to
investors and other interested parties
seeking information about public
companies, and believes that municipal
entities, investors, other regulators, and
members of the public seeking
information about municipal advisors
should not have difficulty learning how
to use the system.
Regarding the comment that the use of
FINRA’s CRD and IARD systems would
be preferable because it would allow
regulators to cross reference the
information in Forms MA and MA–I
with information in those other systems,
the Commission notes that, as discussed
further below, Form MA requires a
municipal advisor that has been
assigned a number either under the CRD
system or the IARD system (a ‘‘CRD
Number’’) to provide that number in
completing the form.964 In addition,
Form MA asks an applicant specifically
whether it is registered with the
Commission in various other capacities
(e.g., municipal securities dealer,
government securities broker-dealer, or
other category that the applicant must
962 Most recently, for example, the Commission
determined to adapt EDGAR to accept Form 13H
filings required under the ‘‘Large Trader Reporting’’
regime established by new Rule 13h–1 under
Section 13(h) of the Exchange Act. See Securities
Exchange Act Release No. 64976 (July 27, 2011), 76
FR 46960 (August 3, 2011).
963 See Section 204(c) of the Advisers Act, which
permits the Commission to charge fees associated
with filings and the maintenance of a filing system.
964 See infra Section III.A.2.b., ‘‘Information
Requested in Form MA,’’ discussion of Item 1,
‘‘Identifying Information.’’ See also infra note 1007.
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specify) and, if so, to provide the
relevant file numbers.965 In a similar
fashion, an applicant is required to
supply file numbers for any registrations
it has with another federal agency or
state or other U.S. jurisdiction.966 Form
MA–I requires the municipal advisory
firm filing the form to provide the
relevant individual’s CRD Number, if
registered on the CRD or IARD system;
list any other names by which the
individual is known or has been known;
and provide the name, registration
number, and the firm’s EDGAR CIK
(Central Index Key) number.967 These
identifying numbers should assist
municipal entities, regulators, and the
public to access any other publicly
available information about the
municipal advisor. Although EDGAR
will not automatically provide an
electronic link to the information on the
CRD and IARD systems, these systems
are nevertheless readily accessible to
regulators, municipal entities, and to the
public.
With respect to commenters’ concerns
regarding privacy, the Commission
notes that, while information required
in Form MA and Form MA–I generally
will not be confidential, some
information, such as social security
numbers, will be kept confidential
(subject to the provisions of applicable
law).968 The EDGAR system will block
965 See
infra Section III.A.2.b.
966 Id.
967 See infra Section III.A.2.c., ‘‘Information
Requested in Form MA–I,’’ discussion of Items 1
and 2, ‘‘Identifying Information and Other Names.’’
968 The Proposal specified that social security
numbers would not be made public. See Proposal,
76 FR 867, 868, and 869. The forms, as adopted,
specify additional instances in which responses
will be kept confidential subject to the provisions
of applicable law. See, e.g., Item 8 of Schedule A
of Form MA (advising applicants that social
security numbers, foreign identity numbers, and
dates of birth will not be publicly disseminated)
and Item 3 of Form MA–I, as adopted (advising that
private residential addresses disclosed in
completing the residential history section of the
form will not be included in publicly available
versions). The Commission has determined that it
is appropriate to block this information from public
view, as well. To make this clear, in the forms, as
adopted, in each place where an applicant is asked
for a social security number, foreign identity
number, private residential address, or a date of
birth, guidance has been added stating that the
information will not be included in publicly
available versions of the form. In addition, at
various other places in the forms that ask for an
address, the filer is asked to indicate whether the
address provided in response is a private residence
and is advised that, if so, the address will not be
included in publicly available versions of the form.
One of the DRPs in Form MA–I, which asked
whether the docket or case number of a particular
case is the municipal advisor’s social security
number, bank card number, or personal
identification number, has been deleted as
unnecessary.
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the relevant information in these forms
in the versions that will be made public.
One commenter argued that
information relating to operating
performance of privately held municipal
advisors should be kept confidential.969
The commenter did not specify which
particular questions in the forms it
considered problematic. The
Commission believes, however, that the
public interest in making the
information available—to allow
municipal entities to better evaluate
candidates for service in municipal
advisory roles and to provide investors
in municipal securities with clearer
knowledge of who may be influencing
the use and outcome of their
investments—outweighs this type of
confidentiality concern.970
The Commission received no
comments on the requirement in
proposed Rules 15Ba1–2(a) and (b) that
Forms MA and MA–I, respectively,
must be filed electronically, and is
adopting this requirement as proposed.
The Commission also received no
comments on paragraph (c) of proposed
Rule 15Ba1–2, which provided that the
forms would be considered filed with
the Commission ‘‘upon acceptance by
the [applicable electronic system].’’
However, the Commission is adopting
the rule with modifications.
As proposed, Rule 15Ba1–2 provides
that Forms MA and MA–I ‘‘shall be
considered filed with the Commission
upon acceptance by the [applicable
electronic system].’’ As adopted, the
rule instead provides that the forms are
considered filed upon ‘‘submission of a
completed Form MA, together with all
additional required documents,
including all required filings of Form
MA–I (17 CFR 249.1310) . . .’’ The
Commission is modifying the rule to
state that the form is considered filed
upon ‘‘submission’’ to EDGAR rather
than upon ‘‘acceptance’’ to align the
rule with the terminology used by the
EDGAR system. Further, the
Commission is modifying the rule to
provide that Form MA will be
considered filed upon submission of a
‘‘completed Form MA, together with all
additional required documents,’’ to
clarify that, if a Form MA is not
considered complete, the Commission’s
statutory forty-five day review period
supra note 960.
ADV, upon which Form MA was
substantially modeled (see text accompanying infra
note 975), requires a similar level of disclosure. The
Commission would make this information publicly
available regardless of the electronic registration
system that is used. See also infra notes 1046 and
1048 and accompanying text.
will not commence.971 Moreover,
because a municipal advisor applying
for registration under the final rules is
responsible for submitting Form MA–I
for each associated person engaging in
municipal advisory activities on its
behalf, the Commission believes it
appropriate to stipulate that the firm’s
application for registration will be
considered filed only if the firm has
submitted all requisite Form MA–Is.
When an applicant attempts to
transmit its Form MA electronically,
EDGAR performs the initial automated
checks to determine whether questions
that require responses have been
answered and to detect, in certain
instances, defective responses. For
example, if an applicant indicates that
it has three Web sites but provides,
contrary to instructions, only two
corresponding Web site addresses,
EDGAR will detect the deficiency.972 In
such instance, EDGAR will not permit
the applicant’s submission. However, if
a form passes EDGAR’s automated
checks, EDGAR will display a message
indicating that the submission was
successfully transmitted and will
provide an ‘‘accession number,’’ which
permits the applicant to enter the
system to check the status of its
application. At this point, the applicant
is also advised that its application is not
‘‘accepted,’’ which is an EDGAR term
for not ‘‘approved,’’ and EDGAR will
display the status of the application as
‘‘In Progress.’’
Once an application passes EDGAR’s
initial automated check and is
successfully transmitted, the
Commission staff will check the
application for the types of deficiencies
that may not be detected through
automation, and if the Form MA is
considered incomplete, the applicant
will receive by email an EDGARgenerated notice of suspension. The
notice will inform the applicant that the
transmission has been suspended and
the reason for the suspension. The
notice will also instruct the applicant to
make corrections and re-transmit the
application to the Commission in its
entirety.
The Commission notes that, within
forty-five days of the date a complete
Form MA is considered filed, the
Commission shall by order grant
registration or institute proceedings to
determine whether registration should
be denied. The Commission also notes
969 See
970 Form
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971 If a Form MA is complete and all additional
required documents are attached, the form is
considered filed and the forty-five day period for
the Commission to act upon the application (i.e.,
either approve or institute proceedings to determine
whether it should be denied) begins.
972 See infra note 1003 for more examples.
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67541
that the statutory review period for a
filed Form MA may be longer if the
applicant consents to a longer time
period. If the Commission determines to
grant registration, an EDGAR-generated
email will be sent to inform the
applicant that the filing has been
‘‘accepted’’ and the Commission will
issue a formal order of approval
separately.
The Proposed paragraph (d) of Rule
15Ba1–2 provided that Forms MA and
MA–I constitute ‘‘reports’’ within the
meaning of Sections 15B(c), 17(a), 18(a),
32(a) (15 U.S.C. 78o–4(c), 78q(a), 78r(a),
78ff(a)) and other applicable provisions
of the Exchange Act.973 The
Commission received no comments on
paragraph (d) and is adopting this
provision as proposed. As a
consequence, it is unlawful for a
municipal advisor to willfully make or
cause to be made, a false or misleading
statement of a material fact or omit to
state a material fact in Form MA or
Form MA–I.
b. Information Requested in Form MA
Municipal advisors that are municipal
advisory firms (including sole
proprietors) must submit Form MA to
register with the Commission. The
Commission received several comments,
as discussed further below, on the
information it proposed to require from
applicants in completing Form MA.974
After carefully considering the
comments, the Commission is adopting
Form MA substantially as proposed,
with some modifications, as discussed
below.
Form MA is modeled primarily on
Form ADV (Part 1),975 which is used for
the registration of investment advisers
with the Commission, with appropriate
changes made to reflect the differences
in the activities of municipal advisors
and the markets that they serve. The
information that applicants are required
to provide on the form is described in
detail below. As discussed in the
Proposal, the items in Form MA were
drafted broadly to apply to the different
types of municipal advisors that may
register with the Commission.976
Form MA asks for information about
the municipal advisor and persons
associated with the advisor. The
Commission believes it necessary to
obtain the requested information to
manage the Commission’s regulatory
and examination programs and to make
such information available to the MSRB
973 See
Rule 15Ba1–2(d).
infra notes 979–987.
975 See 17 CFR 279.1. See also Proposal, 76 FR
840.
976 See Proposal, 76 FR 840.
974 See
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to better inform its regulation of
municipal advisors. The information
will assist the Commission in
identifying municipal advisors, their
owners, and their business models, and
in determining whether a municipal
advisor might present sufficient
concerns as to warrant the
Commission’s further attention in order
to protect the municipal advisor’s
clients. In addition, the information will
assist the Commission in understanding
the kinds of activities in which the
applicant participates. The information
will also be useful to the Commission in
tailoring any requests for additional
information that the Commission may
send to a municipal advisor.
Furthermore, the required information
will assist the Commission in the
preparation of the Commission’s
inspection and examination of
municipal advisors and the MSRB in
determining what regulations for
municipal advisors may be necessary or
appropriate and how such regulations
might be best implemented.977
Moreover, the Commission believes
that the information sought will enable
municipal entities and potential
obligated persons to better assess the
experience and background of
municipal advisors in deciding whether
to engage the services of, or do business
with, any particular municipal advisor.
Similarly, information about the persons
serving as municipal advisors can be
important to investors in deciding
whether to purchase specific municipal
securities. In determining what
information should be disclosed, the
Commission also considered the broader
public interest in the availability of
information about municipal advisors to
the public.978
The Commission received several
comments regarding the extent and kind
of information sought on Form MA, as
a general matter, and the impact that the
requirement to provide this information
will have on municipal advisors.979
While one commenter generally
approved of the content of the
questions, most of the commenters on
this subject believed that the scope of
information sought was too broad, that
the form should ask different questions
for different kinds of municipal
advisors, or that providing the answers
would be too burdensome.
Specifically, one commenter stated its
belief that the information requested
977 See
id., at 841.
id.
979 See, e.g., Acacia Financial Group Letter;
Financial Services Roundtable Letter; JP Morgan
Chase Letter; Managed Funds Association Letter;
MSRB Letter I; NAESCO Letter; SIFMA Letter I;
Specialized Public Finance Letter.
978 See
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was ‘‘generally appropriate’’ and that it
would assist the Commission in its
examination and enforcement activities
as well as assist its rulemaking
activities.980 Another commenter stated
that it does not object in principle to
requiring municipal advisors to make
disclosures similar to the disclosures
required of registered investment
advisers, but urged that the Commission
‘‘tailor carefully’’ any disclosure
document to ‘‘ensure that the
information to be disclosed relates only
to the municipal advisor activities of the
provider, rather than broadly requiring
companies to disclose information
unrelated to municipal advisory
activities.’’ 981 Another commenter
suggested that the forms be tailored for
various categories of advisors, instead of
a ‘‘one-size-fits-all’’ approach.982
According to another commenter, ‘‘the
disclosures required for investment
advisers on Form ADV, on which
proposed Form MA is based, are, in
many cases, not relevant to municipal
advisors.’’ 983 The commenter
maintained that many of the other
questions drawn from Form ADV are
‘‘not likely to obtain useful responses
from municipal advisors’’ and that the
Commission ‘‘has not articulated a
convincing purpose for much of the
information.’’ 984
Some commenters additionally
believed that supplying the information
requested on the proposed forms would
980 See MSRB Letter I. The MSRB also expressed
the hope that the Commission would receive
‘‘significant meaningful feedback from small
municipal advisors regarding the potential burdens
the Rule Proposal would impose, and give due
weight to such feedback in light of the
Congressional intent regarding regulatory burden on
small municipal advisors.’’ At the same time, the
MSRB believed that the information gleaned from
the forms will ‘‘help the MSRB to better gauge the
parameters of what should be considered a small
municipal advisor and to structure its rules to
effectuate the intent of Section 15B(b)(2)(L)(iv) [of
the Exchange Act],’’ which requires that 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.’’
981 See NAESCO Letter.
982 See Acacia Financial Group Letter.
983 See SIFMA Letter I.
984 See id. The commenter cited in particular in
this regard the proposed disclosure requirements in
Form MA relating to a municipal advisor’s clients;
compensation arrangements; other business
activities; financial industry affiliations; proprietary
and sales interests in its municipal advisory clients’
transactions; and investment or brokerage
discretion. The Commission believes that
information in each of these areas can shed light on
the possible conflicts of interest that a municipal
advisor may have when providing advice. See also
infra notes 1065, 1087, and 1119 and accompanying
text, regarding this commenter’s comments relating
specifically to disclosures about affiliates and other
associated persons.
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be too burdensome on certain firms and
individuals, but varied on the
specifics.985 On the one hand, some
commenters believed, as one commenter
expressed, that ‘‘the scope of the
proposed information to be collected’’
in Form MA ‘‘is exhaustive and could
place a burden on small municipal
advisors.’’ 986 On the other hand, one
commenter believed that large
organizations would incur ‘‘significant
time, burden, and expense in
identifying personnel involved in
activities that would subject them to
registration.’’ 987
In considering these comments, the
Commission carefully analyzed each
aspect of Form MA as set forth in the
Proposal, consulting with and drawing
on the experience and expertise of
Commission’s enforcement and
examination staffs. As already stated,
the Commission had paid conscious and
due attention in developing Form MA to
the differences between the activities of
investment advisers and those of
municipal advisors. The Commission
has analyzed proposed Form MA in the
light of the comments received,
specifically with an eye to making any
possible further adjustments to reflect
the field of municipal advisory activities
and to remove any proposed elements of
Form MA that are not appropriate to the
regulation of municipal advisors or
valuable for such regulation in
consideration of the burdens of
completing the form.
The Commission continues to believe
that the information requested will be
valuable in establishing and
maintaining effective oversight of
municipal advisors. The various
purposes to which the Commission
intends to put the information to use, as
well as its value for municipal entities
and investors, have been broadly
described above. The decision to model
Form MA on Form ADV was based, in
part, on the Commission’s belief that the
level of information sought in Form
ADV is important, appropriate, and not
unduly burdensome for participants
engaged in providing investment advice,
bearing in mind the goal of protection
of investors and the public interest. The
Commission believes that the regulation
of municipal advisors warrants
obtaining a similar level of information
as pertinent to municipal advisors.988
985 See, e.g., Acacia Financial Group Letter,
SIFMA Letter I.
986 See Acacia Financial Group Letter.
987 See SIFMA Letter I.
988 For example, knowledge of the kind of clients
that a municipal advisor serves may be useful to a
municipal entity in determining whether that
advisor has the background and expertise necessary
to provide advice regarding the issuance that the
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The Commission notes that the MSRB,
the statutorily mandated rulemaking
body for the municipal securities
market, believes that the information
obtained generally will contribute to the
Commission’s and its own regulatory
activities.989
Some commenters believed that the
information sought by Form MA with
respect to many municipal advisors is
information already available to the
Commission through other registrations
and that the proposed disclosures
would therefore be redundant.990 One
commenter argued that ‘‘adding new
layers of regulation in this area will not
serve to enhance the protection of
municipal entities or investors.’’ 991
Another commenter contended that it
would be ‘‘more efficient for the SEC to
leverage existing registration forms,
which have years of interpretive
guidance behind them, than to create a
new form seeking much of the same
information as required by Forms BD
and U4.’’ 992 To address this issue, some
entity is contemplating. Similarly, information
regarding the advisor’s compensation arrangements
generally may help a municipal entity evaluate the
advisor’s proposed compensation arrangements for
the issuance under consideration. Such information
can also be valuable to regulators in uncovering
irregularities when questions are raised regarding a
municipal advisor’s motives and/or business
conduct with respect to a particular transaction.
The information that a municipal advisor provides
regarding its other business activities, its financial
industry affiliations, the proprietary and sales
interests it may have in its municipal advisory
clients’ transactions, and the investment or
brokerage discretion that it is granted in carrying
out its services may help municipal entities,
investors in municipal securities, and regulators
assess whether conflicts of interest may affect the
advice that the firm provides or may have
influenced its advice in a transaction under
investigation. The Commission believes that
obtaining such information is consistent with the
intent of the Dodd-Frank Act in establishing a
regulatory framework for municipal advisory
activities.
989 See MSRB Letter I. The MSRB also
commented that the Commission ‘‘should give due
weight to feedback from small municipal advisors
regarding the potential burdens in light of the
Congressional intent regarding regulatory burden on
small municipal advisors.’’ See id. The Commission
addresses the burden for smaller municipal
advisory firms in the Final Regulatory Flexibility
Analysis below. See infra Section IX.
990 See, e.g., JP Morgan Chase Letter; SIFMA
Letter I; and Specialized Public Finance Letter. See
also Financial Services Roundtable Letter
(maintaining that, for registered broker-dealers,
‘‘Form MA is largely duplicative of Form BD’’); and
Managed Funds Association Letter (maintaining
that proposed Form MA, ‘‘but for items specifically
relating to municipal advisory activities,’’ is
‘‘substantially similar to Form ADV’’).
991 See JP Morgan Chase Letter. This view was
expressed particularly with respect to traditional
banking products and services. See also supra
Section III.A.1.c.viii., regarding banks.
992 See Financial Services Roundtable Letter.
Form U4 is the Uniform Application for Securities
Industry Registration or Transfer, available at
http://www.finra.org/web/groups/industry/@ip/
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suggested that the Commission allow
persons that are already registered with
the Commission—such as brokerdealers, investment advisers, and
municipal securities dealers—to check
an additional box on their primary
registration forms already filed with the
Commission or to provide them with a
short-form registration process.993 Short
of this, commenters urged that, if such
persons must complete Form MA, they
should be allowed to incorporate by
reference on Form MA any information
that is included on another registration
form and be required to provide on
Form MA only such additional
information as deemed essential
regarding municipal advisory
activities.994
The Commission notes that Form MA,
both as proposed and adopted, allow for
incorporation by reference of certain
information that already has been
submitted on certain other forms by the
applicant, any of its associated persons,
or another entity pursuant to the
requirements of other regulatory
regimes. Specifically, each of the
Disclosure Reporting Pages (‘‘DRPs’’) of
Form MA permits incorporation by
reference to DRPs that are already on
file with regulators.995 The DRPs are
generally where the most significant
amount of information is requested on
Form MA and on which applicants will
likely need to expend the most time and
effort.
Form MA, as adopted, more
prominently highlights the option to
incorporate information by reference.
Part A of each DRP asks for basic
information regarding the person(s) or
@comp/@regis/documents/appsupportdocs/
p015112.pdf.
993 See SIFMA Letter I. See also Managed Funds
Association Letter, Financial Services Roundtable
Letter.
Also, one commenter suggested that, instead of
registering a second time as a municipal advisor, an
investment adviser should be permitted to amend
its Form ADV to reflect the fact that it engages in
municipal advisory activities. This commenter also
suggested permitting state-registered investment
advisers to register as municipal advisors by
amending their Forms ADV. See ABA Letter.
994 See SIFMA Letter I, ABA Letter.
995 As explained below, Item 9 of Form MA
requires an applicant to provide certain information
concerning any criminal, regulatory, and civil
judicial actions relating to the applicant or any of
its associated persons. For each action reported in
Item 9, the applicant is required to complete a DRP
by providing for further details, such as the court
where the charges were filed and when, a
description of the charge and the circumstances
relating to it (in the case of criminal actions); the
authority that initiated the action and a description
of the allegations and the product-type (in the case
of regulatory actions); or the initiator of the court
action, the relief sought, and the product type (in
the case of civil judicial actions). The information
sought in the DRPs of Form MA is similar to
information sought in DRPs that must be filed, as
applicable, with Forms BD, ADV, and U4.
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67543
entity(ies) concerning whom the DRP
must be filed. Immediately thereafter, in
Part B, the form asks if there is another
DRP or other disclosure already on file
in the IARD, CRD, or EDGAR system
containing the information required by
the DRP. If the answer is ‘‘Yes,’’ the
form asks the applicant to identify
where the disclosures may be found. In
addition, for the benefit of regulators,
municipal entities, and other interested
parties, the DRPs ask for information
that will enable such parties to locate
the referenced document easily, by
requiring the applicant to provide the
name of the registrant on the referenced
document, the relevant registration
number, and other identifying
information. Thus, for all persons for
whom disclosures of criminal,
regulatory, and civil judicial actions
must be made, Form MA already allows
for incorporation by reference. The
Commission believes that the
accommodation of incorporation by
reference for these disclosures will
eliminate a significant amount of
redundancy to which the commenters
refer.
The Commission believes that
commenters’ suggestion to allow
applicants already registered with the
Commission under other regulatory
regimes to check an additional box on
their primary registration forms 996
would not achieve the aim of the
municipal advisor registration regime.
Specifically, the Commission believes
that persons seeking to compile,
compare, and analyze data pertaining to
registered municipal advisors, as well as
regulators overseeing compliance with
rules and regulations applicable to
registered municipal advisors, should
generally be able to easily access within
one system relevant information about
municipal advisors.
The Commission notes that the vast
majority of applicants registering under
the permanent registration regime
would be new Commission
registrants.997 As such, the majority of
all information pertaining to municipal
advisors will be centralized in EDGAR.
On the other hand, the Commission
acknowledges that, because disclosures
required by Form MA DRPs and Form
MA–I DRPs may be incorporated by
reference from other forms, some
996 See
supra note 993.
to MA–T data as of December 31,
2012, there were approximately 1,110 Form MA–T
registrants. Of these Form MA–T registrants, 226
were also registered with the Commission as brokerdealers; 39 were also registered with the
Commission as investment advisers; and 65 were
registered with the Commission as both brokerdealers and investment advisers. Therefore, the vast
majority of Form MA–T registrants were new
Commission registrants.
997 According
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information will reside outside EDGAR.
However, the Commission notes that,
under the temporary registration regime,
only about 15% of applicants on Form
MA–T indicated a history of criminal,
regulatory, or civil judicial action that
would require the submission of DRPs
under the permanent registration
regime. Moreover, not all 15% of
municipal advisors indicating such a
history would have DRPs on file
elsewhere, as many may not be brokerdealers or investment advisers and thus
would not be required to file Form BD
or Form ADV. Accordingly, the
Commission believes that fewer than
15% of municipal advisors should have
DRP information stored outside EDGAR,
with the majority of information
collected under the permanent
municipal advisor regime centralized in
EDGAR. The Commission also notes
that, if applicants that are already
registered with the Commission under
other regulatory regimes can register as
municipal advisors by only checking an
additional box on their primary
registration form, a municipal entity or
investor seeking information about a
municipal advisor may not realize that
the information they seek is available on
a Form BD or ADV, rather than a Form
MA or MA–I.
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Description of the Form: Introduction
As previously noted, in addition to
considering the comments, the
Commission analyzed the entire
proposed Form MA and its appended
schedules and disclosure pages to make
any necessary adjustments. The
discussion below describes Form MA,
as adopted, and notes the substantive
changes to the proposed form. At the
outset, the Commission notes that it is
making some revisions to clarify
questions asked in Form MA. Other
revisions are intended to elicit
additional information. The
Commission believes that the additional
required data should make the
information provided by registrants
more useful to examiners, investigators,
and other regulatory authorities and/or
to municipal entities and investors.998
As noted below, the Commission
made some revisions to the form to
eliminate unnecessary disclosure
requirements. Other changes involve a
reorganization of the requested
998 Although some commenters believed,
generally, that the forms, as proposed, required too
much information, the Commission believes that
the modifications it has made to the forms that ask
for additional information will elicit information
that can be of significant use to regulators and
municipal entities. The discussion below includes
the reasons why, in each significant case, the
Commission has made the revision. See, e.g., infra
notes 1028–1030.
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information. In general, the Commission
intends to improve the picture that
municipal entities, investors, and
regulators will be able to obtain from
Form MAs, whether regarding
municipal advisors, in particular, or
regarding municipal advisory activities,
as a whole. For example, while the
proposed DRPs required information
generally regarding the disposition of
criminal charges or resolution of
regulatory or civil proceedings, in the
DRPs, as adopted, the questions are
more specific and require certain
additional details.999
Format of Form MA
Form MA, as proposed, required the
applicant to provide information
describing itself and its business
through a series of fill-in-the-blank,
multiple choice, and the check-the-box
questions.1000 In the form, as adopted,
these questions have been adapted to an
electronic, web-based format,1001 with
minor revisions to the text as necessary
or appropriate for online
completion.1002 As stated above,
EDGAR is designed to detect certain
failures to respond to mandatory
questions and, to detect, in certain
instances, defective responses.1003
999 See further the discussion below regarding
Item 9 of Form MA.
1000 No comments were received on the format of
the form.
1001 For example, where the paper form asked a
Yes or No question and, if the answer is Yes, other
questions must be answered, in the electronic form
those additional questions will appear only if the
applicant selected Yes. In the paper form, in some
instances when the applicant answers Yes, the form
instructs the applicant to supply additional
information in Schedule D of the form. In the
electronic form, a pop-up screen appears that
immediately enables the applicant to complete the
additional information. Filers will be able to obtain
a paper version of the form at any time through the
electronic system, which should help them
anticipate in advance the information they will
need to gather to complete on the online form. In
addition, filers will be able to print out a hard copy
version of the form with their responses included
in their appropriate places on the form.
1002 Certain documents, such as a signed and
notarized Form MA–NR (required of certain nonresidents as discussed below) or copies of court
orders required as part of a DRP will need to be
converted into a portable document file (PDF)
meeting the specifications set forth in the EDGAR
Filer Manual, supra note 961, and attached to the
electronic submission.
1003 Some examples: If an applicant provides an
EDGAR CIK number, the name of the company will
be pre-populated in the electronic form with the
name assigned to that CIK number and the
applicant will not be permitted to list a different
name. When an applicant indicates that it is
registered under another Commission regulatory
regime but supplies a registration number for that
regulatory regime that cannot be valid because it is
not in the correct numbering format, the system will
prevent the applicant from filing the form. If an
applicant answers affirmatively to a question that
asks whether it only engages in solicitation and
does not advise clients, it will not be possible to
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Form MA also contains several
supplemental schedules that must be
completed, where applicable, each of
which is discussed further below:
Schedule A asks for information about
the municipal advisor’s direct owners
and executive officers; Schedule B asks
for information about the municipal
advisor’s indirect owners; Schedule C is
used to amend information on either
Schedule A or Schedule B; and
Schedule D asks for additional
information when an applicant answers
in the affirmative regarding certain
questions in the form and also provides
space for any explanations that a filer
may wish to add to its application. Form
MA also contains DRPs, which require
further details about events and
proceedings involving the municipal
advisor and/or the municipal advisor’s
associated persons that the applicant
was required to report in Item 9 of the
main body of the form, and are
discussed in the context of Item 9
below.
Form MA, as proposed, first required
a municipal advisor to indicate whether
it is submitting the form for initial
registration as a municipal advisor or
submitting an annual update or an
amendment (other than an annual
update) to a registration as a municipal
advisor.1004 In the electronic form, as
adopted, Form MA asks the applicant to
indicate, upon entry, whether it is filing
an initial form, an annual update, or
amendment. Once an initial form is
submitted, when a filer subsequently
enters the system and selects the choice
of annual update or amendment, the
most recently submitted version of the
form will appear, pre-populated with
the responses as completed at that time.
Thus, the filer will need only to amend
the outdated information.
Item 1: Identifying Information
The Commission proposed Item 1 of
Form MA to require essential
identifying information regarding the
applicant. For the reasons discussed
indicate in response to another question that it
advises clients and does not solicit. If an applicant
indicates that it has three Web sites but provides
the addresses of only two, the system will not
permit submission of the form. If an applicant
discloses that it or an associated person has been
involved in a criminal, regulatory, or civil judicial
action, the system will prevent the applicant from
filing the form if the appropriate DRP is not
completed. If the principal address of a firm in
Form MA or the residence of an individual reported
in Form MA–I is in a foreign country (which the
system can detect because states and countries are
indicated by selecting the appropriate name in a
drop-down box), the system will not permit
submission of the form unless, at the appropriate
step in the form, a Form MA–NR is attached.
1004 Amendments to Form MA are discussed
further below. See infra Section III.A.5.
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below and in the Proposal,1005 the
Commission is adopting Item 1
substantially as proposed but with the
minor modifications discussed below.
As proposed and adopted, Items 1–A
and B of Form MA require a municipal
advisor to indicate the full legal name
of the municipal advisor and, if
different, the name under which it
primarily conducts its municipal
advisor-related business.1006 As
adopted, Item 1–A also asks for the
municipal advisor’s CRD Number, if it
has one.1007 Item 1–C of Form MA as
proposed and adopted requires a
municipal advisor also to provide its
Employer Identification Number (or
‘‘EIN,’’ a number used with respect to
Internal Revenue Service matters) or, if
the applicant (such as a sole proprietor)
does not have an EIN, a social security
number.1008
In Item 1–D, as proposed and
adopted, if the municipal advisor is also
registered with the Commission as an
investment adviser, broker, dealer, or
municipal securities dealer, or if it has
previously registered with the
Commission as a municipal advisor on
Form MA–T, such municipal advisor is
required to provide its related SEC file
number or numbers. Further, if the
municipal advisor is a broker-dealer or
an investment adviser and has a CRD
Number assigned to it either under the
CRD system or the IARD system, it is
required to provide its CRD Number.
As proposed and adopted, Item 1–D
also requires an applicant to indicate
whether it is a state-registered
investment adviser. In such case, as
adopted, Item 1–D additionally requires
the applicant to identify the state (or
states) with which it is registered,1009
and adds to this category other U.S.
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1005 See
Proposal, 76 FR 841.
1006 As proposed and adopted, Item 1–B requires
any additional names under which the applicant
conducts municipal advisor-related business and
the jurisdictions in which they are used to be listed
in Schedule D.
1007 Obtaining a municipal advisor’s CRD
Number, if it has one, enables regulators, municipal
entities, and investors in a most basic way to
research the background of a registrant. See, e.g.,
supra text accompanying note 964.
1008 As discussed in the Proposal, the
Commission is asking for the social security number
of sole proprietors to permit the electronic filing
system to distinguish between persons who share
the same name. This information is necessary in
connection with the Commission’s enforcement and
examination functions pursuant to Section 15B(c) of
the Exchange Act (15 U.S.C. 78o–4(c)). See
Proposal, 76 FR 840, note 176. See also supra note
968.
1009 Requiring the place(s) of registration directly
on Form MA can be helpful to regulators, municipal
entities, and investors while imposing little burden
upon the applicant. The omission of this disclosure
requirement in the proposed version of the form
was unintentional.
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jurisdictions where the applicant is
registered.1010
Item 1–D, as adopted, additionally
requires a municipal advisor to indicate
if it is an ‘‘exempt reporting adviser’’
with respect to investment adviser
registration and, if so, to provide the
SEC file number and CRD Number. The
category of exempt reporting advisers,
discussed in Section III.A.1.c.v. herein,
was created by Commission rule after
Form MA was proposed. Because
exempt reporting advisers are not
exempt from municipal advisor
registration, if applicable, the
Commission believes that the
information that such advisers must
report to the Commission, and the
identifying numbers necessary to ease
access to such information, is no less
important to regulators of the municipal
market, municipal entities, and
investors than the equivalent
information available regarding
municipal advisors who are registered
investment advisers.1011
The information provided in response
to Item 1–D will allow the Commission
to more effectively cross-reference those
entities applying for registration as
municipal advisors to those who are
registered as brokers, dealers, municipal
securities dealers, investment advisers,
or otherwise registered 1012 with the
Commission. As discussed in the
Proposal, the ability to cross-reference
will allow the Commission to assemble
more complete information concerning
a municipal advisor to inform the
Commission’s decision to approve or
institute proceedings to deny an
application for registration as a
municipal advisor. The ability to crossreference will also permit the
Commission or any designee 1013 to plan
1010 The revision to include other U.S.
jurisdictions in addition to states has been made
throughout the forms.
1011 As proposed and adopted, an applicant is
further asked in Item 1–D whether it is a
government securities broker-dealer, and, if so, to
provide the SEC file number and bank identifier;
whether it has any other SEC registration, and, if
so, to specify which registration and the file
number; and whether it is registered with another
federal or state regulator, and, if so, to specify the
regulator’s name and the applicant’s registration
number. As adopted, Item 1–D asks whether the
applicant has any additional registrations that were
not already reported, and, if so, to list the regulator
and the applicant’s registration number in Schedule
D. The addition of this last question clarifies that
if there are additional registrations, the applicant
must list all of them.
1012 For example, as the Commission noted in the
Proposal, pursuant to Section 764 of the DoddFrank Act, security-based swap dealers will be
required to register with the Commission. See
Section 764(a) of the Dodd-Frank Act and 15 U.S.C.
78o–8(a). See Proposal, 76 FR 841, note 178.
1013 See 15 U.S.C. 78o–4(c)(7)(A)(iii) (providing
that examinations of municipal advisors shall be
conducted by the Commission or its designee).
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67545
for, and carry out, efficient and effective
examinations of registered municipal
advisors. By obtaining all of an
applicant’s regulatory file numbers, the
Commission will be able to crossreference disciplinary information in
the CRD or IARD systems with the
information on Form MA. This ability
would provide the Commission with a
more complete understanding of a
municipal advisor’s structure and
business.
Item 1–E asks for the address of
applicant’s principal office and place of
business 1014 and the telephone and fax
numbers at that location. As proposed,
Item 1–E of Form MA required an
applicant to list on Schedule D any
additional names under which it
conducts municipal advisor-related
business and the offices at which such
business is conducted. In consideration
of comments, generally, that the form is
too burdensome,1015 in Item 1–E, as
adopted, the Commission has
determined to require information
pertaining only to the five largest
offices.
Item 1–F of Form MA, as proposed,
asked whether the applicant has one or
more Web sites, and, if so, to list them
in Schedule D of the form. As adopted,
Item–F continues to require an
applicant to list all its Web sites, but
also requires the address of its principal
Web site on the main part of the form
and any additional Web site addresses
on Schedule D.1016
Item 1–G of Form MA, as proposed,
required applicants to supply the name,
address, email address, and telephone
and fax numbers of its Chief
Compliance Officer, if it has such an
officer, and to list any other title(s) the
officer holds. Item 1–H, as proposed,
asked for the title of, and similar contact
information for, any other person whom
the municipal advisor has authorized to
receive information and respond to
questions about the registration (the
‘‘contact person’’). Items 1–G and 1–H
are being adopted, as proposed, with a
clarification to advise applicants that
they must provide the name and contact
1014 Rule 15Ba1–1(l) defines principal office and
place of business to mean: ‘‘the executive office of
the municipal advisor from which the officers,
partners, or managers of the municipal advisor
direct, control, and coordinate the activities of the
municipal advisor.’’ See also Glossary. In addition,
the municipal advisor must supply its mailing
address, if it is different from its principal office
and place of business.
1015 See, e.g., supra note 979 and accompanying
text and text following note 987.
1016 The Commission believes that identification
of the applicant’s principal Web site out of possibly
many will increase the benefit of the information
to regulators, municipal entities, and investors
without adding any unreasonable burden on the
applicant.
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information for only one person (i.e.,
either a Chief Compliance Officer or
another contact person). The intent of
the Proposal was for the applicant to
provide one or the other, and the form,
as adopted, makes this clearer. The
added note also advises, however, that
information for both may be provided if
the applicant so chooses. As discussed
in the Proposal, the Commission is
requesting the identifying and contact
information in Item 1–G and/or 1–H to
assist the Commission and the staff in
evaluating applications for registration
and overseeing registered municipal
advisors.1017
As proposed and adopted, Item 1–I of
Form MA requires the applicant further
to state whether it maintains, or intends
to maintain, some or all of its books and
records required to be kept under MSRB
or Commission rules somewhere other
than at its principal office and place of
business and, if so, to provide (on
Schedule D) information about the other
location(s).
Item 1–J of Form MA, as proposed
and adopted, requires an applicant to
answer whether it is registered with any
foreign financial regulatory
authority,1018 and, if so, to provide the
name (on Schedule D) of each such
authority and the country. Item 1–J is
being adopted as proposed, with the
additional requirement to provide the
applicant’s registration number under
the foreign authority.1019
Item 1–K, as proposed and adopted,
requires an applicant to disclose
whether it is affiliated with any other
business entity, and, if so, to disclose on
Schedule D the name and registration
number of each such affiliate.1020 As
discussed in the Proposal, this
information will help inform the
Commission as to the structure of the
municipal advisor’s business, which
1017 See
also Proposal, 76 FR 841.
added instruction in Item 1–J, as adopted,
makes clear that an applicant should answer ‘‘No’’
to this question even if it is affiliated with a
business that is registered with a foreign financial
regulatory authority.
1019 Schedule D relating to Item 1–J, as adopted,
clarifies that both the name of the country and the
name of the authority must be provided in English,
which may not have been evident in the proposed
version. In general, throughout the forms, as
adopted, when the name of a foreign country and/
or authority is required, the filer is instructed that
answers must be provided in English.
1020 The text of Item 1–K has been revised to
make explicit that ‘‘business entity’’ refers to any
domestic or foreign entity. Similarly, the related
questions in Schedule D, which, as proposed, asked
only for ‘‘any federal or state registration’’ has been
revised to include foreign registrations, as well.
These revisions have been made in accordance with
the description of this disclosure item in the
Proposal, which included foreign affiliates among
the required disclosures. See Proposal, 76 FR 842.
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1018 An
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will help staff prepare for examinations
of the municipal advisor.1021
Item 2: Form of Organization
The Commission proposed Item 2 of
Form MA to require information about
a municipal advisor’s form of
organization. The Commission received
no comments regarding Item 2 and is
adopting this item substantially as
proposed. Item 2 requires a municipal
advisor to specify whether it is
organized as a corporation, partnership,
sole proprietorship, limited liability
company, limited liability partnership,
limited partnership, or other form of
organization that the municipal advisor
must specify; the month of its annual
fiscal year end; the date on which it was
organized; and the state or other U.S.
jurisdiction 1022 or foreign jurisdiction
where it was organized. As discussed in
the Proposal, this information will assist
the Commission in evaluating the
applications for registration and
overseeing registered municipal
advisors.1023
Item 2 also requires an applicant to
specify whether it is a public reporting
company under Section 12 or 15(d) of
the Exchange Act and, if so, to provide
its Commission-assigned EDGAR CIK
number. As discussed in the Proposal,
the information that an applicant is a
public reporting company will provide
a signal that additional public
information is available about the
municipal advisor and/or its control
persons.1024
Item 3: Successions
The Commission proposed Item 3 of
Form MA to require applicants to
disclose whether they are succeeding to
the business of a registered municipal
advisor and, if so, the date of
succession. Further, Item 3 requires, on
Schedule D, the name of, and
registration information for, the firm the
applicants are succeeding.1025 The
Commission received no comments
regarding Item 3 and is adopting this
item as proposed. As discussed in the
Proposal, this information will assist the
1021 See
id.
1022 Proposed
Item 2 did not specifically mention
U.S. jurisdictions other than states. The Item, as
adopted, makes clear that such jurisdictions are
included. See supra note 1010 and accompanying
text.
1023 See Proposal, 76 FR 842.
1024 See id.
1025 As discussed elsewhere in this release,
depending on whether the succession is a result of
a merger or acquisition, or a reorganization, the
succeeding firm will be able to register by either
submitting a new Form MA or amending the Form
MA of its predecessor. See infra note 1318 and
accompanying text and infra Section III.A.7.
(discussing Rule 15Ba1–7 regarding registration of
a successor to a municipal advisor).
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Commission, among other things, in
overseeing registered municipal
advisors and in determining whether
there has been a change in control of a
municipal advisor.1026
Item 4: Information About Applicant’s
Business
The Commission proposed Item 4 to
require certain information about the
applicant’s business. The Commission
received several comments relating to
Item 4, which are discussed below.1027
The Commission is adopting Item 4
substantially as proposed, with certain
modifications as discussed in the
description of the item below.
As proposed and adopted, subparts A
to C of Item 4 require an applicant to
provide information regarding the
approximate number of employees it
has, approximately how many of those
employees engage in municipal
advisory activities, and approximately
how many are registered representatives
of a broker-dealer or investment adviser
representatives.
Item 4–D, as proposed and adopted,
requires an applicant to state
approximately how many firms, or other
persons (that are not employees or
otherwise associated persons of the
applicant) solicit municipal advisory
clients on the applicant’s behalf. As
proposed, an applicant is required to
disclose on Schedule D the names,
addresses, and phone numbers of firms
that solicit on its behalf. As adopted,
Item 4–D additionally requires the
applicant to disclose on Schedule D the
same information for other persons who
are not employed by, or otherwise
associated persons of, the applicant but
who solicit on its behalf.1028 In
addition, to make the information more
useful, the Commission has determined
to require an applicant also to provide
the EDGAR CIK and/or individual CRD
Number, if any, of the soliciting firm or
other person.
Further, Item 4–E, as proposed,
required an applicant to state whether it
has any employees that also do business
independently on the applicant’s behalf
as affiliates of the applicant and, if so,
to disclose in related Section 4–E of
Schedule D the names of such
employees.1029 In the form, as adopted,
1026 See
1027 See
id. See also Proposal, 76 FR 842.
infra notes 1040–1046 and accompanying
text.
1028 Upon review of the form as proposed, the
Commission determined that requiring a firm to list
the names of all persons who solicit on its behalf
will provide potentially valuable and more fulsome
information, as it may yield the names of persons
who are providing such services without
themselves registering.
1029 This category of employee includes persons
who do not necessarily engage in municipal
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Section 4–E of Schedule D requires the
applicant, in addition, to provide the
address, telephone and fax number,
EDGAR CIK (if any) and individual CRD
Number (if any) of each such
employee.1030
Item 4–F, as proposed and adopted,
requires the applicant also to
approximate the number of clients it
served in the context of its municipal
advisory activities in the past fiscal year
and to specify by checking the
appropriate box(es) whether its clients
include: municipal entities, non-profit
organizations (e.g., 501(c)(3)
organizations) who are obligated
persons, corporations or other
businesses not listed previously who are
obligated persons, or other types of
entities (and specify which other types
of entities); or whether the applicant
engages only in solicitation and does
not serve clients in the context of its
municipal advisory activities.
As proposed and adopted, applicants
also are required, in Item 4–G,1031 to
specify approximately the number of
municipal entities or obligated persons
that were solicited by the applicant on
behalf of a third-party during its most
recently completed fiscal year,
including any clients that it solicits in
addition to serving them in the context
of its municipal advisory activities.
However, Item 4–G, as adopted, requires
the applicant to provide the numbers
advisory activities on behalf of the firm, and for
whom a Form MA–I would thus not be required.
Regarding employees who do also engage in
municipal advisory activities on behalf of the firm,
the applicant must in any case obtain the
information requested in Section 4–E, as adopted,
to complete a Form MA–I for each such employee.
See also infra note 1030.
1030 The Commission believes that these
additional details in Schedule D will further serve
the purposes for which Item 4 is designed and that
an applicant firm should be able to provide such
information about employees that do business on its
behalf. Item 4–E, as adopted, asks the applicant to
state the number of employees of this kind. This
does not require an applicant to search for any
additional information, because each such
employee must be named in Schedule D. However,
it can serve as a helpful cross-check to the filer as
well as to regulators, and is also a useful number
for interested parties who do not need the
additional details.
1031 The section of Item 4 that relates to
solicitations of municipal entities and obligated
persons has been restructured in Form MA, as
adopted, into two parts. Item 4–G is the first part
of Item 4–G as proposed, which requires the
applicant to state the number of municipal entities
and obligated persons that the applicant solicited
on behalf of a third party, as described above. New
Item 4–H is comprised of the questions regarding
the types of persons solicited by the applicant that
constituted the rest of Item 4–G as proposed.
Hereinafter, subparts 4–H, I, J, and K of the Proposal
will be referred to by their numbers in the adopted
form, i.e., 4–I, J, K, and L, respectively.
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separately for municipal entities and
obligated persons.1032
Further, as proposed and adopted,
applicants must indicate, in Item 4–
H,1033 whether they solicit public
pension funds, 529 Savings Plans, local
or state government investment pools,
hospitals, colleges, or other types of
municipal entities or obligated persons
(and to specify which other types).
Alternatively, an applicant is able to
indicate that the question is
inapplicable, because it serves only
clients and does not engage in
solicitation in the context of its
municipal advisory activities.
As proposed and adopted, applicants
are also required to disclose, in Item 4–
I,1034 whether they are compensated for
their advice to or on behalf of municipal
entities or obligated persons by hourly
charges, fixed fees (not contingent on
the success of solicitations), contingent
fees, subscription fees (for a newsletter
or other publications), or otherwise.1035
If the applicant checks ‘‘other,’’ the
other kind of arrangement must be
described. Item 4–J,1036 as proposed and
adopted, asks for similar information
about compensation for solicitation
activities. Item 4–K,1037 as proposed and
adopted, asks whether the applicant
receives compensation, in the context of
its municipal advisory activities, from
anyone other than clients, and, if so, to
provide an explanation.
As discussed in the Proposal,
disclosure of information relating to the
number of a municipal advisor’s
employees and compensation
arrangements will provide the
Commission with a clearer
understanding of the business structure
of registered municipal advisors,
including the size of each advisor, the
number of its employees that engage in
municipal advisory activities, and in
what capacity these employees engage
in such activities. Information about
compensation arrangements also will
identify possible conflicts of interest
1032 The Commission believes that the
information requested will be more useful for
regulatory purposes, and for gaining an
understanding of municipal advisory activities in
general, when broken down in this manner.
Municipal entities and other interested parties can
also benefit from this breakdown in assessing the
specific experience of a municipal advisor.
1033 Item 4–H was a part of Item 4–G as proposed.
See supra note 1031.
1034 Item 4–I was Item 4–H as proposed. See
supra note 1031.
1035 An applicant may alternatively state that the
question is inapplicable because the applicant
engages only in solicitation.
1036 Item 4–J was Item 4–I as proposed. See supra
note 1031.
1037 Item 4–K was Item 4–J as proposed. See supra
note 1031.
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67547
that the municipal advisor may have
with its clients.1038
The Commission received several
comments regarding the five categories
of compensation arrangements.1039 One
commenter believed that the
Commission should ‘‘refrain from
utilizing this limited information in
making a determination as to the
existence of conflicts of interest with
respect to compensation’’ and that ‘‘a
more comprehensive analysis of
compensation arrangements and the
rationale for such fees should be
considered prior to making any
determination as to the appropriateness
of a particular fee arrangement.’’ 1040
Another commenter believed that,
because investment advisers generally
have ‘‘a completely different business
model, approach to business and
compensation model,’’ as well as ‘‘scale
of business,’’ than municipal advisors,
Form ADV is ‘‘not a good model in this
element of registration.’’ 1041
The five choices from among which
applicants are asked to select are not
intended to give an exhaustive picture
of a municipal advisor’s business
model, but the Commission does believe
that receiving responses regarding
compensation, at least on the level of
specificity requested in this item, will
enable Commission staff to ask more
targeted questions on routine
examinations and may highlight
relationships that should be more
closely examined. Furthermore, the
Commission notes that in addition to
the five choices, an applicant may also
check ‘‘Other’’ to describe its
compensation arrangements. If selected,
the applicant is required to specify the
nature of such arrangements.
Item 4–L,1042 as proposed and
adopted, also requires the municipal
advisor to indicate the general types of
municipal advisory activities in which
it engages.1043 The Commission
1038 See
Proposal, 76 FR 843.
Joy Howard WM Financial Strategies
Letter; Public FA Letter; and Fiscal Advisors and
Marketing Letter, Inc., dated February 21, 2011
(‘‘Fiscal Advisors and Marketing Letter’’).
1040 See Joy Howard WM Financial Strategies
Letter.
1041 See Public FA Letter. Another commenter
stated that most municipal advisors ‘‘charge on a
project or transaction specific basis and not on an
annual all encompassing service basis’’ and thus
believed that Form ADV is not a relevant document
that would help in understanding ‘‘the nature of an
‘Independent Municipal Advisor,’ its corporate
makeup, nor the fee relationship’’ and ‘‘does not
afford any basis for analyzing potential conflict of
interest.’’ See Fiscal Advisors and Marketing Letter.
1042 Item 4–L was Item 4–K as proposed. See
supra note 1031.
1043 The following eleven activities are listed: (1)
Advice concerning the issuance of municipal
1039 See
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understands that the listed activities are
those in which the municipal advisors
engage and are derived from the
definition of municipal advisor in
Exchange Act Section 15B(e)(4) 1044 or
closely related to the activities included
within that definition. As discussed in
the Proposal, this information will help
the Commission understand the scope
of activities in which a municipal
advisor engages and identify possible
conflicts of interest and in preparing for
examinations, and will also provide the
Commission with data useful to making
regulatory policy.1045
One commenter believed that, due to
competitive concerns, a municipal
advisor should not be required to
disclose the names and contact
information of persons that solicit
municipal clients on its behalf.1046 The
Commission notes that the definition of
municipal advisor under the Exchange
Act includes, specifically, persons who
undertake solicitation of municipal
entities and obligated persons. The
Commission thus believes that requiring
an applicant to provide information
about persons who solicit clients on its
behalf will help it carry out its oversight
securities (including, without limitation, advice
concerning the structure, timing, terms and other
similar matters, such as the preparation of
feasibility studies, tax rate studies, appraisals and
similar documents, related to an offering of
municipal securities), (2) advice concerning the
investment of the proceeds of municipal securities
(including, without limitation, advice concerning
the structure, timing, terms and other similar
matters concerning such investments), (3) advice
concerning municipal escrow investments
(including, without limitation, advice concerning
their structure, timing, terms and other similar
matters), (4) advice concerning the investment of
other funds of a municipal entity or obligated
person (including, without limitation, advice
concerning the structure, timing, terms and other
similar matters concerning such investments), (5)
advice concerning guaranteed investment contracts
(including, without limitation, advice concerning
their structure, timing, terms and other similar
matters), (6) advice concerning the use of municipal
derivatives (including, without limitation, advice
concerning their structure, timing, terms and other
similar matters), (7) solicitation of investment
advisory business from a municipal entity or
obligated person (including, without limitation,
municipal pension plans) on behalf of an
unaffiliated person or firm (e.g., third party
marketers, placement agents, solicitors and finders),
(8) solicitation of business other than investment
advisory business from a municipal entity or
obligated person on behalf of an unaffiliated broker,
dealer, municipal securities dealer, municipal
advisor or investment adviser (e.g., third party
marketers, placement agents, solicitors and finders),
(9) advice or recommendations concerning the
selection of other municipal advisors or
underwriters with respect to municipal financial
products or the issuance of municipal securities,
(10) brokerage of municipal escrow investments, or
(11) other. Applicants who check ‘‘other’’ activities
will be required to provide a narrative description
of such activities.
1044 See 15 U.S.C. 78o–4(e)(4).
1045 See Proposal, 76 FR 843.
1046 See SIFMA Letter I.
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responsibilities with respect to the full
range of persons who are municipal
advisors. For example, as already
stated,1047 such information may yield
the names of persons who are engaged
in such activities without themselves
registering. Moreover, as stated in the
Proposal, the Commission believes that
information requested in Item 4–L is
important for discerning possible
conflicts of interest.1048 The
Commission further notes that the
requirement that a municipal advisor
disclose all persons who solicit clients
on its behalf applies equally to all
applicants for registration. The
Commission believes that such
universal disclosure serves to mitigate
the competitive concerns raised by the
commenter.
Item 5: Other Business Activities
The Commission proposed Item 5 to
require information about the
applicant’s other business activities.
The Commission received no comments
regarding Item 5 and is adopting Item 5
substantially as proposed, with minor
modifications as discussed below.
As proposed and adopted, Item 5
requires applicants to indicate whether
they are actively engaged any one of an
enumerated list of businesses.1049 In
Item 5, as adopted, the applicant is
required additionally to indicate, for
each other business in which it is
engaged, whether this is its primary
business.1050 As proposed and adopted,
Item 5 requires an applicant also to state
whether it is actively engaged in any
other business that is not one of those
enumerated above and whether that
other business is its primary business. It
also is required to describe the other
business on Schedule D to Form MA. As
discussed in the Proposal, this
information will assist the Commission,
among other things, in identifying
conflicts of interest for municipal
advisors and preparing for inspections
and examinations of municipal
advisors. The information also will
assist the Commission and the MSRB in
understanding municipal advisors in
the context of their activities for
regulatory purposes.1051
Item 6: Financial Industry and Other
Activities of Associated Persons 1052
The Commission proposed Item 6 to
require an applicant to disclose
financial industry affiliations of its
associated persons. The Commission
received several comments on Item 6, as
discussed below.1053 The Commission
has carefully considered these
comments and is adopting Item 6 and
the related information it requires on
Schedule D of Form MA largely as
proposed. Some modifications have
been made, however, and these are
discussed below.
Item 6, as proposed and adopted,
requires an applicant to provide
information about its associated
persons 1054 that are engaged in
1051 See
Proposal, 76 FR 844.
title of Item 6, which, as proposed, was
‘‘Financial Industry Affiliations of Associated
Persons,’’ has been changed in Form MA as adopted
to better reflect the range of activities that the item
concerns—all of which may be a source of conflict
of interest for the municipal advisor—and to avoid
any possible confusion that could be caused by the
use of the term ‘‘affiliations’’ in the title.
1053 See infra notes 1064–1070.
1054 Section 15B(e)(7) provides that the term
‘‘person associated with a municipal advisor’’ or
‘‘associated person of an advisor’’ means ‘‘(A) any
partner, officer, director, or branch manager of such
municipal advisor (or any person occupying a
similar status or performing similar functions); (B)
any other employee of such municipal advisor who
is engaged in the management, direction,
supervision, or performance of any activities
relating to the provision of advice to or on behalf
of a municipal entity or obligated person with
respect to municipal financial products or the
issuance of municipal securities; and (C) any person
directly or indirectly controlling, controlled by, or
under common control with such municipal
advisor.’’ 15 U.S.C. 78o–4(e)(7). For purposes of
Form MA, the Glossary defines ‘‘associated person
or associated person of a municipal advisor’’ to
have the same meaning as in Exchange Act Section
15B(e)(7) (15 U.S.C. 78o–4(e)(7)), but to exclude
employees that are solely clerical or administrative.
Specifically, the Glossary defines these terms to
mean: ‘‘Any partner, officer, director, or branch
manager of a municipal advisor (or any person
occupying a similar status or performing similar
functions); any other employee of such municipal
advisor who is engaged in the management,
direction, supervision, or performance of any
1052 The
1047 See
supra note 1028.
supra note 1038 and accompanying text.
in Item 5, as adopted, an
applicant is asked whether it is actively engaged in
business in, or as, a (1) broker-dealer, municipal
securities dealer or government securities broker or
dealer, (2) registered representative of a brokerdealer, (3) commodity pool operator (whether
registered or exempt from registration), (4)
commodity trading advisor (whether registered or
exempt from registration), (5) futures commission
merchant, (6) major swap participant, (7) major
security-based swap participant, (8) swap dealer, (9)
security-based swap dealer, (10) trust company, (11)
real estate broker, dealer, or agent, (12) insurance
company, broker, or agent, (13) banking or thrift
institution (including a separately identifiable
department or division of a bank), (14) investment
adviser (including financial planners), (15) attorney
or law firm, (16) accountant or accounting firm, (17)
engineer or engineering firm, or (18) other financial
product advisor (and, if so, to specify the type).
Minor differences in this multiple choice list from
the list, as proposed, are that engineer is now
included, in addition to engineering firm (as in Item
6 as proposed and adopted), and swap dealer and
security-based swap dealer are now two distinct
categories.
1050 Although this specific question was not
included in the proposed form, the Commission
notes that in the next subpart of Item 5, as
proposed, if the applicant identifies any other
businesses in which it is engaged that are not
included in the list of choices described above, it
is further asked whether this is its primary
business. See infra note 1051.
1048 See
1049 Specifically,
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activities other than those that relate to
their association with the applicant. As
discussed in the Proposal, Item 6 lists
twenty activities that an associated
person may engage in, some of which
are not listed in Item 5 as other
activities in which the applicant itself
may be engaged.1055 The collection of
this information is designed to gather
more complete information about the
associated persons of a municipal
advisor who are actually providing
advice or are controlling the firm and
help better inform the Commission’s
regulatory and examination
programs.1056
As proposed, Item 6 of Form MA
required an applicant to list, on related
Section 6 of Schedule D of the form, all
associated persons, including foreign
affiliates, that are broker-dealers,
municipal securities dealers, or
government securities brokers or
dealers, or investment advisers,
municipal advisors, registered swap
dealers, banking or thrift institutions, or
trust companies. As adopted, the form
requires the applicant also to list in
Section 6 of Schedule D all associated
persons that are investment companies
(including mutual funds), major swap
participants and major security-based
swap participants, commodity pool
operators, commodity trading advisors,
futures commission merchants,
accountants or accounting firms,
attorneys or law firms, insurance
companies or agencies, pension
consultants, real estate brokers or
municipal advisory activities relating to the
provision of advice to or on behalf of a municipal
entity or obligated person with respect to municipal
financial products or the issuance of municipal
securities (other than employees who are
performing solely clerical, administrative, support
or other similar functions); and any person directly
or indirectly controlling, controlled by, or under
common control with such municipal advisor.’’
1055 Specifically, under Item 6, a municipal
advisor is required to disclose whether any of its
associated persons is: (1) A broker-dealer,
municipal securities dealer, or government
securities broker or dealer; (2) an investment
company (including a mutual fund), (3) an
investment adviser (including a financial planner),
(4) a swap dealer, (5) a security-based swap dealer,
(6) a major swap participant, (7) a major securitybased swap participant, (8) a commodity pool
operator (whether registered or exempt from
registration), (9) a commodity trading advisor
(whether registered or exempt from registration),
(10) a futures commission merchant, (11) a banking
or thrift institution, (12) a trust company, (13) an
accountant or accounting firm, (14) an attorney or
law firm, (15) an insurance company or agency, (16)
a pension consultant, (17) a real estate broker or
dealer, (18) a sponsor or syndicator of limited
partnerships, (19) an engineer or engineering firm,
or (20) another municipal advisor. See supra note
1049. As adopted, Item 6 includes an instruction
that if an associated person is involved in more
than one of these activities, each such activity must
be reported.
1056 See Proposal, 76 FR 844.
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dealers, sponsors or syndicators of
limited partnerships, or engineers or
engineering firms.1057
Section 6 of Schedule D, as proposed
and adopted, also requires the applicant
to provide the legal and primary
business names of each associated
person listed, as well as to indicate the
category or categories listed in Item 6 of
the main form of which the associated
person is a member. Finally, Section 6
of Schedule D, as proposed and
adopted, requires the applicant to
indicate whether it controls, or is
controlled by, the associated person;
whether the two are under common
control; 1058 and/or whether the
associated person is registered with a
foreign financial regulatory authority
and, if so, the country and name in
English of that authority.1059
As discussed above, the purpose of
Item 6 is to elicit more complete
information about who is providing
advice or controlling the applicant.
Moreover, as new Rule 15Bc4–1
underscores, all associated persons of
municipal advisors are subject to
censure.1060 Thus, after further
consideration, the Commission believes
that requiring the applicant municipal
advisory firm to identify associated
persons that are involved in any of the
above categories—each of which
involves activities that can impact or be
impacted by the advice the firm
provides—will better assist the
Commission in gaining an
understanding of possible conflicts of
interest or wrongful influence in the
municipal advisor’s activities. The
Commission notes that Form MA
elsewhere already reflects a concern that
involvement in a wider range of areas
can lead to conflict of interest, as Item
5 of the form requires disclosure of
whether the applicant firm itself is
involved in any of 17 enumerated
categories of that Item and must further
indicate whether it acts as any other
1057 In other words, the form, as adopted, requires
the applicant to list in Section 6 of Schedule D the
names of all associated persons in any of the
categories in Item 6. See supra note 1055 and
accompanying text.
1058 See infra note 1080 for the definition of
‘‘control’’ as used in the municipal advisor
registration forms.
1059 To the extent that Item 6, as adopted, requires
associated persons in additional categories to be
listed in Schedule D, as discussed supra note 1057,
the requirements to provide in Schedule D the legal
and primary business names of each associated
person, indicate the category or categories to which
the person belongs, and respond to the questions
relating to control now apply to persons in those
additional categories. Similarly, the questions
relating to registration with foreign financial
regulatory authorities, as discussed further below,
apply to associated persons in all the categories
listed in Item 6, as adopted.
1060 See infra Section III.A.9.
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67549
type of financial product advisor and
specify the type.1061
As already noted,1062 in conformance
with the additions to the categories of
associated persons that must be
identified in Item 6, Section 6 of
Schedule D, as adopted, will require
disclosure of foreign registration
information with respect to associated
persons in twenty categories. As
discussed above, the Commission
believes that an associated person’s
involvement in any of these categories
can impact or be impacted by the advice
the firm provides, and foreign financial
regulatory authorities can be of
significant help in tracking such activity
and uncovering possible wrongdoing.
An additional change in Section 6 of
Schedule D, as adopted, requires the
applicant to provide, in the case of an
associated person registered with a
foreign financial regulatory authority,
the relevant registration number. The
Commission believes that, for associated
persons that are active in foreign
countries, having the registration
number, if any, under foreign financial
regulatory authorities can be
particularly helpful in obtaining
information for regulatory and
investigative purposes.
The Commission received several
comment letters opposing the extent of
the disclosures required by Item 6 and,
on a more general level, all the
disclosures that Form MA requires
regarding an applicant’s associated
persons.1063 One commenter believed
that the form requires ‘‘overly extensive
disclosure’’ regarding affiliates of a
municipal advisor, particularly for a
municipal advisor that is a member of
a large affiliated group of
institutions.1064 These requirements, the
commenter said, would impose ‘‘a vast
information-gathering burden on
applicants.’’ 1065 The commenter raised
specifically the case of affiliates that are
under common control with a
municipal advisor (‘‘sister affiliates’’),
whose activities ‘‘may have no
connection to municipal advisory
activities, let alone, in the case of
financial institutions with global
operations, a nexus or connection to any
1061 Item 6, as adopted, also asks the applicant to
state the total number of its associated persons that
belong to any of the twenty categories (listed above
in note 1055). Because, in Item 6, as adopted, all
such persons must be identified in Schedule D,
tallying the number involves no additional
disclosure and will act as a cross-check to ensure
that the information provided is complete.
1062 See supra note 1059.
1063 See, e.g., Acacia Financial Group Letter;
Deloitte Letter; SIFMA Letter I.
1064 SIFMA Letter I.
1065 Id.
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activities in the United States.’’ 1066 The
commenter suggested that disclosures
regarding affiliates be limited to
affiliates that control or are controlled
by the municipal advisor or ‘‘at a
minimum’’ to sister affiliates providing
municipal advisory services in the
U.S.1067 This commenter also believed
that a municipal advisory firm should
not be required to provide information
regarding its individual associated
persons (citing the example of
employees) on Form MA unless those
persons ‘‘devote a significant amount of
time or resources’’ to, or are ‘‘primarily
engaged’’ in, municipal advisory
activities, particularly if those persons
are already registered with a brokerdealer, investment adviser, municipal
securities dealer, commodity trading
advisor or swap dealer.1068
Another commenter believed that
requiring disclosures regarding
associated persons performing ‘‘any
activities’’ relating to advice could
‘‘impose significant costs’’ and ‘‘create a
significant burden.’’ 1069 This
commenter stated that the Commission
should ‘‘establish a threshold for
reporting and updating associated
person information in Form MA’’—a
certain minimum of hours spent on
municipal advisory activities over a
specified time period. The commenter
also suggested that, when personnel
from an entity are subcontracted, the
entity itself should not be required to
register.1070
The Commission notes that, for
certain information pertaining to
affiliates, it has determined to limit the
required disclosures in Form MA to
information regarding persons that
control, or are controlled by, the
municipal advisor (and not persons
under common control).1071 However,
with respect to financial industry and
other activities represented on the list in
Item 6, the Commission believes it is
appropriate to extend its information
base regarding such activities to all of a
municipal advisor’s associated persons
(which, by definition, includes persons
under common control with the
municipal advisor).1072 For example,
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1066 Id.
1067 Id. See also infra notes 1119–1120 (related
SIFMA comments regarding disclosure
requirements with respect to the disciplinary
history of affiliates and associated persons).
1068 See SIFMA Letter I.
1069 See Deloitte Letter.
1070 See id.
1071 See also the discussion below regarding Item
8, infra notes 1079–1088 and accompanying text.
1072 See Section 15B(e)(7)(C) of the Exchange Act,
which defines the term ‘‘person associated with a
municipal advisor’’ or ‘‘associated person of an
advisor’’ as including ‘‘any person directly or
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the Commission believes that
ascertaining such information may
assist the Commission in identifying
potential conflicts of interest.
The ability to discern connections
within a large network of affiliations
and other associations that otherwise
would not be evident is particularly
important to the Commission for
purposes of enforcement, to enable
regulators to detect possible trails of
influence and to widen their potential
sources of factual information relevant
to investigations of wrongdoing. The
Commission believes that establishing
such an information base is consistent
with the Dodd-Frank Act’s amendments
to Section 15B of the Act, which
explicitly extend the Commission’s
regulatory authority (directly and
through its oversight of the MSRB) to
associated persons of municipal
advisors.1073
The Commission notes that Item 6
and Section 6 of Schedule D ask for
little more than the names (legal and
business) of any associated persons of
the municipal advisor that do business
in the specified fields and, if the
associated person is registered with a
foreign financial regulatory authority,
the registration number. Otherwise,
Section 6 asks only whether the
municipal advisor controls or is
controlled by the associated person or
whether the two are under common
control. Such control relationships are
directly relevant to investigations of the
municipal advisor.
The Commission believes that, in
today’s world of organizational and
managerial sophistication and advanced
information technology, including as is
pertinent to cross-border affiliations, it
should not be unreasonably difficult for
a municipal advisor that finds itself
within a larger family of affiliates,
particularly of the size discussed by
commenters, to obtain knowledge of its
own place and the place of others
within that family. Given the potential
relevance and importance of such
information, as discussed above, to
assuring lawfulness and fairness in the
field of municipal advisory services, as
indirectly controlling, controlled by, or under
common control with such municipal advisor.’’
1073 See, e.g., Section 15B(c)(4) of the Exchange
Act (authority of Commission to censure or place
limitations on the activities or functions of
associated persons of municipal advisors); and
Section 15B(b)(2)(A) (authority of MSRB to
establish standards of training, experience,
competence, and other qualifications for associated
persons of municipal advisors). See also Section
15B(a)(2) (application for registration as a
municipal advisor to contain such information and
documents concerning associated persons of
municipal advisors as the Commission may
prescribe as necessary or appropriate in the public
interest or for the protection of investors).
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well as in maintaining confidence in the
municipal securities markets, the
Commission believes it is appropriate to
require municipal advisors to obtain
and provide such information.
With respect to the suggestions that a
municipal advisory firm should not be
required to provide information
regarding its individual associated
persons unless those persons devote a
certain threshold of time or resources to
municipal advisory activities, the
Commission disagrees. In particular, the
kind of activity that disclosure relating
to associated persons is intended to
bring to light may involve the kind of
significant influence that often is
wielded in very short timeframes of
activity, e.g., a short phone call from a
partner in the firm to a key person in a
municipal entity ‘‘urging’’ the issuance
of a particular offering, or soliciting the
municipal entity’s investment.
Item 7: Participation or Interest in
Municipal Advisory Client or Solicitee
Transactions 1074
The Commission proposed Item 7 to
require information about an applicant’s
participation and interest in the
transactions of its municipal advisory
clients. The Commission received no
comments referencing Item 7 that are
not discussed elsewhere 1075 and is
adopting Item 7 as proposed.1076
As discussed in the Proposal, the
purpose of Item 7 is to identify possible
conflicts of interest that the municipal
advisor and its associated persons may
have with the municipal advisor’s
clients and/or the persons the municipal
advisor solicits.1077 For example, a
municipal advisor that receives
commissions or other payments for sales
of securities to clients may have a
conflict of interest with its clients. This
type of practice gives the municipal
advisor and its personnel an incentive
to base investment recommendations on
the amount of compensation they will
1074 The title of Item 7 has been revised in Form
MA, as adopted, to include ‘‘solicitee’’ transactions
to better reflect the information sought in this item.
The term ‘‘solicitee’’ is defined in the discussion
below and is included in the Glossary of Terms for
the Form MA series as adopted.
1075 As discussed above, the Commission received
a general comment questioning whether useful
information could be elicited from applicants with
regard to some required disclosures. See supra note
984 and accompanying discussion.
1076 The Commission notes that, as published in
the Proposal, several of the questions in this item
referred explicitly only to clients of the municipal
advisor. It is clear from the context, however, that
these questions were also intended to apply to
persons that the municipal advisor solicits or
intends to solicit in the context of its municipal
advisory activities. Item 7, as adopted, has been
modified to explicitly reference such solicitees in
addition to clients in each of these instances.
1077 See Proposal, 76 FR 844.
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receive rather than on the client’s best
interests.
Specifically, Item 7 requires an
applicant to disclose whether it, or any
of its associated persons, has a
proprietary interest in the securities or
other investment or derivative product
transactions of its clients or of persons
whom it solicited or intends to solicit
(‘‘solicitees’’). These disclosures include
whether the applicant buys securities or
other investment or derivative products
from, or sells them to, its clients or
solicitees; whether it buys or sells for
itself securities (other than shares of
mutual funds) or other investment or
derivative products that it also
recommends to such clients or
solicitees; whether it enters into
derivative contracts with such clients or
solicitees; or whether it recommends to
its clients or solicitees securities or
other investment or derivative products
in which it or any associated person has
any proprietary interest (other than as
already disclosed in response to the
previous questions).
An applicant is also asked to disclose
whether it or its associated persons
recommend purchases of securities or
derivative products to clients or
solicitees for which the municipal
advisor or its associated persons serve
as underwriter, general or managing
partner, or purchaser representative;
recommend purchases or sales of
securities or derivatives to clients or
solicitees in which applicant or its
associated person has any other sales
interest (other than the receipt of sales
commissions as a broker or registered
representative of a broker-dealer); have
certain discretionary authority over
transactions in securities or other
investment or derivative products for its
clients or solicitees; and recommend
brokers, dealers, or investment advisers
to its clients or solicitees, and, if so,
whether those brokers, dealers, or
investment advisers are associated
persons of the municipal advisor. Item
7 also requires the municipal advisor to
disclose whether it or its associated
persons give or receive compensation
for municipal advisory client
referrals.1078
1078 In Item 7, as adopted, the phrase ‘‘in the
context of its municipal activities’’ has been deleted
in instances where the intention may not have been
clear. For example, Item 7.C, as proposed, asked:
‘‘Does applicant or any associated person have
discretionary authority to determine the: (1)
Securities or other investment or derivative
products to be bought or sold for the account of a
client that it serves or person that it has solicited
or intends to solicit in the context of its municipal
advisory activities.’’ The phrase ‘‘in the context of
its municipal advisory activities’’ was not intended
to limit the question to products bought or sold in
such context, but to limit the kind of solicitation
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Item 8: Owners, Officers, and Other
Control Persons 1079
The Commission proposed Item 8 of
Form MA to require information about
an applicant’s control persons. As
discussed below, the Commission
received one comment specifically
relating to Item 8. The Commission
carefully considered issues raised by the
commenter and is adopting Item 8
substantially as proposed, with minor
modifications discussed below.
Item 8, as proposed and adopted, asks
applicants to identify on Schedules A
and B every person that owns a certain
percentage of the applicant, that directly
or indirectly controls the applicant, or
that the applicant directly or indirectly
controls.1080 An initial applicant is
required to complete Schedules A and
B. Schedule C is used to amend
information previously reported on
Schedules A and B.
Schedule A requires information
about the applicant’s executive officers
and, for firms, persons that directly own
5% or more of the applicant.1081
Schedule B requests information about
persons that indirectly own 25% or
more of the applicant. A clarifying
instruction has been added to Schedule
B, as adopted, explaining that, for these
being referenced. To avoid confusion, it has been
deleted.
1079 The title of this item as proposed was
‘‘Control Persons.’’ It has been changed in Form
MA, as adopted, because the item, among other
things, is seeking information about owners to
determine whether such persons are control
persons.
1080 The term ‘‘control’’ is defined in the Glossary
to mean, for purposes of the municipal advisor
registration forms, ‘‘the power, directly or
indirectly, to direct the management or policies of
a person, whether through ownership of securities,
by contract, or otherwise.’’ Further, the Glossary
provides that: (a) Each of the municipal advisor’s
officers, partners, or directors exercising executive
responsibility (or persons having similar status or
functions) is presumed to control the municipal
advisor; (b) a person is presumed to control a
corporation if the person: (i) Directly or indirectly
has the right to vote 25 percent or more of a class
of the corporation’s voting securities; or (ii) has the
power to sell or direct the sale of 25 percent or more
of a class of the corporation’s voting securities; (c)
a person is presumed to control a partnership if the
person has the right to receive upon dissolution, or
has contributed, 25 percent or more of the capital
of the partnership; (d) a person is presumed to
control a limited liability company (‘‘LLC’’) if the
person: (i) directly or indirectly has the right to vote
25 percent or more of a class of the interests of the
LLC; (ii) has the right to receive upon dissolution,
or has contributed, 25 percent or more of the capital
of the LLC; or (iii) is an elected manager of the LLC;
and (e) a person is presumed to control a trust if
the person is a trustee or managing agent of the
trust. See Glossary.
1081 As detailed in the form, the 5% criterion
varies in its applicability and does not always mean
ownership in the ordinary sense of the word—
depending on whether the applicant is a
corporation, partnership, trust, or limited liability
company.
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67551
purposes, an ‘‘indirect owner’’ includes
any owner of 25% or more of any direct
owner listed in Schedule A and any
owner of 25% or more of each such
indirect owner going up the chain of
ownership. Applicants are also asked to
identify, on Schedule D, any person that
controls the applicant’s management or
policies if not otherwise identified as an
owner or officer in Schedule A or B.
Further information is requested with
respect to control persons that are
public reporting companies under
Sections 12 or 15(d) of the Exchange
Act.1082
For ease of use and clarity, Form MA,
as adopted, asks for information
separately on Schedules A–1 and B–1
for owners and control persons that are
business entities and on Schedules A–
2 and B–2 for owners and control
persons who are natural persons, as well
as (in Schedule A–2) for executive
officers.1083 The information sought in
these schedules, however, is the same as
in the Proposal, with minor
modifications.1084
For each business entity listed, the
applicant is required to provide its
organization CRD Number, if it has one,
or its IRS tax number, EIN, or, if not a
domestic entity, any foreign business
number. For each natural person listed,
the applicant is required to provide the
person’s individual CRD Number, if
any, or the person’s social security
number or foreign identity number, as
well as date of birth.1085
As discussed in the Proposal, the
information requested and the
definition of control are consistent with
that requested and used by the
Commission in other contexts.1086 This
1082 Section 8–B of Schedule D to Form MA
requires the name and CIK number of each control
person listed on Schedule A, B, C or Section 8–A
of Schedule D.
1083 The guidance provided in the form has been
correspondingly revised to reflect this restructuring.
Although these Schedules, as published in print,
display the information requested in table form, the
electronic version of Form MA—which is the only
format in which the form can be completed and
submitted—asks the questions in a series of pop-up
boxes and instructions. See also supra note 1001.
1084 In the form, as adopted, in addition to
providing information about other registrations that
the control person that is a firm or organization may
have with the Commission, information about any
registration on Form MA–T must also be provided.
In addition, the nature of the control must also be
described. If the control person is a natural person,
his or her CIK number, if any, must be supplied in
addition to the other basic information requested.
1085 As noted above, the form, as adopted, makes
clear that social security numbers, foreign
identification numbers, and date of birth will not
be publicly disseminated.
1086 The requested information and definition of
‘‘control’’ are consistent with the information
requested of, and definition used for, investment
advisers required to register on Form ADV. See 17
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information will help to inform the
Commission’s understanding of the
ownership structure of the municipal
advisor and who ultimately controls the
municipal advisor. Such information in
turn will provide useful information in
preparing for examinations and also in
identifying potential conflicts of
interest. The information requested also
will inform the Commission about
changes in control of the municipal
advisor.
One commenter, as discussed above
with respect to Item 6,1087 cited Item 8
and Schedules A, B, C and D as another
illustration of the burden imposed by
the reach of Form MA’s questions to
information about affiliates. Although
Item 8 refers to ‘‘control persons,’’ 1088
the Commission notes that the
disclosure requirements in Item 8 apply
only to ‘‘every person that, directly or
indirectly, controls the applicant, or that
the applicant directly or indirectly
controls’’ and does not include sister
affiliates (although a control
relationship in other contexts is
sometimes understood to include two
persons under common control). The
very point of registration is that, to be
permitted to register as a municipal
advisor, a firm must provide certain
basic information that will enable the
Commission to oversee the activities of,
and exercise jurisdictional authority
over, those who register. The
Commission notes that Forms BD and
ADV require filers to provide
substantially similar information.
Item 9: Disclosure Information and
Related DRPs
As discussed in the Proposal, Item 9
requires an applicant to provide certain
information concerning any criminal,
regulatory, and civil judicial actions
relating to the applicant or any of its
associated persons 1089 (collectively
referred to hereinafter as ‘‘disciplinary
history’’).1090 If an applicant indicates
in Item 9 that there has been a history
of such actions involving itself or any of
its associated persons, the applicant
must report further information in the
DRPs that comprise Part II of Form MA,
which are described below.1091 The
Commission received several comments
regarding the disclosures required by
Item 9 and its related DRPs, which are
discussed below.1092 The Commission is
adopting Item 9 with certain changes.
Although, as adopted, Item 9 generally
seeks the same information as in the
Proposal, some questions have been
more narrowly tailored and broken
down into subparts. These changes and
the reasons for them are detailed below.
As discussed in the Proposal,1093
Section 975(c)(3) of the Dodd-Frank Act
amended Section 15B of the Exchange
Act to direct the Commission, by order,
to censure, place limitations on the
activities, functions, or operations of, or
suspend for a period not exceeding
twelve months, or revoke the
registration of any municipal advisor, if
it finds 1094 that such municipal advisor
has committed or omitted any act, or is
subject to an order or finding,
enumerated in subparagraph (A), (D),
(E), (G) or (H) 1095 of paragraph (4) of
Section 15(b) of the Exchange Act; has
been convicted of any offense specified
in Section 15(b)(4)(B) 1096 of the
Exchange Act within ten years of the
commencement of the proceedings
under Section 15B(c); or is enjoined
from any action, conduct, or practice
specified in Section 15(b)(4)(C) 1097 of
the Exchange Act.1098
Generally, Item 9 was designed to
elicit information from a municipal
advisor concerning certain of its
activities or the activities of its
associated persons that could subject
the municipal advisor to disciplinary
action by the Commission under these
statutory provisions. The Commission
intends to use this information to
determine whether to approve an
application for registration, to decide
whether to institute proceedings to
revoke registration, or to place
limitations on an applicant’s activities
as a municipal advisor. In addition, the
information will also identify potential
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1091 See
CFR 279.1. See also Proposal, 76 FR 845, note 195
and accompanying text.
1087 SIFMA Letter I, supra note 1065.
1088 The definition of ‘‘control’’ does not refer to
persons under common control. On the other hand,
the definition of ‘‘associated person’’ of a municipal
advisor does include a person that is under
common control with the municipal advisor.
1089 See supra note 1054 (discussing the
definition of ‘‘person associated with a municipal
advisor’’ or ‘‘associated person of a municipal
advisor’’).
1090 However, as discussed further below, the
disclosures regarding criminal actions are limited to
the period of the past ten years.
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1092 See
infra note 1115 and accompanying text.
infra notes 1119–1121 and accompanying
text.
1093 See
Proposal, 76 FR 845.
findings must be on the record after
notice and opportunity for hearing and include a
finding that the particular disciplinary action is in
the public interest. See 15 U.S.C. 78o–4(c)(2).
1095 See 15 U.S.C. 78o(b)(4)(A), (D), (E), (G) and
(H).
1096 See 15 U.S.C. 78o(b)(4)(B).
1097 See 15 U.S.C. 78o(b)(4)(C).
1098 The Commission has the same authority with
respect to municipal securities dealers. See 15
U.S.C. 78o–4(c).
1094 Such
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problem areas on which to focus
examinations.1099
In addition to its value for the
Commission’s oversight of municipal
advisors, generally, as well as to inform
MSRB rulemaking, the Commission
seeks this information because it may
indicate that a municipal advisor is
statutorily disqualified from acting as a
municipal advisor.1100 Further, this
information may be valuable to
municipal entities and obligated
persons who engage municipal advisors
and to investors who may purchase
securities from offerings in which
municipal advisors have participated, as
well as to other regulators.
The information to be disclosed is
substantially similar to the information
required to be disclosed in Form BD 1101
for broker-dealers and in Form ADV 1102
for investment advisers.1103 In addition
to information sought on Forms BD and
ADV with respect to investment-related
activities Form MA also requests
parallel information with respect to
municipal advisory activities.
The requested information is also
generally consistent with the disclosure
requirements of the temporary
registration form, Form MA–T.1104
However, as discussed in the Proposal,
in Form MA–T, the Commission limited
the disciplinary history disclosure
requirements to ‘‘associated municipal
advisor professionals.’’ 1105 As
1099 See infra Section III.B. (discussing approval
or denial of registration). See also Proposal, 76 FR
846, note 205 and accompanying text.
1100 See infra Section III.B. and Proposal, 76 FR
846, note 206 and accompanying text. See also
Section 15B(a)(2) of the Exchange Act, which
directs the Commission to deny registration to an
applicant municipal advisor if, among other things,
it finds that if the applicant was registered, its
registration would be subject to suspension or
revocation.
1101 See 17 CFR 249.501.
1102 See 17 CFR 279.1.
1103 See Proposal, 76 FR 846.
1104 As discussed in the Proposal, in Form MA–
T, the disclosure required with respect to orders
entered against the municipal advisor by regulatory
authorities, and whether any court has enjoined the
municipal advisor or associated person in
connection with investment related activities, are
limited to the past 10 years. See Proposal, 76 FR
846, note 209. On Form MA, the Commission is not
including any time limitation on this disclosure, as
discussed further below.
1105 The Commission defined the term
‘‘associated municipal advisor professional’’ in the
glossary section of Form MA–T to mean: (A) any
associated person of a municipal advisor primarily
engaged in municipal advisory activities; (B) any
associated person of a municipal advisor who is
engaged in the solicitation of municipal entities or
obligated persons; (C) any associated person who is
a supervisor of any persons described in
subparagraphs (A) or (B); (D) any associated person
who is a supervisor of any person described in
subparagraph (C) up through and including, the
Chief Executive Officer or similarly situated official
designated as responsible for the day-to-day
conduct of the municipal advisor’s municipal
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explained in the Proposal, due to the
short timeframe between the passage of
the Dodd-Frank Act and the deadline for
registration of municipal advisors on
October 1, 2010, the Commission
believed it was appropriate to limit the
disclosure requirement to this subgroup
of associated persons, which is limited
to persons who are closely associated
with an advisor’s municipal advisory
activities.1106
In connection with the permanent
registration regime, however, the
Commission believes it is appropriate to
require in Item 9 that a municipal
advisor disclose the disciplinary
history, as applicable, of all its
associated persons, as that term is
defined in Exchange Act Section
15B(e)(7), with the exclusion of
employees who perform solely clerical,
administrative, support, or other similar
functions.1107 The Commission believes
that, for purposes of the permanent
registration regime, it is important to
collect information about disciplinary
matters for all such associated persons,
because, under the Exchange Act, such
matters may form the basis for an action
to suspend or revoke a municipal
advisor’s registration.1108
Specifically, Item 9 as proposed and
adopted requires disclosure of
disciplinary history with respect to any
partner, officer, director or branch
manager of a municipal advisor, and
any other employee who is engaged in
the management, direction, supervision,
or performance of any municipal
advisory activities relating to the
provision of advice to or on behalf of a
municipal entity or obligated person
with respect to municipal financial
products or the issuance of municipal
securities; and any person that directly
or indirectly controls, is controlled by,
or under common control with the
advisory activities; and (E) any associated person
who is a member of the executive or management
committee of the municipal advisor or a similarly
situated official, if any; and excludes any associated
person whose functions are solely clerical or
ministerial. See also Proposal, 76 FR 846, note 211
and accompanying text.
1106 This includes those persons who are
primarily engaged in an advisor’s municipal
advisory activities, have supervisory
responsibilities over those primarily engaged in
municipal advisory activities, are engaged in dayto-day management of the conduct of an advisor’s
municipal advisory activities, or are responsible for
executive management of the advisor. See
Temporary Registration Rule Release, 67 FR 54469.
See also Proposal, 76 FR 846, note 212 and
accompanying text.
1107 See supra note 1054.
1108 See Section 15B(c)(2) and (c)(4) of the
Exchange Act and Rule 15Bc4–1 thereunder,
discussed infra Section III.A.9. of this release, and
Section 15(b)(4) of the Exchange Act. See also
Proposal, 76 FR 847, note 217 and accompanying
text.
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municipal advisor. As a result, Form
MA will capture information with
respect to employees that engage in
municipal advisory activities, even if
that is not their primary activity. Form
MA, in contrast to temporary Form MA–
T, also requires disclosure with respect
to controlling persons and other
affiliates of the municipal advisor.
As proposed and adopted, Item 9 asks
whether the applicant or any associated
person has, in the last ten years, been
convicted of any felony, or pled guilty
or nolo contendere to any charge of a
felony in a domestic, foreign, or military
court, or charged with any felony. Item
9 further asks whether the applicant or
any associated person has been
convicted of any misdemeanor or pled
guilty or nolo contendere in a domestic,
foreign, or military court to any charge
of a misdemeanor in a case involving
municipal advisor-related business,1109
investments or an investment-related
business, or any fraud, false statements,
or omissions, wrongful taking of
property, bribery, perjury, forgery,
counterfeiting, extortion or a conspiracy
to commit any of these offenses, or
charged with any misdemeanor of the
type described above.1110 With respect
to charges alone, an applicant must
respond only with respect to charges
that are currently pending.
A clarification has been added in Item
9, as adopted, regarding the provision
that disclosure of an event in the
Criminal Action Disclosure section is
not required if the date of the event was
more than ten years ago. The applicant
is instructed that, for purposes of
calculating the ten-year period, the date
of an event is the date that the final
order, judgment, or decree was entered,
or the date that any rights of appeal
from preliminary orders, judgments, or
decrees lapsed. This instruction
provides a clear-cut guideline by
requiring any past cases to be resolved
with finality before the ten-year period
of no criminal history can begin. The
Commission notes that this defining line
has been set forth explicitly in other
contexts.1111
In the Regulatory Action disclosure
section of Item 9, Form MA as proposed
and adopted asks for information
regarding whether the SEC or the CFTC
has ever: found the municipal advisor or
1109 The term ‘‘municipal advisor-related’’ is
defined as ‘‘[c]onduct that pertains to municipal
advisory activities (including, but not limited to,
acting as, or being an associated person of, a
municipal advisor).’’ See Glossary.
1110 The disclosures relating to felonies, in Form
MA as in Form BD, concern felonies of any kind,
and are not limited to felonies relating to municipal
advisor-related and investment-related business.
1111 See, e.g., Item 11 of Form ADV.
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any associated person to have made a
false statement or omission; found the
municipal advisor or any associated
person to have been involved in a
violation of its regulations or statutes;
found the municipal advisor or any
associated person to have been a cause
of a municipal advisor- or investmentrelated business having its authorization
to do business denied, suspended,
revoked, or restricted; entered an order
against the municipal advisor or any
associated person in connection with
municipal advisor- or investmentrelated activity; or imposed a civil
money penalty on the municipal advisor
or any associated person, or ordered the
municipal advisor or any associated
person to cease and desist from any
activity. Item 9 of the form also asks for
similar information with respect to
other federal regulatory agencies, any
state regulatory agency, or any foreign
financial regulatory authority.
Item 9 further asks for information
regarding whether any SRO or
commodity exchange ever found the
municipal advisor or any associated
person to have made a false statement
or omission; found the municipal
advisor or any associated person to have
been involved in a violation of its rules
(other than a violation designated as a
‘‘minor rule violation’’ under a plan
approved by the SEC); found the
municipal advisor or any associated
person to have been the cause of a
municipal advisor- or investmentrelated business having its authorization
to do business denied, suspended,
revoked, or restricted; or disciplined the
municipal advisor or any associated
person by expelling or suspending it
from membership, barring or
suspending its association with other
members, or otherwise restricting its
activities. It also asks whether the
municipal advisor or its associated
persons have had authorization to do
business or to act as an attorney,
accountant or federal contractor revoked
or suspended.
The Civil Judicial Disclosure section
of Item 9, as proposed, asks whether any
domestic or foreign court has ever (a)
enjoined the applicant or any associated
person in connection with any
municipal advisor-related or
investment-related activity; (b) found
that the applicant or any associated
person was involved in a violation of
any municipal advisor- or investmentrelated activity; or (c) dismissed a
municipal advisor- or investmentrelated civil action brought against the
applicant or an associated person by a
state or foreign financial regulatory
authority. Form MA, as adopted, retains
the same questions, although the latter
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question has been revised to explicitly
include actions brought by U.S.
jurisdictions other than states.1112
As already indicated, the Criminal
Action Disclosure section of Form MA
as proposed and adopted requires
disclosure of events that occurred
within the last ten years.1113 With
respect to Regulatory and Civil Judicial
Actions, the form as proposed and
adopted places no time limit on how far
back in time events must be disclosed.
The applicability of these disclosure
requirements to any event in the past is
consistent with the disclosure reporting
requirements on Form BD, adopted
pursuant to Section 15(b)(1) of the
Exchange Act,1114 with one exception.
In Form BD, the requirement to disclose
any civil judicial injunctions is limited
to the past ten years. In contrast, the
Commission proposed its corresponding
question in Form MA regarding past
civil injunctions without limiting the
disclosure requirement to the past ten
years. The Commission received no
comment on this disclosure requirement
and is adopting it as proposed.
As mentioned above, Form MA
includes three separate kinds of DRPs to
report information, as relevant, relating
to criminal, regulatory, and civil actions
involving the municipal advisor or its
associated persons reported in Item
9.1115 The Commission is adopting each
of these DRPs as proposed. Some
modifications have been made,
however, and these are discussed below.
Generally, each DRP requires detailed
information about the reported action,
such as the court where the charges
were filed and when, a description of
the charge and the circumstances
relating to it (in the case of criminal
actions); the authority that initiated the
action and a description of the
1112 The Commission notes that the question, as
proposed, relates to actions in ‘‘any domestic or
foreign court.’’ The Commission believes this
phrase implicitly includes courts in U.S.
jurisdictions other than states, but is making this
explicit to clarify its intent. If an action was brought
and dismissed in a U.S. jurisdiction other than a
state or a foreign jurisdiction, the information
requested is no less pertinent to regulators and
investors.
1113 As is the case with respect to brokers and
dealers pursuant to Section 15(b)(4) of the Exchange
Act (15 U.S.C. 78o(b)(4)), Section 15B(c)(2) of the
Exchange Act (15 U.S.C. 78o–4(c)(2)), as amended
by the Dodd-Frank Act, limits the Commission’s
ability to impose sanctions on municipal advisors
for convictions of felonies and misdemeanors to
convictions occurring within ten years preceding
the filing of any application for registration.
1114 See Proposal, 76 FR 846.
1115 An applicant is required to complete a
separate DRP of the relevant kind for each event or
proceeding in which the applicant itself or any of
its associated persons was involved, but the same
event or proceeding may be reported for more than
one person or entity using one DRP.
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allegations and the product-type (in the
case of regulatory actions); or the
initiator of the court action, the relief
sought, and the product type (in the
case of civil judicial actions).
Applicants are also required to indicate
the status of the charge or action,
including resolution details as
appropriate. As discussed in the
Proposal and consistent with the
limitations set forth in Section
15(b)(4)(B) 1116 of the Exchange Act,1117
however, information on the Criminal
Action DRP is limited to matters within
the last ten years.
The Commission believes that it is
important to collect the information
required by the DRPs in addition to the
basic disclosures in Item 9 to further the
aims described above regarding the
information required in Item 9: to assist
it in deciding whether to grant or
institute proceedings to deny an
application for registration or to revoke
a registration; to manage the
Commission’s regulatory and
examination programs; to make such
information available to the MSRB; and
to obtain information that can be of
value to municipal entities engaging the
services of municipal advisors and to
investors who may purchase securities
from offerings in which municipal
advisors have participated, as well as to
other regulators.1118
One commenter expressed concerns
about the ‘‘vast information-gathering
burden on applicants’’ imposed by Item
9.1119 The commenter indicated that its
concerns, which focused on the
requirement to collect information
regarding sister affiliates of a municipal
advisor, applied ‘‘particularly in the
light of the required disciplinary history
disclosures.’’ 1120 This commenter
observed that Form ADV, upon which
Form MA is based, does not require
disclosure of a sister affiliate’s
disciplinary history. Another
commenter stated that ‘‘[s]ome entities,
such as banks, broker-dealers and
investment advisers, may have many
branches, and branch managers, that
have nothing to do with the entity’s
municipal advisory business’’ and urged
that Form MA be amended to require
disciplinary history ‘‘only with respect
to branch managers of branches where
a municipal advisory business is
conducted.’’ 1121
1116 15 U.S.C. 78o(b)(4)(B). See also 15 U.S.C.
78o–4(c)(2).
1117 See Proposal, 76 FR 847.
1118 See Proposal, 76 FR 847.
1119 See SIFMA Letter I. See also supra notes 1065
and 1087.
1120 See SIFMA Letter I.
1121 See ABA Letter.
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In considering these comments, the
Commission notes that Section 15B of
the Exchange Act assigns the
Commission oversight and disciplinary
responsibilities with respect to all
associated persons of a municipal
advisor, a category that includes sister
affiliates and branches. Moreover, as
discussed elsewhere in this release,1122
the Commission is clarifying with new
Rule 15Bc4–1 that associated persons of
municipal advisors are subject to
censure, limitations on their activities,
suspension, or being barred from being
associated. As explained above, with
regard to the value of obtaining
information regarding financial industry
and related activities of associated
persons, the Commission believes that
the ability to discern connections within
a large network of affiliations and other
associations is important for
investigations of wrongdoing. The
ability to gain, through disclosure
requirements, a base of knowledge that
includes actions of past wrongdoing is
all the more important for these
purposes.
Regarding the comment concerning
the burden of obtaining information
about sister affiliates, the Commission
notes that Form ADV, too, requests
certain information regarding an
investment adviser’s sister affiliates—
specifically, business information—as
the commenter acknowledged.
Moreover, as the commenter also
acknowledged, Form ADV requests the
disciplinary history of the investment
adviser and all of its ‘‘advisory
affiliates’’ (emphasis added)—i.e., all
current employees, all officers, partners
or directors, and all persons directly or
indirectly controlling or controlled by
the investment adviser. Given that a
municipal advisor is in any case
required to gather certain facts about its
sister affiliates’ business activities, the
Commission believes that it is
appropriate to request the added
information about any disciplinary
history of these affiliates, particularly in
view of its potential value to regulators
for purposes of investigation and
enforcement discussed above.
The DRPs associated with the
disclosures in Item 9 are being adopted
substantially as proposed. However, as
discussed below, some additional
disclosure requirements and other
revisions have been included in the
DRPs, as adopted.1123
1122 See
infra Section III.A.9.
of the same or similar revisions have
also been made to the DRPs of Form MA–I,
including those other than the Criminal, Regulatory,
and Civil Judicial Action DRPs of that form, and a
discussion of all of them will not be repeated in the
section on Form MA–I below.
1123 Many
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Generally in all the DRPs, as
proposed, when an amendment was
filed seeking to remove a previouslyfiled DRP, the applicant was asked for
the reason. Some, but not all of the
DRPs, gave the option of checking a box
indicating that the DRP was filed in
error. Some, but not all of the DRPs,
additionally asked for an explanation of
the circumstances that gave rise to the
error. For the sake of consistency and to
provide regulators, municipal entities,
and others with important detail, all the
DRPs, as adopted, have been revised to
include these elements. Also, in the
Criminal Action DRP, an additional
option is given to indicate why the DRP
was filed an error. The new option is
that the event or proceeding occurred
more than ten years ago.1124
As proposed, if a DRP pertains to an
associated person of the municipal
advisor, the DRP asks whether that
person is registered with the
Commission. In the DRPs, as adopted, if
the associated person is registered, the
registration number must be
provided.1125 The Commission believes
that, if an applicant for registration with
the Commission has an associated
person that is otherwise registered with
the Commission, such information is
valuable for cross-referencing and
enforcement and other regulatory
purposes and providing it should not
constitute an undue burden.1126
Each DRP, as proposed, asked if the
municipal advisor or associated person
whom the DRP concerned was
registered through the IARD or CRD
system or the municipal advisor was
previously registered on Form MA–T,
whether the advisor or associated
person previously filed a DRP (with
Form ADV, BD, or U4) or the advisor
filed disclosure on Form MA–T
regarding the same event. The adopted
version of each DRP now asks whether
an accurate and up-to-date DRP
containing the information regarding the
applicant or associated person required
by the DRP is already on file in the
IARD or CRD system (with a Form ADV,
BD, or U4) or in the SEC’s EDGAR
system (with a Form MA or Form MA–
I), and, if so, to specify the type of filing
and provide specific information
1124 See
supra note 1116 and accompanying text.
all the DRPs, as adopted, if an applicant
indicates that the DRP concerns one or more
associated persons, the form asks how many.
Because the names of all such associated persons
must be identified in the DRP in any case, tallying
the number involves no additional disclosure and
will act as a cross-check to ensure that the
information provided is complete.
1126 On the other hand, the requirement to name
the employer of an associated person when the
activity occurred that led to an action has been
eliminated.
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1125 In
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regarding the name of the filer, the CRD
Number (where relevant), the date, and
disclosure or accession number of the
relevant other form.1127 As discussed
above,1128 the ability to incorporate by
reference any required information
about the disciplinary history of an
applicant or associated person from a
DRP that already has been filed relieves
the regulatory burden on applicants
who can do so. At the same time,
however, sufficient information about
where the information is filed is
necessary for regulators, municipal
entities, and investors to be able to
access it with reasonable ease.
As proposed, some of the DRPs,
where relevant, asked for the name of
the federal, military, state or foreign
court where a case was formally brought
or appealed. In the DRPs, as adopted, an
applicant is presented with a list of
types of courts from which to choose
and must specifically check the type of
court in which the case was brought.1129
In addition, ‘‘international court’’ and
‘‘other’’ have been added to the choices
(and, if the latter is checked, the
applicant must specify the type) and the
street address and postal code of the
court will now need to be provided in
addition to the city or county and state
or country. Requests for information in
all the DRPs regarding courts and other
panels have been made consistent to
require the name of the case (in addition
to the docket number, as proposed). The
Commission believes that these
additions will enable regulators,
municipal entities, and investors to
more easily locate information that may
be relevant to them and, if need be,
address further inquiries. The
Commission further believes that
complete responses to the questions in
the DRPs, as proposed, would have
supplied most of this same
information.1130
1127 The DRPs, as adopted, do not provide the
option of indicating that the information is already
on file in a Form MA–T, as Form MA–T does not
require the disclosures required in the DRPs.
1128 See supra note 995 and accompanying text.
1129 In the electronic form, the applicant must
make a selection and thus cannot avoid answering
the question specifically.
1130 As proposed, the DRP asked the applicant to
describe details of the event in narrative form, and
to, among other things, ‘‘include charge(s)/charge
Description(s), and for each charge provide: (1)
Number of counts, (2) felony or misdemeanor, [and
the] (3) plea for each charge’’ and ‘‘provide a brief
summary of circumstances leading to the charge(s)
as well as the disposition.’’ The proposed version
separately required the applicant to ‘‘[i]nclude, for
each charge, (a) Disposition Type (e.g., convicted,
acquitted, dismissed, pretrial, etc.), (b) Date, (c)
Sentence/Penalty, (d) Duration (if sentencesuspension, probation, etc., (e) Start Date of Penalty,
(f) Penalty/Fine Amount, and (g) Date Paid.’’ It also
required an applicant to provide ‘‘a brief summary
of circumstances leading to the charge(s) as well as
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For the same reason, similar changes
have been introduced into the DRPs
regarding regulatory adjudications and
civil judicial actions. Where the
proposed Regulatory Action DRP asked
the filer to indicate whether a regulatory
proceeding was initiated by the SEC,
another federal authority, state, SRO, or
foreign authority, the forms as adopted
add, as choices, the CFTC, a federal
banking agency, the National Credit
Union Administration, or other
regulator or authority that the applicant
must specify. In addition, the applicant
must now indicate, as applicable, the
name of the administrative proceeding,
commission or agency hearing, or other
regulatory proceeding or forum in
which the action was brought and the
street address and postal code of the
location where the case was heard.
Specific choices added with respect to
who initiated a Civil Judicial Action
include the CFTC, another federal
authority (which the applicant must
specify), and a municipal advisory firm.
As proposed, not all the DRPs
contained instructions to the applicant
regarding the language to be used in
naming or describing the charges
brought in a foreign jurisdiction. As
adopted, the forms consistently require
the applicant to provide all the
information requested in English. The
Commission believes that this
requirement is appropriate in an
application for U.S. registration
designed to obtain information on
behalf of U.S. regulators, municipal
entities, and investors.
As proposed, in the Criminal Action
DRP, in a case where criminal charges
were brought against a firm or
organization over which the applicant
or associated person had control, the
applicant was required to indicate
whether the firm or organization was
engaged in a municipal advisor-related
business. In the DRP, as adopted, the
question has been revised to ask, in
addition, whether the firm or
organization was engaged in an
investment-related business.1131
Because of the close relationship
between investment-related business
and municipal advisory activities, the
Commission believes that it is important
for regulators, municipal entities, and
the disposition’’ and to include ‘‘the relevant dates
when the conduct which was the subject of the
charge(s) occurred.’’ The Commission also notes
that the Criminal Action DRP of Form MA–I, both
as proposed and adopted, asks for information
about amended or reduced criminal charges.
1131 In the form, as proposed, the applicant would
have been required to indicate only whether the
firm or organization was in municipal advisorrelated business.
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investors in municipal securities to have
this information.
The instructions in the Criminal
Action DRP on how to report an event
or proceeding have been revised in the
form as adopted.1132 No substantive
changes have been introduced in the
reporting requirements. The revisions
have been made solely for purposes of
clarity. The adopted version of the
instructions states: ‘‘Use this DRP to
report all charges, including multiple
counts of the same charge, arising out of
the same event and filed in one criminal
action. The same DRP may be used for
more than one person with respect to
the same event or proceeding. Separate
criminal actions arising out of the same
event, and unrelated criminal actions,
must be reported on separate DRPs.’’
The Commission believes that the
revised instructions, which are similar
to instructions that appear in the DRPs
for Forms BD and ADV, will help assure
that the disciplinary information
provided in response can be easily
understood.
An instruction has been added to the
Criminal Action DRP advising
applicants that applicable court
documents must be attached to, and
filed with, the DRP if not previously
submitted.1133
In the Criminal Action DRP, as
proposed, an applicant was not required
specifically to indicate whether the
original criminal charge was amended
or reduced. As adopted, the DRP asks
for this information and for the relevant
date. The Commission believes that the
clearer picture of the disciplinary
history that will emerge when this
information is supplied should assist
regulators, municipal entities, and
investors in assessing the credentials
and background of the municipal
advisor and its associated persons.
In the Criminal Action DRP, as
proposed, an applicant was not required
to state, if the case was on appeal, to
whom it was appealed and the date of
1132 In the Criminal Action DRP, as proposed, the
applicant was instructed: ‘‘Use a separate DRP for
each event of proceeding. The same event or
proceeding may be reported for more than one
person or entity using one DRP . . . Multiple
counts of the same charge arising out of the same
event(s) should be reported on the same DRP. Use
this DRP to report all charges arising out of the
same event. Unrelated criminal actions, including
separate cases arising out of the same event, must
be reported on separate DRPs. One event may result
in more than one affirmative answer to the
[questions asked earlier in the DRP].’’
1133 This instruction, which was included in the
proposed Criminal Action DRPs for Form MA–I,
was not included in the proposed Criminal Action
DRP for Form MA. The Commission notes that
Form BD also requires applicable court documents
to be attached to the Criminal Action DRP in that
form.
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the appeal. As adopted, the DRP now
requires these disclosures.1134
The Criminal Action DRP, as
proposed, asked for information
generally about the disposition of the
relevant action, in narrative form, and to
include details concerning any sentence
or penalty imposed, its start date, and
its duration, and the amount and date of
payment.1135 As adopted, the form
requires the applicant to choose from
among 16 types of disposition of a case
(or to check ‘‘other,’’ and specify the
other), and to further identify any other
type of disposition. Choices are also
provided to describe specifically the
disposition of any appeal.1136 The DRP,
as adopted, further asks specifically
whether any incarceration was imposed
in connection with the action, and, if so,
the duration, the start and end dates,
and any concurrent sentences.1137 It
also asks, in question-by-question
format, whether any portion of a
monetary penalty was reduced or
suspended, whether it has been paid in
full, and, if not, how much remains
unpaid. The Commission believes that
these revisions will help ensure that the
description of the disposition is
complete.
As proposed, the Regulatory Action
DRP required the applicant to check off
any of 14 types of ‘‘principal
sanctions’’ 1138 in the case (or to check
‘‘other,’’ and specify the other type), and
to further identify any other sanctions.
As adopted, the DRP does not
differentiate between principal
sanctions and any other kind of
sanction, but adds more types to the list
in addition to requiring the applicant to
identify any others. This, too, will help
ensure that the filer provides
appropriate detail, thereby enabling
interested parties to better assess the
credentials and background of the
applicant and its associated persons.
Similarly—and for the same reason—
the Civil Judicial Action DRP no longer
differentiates between ‘‘principal relief’’
sought and other relief, and provides a
longer list of possible sanctions or relief
sought from among which the applicant
1134 The Commission notes that the Regulatory
and Civil Judicial Action DRPs, when proposed,
already required similar information regarding
appeals.
1135 See supra note 1130.
1136 These choices are: affirmed; vacated and
returned for further action; or vacated/final. An
applicant may also respond ‘‘other,’’ in which case
the other type of disposition must be specified.
1137 The DRP, as adopted, also asks specifically
whether any sentence or any other penalty is
ordered, and, if so, to list each type, giving the
examples of prison, jail, probation, community
service, counseling, education, or other (which
must be specified).
1138 The DRP, as adopted, clarifies that the
question refers to the sanctions sought.
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must select in addition to identifying
any other sanctions or relief sought.
The questions in the Regulatory and
Civil Judicial Action DRPs regarding
how a case was resolved, like the
questions in the Criminal Action DRP
regarding disposition, have been revised
in the DRPs, as adopted, to be more
specific and to offer more choices from
among which an applicant must select,
for the same reason as in the Criminal
Action DRP. The Commission believes
that these revisions will help ensure
that the description of the disposition is
complete. More possible answers are
provided from among which the
applicant must choose to describe
specifically the type of resolution that
resulted (acceptance, waiver, and
consent, settlement, dismissal, judgment
rendered, etc.) and choices are now
given regarding how any appeal was
resolved.
Similarly, more choices are presented
to describe any sanctions that were
ordered in the relevant Regulatory or
Civil Judicial Action.1139 In addition,
questions are broken out into separate
sections regarding the details of three
specific types of sanctions and/or
conditions of sanctions: (a) Bars,
injunctions, and suspensions; (b)
requalifications (by examination,
retraining, or other process); and (c)
monetary sanctions.1140
1139 For example, the choices in the Regulatory
Action DRP, as proposed, were: monetary/fine;
revocation/expulsion/denial; censure;
disgorgement/restitution; cease and desist/
injunction; bar; suspension; and other (which must
be specified). The choices added in the adopted
version include: civil and administrative penalties/
fines; expulsion; prohibition; reprimand; rescission;
requalification; revocation; and undertaking.
1140 For example, in the Regulatory and Civil
Judicial Action DRPs, as proposed, the applicant
was asked broadly to describe, in narrative form:
‘‘Sanction detail: if suspended, enjoined or barred,
provide duration including start date and capacities
affected (General Securities Principal, Financial
Operations Principal, etc.). If requalification by
exam/retraining was a condition of the sanction,
provide length of time given to requalify/retrain,
type of exam required and whether condition has
been satisfied. If disposition resulted in a fine,
penalty, restitution, disgorgement or monetary
compensation, provide total amount, portion levied
against the applicant or an associated person, date
paid and if any portion of penalty was waived.’’
By contrast, in the DRPs as adopted, similar
information is requested in question-by-question
format in each of the separate sections described
above. Questions relating to bars, injunctions, and
suspensions are further subdivided into a separate
subsection for each, and the questions distinguish
between temporary and permanent bars. The
applicant is also instructed to report any additional
details if one or more bars, injunctions, or
suspensions were imposed with regard to different
activities and the terms specify different time
periods, and a similar instruction is included with
regard to requalifications. Details similar to those
specified in the Criminal Action DRP, as adopted,
see supra notes 1135–1137 and accompanying text,
are also requested.
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As proposed, the Regulatory and Civil
Judicial Action DRPs asked the
applicant to provide a brief summary of
details relating to the action’s status
with relevant terms, conditions, and
dates. As adopted, the DRPs specifically
ask whether any limitations or
restrictions are in effect while the case
is pending or on appeal, as applicable.
For pending cases, the DRPs also ask for
the date that notice or other process was
served.1141 Here, too, the Commission
believes that specifying these details as
required elements will serve to ensure
that the applicant’s description is
complete.
The Civil Judicial Action DRP, as
proposed, did not ask for the full name
of the defendant or ask whether the
applicant is a named defendant. As
adopted, the DRP requires this
information, and, if the applicant is not
a named defendant, further requires a
description of how the action involves
the defendant. This information should
help interested parties more easily
determine the role of the applicant or
associated person in the civil judicial
action as part of their assessment of the
applicant.
The DRPs, as adopted, now ask for
various minor additional disclosures
reflecting a level of detail generally
similar to the disclosures discussed
above, which the Commission believes
should serve to enhance the usefulness
of the information to regulators and the
benefit it will have for municipal
entities and the investing public
without unreasonably burdening
applicants for registration.1142
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Item 10: Small Businesses
As described further in Section IX
below, the Commission is required by
the Regulatory Flexibility Act
(‘‘RFA’’) 1143 to consider the effect of its
1141 As previously mentioned, the DRPs, as
proposed, already requested the date of any appeal.
See supra text accompanying note 1134.
1142 Some examples, when an applicant is asked
to check the type of product involved in a case,
more choices are included in the list of possibilities
than in the proposed version. When the resolution
of a case is an order, the applicant is asked whether
it is a final order based on violations of any laws
or regulations that prohibit fraudulent or deceptive
conduct. Several changes were made so that if one
or more DRPs asks a follow-up question when a
certain response is given, other DRPs are consistent
and ask the same follow-up question. Thus, each
time an applicant selects more than one resolution
of a case as having occurred or if the choice that
the applicant has selected does not adequately
summarize the resolution, the applicant must
provide an explanation. Each time an applicant
indicates that a relevant date provided is not exact,
an explanation is required. See also infra note 1147.
In addition, throughout the DRPs, instructions have
been revised to offer more clarity on how to file a
DRP or when a separate DRP must be filed
regarding the same event. See also supra note 968.
1143 5 U.S.C. 601 et seq.
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regulations on small entities. The
Commission’s rules do not define
‘‘small business’’ or ‘‘small
organization’’ for purposes of municipal
advisors. As discussed in the Proposal,
the Small Business Administration
(‘‘SBA’’) defines small business for
purposes of entities that provide
financial investment and related
activities as a business that had annual
receipts of less than $7 million during
the preceding fiscal year and is not
affiliated with any person that is not a
small business or small
organization.1144 The Commission
proposed to use the SBA’s definition of
small business to define municipal
advisors that are small entities for
purposes of the RFA.1145 This definition
will remain unchanged in the rules as
adopted.
The Commission proposed Item 10 of
Form MA to enable it to determine how
many applicants meet the SBA’s
definition of ‘‘small business’’ or ‘‘small
organization’’ as applied to municipal
advisors. Thus, Item 10 requires each
applicant to disclose whether it had
annual receipts of less than $7 million
during its most recent fiscal year (or
during the time it has been in business,
if it has not completed its first fiscal
year in business). Item 10 also requires
each applicant to disclose whether any
business or organization with which it
is affiliated had annual receipts of more
than $7 million in its most recent fiscal
year (or during the time it has been in
business, if it has not completed its first
fiscal year in business).
The Commission received no
comments on the information requested
by Item 10 and is adopting this item as
proposed.1146
Technical and Other Changes
In addition to the modifications
discussed above, a number of nonsubstantive, technical and clarifying
changes have been made to Form MA,
its schedules and the DRPs as
adopted.1147 Further, some of the multi1144 See 13 CFR 121.201. See also Proposal, 76 FR
848, note 222 and accompanying text.
1145 See Proposal, 76 FR 848.
1146 Several commenters did raise issues with
respect to the impact that the new registration
requirements could have, generally, on small
businesses. See, e.g., supra note 986, and see also
supra note 980. Such concerns are addressed in
Section IX below.
1147 For example, new guidance is included on
Form MA, as adopted, that reminds applicants that
they must supply supporting documents where
applicable, and that Form MA–NR must be
included for non-residents. Filers are also advised
that false statements or omissions may result in
administrative or civil actions, in addition to the
other legal consequences mentioned in the
Proposal. Instructions have been included regarding
non-US telephone and fax numbers. References to
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pronged questions have been broken
down into separate parts to make the
form clearer and more user-friendly.1148
The Commission has also made certain
additional changes to correct
inadvertent omissions in the form, as
proposed.1149
Execution Page
Form MA includes an Execution Page
that an authorized person of the
municipal advisor filing the form is
required to sign electronically before the
form can be submitted.1150 The
Commission received no comments
regarding the Execution Page, other than
on the self-certification contained
therein. For reasons discussed below,
the Commission is removing the selfcertification section of the Execution
Page in Form MA but otherwise is
adopting the Execution Page
substantially as proposed.1151
An authorized person signs the form
by typing his or her name and
submitting the form on behalf of the
municipal advisor. The authorized
person is required to sign one of two
different Execution Pages, depending on
whether the municipal advisor is
resident in the United States or a ‘‘nonresident’’ municipal advisor. In either
case, by signing the Execution Page, the
authorized person states that he or she
is signing Form MA on behalf, and with
the authority, of the municipal advisor
and affirms that the information in Form
MA is true and correct.
U.S. state jurisdictions have been amended to
consistently include other types of U.S.
jurisdictions, and the choices on the forms,
accordingly, include such jurisdictions by name.
See also supra note 968.
1148 For example, the questions in the DRPs
regarding associated persons are divided into
separate sections for firms and organizations, on the
one hand, and natural persons on the other. Many
of the questions now present applicants with a
series of choices that they can check off. Some
questions are renumbered, and some subsections
have been given titles where there were none in the
proposed version.
1149 For example, the Criminal Action DRP
requires that if the applicant is amending a
previously filed DRP pertaining to an associated
person because it was filed in error, the applicant
is required to explain the circumstances. The
Proposal inadvertently omitted a requirement to
explain the circumstances when the error pertained
to the applicant itself. The Regulatory and Civil
Judicial Action DRPs as previously proposed and
now adopted require an explanation in both cases.
1150 See Proposal, 76 FR 849. As proposed, the
Execution Page (except for the self-certification
section) is similar in purpose to the Execution Page
of Form ADV (see 17 CFR 279.1), but deletes
references to state registration, bonding
requirements and other inapplicable components,
and will require a non-resident municipal advisor
to execute a separate form (Form MA–NR) to
designate agent for service of process. See infra
Section III.A.6.
1151 The description immediately below relates to
the Execution Page as adopted. Discussion of the
removal of the self-certification section follows.
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The Execution Page for both resident
and non-resident municipal advisors
requires the signatory to certify that the
books and records of the municipal
advisor will be preserved and available
for inspection and to authorize any
person with custody of the books and
records to make them available to
federal representatives. On the
Execution Page for non-resident
municipal advisors, the signatory, in
signing the form, also states that the
municipal advisor agrees that it will
provide to the Commission, at its own
expense, copies of all books and records
that the municipal advisor is required to
maintain by law. As discussed in the
Proposal, the Commission believes that,
before granting registration to a
domestic or non-resident municipal
advisor, it is appropriate to obtain
assurance that such person has taken
the necessary steps to be in the position
to provide the Commission with prompt
access to its books and records and to
be subject to inspection and
examination by the Commission.1152
On the Execution Page for domestic
municipal advisors, the signatory also
states that it appoints certain officials as
agents for service of process in the state
where the advisor maintains its
principal office or place of business.
Specifically, a domestic municipal
advisor appoints the Secretary of State
or other legally designated officer in the
state where it maintains its principal
office and place of business. As
discussed in the Proposal, this
appointment allows private parties and
the Commission to bring actions against
the municipal advisor by delivering
necessary papers to the appointed
agent.1153 The agent is able to receive
any process, pleadings, or other papers
in any action that arises out of or relates
to or concerns municipal advisory
activities of the municipal advisor. The
agent also is able to receive service for
investigation and administrative
proceedings.
On the Execution Page for nonresident municipal advisors, the
signatory on behalf of the registrant also
states that an opinion of counsel is
attached as an exhibit to Form MA and
that the municipal advisor can, as a
matter of law, provide the Commission
with access to the books and records of
the municipal advisor, as required by
law, and that the municipal advisor can,
as a matter of law, submit to inspection
and examination by the
1152 See
Proposal, 76 FR 848.
id. Appointment of agent for service of
process for non-resident municipal advisors is
discussed further below. See infra Section III.A.6
(discussing Form MA–NR).
1153 See
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Commission.1154 As discussed in the
Proposal, each jurisdiction may have a
different legal framework with respect
to its laws (e.g., privacy laws) that may
limit or restrict the Commission’s ability
to receive information from a municipal
advisor.1155 Providing an opinion of
counsel that a municipal advisor can
provide access to its books and records
and can be subject to inspection and
examination allows the Commission to
better evaluate a municipal advisor’s
ability to meet the requirements of
registration and ongoing
supervision.1156 Failure to provide an
opinion of counsel may be a basis for
the Commission to deny an application
for registration.1157
As proposed, Form MA required the
authorized person of a municipal
advisor completing the Execution Page
to certify separately on behalf of the
municipal advisor that it and every
natural person associated with it had
met, or within any applicable required
timeframes would meet, such standards
of training, experience, and competence,
and such other qualifications, including
testing, for a municipal advisor and
natural persons associated with it,
required by the Commission, the MSRB,
or any other relevant SRO. Under the
Proposal, the authorized person, on
behalf of the municipal advisor also
would have been required to certify that
the municipal advisor had conducted an
initial or annual review, as applicable,
of the municipal advisor’s business, and
had reasonably determined that the
municipal advisor: (a) could carry out
the activities described in the items that
are checked in Item 4–K (Applicant’s
Business Relating to Municipal
Securities) of Form MA; 1158 (b) could
1154 The opinion of counsel is required by Rule
15Ba1–6, as adopted. General Instruction 13
(General Instruction 14 as proposed) now states that
the non-resident municipal advisor filing Form MA
must attach the opinion as an exhibit to the
Execution Page.
1155 The Execution Page for non-resident
municipal advisors, as adopted, however, does not
require the opinion of counsel to state that the
municipal advisor is able, as a matter of law, to
submit specifically to ‘‘onsite’’ inspection.
1156 See Proposal, 76 FR 848.
1157 See Section 15B(a)(2), providing that a
municipal advisor applying for registration must
file with the Commission an application for
registration in such form and containing such
information and documents concerning such
municipal advisor as the Commission, by rule, may
prescribe as necessary or appropriate in the public
interest or for the protection of investors. Thus,
failure to provide an opinion of counsel, as
required, is a basis under the statute for the
Commission to conclude that the requirements of
Section 15B(a)(2) are not satisfied.
1158 Under the Proposal, factors to be considered
in determining whether a municipal advisor can
carry out the described activities included, but were
not limited to, whether the municipal advisor has,
with respect to the described activities, the
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comply with all applicable regulatory
obligations; and (c) had met such
regulatory obligations during the last
year (or during such shorter period if
the application was an initial
application for registration). For these
purposes, such applicable regulatory
obligations were to include obligations
under the federal securities laws and
rules promulgated thereunder and
applicable rules promulgated by the
MSRB, or any other relevant SRO.
Under the Proposal, the authorized
person also would have been required to
certify that the municipal advisor had
documented this review process and
would maintain all documents relating
to the review in accordance with Rule
15Ba1–7 under the Exchange Act.1159
Such certification would have been
required in conjunction with the filing
of an initial application for registration
as a municipal advisor and annually
thereafter.1160
The Commission received one
comment letter opposing the proposed
self-certification requirement.1161 The
commenter provided that selfcertification should not be required and
noted that similar certifications are not
appropriate technology systems and equipment; the
appropriate financial resources; adequate staffing
with appropriate skill sets, training, and expertise;
and adequate facilities, such as office space, as
appropriate. See Proposal, 76 FR 849.
1159 Proposed Rule 15Ba1–7 also required
municipal advisory firms to make and keep a record
of the initial or annual review, as applicable,
conducted by the municipal advisory firm of its
business in connection with its self-certification on
Form MA. Because the Commission is not adopting
a self-certification requirement, the Commission is
also not adopting this corresponding books and
records requirement. See infra note 1344.
1160 See proposed Rule 15Ba1–4(e). The rule
required the annual self-certification to be filed by
municipal advisory firms within 90 days of the end
of the municipal advisor’s fiscal year, or within 90
days of the end of the calendar year for municipal
advisors that are sole proprietors.
1161 Further, the Commission received two
comment letters that, although did not object to the
proposed self-certification requirement, related to
the Commission’s request for comment on an
alternative to self-certification. See infra notes 1164
and 1165. The Commission also received many
letters commenting, in the context of opposing the
Commission’s proposal to exclude appointed
members of the governing body of a municipal
entity from its interpretation of ‘‘employee of a
municipal entity,’’ that the cost to comply with
‘‘reporting, record keeping, and certification
requirements’’ and the related continuing education
requirements and training, would take away from
the board members’ full-time jobs and families, and
that such costs were unjustified. See, e.g., letter
from Susan N. Kelly, Senior Vice President of
Policy Analysis and General Counsel, and Diane
Moody, Director, Statistical Analysis, American
Public Power Association, dated February 22, 2011;
Nick Costanzo, Vice President Strategic, Financial,
and Management Services, City of El Paso, Texas,
dated February 22, 2011; and letter from Ben
Gorzell, Chief Financial Officer and Michael D.
Bernard, City Attorney, City of San Antonio, dated
February 18, 2011.
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required with Form BD and Form
ADV.1162 The commenter also asserted
that requiring a municipal advisory firm
to conduct an annual review of its
business and determine that it can carry
out its municipal advisory activities,
including requiring the applicant to
document the review process, would be
costly, burdensome, and confusing.
Further, the commenter noted that the
Commission and the MSRB have yet to
propose standards that are the subject of
the certification. Accordingly, the
commenter believed that, without such
standards or related guidance, it is
premature for prospective advisors to
even comment. The commenter added
that a municipal advisor would be
unsure as to how to conduct the review,
which may lead to unnecessary expense
and exposure to liability (since the
certification would be ‘‘reports’’ and
therefore subject the municipal advisor
to criminal liability). The commenter
suggested that, if the Commission’s
interest is in ensuring competence of a
municipal advisor, a better approach
would be to create an MSRB
examination process with qualifications
clearly defined by the MSRB.
After careful consideration of the
comment received, the Commission is
not requiring self-certification in Form
MA, as adopted. As the commenter
notes, Forms BD and ADV, on which
Form MA is based, do not require selfcertification. Further, as pointed out by
the commenter, the MSRB has yet to
propose standards that are the subject of
the certification. Accordingly, at this
time, the Commission does not believe
that self-certification should be required
of municipal advisors.
In response to the Commission’s
request for comment regarding an
independent third party review and
whether the Commission should
mandate a minimum level of review as
an alternative to the self-certification
requirements,1163 the Commission
received two letters. The two
commenters did not object to the selfcertification requirement but did oppose
any third-party review or audit.1164 Both
commenters assert that such a review
would impose unnecessary costs, and
that Commission review would be
sufficient. One of these commenters also
opposed any minimum review
1162 See
SIFMA Letter I.
Proposal, 76 FR 850.
1164 See NAIPFA Letter I and Joy Howard WM
Financial Strategies Letter. The Commission also
received a third comment letter opposing, as overlyburdensome, any independent party review either
prior to the filing of an initial application or on an
annual or periodic basis thereafter. See Public FA
Letter.
1163 See
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standards.1165 In concurrence with these
commenters, the Commission has
determined at this time not to establish
a minimal level of review or require
review by an independent third-party.
c. Information Requested in Form
MA–I
As discussed above, although Form
MA–I was proposed as a registration
form for all natural person municipal
advisors, Rule15Ba1–3, as adopted,
exempts a natural person municipal
advisor from the requirement to register,
if such person is associated with a
registered municipal advisory firm and
engages in municipal advisory activities
solely on behalf of a registered firm.1166
Rule 15Ba1–2(b)(1), as adopted, requires
a municipal advisory firm, on behalf of
which an associated natural person
engages in municipal advisory
activities, to file Form MA–I with the
Commission with respect to each such
individual. Pursuant to Rule 15Ba1–
2(b)(2), as adopted, a natural person
who is a sole proprietor must file Form
MA–I in addition to filing an
application to register as a municipal
advisor on Form MA.
The Commission received more than
30 comment letters relating to proposed
Form MA–I. About 25 of these letters
concerned the impact that the
registration requirement for natural
person municipal advisors would have
if applied to volunteer members of
public boards, in view of the fact that
registration would require completing a
Form MA–I. Because, under the rules as
adopted, volunteer public board
members would generally not be
required to register, the Commission
believes the concerns of these
commenters have been otherwise
addressed.1167
The remaining comment letters
concerned the nature and scope of the
information requested by Form MA–I
and are discussed below.1168 After
considering the comments, the
Commission is adopting Form MA–I
substantially as proposed. However, the
Commission is modifying Form MA–I to
1165 See
NAIPFA Letter I.
supra note 938.
1167 See supra Section III.A.1.c.i. See also infra
note 1187.
1168 In addition, the Commission notes that a
number of the comments received regarding
proposed Form MA apply similarly to proposed
Form MA–I. Examples include concerns about the
duplicative nature of seeking information already
gathered through other registration programs;
confidentiality issues; and compliance burdens.
These comments have been discussed in the section
on Form MA above and are not further addressed
here. See, e.g., supra notes 991–992 and 995–996
and accompanying text and the Commission’s
response in the discussion following these
comments.
1166 See
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require a few additional points of
information and is also eliminating
some data requests. In addition, some of
the language in Form MA–I has been
modified to reflect the fact that, under
the rules, as adopted, the form is no
longer an application for registration
and, except in the case of sole
proprietors, will be completed by a firm,
rather than by the individual with
respect to whom the form is being
filed.1169
As a general matter, the information
requested on Form MA–I, as proposed
and adopted, is similar to information
requested on FINRA’s Form U4.1170
Some questions on Form U4 have been
adapted for purposes of Form MA–I to
relate specifically to municipal advisors.
Other questions have been omitted as
not necessary or appropriate in the
municipal advisor context.
One commenter argued that
information sought by Form MA–I
largely duplicates information relating
to associated persons sought by Form
MA.1171 The Commission acknowledges
that a municipal advisory firm that
registers by filing Form MA must
already provide information on that
form concerning the disciplinary history
of each of its associated persons,
including employees providing advice
on behalf of the firm. However, there is
very little overlap between the
information required by Form MA and
that required by Form MA–I that cannot
be incorporated by reference.1172
Moreover, Form MA–I elicits additional
information that would not be provided
by the firm as part of its Form MA. For
1169 For example, the form will now no longer
refer to the individual as ‘‘the applicant’’ or ‘‘the
registrant.’’
1170 See Form U4, supra note 992. See also
Proposal, 76 FR 851, note 237 and accompanying
text.
1171 See SIFMA Letter I. The concern over
duplication of information was raised as an
argument against separate registration of
individuals on Form MA–I. The rules, as adopted,
no longer require registration for natural person
municipal advisors acting solely as employees of a
municipal advisory firm. However, because Form
MA–I is being retained in the rules, as adopted, the
Commission believes it important to address
concerns that the information required by Form
MA–I is redundant of information already available
from the firm’s Form MA.
1172 Regarding incorporation by reference, see
supra notes 994–995 and accompanying text. The
Commission acknowledges that a municipal
advisory firm must already provide information on
Form MA concerning the disciplinary history of
each of its associated persons—a term that includes
employees who are ‘‘engaged in the management,
direction, supervision, or performance of any
activities relating to the provision of advice to or
on behalf of a municipal entity or obligated person
with respect to municipal financial products or the
issuance of municipal securities.’’ However, to the
extent that the disciplinary history of an individual
is reported in Form MA, it can be incorporated by
reference in Form MA–I.
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example, Form MA–I requires the
following information about each
relevant natural person that would not
be found on his or her firm’s Form MA
if engaged in municipal advisory
activities on behalf of a firm or on his
or her own Form MA if acting as a sole
proprietor: social security number of the
individual; other names of the
individual; his or her residential and
employment history; the offices of the
firm where the individual is located and
from which he or she is supervised; the
names of any other municipal advisory
firms that employ the individual; and
any other businesses in which the
individual is engaged.1173
Therefore, in completing a Form MA–
I for each employee, the Commission
believes that a firm will be
supplementing, rather than duplicating,
the information provided on Form MA.
For this reason, as proposed and
adopted, the rules require a sole
proprietor to complete and file both
forms.
Among the comments received by the
Commission, specifically with regard to
Form MA–I, as has already been
discussed, several commenters
questioned the need for separate
registration forms for firms and their
individual employees.1174 One
commenter believed that separate
1173 As noted above, the Commission believes
that, in fact, there is very little overlap between the
information required by Form MA and that required
by Form MA–I. For example, when Form MA asks
for the number of employees of the firm engaged
in municipal advisory activities, such information
might be gleaned, technically, by counting all the
Form MA–I submissions filed by the firm, but is not
readily apparent. When Form MA asks for the
names of all associated persons of the firm and
requires the firm to indicate whether each such
person is active in certain municipal advisory
related fields, the firm is not required to state
whether the associated person is an employee and
it does not capture information on other businesses
in which the person is engaged. The requirement
to list the firm’s registration information (which, of
course, is available on the firm’s Form MA) on the
Form MA–I of the individual will better serve to
identify the individual and locate his or her firm
when only the database of individuals reported on
Form MA–I is being searched, separately from the
database in which information obtained in Forms
MA is collected. Similarly, the responses to Form
MA’s questions in Item 9, in which a firm must
disclose whether any of its associated persons has
had a disciplinary history, do not shed light on the
history of any particular employee unless the
relevant DRPs are consulted. Moreover, the
disciplinary history questions in Item 6 of Form
MA–I, other than those concerning criminal,
regulatory, and civil judicial actions, do not appear
in Form MA.
1174 See Deloitte Letter; JP Morgan Chase Letter;
SIFMA Letter I. Deloitte stated that registration for
natural persons should be eliminated altogether; or
that individuals at least be required to register only
as ‘‘registered representatives.’’ See also MSRB
Letter I, stating that ‘‘forms relating to individuals
at municipal advisor entities should be viewed as
officially submitted by the municipal advisor
entity.’’
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registration of individuals on Form MA–
I could ‘‘lead to confusion’’ and
‘‘inadvertent inconsistencies in the
information.’’ 1175 Another commenter
believed that processing the estimated
21,800 forms expected to be filed would
put ‘‘significant strain’’ on the
Commission.1176 In addition to these
comments, one commenter suggested
that, in lieu of requiring individuals to
register separately with the Commission
on Form MA–I, the Commission could
‘‘work with the MSRB to establish,
through the MSRB, a licensing and
registration mechanism for individuals
who are municipal advisors, which
would be similar to the program used to
register a broker-dealer’s licensed
associated persons with FINRA.’’ 1177
Further, the commenter stated that, if
the Commission believes it is necessary
to formally register individuals (in
addition to licensing them), the MSRB
could adopt Form U4 and require it to
be filed in connection with granting a
license to individuals who engage in
municipal advisory activities on behalf
of a Commission- and MSRB-registered
municipal advisory firm.1178 The
Commission believes that these
comments have been addressed by the
exemption created in the rules, as
adopted, for natural persons who engage
in municipal advisory activities solely
on behalf of a registered municipal
advisor.1179
Commenters also expressed concerns
regarding the disclosures required by
Form MA–I and the plan to make them
publicly available.1180 For example, one
commenter believed that some of the
information required in Form MA–I
1175 See
Deloitte Letter.
Letter I.
1177 Id. SIFMA stated that because the MSRB is
already planning to develop qualification tests for
individuals engaged in municipal advisory
activities, ‘‘having only the MSRB, as opposed to
both the SEC and MSRB, involved in the licensing
and registration of individuals would eliminate
duplication and reserve the SEC resources for
regulation of municipal advisory firms.’’
1178 See id. SIFMA added that, because many
individual municipal advisors may also be
associated persons of a broker-dealer or investment
adviser, it would better serve the interests of the
public to have a single source of information—on
Form U4—about a licensed individual. It would
also be easier for an individual and his or her
employer to ensure that the individual is properly
licensed under all applicable regulatory programs if
only a single form is required to be filed with any
applicable regulator. See also Financial Services
Roundtable Letter (advocating use of Form U4 for
individuals).
1179 See supra note 938.
1180 The comments cited in this paragraph
appeared in the context of letters opposing the
application of the definition of municipal advisor
to appointed members of public boards, see supra
note 1161, but are treated here separately because
of their possible relevance to any municipal
advisor.
1176 SIFMA
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‘‘could not be disclosed by a law
enforcement agency, such as the
individual’s detailed criminal history—
which includes arrests that do not result
in prosecution or conviction.’’ 1181 The
commenter further believed that
‘‘[g]overnment disclosure of a compiled
criminal history is a criminal
offense.’’ 1182
The Commission believes that it is
consistent with the Exchange Act to
require disclosure of such information
in order to permit persons whom Form
MA–I concerns to lawfully engage in
municipal advisory activities.1183
Regarding a commenter’s concern about
government disclosure of compiled
criminal history, the Commission notes
that engaging in municipal advisory
activities is voluntary. Persons engaging
in municipal advisory activities are on
notice that the information supplied to
the Commission on Form MA and MA–
I will not be kept confidential (except
where indicated otherwise). Therefore,
if a person does not wish to disclose his
or her criminal history, such person
may choose to not engage in municipal
advisory activities. In addition, the
Commission notes that the information
requested on Form MA–I is consistent
with comparable provisions in Forms
BD and ADV, as well as Form U4.1184
One commenter focused on the
impact that Form MA–I could have on
bank employees, believing that it would
require such information as the
addresses of all offices at which the
employee will be physically located or
supervised and noting that it was not
uncommon for bank branch employees
such as tellers to work at multiple
branch locations in a geographic
region.1185 As discussed above, the
Commission is limiting the application
of the term investment strategies,
providing a limited exemption for
banks, and permitting the registration of
SIDs.1186 Due to these changes, few, if
any, bank employees of the type
described by the commenter will be
engaging in municipal advisory
activities that would require filing of a
Form MA–I. For those who are, the
Commission believes that it is as
important to obtain this information as
it is with respect to any other natural
1181 See letter from Jo Anne Bernal, County
Attorney, El Paso County, Texas.
1182 Id.
1183 See Section 15B(c)(2) and (4) of the Exchange
Act.
1184 Except where indicated otherwise, the
information supplied on Forms BD, ADV, and U4
is not kept confidential.
1185 Capital One Letter.
1186 See supra Sections III.A.1.b.viii.
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person who is engaged in municipal
advisory activities.
The Commission also received
comment letters on Form MA–I from
many municipal entities and agencies
concerned about the impact of requiring
appointed members of public boards to
make the disclosures required by the
form.1187 As discussed in Section
III.A.1.c.i., the Commission is
exempting all members of the governing
body of a municipal entity (acting in
their capacity as such), including
appointed members, from the
requirement to register as municipal
advisors. Thus, the concerns of these
commenters should be alleviated.
Items 1 and 2: Identifying Information
and Other Names
Item 1 of Form MA–I is being adopted
substantially as proposed, with minor
modifications as discussed below.1188
Item 1 requires certain basic identifying
information to be disclosed about any
natural person engaged in municipal
advisory activities.1189 Although, as
discussed above, certain information
about an employee of a firm would
already be available through the firm’s
Form MA, the individual’s Form MA–I
requires more information, including:
• the individual’s CRD Number, if he
or she has one;
• the individual’s social security
number; 1190
• the date of the individual’s
employment or contract with the firm;
• whether the individual has an
independent contractor relationship
with the firm;
• the firm’s registration status;
• all the offices of the firm where the
individual may be physically located
and all the offices from which the
individual is or will be supervised; and
• whether any of these offices are
located in a private residence.
These elements of Item 1 are being
adopted as proposed. With respect to
information about the employee’s firm,
Item 1, as proposed, would have
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1187 See,
e.g., letter from Barry Moline, Executive
Director, Florida Municipal Electric Association,
dated February 22, 2011; and Pennsylvania Public
School Employees’ Retirement Board Letter.
1188 No comments were received concerning Item
1.
1189 This includes, for example, the individual’s
full legal name. It also requires the registration and
other identifying numbers of the individual’s firm
to be provided directly in the Form MA–I, to make
it easier for regulators, municipal entities and
investors to gather the information they need.
1190 This information will not be made publicly
available. As stated in the Proposal, this
information is necessary in connection with the
Commission’s enforcement and examination
functions pursuant to Section 15B(c) of the
Exchange Act (15 U.S.C. 78o–4(c)). See Proposal, 76
FR 851, note 240. See also generally supra note 968.
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required the filer to provide any SEC file
and registration numbers assigned to the
firm in any registered capacity and also
the firm’s CRD Numbers, if any. To ease
the completion of the form, Item 1, as
adopted, requires a filer only to indicate
whether the firm is currently registered
as a municipal advisor on a Form MA
and, if not, whether it has filed an
application for registration on Form
MA. If the latter, the filing date and the
firm’s EDGAR CIK number must be
provided.
Item 1, as adopted, additionally
requires a filer to provide the name
under which the firm primarily
conducts its municipal advisor-related
business, if different from its legal
name. It further also takes into account
that an individual may be employed at
more than one municipal advisory firm
and requires entry of the relevant
information for each such firm.1191 The
Commission believes that this
additional information would be useful
to the Commission’s oversight of the
municipal advisory market, without
unreasonably increasing the burdens
upon registrants in completing the form.
As proposed, Item 2 requires a filer to
disclose all other names that the natural
person engaged in municipal advisory
activities is using or has been known by
since the age of 18, such as nicknames,
aliases, and names before and after
marriage. No comments were received
concerning Item 2, and it is being
adopted substantially as proposed.
As stated in the Proposal, the
Commission believed that the
information sought by Items 1 and 2
would be useful to municipal entities
and obligated persons in exploring the
background, credentials, reliability, and
trustworthiness of an individual in the
course of making a decision whether to
engage that natural person or his or her
firm as a municipal advisor.1192 The
same information will be valuable to
regulators in overseeing municipal
advisors and investigating possible
instances of wrongdoing.
Item 3: Residential History
In Item 3, which is being adopted
substantially as proposed,1193 Form
1191 The form also asks the filer for the total
number of such firms. This question does not
require a filer to research any further information
than indicated above, but it can serve as a helpful
cross-check to the filer as well as to regulators, and
is also a useful number for interested parties who
do not need the additional details.
1192 See Proposal, 76 FR 851.
1193 No comments were received concerning Item
3, other than in the general context of concerns that
the degree of detail required by the forms was
overly burdensome and, in particular, in the context
of concerns about registration requirements for
appointees to municipal entity boards, which
concerns are discussed elsewhere in this release.
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67561
MA–I requires disclosure of each
location where the natural person
engaged in municipal advisory activities
has resided for the past five years,
including the time period at each
residence.1194 Changes in residence
must be reported (via an amendment) as
they occur. In addition, no gaps greater
than three months between addresses
are permitted.
As stated in the Proposal, the
Commission believes that the residential
history of a natural person engaged in
municipal advisory activities, like the
additional identifying information Form
MA–I seeks, will be useful for
municipal entities and other interested
parties in exploring the background,
credentials, reliability, and
trustworthiness of the individual and be
valuable to regulators in overseeing
municipal advisors and investigating
possible instances of wrongdoing. The
information that is required regarding
residential history is similar to the
information requested on Form U4.1195
Item 4: Employment History
In Item 4, which is being adopted
substantially as proposed,1196 Form
MA–I requires a listing of the complete
employment history of the natural
person engaged in municipal advisory
activities for the past ten years,
including full and part-time
employment, self-employment, military
service, and homemaking. All statuses
during the ten-year period, such as
unemployed, full-time education,
extended travel, and other similar
circumstances must be included. In
addition, the filer may not leave a gap
longer than three months between
entries. As discussed in the Proposal,
the information required is similar to
the information requested on Form
U4.1197 Such information will help
inform an understanding of an
employee’s business experience and
provide useful information in preparing
for regulatory examinations.1198
1194 Non-substantive, technical, and clarifying
changes have been made to Item 3. See infra note
1237.
1195 See Proposal, 76 FR 852. As stated in the
Proposal, the Commission does not intend to make
the information required by Item 3 publicly
available. See id., at 852, note 241. A statement to
this effect has been added to the introduction to
Item 3, as adopted.
1196 No comments were received concerning Item
4, other than in the general context of concerns that
the degree of detail required by the forms was
overly burdensome and, in particular, in the context
of concerns about registration requirements for
appointees to municipal entity boards, which
concerns are discussed elsewhere in this release.
1197 The Commission intends to make this
information publicly available.
1198 See Proposal, 76 FR 852. Because no separate
blanks are provided for statuses other than
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Item 6: Disclosures Relating to Any
Criminal Action, Regulatory Action,
Investigation, Civil Judicial Action,
Customer Complaint/Arbitration/Civil
Litigation, Termination, Certain
Financial Matters, and Judgments and
Liens
Item 6 of Form MA–I, regarding the
disciplinary history of the individual, is
being adopted substantially as
proposed.1201 However, the Commission
has made some modifications to the
information sought in the DRPs, which
are discussed below.
Item 6 of Form MA–I includes three
sections that require the same general
types of information regarding an
individual’s criminal, regulatory, and
civil judicial history, if any, as required
regarding municipal advisory firms in
corresponding sections in Form MA,1202
although the questions in these sections
of Form MA–I differ somewhat from
those in the corresponding sections of
Form MA, as will be discussed below.
As in Form MA, certain responses in the
criminal, regulatory, and civil judicial
action sections of Form MA–I require
disclosure of complete details of all
events or proceedings in DRPs
pertaining to these areas.
Item 6 of Form MA–I also has five
additional disclosure sections 1203
relating to an individual, which are also
discussed below. Four of these ask
about any investigations, terminations,
customer complaints/arbitration/civil
litigation, or judgments/liens relating to
the individual. Each of these four
sections has an associated DRP
requiring further detail where
applicable. The fifth additional section,
which has no associated DRP, asks for
certain financial disclosures. As
discussed in the Proposal, the
Commission believes that additional
disclosures in these five areas, which
are also required of individuals
associated with broker-dealers and
investment advisers on Form U4, are
appropriate to aid municipal entities,
obligated persons, and other members of
the public in researching the
background of municipal advisors and
to aid regulators in enhancing their
oversight of municipal advisors.1204
As discussed in the Proposal, the
Commission believes that the additional
disclosure items in the DRPs will be
helpful to municipal entities and
obligated persons as clients or
prospective clients of municipal
advisors.1205 The information may also
serve as the basis for granting or
instituting proceedings to deny a
registration or for revoking a registration
or imposing other sanctions by the
Commission with respect to an
individual.1206
As a general matter, as was the case
with the proposed DRPs of Form MA,
many of the questions in the proposed
DRPs of Form MA–I did not ask for
specifics. The Commission believes that,
with regard to certain questions,
additional details of the kind requested
in the adopted versions of Form MA’s
DRPs will help regulators, municipal
entities, and other interested parties
employment at a firm or company, (e.g., military
service, homemaking, unemployment, education, or
travel), guidance has been included in Item 4, as
adopted, instructing the filer to enter such statuses
in the space provided for ‘‘Name of Municipal
Advisory Firm or Company.’’ Regarding nonsubstantive, technical, and clarifying changes,
generally, see infra note 1237.
1199 No comments were received concerning Item
5. Only slight clarifying changes have been made
in the wording of this item as adopted.
1200 See Proposal, 76 FR 853.
1201 The Commission received no comments
specifically relating to Item 6 in the Proposal.
1202 See supra Section III.A.2.b.
1203 In the proposed version of Item 6, the
question about investigations appeared at the end
of the Regulatory Action section. In the adopted
version, a separate section has been created for this
question (which remains the same) for the sake of
clarity, as it concerns both criminal and regulatory
investigations. Form MA–I, both as proposed and
adopted, has a separate DRP that concerns only
investigations reported in this question.
1204 See Proposal, 76 FR 853.
1205 See id., at 854.
1206 See supra notes 1093–1097 and
accompanying text (discussing grounds for
revocation of a municipal advisor’s registration or
imposing other sanctions).
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Item 5: Other Business
Item 5 of Form MA–I is being adopted
substantially as proposed.1199 Item 5
requires information about the
individual’s other business activities, if
any, in which he or she is currently
engaged, as a proprietor, partner, officer,
director, employee, trustee, agent or
otherwise. The form asks for the name
of the other business, its address,
whether it is municipal advisor-related
and, if not, the nature of the business in
which it is engaged.
The filer is required to provide the
individual’s position, title, or
relationship with the other business, the
start date of the relationship, the
approximate number of hours per
month the individual devotes to the
other business, and a brief description
of his or her duties relating to the other
business. As discussed in the Proposal,
the information sought in this section is
similar to the information sought by the
equivalent section in Form U4. Such
information will help the Commission
understand the other business activities
of a natural person engaged in
municipal advisory activities and will
help staff prepare for examinations.1200
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more easily research and better assess
the background of the individual that is
the subject of the DRP of Form MA–
I.1207 Thus, many of the revisions made
to the DRPs of Form MA have also been
made to the DRPs of Form MA–I.
Among these are changes in questions
relating to: removing a DRP filed in
error; 1208 incorporation by reference of
disclosures already filed elsewhere; 1209
names and types of courts, regulatory
authorities and forums and their
locations, and parties who initiated the
relevant action; 1210 how to report an
event; 1211 appeals; 1212 disposition of a
case and sanctions imposed in criminal
cases; 1213 sanctions and/or relief
sought, type of resolution, and sanctions
ordered in regulatory and civil judicial
actions; 1214 and other matters.1215
The following discussion summarizes
Item 6 and its related DRPs as well as
additional revisions made in their
adopted versions:
Criminal Action Disclosures
With respect to felonies, Item 6 of
Form MA–I—in contrast to the
disclosures required by Item 9–A of
Form MA—requires disclosure of:
• any past conviction of, or plea of
guilty or nolo contendere to, a felony by
the individual, rather than limiting the
disclosure to the past ten years, as in a
firm’s or solo practitioner’s Form MA;
• any charges of felony against the
individual in the past, rather than
limiting disclosure to currently pending
charges, as in a firm’s or sole
proprietor’s Form MA; and
• any convictions of, or plea of guilty
or nolo contendere to, a felony by an
organization based on activities that
occurred when the individual exercised
control over the organization—a
disclosure not required in Form MA.
With respect to misdemeanors, while
Form MA requires only disclosures of
convictions and pleas concerning an
individual looking back ten years, and
requires only disclosures of charges that
are currently pending, Form MA–I
requires disclosure of such convictions,
pleas, and charges that occurred at any
time in the individual’s past.
Misdemeanors, and convictions, pleas,
1207 See
supra note 1123.
supra text following note 222.
1209 See supra notes 1127–1128 and
accompanying text.
1210 See supra notes 1129–1130 and
accompanying and following text.
1211 See supra text accompanying note 1132.
1212 See supra note 1134 and accompanying text.
1213 See supra notes 1135–1137 and
accompanying text.
1214 See supra notes 1137–1139 and
accompanying text.
1215 See supra notes 1140-1142 and
accompanying text.
1208 See
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and charges of misdemeanor against an
organization while the individual
exercised control over the organization
are also required to be disclosed.
These criminal action disclosure
requirements regarding individuals
beyond the information required in
Form MA, are consistent with the
disclosure requirements on Form U4. In
addition, as discussed in the Proposal,
these disclosures provide additional
information with respect to natural
persons engaged in municipal advisory
activities that will be useful to the
Commission’s regulatory and
examination programs, and may be
useful to municipal entities and
obligated persons who are clients or
prospective clients of the individual or
his or her firm.1216
As proposed and adopted, the
Criminal Action DRP of Form MA–I
asks for additional details regarding,
among other things: the charges, number
of counts, and the court in which they
were brought; status of the action;
details of its disposition and sanctions
ordered; and the date of amended
charges, if any. It also provides an
option and space for comment
consisting of a brief summary of the
circumstances leading to the charge(s)
as well as their current or final
disposition.
Certain revisions have been made in
the adopted version of the DRP. For
example, in its disclosure requirements
concerning the charges, the DRP, as
adopted, asks specifically whether the
charge is (a) municipal advisor-related
or (b) investment-related; and, if so, in
each case, (c) what product type it
involved.1217
Moreover, as proposed, the DRP
required a description, in narrative
form, of details concerning any sentence
or penalty imposed, its start date, and
its duration, and the amount and date of
payment.1218 As adopted, the DRP asks
specifically whether any sentence or
any other penalty is ordered, and
1216 See
Proposal, 76 FR 853.
Commission believes that these
additional details contribute to an accurate picture
of the individual’s disciplinary history and notes
that the same questions are asked in the equivalent
DRP of Form MA, as both proposed and adopted.
On the other hand, specific questions regarding
pleas to amended charges have been removed as
unnecessary because the requested information
should be provided in responses to other questions.
1218 The form provided a blank space for:
‘‘Sentence/Penalty, Duration (if suspension,
probation, etc.), Start Date of Penalty: (MM/DD/
YYYY), End date of Penalty (MM/DD/YYYY); If
Monetary penalty/fine—Amount paid, Date
monetary/penalty fine paid: (MM/DD/YYYY), if not
exact, provide explanation.’’ It also gave the filer
the option of providing ‘‘a brief summary of
circumstances leading to the charge(s) as well as the
current status or final disposition.’’
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1217 The
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requires, if so, a description of whether
it involved prison, jail, probation,
community service, counseling,
education, or other. It further asks, in
question-by-question format, for the
duration in days, months, and/or years
of any incarceration, the start and end
dates, whether any concurrent sentence
is to be served, and, if so, the end date.
It also asks, in question-by-question
format, whether any portion of a
monetary penalty was reduced or
suspended, whether it has been paid in
full, and, if not, how much remains
unpaid. These details should contribute
to the clarity of the picture received by
regulators, municipal entities, and
investors of the individual’s
disciplinary background.
Finally, the proposed Criminal Action
DRP of Form MA–I did not ask
specifically about appeals. In its
adopted version, the DRP asks whether
the criminal action was appealed, and,
if so, the name and location of the
appeals court, and other details. Choices
are also provided to describe
specifically the disposition of any
appeal.1219 The Commission believes
that obtaining this information will
better enable regulators, municipal
entities, and other interested parties to
research the complete criminal history
of the individual.1220
Regulatory Action Disclosures
As proposed and adopted, the
questions in Item 6 of Form MA–I
relating to regulatory actions by the
Commission or the CFTC, similar to
those in Form U4, require the same
disclosures as in proposed Item 9 of
Form MA and additional disclosures,
including whether the Commission or
the CFTC has ever found the individual
to have:
• willfully violated, or been unable to
comply with, any provision of the
federal securities laws, the Commodity
Exchange Act, and the rules thereunder,
and any rule of the MSRB;
• willfully aided, abetted,
commanded, induced, or procured the
violation by any other person of these
laws and rules; and
• failed reasonably to supervise
another person subject to his or her
supervision with a view to preventing
violation of these laws and rules.
As proposed and adopted, Form MA–
I requires the same disclosures as
proposed Form MA with respect to
findings and actions relating to the
individual by other federal regulatory
1219 These choices are: affirmed; vacated and
returned for further action; or vacated/final. An
applicant may also respond ‘‘other,’’ in which case
the other type of disposition must be specified.
1220 See also supra note 1134.
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67563
agencies, state regulatory agencies, and
foreign financial regulatory authorities.
It also requires additional disclosures,
including whether the individual has
ever been subject to a final order of a
state securities commission or similar
agency or office; state authority that
supervises or examines banks, savings
associations, or credit unions; state
insurance commission; an appropriate
federal banking agency; or the National
Credit Union Administration that:
• bars the individual from association
with an entity regulated by such
commission, agency, authority or office,
or from engaging in the business of
securities, insurance, banking, savings
association activities, or credit union
activities; or
• constitutes a final order based on
violations of laws or regulations that
prohibit fraudulent, manipulative, or
deceptive conduct.
In addition to the disclosures required
of a municipal advisory firm regarding
its individual associated persons on
proposed Form MA, Form MA–I as
proposed and adopted requires
disclosure of any finding by an SRO that
the individual:
• willfully violated, or is unable to
comply with, any provision of the
federal securities laws, the Commodity
Exchange Act and the rules thereunder,
or the rules of the MSRB;
• willfully aided, abetted, counseled,
commanded, induced, or procured the
violation of any of these laws or rules;
or
• failed reasonably to supervise
another person subject to his or her
supervision, with a view to preventing
such violations.
Like Form MA, Form MA–I as proposed
and adopted also requires disclosure of
whether the individual had an
authorization to act as an attorney,
accountant or federal contractor revoked
or suspended.
Item 6 of Form MA–I as proposed and
adopted also requires disclosure of
whether the individual has been
notified in writing that he or she is
currently the subject of a regulatory
complaint or proceeding that could
result in any occurrence of the kind that
would trigger any of the disclosure
requirements described above relating to
regulatory actions, except the latter
occurrence pertaining to attorneys,
accountants, and federal contractors.
The form advises that if the answer is
affirmative, the filer must complete a
Regulatory Action DRP.1221
1221 Form MA does not include an analogous
question and advisory in its regulatory action
section. Item 6, as proposed, also asked whether the
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The DRP for regulatory action
disclosure in Form MA–I, as proposed
and adopted, requires the filer to
provide further details, including: the
allegations, which regulatory authority
initiated the action, the kind of product
involved, and the sanctions sought; the
status of the action; the disposition or
resolution of the action, the sanctions
ordered, and their duration; the
registration capacities of the individual
that were affected; whether
requalification was a condition of any
sanction reported, and whether it was
by exam, retraining, or other process;
the length of time given to requalify;
and whether the requalification
condition was satisfied. Disclosures
required in the Regulatory Action DRP,
as proposed, also include details of any
monetary sanction imposed, including
amount; portion levied against the
individual; any amount waived;
payment plan; whether such plan was
current; date paid; and whether the
sanction was a civil or administrative
penalty or fine, a monetary penalty
other than a fine, disgorgement, or
restitution. Revisions made in the
Regulatory Action DRP, as adopted,
include the following:
• In the DRP, as proposed, a filer was
asked to identify every type of product
involved in the action. As adopted, the
DRP requires the filer to distinguish
between principal product types and
other products.
• As proposed, the DRP asked about
any bars and suspensions of the
individual from his or her registration
capacities. As adopted, the DRP also
requires information specific to any
injunction that was imposed as a
regulatory sanction.
• In addition to the questions about
requalification and exams, as described
above, the DRP as adopted asks for a
description in narrative form of any
examination, re-training, or other
process that was required as a condition
for the person to re-qualify.
The Commission believes that these
additional details will provide
regulators, municipal entities, and
investors with a more accurate picture
of disciplinary history of the
individual.1222
individual has been notified in writing that he or
she is the subject of an investigation that could
result in affirmative answers to questions about
criminal and regulatory actions above in the form.
This question has been separated into a separate
section in the form, as adopted, titled ‘‘Investigation
Disclosures.’’ See infra note 1223 and
accompanying text.
1222 Other revisions in the adopted version of the
Regulatory Action DRP: The form now asks for date
of service of process in pending actions; and
additional details when one or more injunctions
specify different time periods; and more choices to
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Disclosure of Investigations 1223
Item 6 of Form MA–I, as proposed
and adopted, asks whether the
individual has been notified in writing
that he or she is currently the subject of
any investigation that could result in a
positive answer to any of the questions
in either the criminal and regulatory
sections of Item 6 described, except the
question pertaining to attorneys,
accountants, and federal contractors. If
the answer is positive, an Investigation
DRP must be filed.
The Investigation DRP requires details
of any such investigation, including the
date the investigation was initiated and
whether it was initiated by an SRO, a
foreign financial regulatory authority
(giving the specific jurisdiction), the
Commission, other federal agency, or
‘‘other.’’ The Investigation DRP requires
that the full name of the authority that
initiated the investigation be specified.
Space is provided for the filer to briefly
describe the nature of the investigation,
if known; whether it was pending or
resolved; and details of any resolution.
Space for optional comment is also
provided to present a brief summary of
the circumstances leading to the
investigation and its current status or
final disposition and/or findings.
The Investigation DRP also asks for
similar details regarding a criminal
investigation by a federal, military,
state, foreign or international authority
or court. Although Item 6 requires a
DRP for criminal investigations, the
DRP, as proposed, did not specifically
reference criminal investigations or
authorities.
Civil Judicial Action Disclosure
The disclosures required by Form
MA–I with respect to certain matters
relating to an individual’s civil judicial
history are the same as disclosures
required on Form MA. Thus, a filer is
required to disclose on Form MA–I
whether the individual:
• was ever enjoined by a domestic or
foreign court in connection with any
investment-related or municipal
advisor-related activity;
• was ever found by a domestic or
foreign court to be involved in a
violation of any investment-related or
municipal advisor-related statute or
regulation; or
• ever had an investment-related or
municipal advisor-related civil action
brought against him or her dismissed,
pursuant to a settlement agreement, by
describe sanctions sought, how the action was
resolved, and sanctions ordered.
1223 See supra note 1203.
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a domestic jurisdiction 1224 or foreign
financial regulatory authority; or
• was ever named in any such
pending action that could result in a
positive answer to the three previous
questions.
As discussed in the Proposal, the
Commission believes that it is
appropriate to seek information
regarding investment-related activities
as well as municipal advisor-related
activities due to the significant
similarities that exist between the two
advisory functions. Moreover, such
information could serve as a basis to
institute proceedings to deny
registration of a municipal advisor or to
impose other sanctions on the
municipal advisor’s activities.1225
A DRP is required for affirmative
responses to questions under this item.
Specifically, the DRP requires, among
other things, information regarding: by
whom the court action was initiated; the
name of the party initiating the
proceeding; information about the relief
sought; the date on which the action
was filed and notice or process was
served; the types of financial products
involved; a description of the
allegations relating to the civil action;
the current status, including whether
the action is on appeal and details
relating to any such appeal; sanction
details; and if the disposition resulted in
a fine, disgorgement, restitution or
monetary compensation, information
relating thereto. The DRP also provides
the opportunity for a filer to provide
additional comment, including a
summary of the circumstances leading
to the action and current status.
The Civil Judicial Action DRP, as
adopted, has been modified to ask
whether the individual is a named
defendant in the action for which the
DRP is being completed; 1226 indicate, if
an order was issued, whether the order
is a final order based on violations of
any laws or regulations that prohibit
fraudulent or deceptive conduct; and
indicate whether a condition of any
sanction was requalification by
examination, retraining, or other
process. The Commission believes that
these changes generally will add clarity
1224 The phrase ‘‘domestic jurisdiction’’ is used in
the form, as adopted, in place of ‘‘state’’ in the
proposed version. The question of whether such an
occurrence is part of the individual’s history was
not intended to be limited to state actions.
1225 See Proposal, 76 FR 854–855.
1226 In addition, this DRP, as proposed and
adopted, asked for the full name(s) of the plaintiff(s)
in the action. The adopted version further asks the
filer whether all plaintiffs were fully identified, to
make clear that the information needs to be
complete.
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for filers in determining the type of
information that must be provided.1227
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Customer Complaints/Arbitration/Civil
Litigation
Form MA does not require a
municipal advisory firm to disclose any
customer complaints, arbitration
matters, and civil litigation concerning
natural person municipal advisors.
Form MA–I, however, requires
disclosure of whether an individual
engaged in municipal advisory activities
has ever been:
• the subject of a complaint initiated
by a customer, whether written or oral,
regarding investment-related or
municipal advisor-related matters,
which alleged that he or she was
involved in fraud, false statements,
omissions, theft, embezzlement,
wrongful taking of property, bribery,
forgery, counterfeiting, extortion, and
dishonest, unfair or unethical practices;
or
• the subject of an arbitration or civil
litigation initiated by a customer
regarding investment-related or
municipal advisor-related matters,
which alleged that he or she was
involved in fraud, false statements,
omissions, theft, embezzlement,
wrongful taking of property, bribery,
forgery, counterfeiting, extortion, and
dishonest, unfair or unethical practices.
In the case of a complaint, the filer
must indicate whether the complaint is
still pending or was settled. In the case
of arbitration or civil litigation, the filer
must indicate whether the arbitration or
litigation is still pending; resulted in an
arbitration award or civil judgment
against the individual in any amount; or
was settled.
A DRP is required for affirmative
responses to questions under this item.
Specifically, the relevant DRP requires
the filer to disclose the customer’s
name; the customer’s state of residence
and other states of residence; the
employing firm of the individual when
the activities occurred that led to the
complaint, arbitration, CFTC reparation
or civil litigation; and the allegations
and a brief summary of events related to
the allegations, including the dates
when they occurred; the product type;
and the alleged compensatory damage
amount.
For customer complaints, arbitration,
CFTC reparation, or civil litigation in
1227 In addition, the list of sanctions or relief that
are specified as required to be reported has more
detail in order to provide more choices for filers.
The list of specific possible resolutions of the action
that the applicant can indicate as applicable has
also been expanded. More information also is
sought regarding details of how the action was
resolved, and, if resolved with sanctions, more
details about those sanctions.
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which the individual is not a named
party, the DRP requires disclosure of
whether the complaint is oral or written,
or whether it is an arbitration, CFTC
reparation or civil litigation (and the
arbitration or reparation forum, docket
or case number, and the filing date);
whether the complaint, arbitration,
CFTC reparation or civil litigation is
pending, and if not, the status. The DRP
requires disclosure of the status date
and the settlement award amount,
including the individual’s contribution
amount.
If the matter involves an arbitration or
CFTC reparation and the individual is a
named respondent, the DRP requires
disclosure of the entity with which the
claim was filed; the docket or case
number; the date process was served;
whether the arbitration of CFTC
reparation is pending, and if not
pending the form of disposition; the
disposition date; and the amount of the
monetary award, settlement or
reparation (including the individual’s
contribution).
If the matter involves a civil litigation
in which the individual is a defendant,
the DRP requires disclosure of the court
in which the case was filed; the location
of the court; the docket or case number;
the date the complaint was served on or
received by the individual; whether the
litigation is still pending; if not still
pending the form of its disposition; the
disposition date; the judgment,
restitution or settlement amount,
including the individual’s contribution
amount; whether the action is currently
on appeal, and if so, the date the appeal
was filed, the court in which the appeal
was filed, the location of the court, and
the docket or case number for the
appeal. The DRP also provides for
optional additional comment, such as a
summary of the circumstances leading
to the complaint.
As discussed in the Proposal, these
disclosures, too, mirror similar
disclosures in Form U4, provide
additional information about natural
persons engaged in municipal advisory
activities that may be useful to
municipal entities or obligated persons
as clients or prospective clients, and
help the Commission prepare for and
plan examinations.1228
Several revisions have been made to
this DRP, as adopted. In the questions
relating to settlements, awards, and
monetary judgments, the DRP now
additionally asks whether any portion of
the individual’s settlement, award, or
monetary judgment amount was waived,
and, if so, how much; and whether the
final amount was paid in full, and, if so,
the date. In the section relating to civil
litigation, the DRP now additionally
asks whether the individual appealed,
and, if so, to which court, its location,
and other details.1229
Termination Disclosure
Unlike Form MA, Form MA–I
requires disclosure regarding the
termination of a natural person’s
employment. Specifically, consistent
with Form U4, Form MA–I asks whether
the individual ever voluntarily resigned
or was discharged or permitted to resign
after allegations were made that accused
him or her of:
• violating investment-related or
municipal advisor-related statutes,
regulations, rules, or industry standards
of conduct;
• fraud or the wrongful taking of
property; or
• failure to supervise in connection
with investment-related or municipal
advisor-related statutes, regulations,
rules or industry standards of conduct.
An affirmative response to the
questions described above requires
additional information on a related DRP.
Specifically, the DRP requires
disclosure of the name of the firm, the
type of termination (whether
discharged, permitted to resign, or
voluntary resignation), the termination
date, the allegations, and the product
types. The DRP also provides for
optional additional comment, such as a
summary of the circumstances leading
to the termination.
As discussed in the Proposal, this
disclosure will provide information that
will be useful to the Commission in
planning and preparing for inspections
and examinations. The disclosure also
will be useful to the public generally
(including municipal entities and
obligated persons, as clients or
prospective clients).1230
Financial Disclosures
Item 6 of Form MA–I, as proposed
and as adopted, also requires financial
disclosures regarding individuals that
are not required to be made on Form
MA by municipal advisory firms,
generally, regarding their associated
persons or by sole proprietors regarding
themselves. Specifically, the form asks
the filer whether, within the past ten
years:
• the individual has made a
compromise with creditors, filed a
bankruptcy petition, or been the subject
of an involuntary bankruptcy petition;
• an organization controlled by the
individual has made a compromise with
1229 See
1228 See
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1230 See
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creditors, filed a bankruptcy petition, or
been the subject of an involuntary
bankruptcy petition based upon events
that occurred while he or she exercised
control over it; or
• a broker or dealer controlled by the
individual has been the subject of an
involuntary bankruptcy petition, had a
trustee appointed, or had a direct
payment procedure initiated under the
Securities Investor Protection Act based
upon events that occurred while he or
she exercised control over it.
In addition, a filer must disclose
whether a bonding company ever
denied, paid out on, or revoked a bond
for the individual. There is no DRP
associated with these financial
disclosures.
Judgment/Lien Disclosure
Item 6 of Form MA–I also asks
whether the individual has any
unsatisfied judgments or liens against
him or her. An affirmative response
requires additional disclosure on a DRP.
Specifically, the filer must disclose the
amount, holder, and type of the
judgment or lien. The form also requires
information about the date the judgment
or lien was filed, the court in which the
action was brought, the name and
location of the court, the docket or case
number,1231 whether the judgment or
lien is outstanding, and if the judgment
or lien is not outstanding, the status
date and how the matter was resolved.
The DRP also provides for optional
comment, such as a brief summary of
the circumstances leading to the
action.1232
As discussed in the Proposal, the
Commission believes that the
information that is required, which is
consistent with that required by Form
U4, will be useful for its regulatory
purposes, including planning and
preparing for inspections and
examinations. The Commission also
believes that the information will be
useful to the public generally (including
municipal entities and obligated
persons, as clients or prospective
clients).1233
Other Changes in Form MA–I, as
Adopted
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Additional Modifications to the DRPs
The Commission has made the
following modifications to the DRPs in
addition to those discussed above. An
instruction has been added at the
1231 See
supra note 968.
1232 Modifications made to the DRPs of Form
MA–I as adopted are discussed below under the
sub-heading, ‘‘Other Changes in Form MA–I, As
Adopted.’’
1233 See Proposal, 76 FR 856.
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beginning of all the DRPs, regarding
incorporation by reference, to clarify
that the filer of Form MA–I may
incorporate information either from a
DRP that was filed by the firm, or from
a DRP filed by another Commission
registrant about the individual. This
should help filers avoid the
inconvenience and burden of
completing the additional information.
When a DRP is being filed to remove
a previously filed DRP, the filer in each
case is asked whether the reason is
because the matter was resolved in the
individual’s favor, or because the DRP
was filed in error.1234 Moreover, as
proposed, several of the DRPs asked for
the name of the employing firm of the
individual when the relevant event
occurred only if the firm was a
municipal advisory firm.1235 The
Commission has concluded, however,
that the name of the individual’s
employer when the activity occurred
can be useful to regulators, municipal
entities, and investors regardless of
whether the individual was employed
specifically by a municipal advisory
firm, and is not limiting the requested
information to such firms. In the case of
a municipal advisory firm employer,
however, the DRPs as adopted ask for
the municipal advisor registration
number of the firm.1236
As proposed, the Regulatory and Civil
Action DRPs asked the filer to identify
the principal product types that were
the subject of the activity regarding
which the formal action involving the
individual was taken. As adopted, they
also ask for any other product types.
Finally, the adopted versions of the
Regulatory and Civil Action DRPs ask
for the date on which notice or other
process was served if the action being
reported on the DRP is still pending.
An Associated Person Who Ceases To
Be Engaged in Municipal Advisory
Activities
Because Form MA–I, as adopted, is
not a registration form, when a natural
person associated with a registered
municipal advisor ceases to engage in
municipal advisory activities on its
behalf, Form MA–W—which is a form
designed for withdrawal of
registration—will not be required.
Instead, the change must be reported by
1234 This question is adapted from a similar
question in the DRPs to Form MA, and should help
clarify the status of the applicant for users of the
information.
1235 Included are the Regulatory, Civil Judicial
Action, Termination, and Customer Complaint/
Arbitration/Civil Litigation DRPs.
1236 The Commission believes this specific
information is particularly relevant for municipal
advisor regulation.
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the registered municipal advisor that
filed the Form MA–I relating to that
person. This is accomplished by filing
an amendment to the Form MA–I,
which must be submitted promptly, like
any other amendment.
For this purpose, a filer submitting an
amendment to Form MA–I can indicate
that the purpose of the amendment is to
report that the individual to whom the
form relates is no longer an associated
person of the municipal advisory firm or
no longer engages in municipal advisory
activities on its behalf. When submitting
an amendment of this kind, the filer
must complete only the portion of the
form asking for the name of the
individual, his or her social security
number, and CRD Number if any (Item
1–A) and the Execution Page of the form
(Item 7).
Non-Substantive, Technical, and
Clarifying Changes
In addition, a number of nonsubstantive, technical and clarifying
changes have been made to Form MA–
I, as adopted, to make the form clearer
and more user-friendly. These include,
where applicable, the same kinds of
changes made to Form MA.1237
Item 7: Execution of the Form
If Form MA–I is being filed by a
municipal advisory firm with respect to
a natural person engaged in municipal
advisory activities on its behalf, the
authorized representative of the firm
who signs the Execution Page of Form
MA–I must attest to the truth and
correctness of the information provided
in the form. He or she must also attest
that the firm has obtained and retained
written consent from the individual that
service of any civil action brought by, or
notice of any proceeding before, the SEC
or any self-regulatory organization in
connection with the individual’s
municipal advisory activities may be
given by registered or certified mail to
the individual’s address given in Item 1
of the firm.
If Form MA–I is being filed by a
natural person municipal advisor who is
a sole proprietor, by signing the
Execution Page of Form MA–I, the filer
must represent that the information and
statements made in the form are true
and correct. He or she must also consent
that service of process of any civil
action or notice of any proceeding
before the Commission or an SRO
1237 See supra note 1147. Examples of other
revisions of this nature in Form MA–I include:
Guidance advising filers to refer to the Specific
Instructions for Form MA–I; corrections of
inaccurate references; clarifying and editorial
changes; and additional instructions to aid the filer
that do not introduce any substantive changes.
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regarding its municipal advisory
activities may be given by registered or
certified mail to the address he or she
has supplied in Item 1 of the form.
As proposed, Form MA–I also
required its signatory to certify that he
or she has: (a) Sufficient qualifications,
training, experience, and competence to
effectively carry out his or her
designated functions; (b) met, or within
any applicable required timeframes will
meet, such standards of training,
experience, and competence, and such
other qualifications, including testing,
for a municipal advisor, required by the
Commission, the MSRB or any other
relevant SRO; and (c) the necessary
understanding of, and ability to comply
with, all applicable regulatory
obligations.
The Commission received comment
letters on the self-certification
requirement in Form MA–I from many
municipal entities and agencies
concerned about the impact of requiring
appointed members of public boards to
make such certifications. As discussed
in Section III.A.1.c.i., the Commission is
exempting all members of the governing
body of a municipal entity (acting in
their capacity as such), including
appointed members, from the
requirement to register as municipal
advisors. Thus, the Commission
believes that the concerns of these
commenters have been addressed.
However, one comment received by the
Commission regarding the selfcertification requirement in Form MA–
I, as proposed, called the requirement
‘‘problematic.’’ 1238
In view of the change in the nature of
Form MA–I, as adopted, including who
is required to sign the form, the
Commission has decided to eliminate
the self-certification requirement in Item
7. Because, under the rules, as adopted,
individuals who engage in municipal
advisory activities on behalf of a
registered firm are exempt from
registration, and, with respect to these
individuals, the function of Form MA–
I is only to provide information, the selfcertification requirement is no longer a
propos. Moreover, as discussed above,
the Commission has determined to
remove the self-certification
requirement with respect to firms in
Form MA. Thus, Form MA–I, as
adopted, will no longer require selfcertification.
1238 See
SIFMA Letter I.
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3. Rule 15Ba1–3: Exemption of Certain
Natural Persons Associated With
Registered Municipal Advisors From
Registration1239
Rule 15Ba1–3, as adopted, exempts
certain natural persons from registration
with the Commission as a municipal
advisor if the natural person is
associated with a registered municipal
advisor and engages in municipal
advisory activities solely on behalf of a
registered municipal advisor. This
exemption is discussed above in Section
III.A.2.a.1240
4. Rule 15Ba1–4: Withdrawal From
Municipal Advisor Registration; Form
MA–W
a. Rule 15Ba1–4: Withdrawal From
Municipal Advisor Registration
Proposed Rule 15Ba1–3 provided that
notice of withdrawal from registration
as a municipal advisor must be filed on
Form MA–W, in accordance with the
instructions to the form, and set forth
other requirements regarding
withdrawal of a municipal advisor from
registration. The Commission received
one comment letter regarding this
proposed rule which supported the
proposed rule.1241 The Commission is
adopting Rule 15Ba1–4 as it was set
forth in proposed Rule 15Ba1–3, with
certain minor, technical
modifications.1242 The rule as adopted,
however, only applies to municipal
advisors registered on Form MA,
because the Commission is exempting
from registration certain natural persons
who are associated persons of a
registered municipal advisor and who
engage in municipal advisory activities
solely on behalf of a registered
municipal advisor.1243
As with Forms MA and MA–I, Form
MA–W must be filed electronically with
the Commission.1244 Form MA–W also
1239 Rule 15Ba1–3, under the Proposal, contained
the requirements for a municipal advisor to
withdraw an existing registration. This provision is
being adopted as Rule 15Ba1–4, which is discussed
below.
1240 See supra notes 938–939 and accompanying
text.
1241 See MSRB Letter I.
1242 See Rule 15Ba1–4, as adopted. The
modifications are non-substantive and are limited
to updating citations in the rule text or changing the
article ‘‘such’’ to the article ‘‘the.’’
1243 In the Proposal, the Commission proposed to
require natural person municipal advisors to
register on proposed Form MA–I and accordingly
proposed that these natural person municipal
advisors would be required to file a Form MA–W
to withdraw from registration with the Commission
as a municipal advisor. See Proposal, 76 FR 850,
857. As discussed in more detail in Section
III.A.2.a. and Section III.A.3., the Commission is
adopting an exemption from registration for certain
natural persons and Form MA–I will not be an
application for registration.
1244 See Rule 15Ba1–4(b).
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67567
constitutes a ‘‘report’’ for purposes of
Sections 15B(c), 17(a), 18(a), 32(a) (15
U.S.C. 78o-4(c), 78q(a), 78r(a), 78ff(a))
and other applicable provisions of the
Exchange Act.1245
Rule 15Ba1–4 also provides that a
notice of withdrawal from registration
becomes effective for all matters on the
60th day after the filing of the Form
MA–W. It may also become effective
within a longer time period to which the
municipal advisor consents or which
the Commission by order determines as
necessary or appropriate in the public
interest or for the protection of
investors, or within a shorter time if the
Commission so determines.1246
The rule further provides that if a
municipal advisor filed a notice of
withdrawal from registration with the
Commission at any time subsequent to
the date of issuance of a Commission
order instituting proceedings pursuant
to Section 15B(c) of the Exchange
Act 1247 to censure, place limitations on
the activities, functions or operations of,
or suspend or revoke the registration of
the municipal advisor or if, prior to the
effective date of the notice of
withdrawal, the Commission institutes
such a proceeding or a proceeding to
impose terms and conditions upon the
withdrawal, the notice of withdrawal
will not become effective except at the
time and upon the terms and conditions
as deemed by the Commission as
necessary or appropriate in the public
interest or for the protection of
investors.1248
b. Form MA–W
The Commission received one
comment letter regarding Form MA–W,
which was generally supportive of the
form.1249 As discussed in more detail
above,1250 the Commission is exempting
certain natural persons from municipal
advisor registration. Accordingly, the
Commission is adopting Form MA–W
substantially as proposed, but is
modifying it solely to remove all
references to individual registration of
natural persons associated with a
municipal advisor and engaged in
municipal advisory activities on its
behalf and to Form MA–I as an
1245 See Rule 15Ba1–4(d). As a consequence, it
will also be unlawful for a municipal advisor to
willfully make or cause to be made, a false or
misleading statement of a material fact or omit to
state a material fact in Form MA–W.
1246 See Rule 15Ba1–4(c).
1247 15 U.S.C. 78o–4(c).
1248 See Rule 15Ba1–4(c).
1249 See MSRB Letter I.
1250 See supra note 1243 and supra Section
III.A.2.a. and Section III.A.3.
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application for registration 1251 and to
add an introductory direction to refer to
the General Instructions for the forms in
the MA series before completing Form
MA–W. Form MA–W for municipal
advisors is designed to be generally
consistent with the requirements of
Form ADV–W for investment advisers
withdrawing from registration. First,
Form MA–W requires a municipal
advisor to provide identifying
information keyed to the identifying
information on, and the SEC file number
of, the municipal advisor’s Form MA. A
municipal advisor is required to provide
on Form MA–W the name of a principal
or employee of the municipal advisor
who is authorized to receive
information and respond to questions
about the Form MA–W. Contact
information for a municipal advisor’s
outside counsel is insufficient.
A municipal advisor filing to
withdraw its registration is required to
indicate on Form MA–W whether it has
received any pre-paid fees for municipal
advisory activities that have not been
delivered, including subscription fees
for publications, and, if so, to specify
the amount. In addition, the
withdrawing municipal advisor is
required to indicate how much money,
if any, it has borrowed from clients and
has not repaid. If the municipal advisor
responds affirmatively to either
question, it is required to disclose on
Schedule W2 to Form MA–W the nature
and amount of its assets and liabilities
and its net worth as of the last day of
the month prior to the filing of the Form
MA–W.
A municipal advisor that is filing to
withdraw its registration is required to
indicate on Form MA–W whether it has
assigned any municipal advisory
contracts to another person that engages
in municipal advisory activities, and if
so, the municipal advisor is required to
list in Section 4 of Schedule W1 to Form
MA–W each person to whom it has
assigned any such municipal advisory
contracts and provide the requested
information.
1251 The Commission has removed references in
certain instructions that contemplated individual
registration of certain natural persons on Form MA–
I and that designated Form MA–I as a registration
form. Additionally, on the Execution Page, the
Commission has also removed the certification for
natural person municipal advisors other than sole
proprietors.
When a natural person for whom a municipal
advisory firm filed a Form MA–I is no longer an
associated person or no longer engages in municipal
advisory activities on behalf of the firm, the firm
must file an amendment to the Form MA–I to
indicate this change. See General Instruction 2.d. of
the General Instructions and supra Section
III.A.2.c., under sub-heading ‘‘An Associated Person
Who Ceases to be Engaged in Municipal Advisory
Activities.’’
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A municipal advisor filing to
withdraw its registration also is required
to indicate whether there are any
unsatisfied judgments or liens against it.
If the municipal advisor responds
affirmatively that it owes money or has
any judgments or liens against it, it is
required to disclose on Schedule W2 to
Form MA–W the nature and amount of
its assets and liabilities and its net
worth as of the last day of the month
prior to the filing of the Form MA–W.
As discussed in the Proposal, the
Commission believes that requiring
such information from a withdrawing
municipal advisor is appropriate for the
protection of investors and those
persons who do business with
municipal advisors.1252 The filing of
Form MA–W and the information
contained in the form will provide
notice that the municipal advisor is no
longer registered and, therefore, is not
able to engage in municipal advisory
activities without violating federal
securities laws.1253 Additionally, the
information provided will alert clients
and prospective clients to a municipal
advisor’s financial stability if the
municipal advisor received fees from
clients for services not yet delivered,
borrowed any money from clients that
has not been repaid, or has any
unsatisfied judgments or liens at the
time of withdrawal because the
municipal advisor would be required to
disclose the nature and amount of its
assets and liabilities and net worth on
Schedule W2. This information also will
help regulators’ investigative and
enforcement efforts. Additionally, as
noted in the Proposal, an investment
adviser that withdraws from registration
must supply similar information on its
Form ADV–W.1254
As discussed below, Rule 15Ba1–8(c),
as adopted, requires a municipal advisor
withdrawing from registration to
preserve its books and records.1255
Therefore, a municipal advisor filing a
Form MA–W is required to list the name
and address of each person who has or
will have custody or possession of the
municipal advisor’s books and records
and the location at which such books
and records are or will be kept. In
addition, as discussed above, a
withdrawing municipal advisor also is
required to identify on Schedule W1
each person to whom it has assigned
any of its contracts. As discussed in the
Proposal, the Commission believes that
such a requirement—which also exists
1252 See
Proposal, 76 FR 857.
id.
1254 See 17 CFR 279.2. See also Proposal, 76 FR
857.
1255 See infra Section III.C.
1253 See
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for investment advisers—is important
for the protection of participants in the
municipal securities markets.1256
The signatory to the Form MA–W is
required to certify, under penalty of
perjury, that the information and
statements made in the Form MA–W,
including any exhibits or other
information submitted, are true. If the
form is being filed on behalf of a
municipal advisor that is not a sole
proprietor,1257 the signature constitutes
such certification by both the municipal
advisor and the signatory. Similarly, the
signatory is required to certify that the
municipal advisor’s books and records
will be preserved and available for
inspection as required by law. The
signatory is also required to authorize
any person having custody or
possession of these books and records to
make them available to authorized
regulatory representatives.
The certification includes a statement
that all information previously
submitted on the municipal advisor’s
most recent Form MA (and Form MA–
I for sole proprietors) is accurate and
complete as of the date the Form MA–
W was signed. It also includes an
understanding by the signatory that if
any information contained in items on
the Form MA–W is different from the
information contained on the most
recent Form MA (and MA–I for sole
proprietors), the information on the
Form MA–W will replace the
corresponding entry on the municipal
advisor’s Form MA (and/or MA–I for
sole proprietors). As discussed in the
Proposal, the Commission believes that
the certification requirement should
serve as an effective means to assure
that the information supplied in Form
MA–W is correct.1258
5. Rule 15Ba1–5: Amendments to Form
MA and Form MA–I
Proposed Rule 15Ba1–4 set forth
requirements regarding when
amendments to Form MA and Form
MA–I are required and how such
amendments must be filed. The
Commission received one comment
letter regarding this proposed rule
which supported the proposed rule.1259
The Commission is adopting Rule
15Ba1–5 substantially as proposed in
Rule 15Ba1–4, but is modifying the rule
1256 See
Proposal, 76 FR 857.
discussed in the Proposal, in the case of
a municipal advisor that is not a sole proprietor, the
signatory’s certification includes a statement that he
or she has signed on behalf of and with the
authority of the municipal advisor firm
withdrawing the registration. See id., at 857, note
254.
1258 See id., at 858.
1259 See MSRB Letter I.
1257 As
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primarily to be consistent with the
exemption of certain natural persons
from municipal advisor registration that
the Commission is adopting in Rule
15Ba1–3. Specifically, the Commission’s
modifications to Rule 15Ba1–5 are
limited to removing or revising rule text
to reflect that natural persons who are
associated with a municipal advisor and
engaged in municipal advisory activities
on its behalf are not required to register
as municipal advisors on Form MA and
that Form MA–I is not an application for
registration and to update citations in
the rule text. Therefore, the requirement
in Rule 15Ba1–5 to amend promptly
Form MA and Form MA–I applies
exclusively to registered municipal
advisors since they will be responsible
for amendments to their own Form MA
and amendments to Form MA–I for each
natural person who is a person
associated with the municipal advisor
and engaged in municipal advisory
activities on its behalf.1260
Rule 15Ba1–5(a) requires that a
registered municipal advisor must
promptly amend the information in its
Form MA: (1) At least annually, within
90 days of the end of the municipal
advisor’s fiscal year, or of the end of the
calendar year for a sole proprietor; 1261
and (2) more frequently than annually if
required by the General Instructions.1262
In addition to the annual update
amendment to Form MA, General
Instruction 8 specifies that a municipal
advisory firm must amend its Form MA
promptly whenever a material event has
occurred that changes the information
provided in the form. General
Instruction 8 further states that, for
purposes of Form MA, a material event
will be deemed to have occurred if
information provided in response to
Item 1 (Identifying Information), Item 2
(Form of Organization), or Item 9
(Disclosure Information) becomes
inaccurate in any way; or if information
provided in response to Item 3
(Successions), Item 7 (Participation or
Interest of Applicant, or of Associated
Persons of Applicant in Municipal
Advisory Client or Solicitee
Transactions), or Item 8 (Owners,
Officers and Other Control Persons)
becomes materially inaccurate.1263
1260 See
Rule 15Ba1–5(a) and (b).
Rule 15Ba1–5(a)(1).
1262 See Rule 15Ba1–5(a)(2). See also infra Section
III.A.8. (discussing the General Instructions and
Glossary).
1263 See General Instruction 8 in the Instructions
for the Form MA Series. General Instruction 8
further notes that a municipal advisor submitting an
amendment between annual updates is not required
to update the responses to Item 4 (Information
About Applicant’s Business), Item 5 (Other
Business Activities), Item 6 (Financial Industry and
Other Related Affiliations of Associated Persons), or
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1261 See
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In addition, General Instruction 8
provides that a non-resident municipal
advisory firm must promptly file an
amendment to Form MA to attach an
updated opinion of counsel after any
changes in the legal or regulatory
framework or the firm’s physical
facilities that would impact its ability,
as a matter of law, to provide the
Commission with access to its books
and records or to inspect and examine
the municipal advisory firm.1264 As the
Commission stated in the Proposal,1265
an amendment in such case should
include a revised opinion of counsel
describing how, as a matter of law, the
municipal advisor will continue to meet
its obligations to provide the
Commission with the required access to
the municipal advisor’s books and
records and to be subject to the
Commission’s onsite 1266 inspection and
examination under the new regulatory
regime. If a registered non-resident
municipal advisory firm becomes
unable to comply with this requirement,
then this may be a basis for the
Commission to institute proceedings to
revoke the municipal advisor’s
registration.
Regarding amendments to Form
MA–I, Rule 15Ba1–5(b) provides that a
registered municipal advisor must
promptly amend the information
contained in Form MA–I by filing an
amended Form MA–I whenever the
information contained in the Form MA–
I becomes inaccurate for any reason. As
discussed above, registered municipal
advisors will be responsible for filing
and amending Form MA–I for each
natural person associated with the
municipal advisor and engaged in
municipal advisory activities on its
behalf.1267 As discussed in the Proposal,
unlike municipal advisors filing Form
MA, who must file annual updating
amendments, the Commission is not
requiring municipal advisory firms to
update annually the Forms MA–I for
each natural person who is associated
with the municipal advisor and engaged
in municipal advisory activities on its
Item 10 (Small Businesses), even if the responses
to those items have become inaccurate.
1264 See General Instruction 8 in the Instructions
for the Form MA Series. See also infra note 1308
and accompanying text. For a discussion of Rule
15Ba1–6 (Consent to Service of Process to be Filed
by Non-Resident Municipal Advisors) and Form
MA–NR (Designation of U.S. Agent for Service of
Process for Non-Residents), see Section III.A.6.
1265 See Proposal, 76 FR 858.
1266 As adopted, General Instruction 8 does not
require the opinion of counsel to state that the
municipal advisor is able, as a matter of law, to be
subject specifically to ‘‘onsite’’ inspection and
examination.
1267 See supra note 1260 and accompanying text.
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67569
behalf.1268 The Commission believes
that the additional gains obtained by
requiring the confirmation of an annual
update would impose unnecessary
burdens on municipal advisors and that
the standard adopted in Rule 15Ba1–
5(b) strikes an appropriate balance
between maintaining current
information regarding natural persons
and minimizing the burden on
municipal advisors to provide this
information.
All amendments to Form MA and
Form MA–I are required to be filed
electronically with the Commission.1269
In addition, amendments to Form MA
and Form MA–I constitute ‘‘reports’’ for
purposes of Sections 15B(c), 17(a), 18(a),
32(a) (15 U.S.C. 78o–4(c), 78q(a), 78r(a),
78ff(a)) and other applicable provisions
of the Exchange Act.1270 As discussed in
the Proposal, these rules are consistent
with the Commission’s requirements for
other registrants (e.g., national securities
exchanges, securities information
processors (‘‘SIPs’’), broker-dealers) to
file updated and annual amendments
with the Commission.1271 The
Commission believes that such
amendments are important for obtaining
updated information for registered
municipal advisory firms and their
associated natural persons engaged in
municipal advisory activities on the
firms’ behalf so that the Commission
can assess whether such persons
continue to be in compliance with the
federal securities laws and the rules and
regulations thereunder.1272 Obtaining
updated information will also assist the
Commission in its inspection and
examination of municipal advisors and
better inform the MSRB’s regulation of
municipal advisors. In addition, the
Commission believes it is important for
1268 See Proposal, 76 FR 858. As discussed in the
Proposal, in the case of firms, changes commonly
occur over the course of a year, and a wide range
of changes is possible—e.g., changes in control
persons and personnel, number of employees,
nature of services provided, types of clients, and
compensation arrangements, among others, as well
as new disclosures that may be necessary for all of
the firm’s associated persons, rather than just one
natural person. Accordingly, the Commission
believes it is appropriate to require a firm to
confirm through an annual update that its
registration is up-to-date. With respect to natural
person municipal advisors, however, an
amendment to Form MA–I is promptly required
whenever information previously provided
becomes inaccurate. The Commission believes that
any additional benefits of an annual update would
not justify the burden such a requirement would
impose. See id.
1269 See Rule 15Ba1–5(c).
1270 See Rule 15Ba1–5(d).
1271 See, e.g., Rules 6a–2 and 15b3–1 under the
Exchange Act. 17 CFR 240.6a–2 and 240.15b3–1.
See also 17 CFR 249.1001 (Form SIP, application for
registration as a securities information processor or
to amend such an application or registration).
1272 See Proposal, 76 FR 858.
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municipal entities and obligated
persons, as well as the public generally,
to have access to current information
regarding advisors registered with the
Commission.
6. Rule 15Ba1–6: Consent To Service of
Process To Be Filed by Non-Resident
Registered Municipal Advisors; Legal
Opinion To Be Provided by NonResident Municipal Advisors; and Form
MA–NR
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a. Rule 15Ba1–6: Consent To Service of
Process To Be Filed by Non-Resident
Registered Municipal Advisors; Legal
Opinion To Be Provided by NonResident Municipal Advisors
Proposed Rule 15Ba1–5 required each
non-resident 1273 municipal advisor and
each non-resident general partner and
managing agent 1274 of a municipal
advisor to furnish to the Commission, at
the time of filing Form MA or Form
MA–I, a written irrevocable consent and
power of attorney on Form MA–NR to
appoint an agent in the United States
upon whom may be served any process,
pleadings, or other papers in any action
brought against the non-resident
1273 The definition of ‘‘non-resident’’ in Rule
15Ba1–1(j) that the Commission is adopting is
substantially similar to the definition of ‘‘nonresident’’ that the Commission set forth in proposed
Rule 15Ba1–1(h). However, the Commission is
modifying this definition so that it includes only
those persons residing, having their principal office
and place of business, or incorporated in any place
not subject to the jurisdiction of the United States.
Therefore, persons residing; having their principal
office and place of business; and incorporated in
the United States or a territory of the United States
would not be considered non-residents. Rule
15Ba1–1(j), as adopted, defines ‘‘non-resident’’ as
‘‘(1) [i]n the case of an individual, one who resides
in or has his principal office and place of business
in any place not subject to the jurisdiction of the
United States; (2) [i]n the case of a corporation, one
incorporated in or having its principal office and
place of business in any place not subject to the
jurisdiction of the United States; or (3) [i]n the case
of a partnership or other unincorporated
organization or association, one having its principal
office and place of business in any place not subject
to the jurisdiction of the United States.’’ As
adopted, this definition of ‘‘non-resident’’ is similar
to the definition of ‘‘non-resident broker-dealer’’ in
Rule 15b1–5 under the Exchange Act. See 17 CFR
240.15b1–5. See also 17 CFR 275.0–2 (defining the
term ‘‘non-resident’’ for purposes of serving nonresidents in connection with Form ADV).
1274 Rule 15Ba1–1(c) defines a ‘‘managing agent’’
as ‘‘any person, including a trustee, who directs or
manages, or who participates in directing or
managing, the affairs of any unincorporated
organization or association other than a
partnership.’’ As discussed in the Proposal, this
definition is consistent with the definition of a
‘‘managing agent’’ as used in Rule 15b1–5 under the
Exchange Act relating to consent to service of
process to be furnished by non-resident brokers or
dealers and by non-resident general partners or
managing agents of brokers or dealers. See 17 CFR
240.15b1–5. See also 17 CFR 275.0–2 (discussing
general procedures for serving non-resident
investment advisers in connection with Form ADV);
and Proposal, 76 FR 859, note 262 and
accompanying text.
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municipal advisor, general partner or
managing agent.1275 Proposed Rule
15Ba1–5 also specified circumstances
when each non-resident municipal
advisor, general partner and managing
agent would be required to amend Form
MA–NR. In addition, proposed Rule
15Ba1–5 required that each non-resident
municipal advisor, other than a natural
person, provide an opinion of counsel
that the municipal advisor can provide
the Commission with access to the
advisor’s books and records and submit
to onsite inspection and examination by
the Commission. The Commission
received one comment letter regarding
this proposed rule which supported the
proposed rule.1276
While adopted Rule 15Ba1–6 retains
the same purpose and focus of the
proposed rule, the Commission is
adopting Rule 15Ba1–6 with certain
modifications to reflect the
Commission’s decision to exempt
certain natural persons from municipal
advisor registration in Rule 15Ba1–3, as
adopted, and to clarify and update the
rule text as described below. First, the
Commission is removing certain
references that contemplate individual
registration on Form MA–I of natural
persons associated persons with a
municipal advisor and is revising the
rule text to clarify that a municipal
advisor is required to file a Form MA–
NR for each of its non-resident general
partners, managing agents, and
associated natural persons engaged in
municipal advisor activities on the
municipal advisor’s behalf. Second,
since the term registered municipal
advisor no longer includes natural
persons who are associated with a
municipal advisor and engaged in
municipal advisory activity on its
behalf, the Commission is adding new
language to Rule 15Ba1–6 to address
such persons. For example, Rule 15Ba1–
6(a)(2) requires a registered municipal
advisor, at the time of the Form MA–I
filing, to file with the Commission a
Form MA–NR for each non-resident
natural person associated with a
municipal advisor and engaged in
municipal advisory activities on its
behalf.1277 Third, the Commission is
modifying the rule to require registered
municipal advisors to file a new Form
MA–NR in the instances where the
1275 See Rule 15Ba1–5(a). The agent may not be
a Commission member, official, or employee.
1276 See MSRB Letter I.
1277 Similarly, Rule 15Ba1–6(c)(2), as adopted,
sets forth requirements regarding when a registered
municipal advisor is required to file a new Form
MA–NR for its non-resident natural persons who
are associated with the municipal advisor and
engaged in municipal advisory activities on its
behalf.
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proposed rule required an amendment
because, unlike Form MA and Form
MA–I, Form MA–NR is not completed
online and signed electronically.1278
Form MA–NR must be printed out and
signed manually and a scanned copy of
the signed and notarized form must be
attached as a PDF file to the Form MA
or Form MA–I being submitted.1279
Finally, the Commission made other
clarifying revisions to and updated the
citations in the rule text.1280
As discussed in the Proposal,1281 the
provisions in Rule 15Ba1–6, as adopted,
are designed to allow the Commission
and others to provide service of process
to a registered non-resident municipal
advisor, a non-resident general partner
or managing agent of a registered
municipal advisor, and non-resident
natural person associated with a
municipal advisor and engaged in
municipal advisory activities on its
behalf by requiring the municipal
advisor to file a written irrevocable
consent and power of attorney on Form
MA–NR to appoint an agent in the
United States for service of process.1282
Rule 15Ba1–6 also requires a municipal
advisor to file promptly a new Form
MA–NR to reflect any change to the
name or address of the agent for service
of process for itself if the municipal
advisor is a non-resident and for each of
a municipal advisor’s non-resident
general partners, managing agents, or
natural persons associated with the
municipal advisor and engaged in
municipal advisory activities on its
behalf.1283 The rule further requires a
registered non-resident municipal
advisor to appoint promptly a successor
agent and file a new Form MA–NR if the
non-resident municipal advisor
discharges its agent or if its agent
becomes unwilling or unable to accept
service on behalf of the non-resident
municipal advisor.1284 Similarly, Rule
15Ba1–6(c)(2) provides that each
registered municipal advisor must
require each of its non-resident general
partners or non-resident managing
agents, or non-resident natural persons
1278 See General Instruction 2.c. in the
Instructions for the Form MA Series.
1279 See id.
1280 For example, the Commission removed
‘‘onsite’’ from Rule 15Ba1–6(d), as adopted, because
the Commission does not conduct all inspections
and examinations onsite.
1281 See Proposal, 76 FR 859.
1282 See Rule 15Ba1–6(a)(1) and (2) (requiring a
non-resident municipal advisor to file a Form MA–
NR on its own behalf and requiring municipal
advisors to file a Form MA–NR for each of the
municipal advisor’s non-resident general partners,
managing agents, or natural persons associated with
the municipal advisor and engaged in municipal
advisory activities on its behalf).
1283 See Rule 15Ba1–6(b).
1284 See Rule 15Ba1–6(c)(1).
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associated with the municipal advisor
and engaged in municipal advisory
activities on its behalf to appoint
promptly a successor agent and the
registered municipal advisor must file a
new Form MA–NR if such non-resident
general partner, managing agent, or
associated natural person discharges the
agent or if the agent is unwilling or
unable to accept service on behalf of
such person. Rule 15Ba1–6 also requires
each non-resident municipal advisor
applying for registration to provide an
opinion of counsel on Form MA that the
municipal advisor can, as a matter of
law, provide the Commission with
access to the municipal advisor’s books
and records and that the municipal
advisor can, as a matter of law, submit
to inspection and examination by the
Commission.1285 Finally, similar to the
other forms in the MA series, Form MA–
NR must be filed electronically.1286
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b. Form MA–NR
The Commission received one
comment letter on proposed Form MA–
NR, which generally supported Form
MA–NR.1287 While Form MA–NR, as
adopted, retains the same purpose and
focus of the proposed Form MA–NR, the
Commission is adopting Form MA–NR
with certain modifications. First, the
Commission has provided more detailed
instructions to improve the form’s
readability and ease of use. For
example, the Commission included an
introductory direction to refer to the
General Instructions for the forms in the
MA series before completing Form MA–
NR, a paragraph explaining the purpose
of the form, and a specific instruction
providing technical guidance for how to
attach Form MA–NR to Form MA or
Form MA–I. Second, the Commission
has expanded its discussion of certain
concepts in Form MA–NR so that
persons executing the form have a
clearer and more complete
understanding of the information they
are required to provide. For example,
Section A of Form MA–NR, as adopted,
instructs the person executing the form
to ‘‘[i]dentify the agent for service of
process for the non-resident municipal
advisor, for the non-resident general
partner or managing agent of a
municipal advisor, or for the nonresident natural person associated with
the municipal advisor and engaged in
municipal advisory activities on its
1285 See Rule 15Ba1–6(d). See also supra notes
1264–1265 and accompanying text (discussing
when a non-resident municipal advisory firm must
file an amendment to Form MA to attach an
updated opinion of counsel).
1286 See Rule 15Ba1–6(e).
1287 See MSRB Letter I.
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behalf. Fill in all lines.’’ 1288 The
Commission expanded the discussions
in several other parts of Form MA–NR,
such as the description relating to the
designation and appointment of the
agent for service of process immediately
following the agent’s address and phone
number in Section A.2, including
language addressing the effect on
partnerships of the irrevocable power of
attorney appointment and consent to
service of process, the designator’s
certification, and the method by which
the designator discloses the capacity in
which he or she is signing the form.
Third, the Commission has included
Section B and Section C in Form MA–
NR, as adopted. Section B requires the
municipal advisor to obtain the
signature of the United States person
identified in Section A as the agent for
service of process to demonstrate that
this person has accepted the designation
and appointment as the agent for service
of process. This certification that the
agent for service of process has accepted
the designation and appointment is
necessary to ensure effective service of
process upon a non-resident municipal
advisor, non-resident general partner or
managing agent of a municipal advisor,
or non-resident natural person
associated with the municipal advisor
and engaged in municipal advisory
activities on its behalf. Additionally, the
Commission believes that the additional
burden imposed on municipal advisors
to obtain the signature of the U.S. agent
for service of process would be minimal.
Section C requires the person executing
the form to disclose whether any
signature is pursuant to a written
authorization and whether there is a
written contractual agreement or other
written document evidencing the
designation and appointment of the
named agent for service of process and/
or the agent’s acceptance, and if so, to
identify the document and provide an
accurate and complete copy with
submission of the Form MA or Form
MA–I.
Pursuant to General Instruction 2, and
consistent with the rule, every nonresident municipal advisor must file
Form MA–NR in connection with the
municipal advisor’s initial application
for registration on Form MA and file a
new Form MA–NR when required.1289
1288 Section A in Form MA–NR, as proposed,
consisted only of ‘‘Name of United States person
applicant designates and appoints as agent for
service of process’’ with space for the name
provided in a blank box immediately underneath.
1289 See General Instruction 2.c. As discussed in
the Proposal, failure to attach a signed and
notarized Form MA–NR, where required, for a nonresident municipal advisor or for any non-resident
general partner or managing agent of a municipal
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In addition, regardless of whether a
municipal advisory firm is a resident of
the United States, the firm must file a
separately completed and executed
Form MA–NR for (i) non-resident
general partners and managing agents of
the firm, and (ii) every non-resident
natural person associated with the firm
and engaged in municipal advisory
activities on the firm’s behalf.1290 Form
MA–NR for general partners and
managing agents is filed by the firm
together with the firm’s Form MA.1291
Form MA–NR for natural persons
associated with the firm and engaged in
municipal advisory activities on the
firm’s behalf is filed by the firm together
with the Form MA–I relating to the
natural person associated with the
firm.1292
7. Rule 15Ba1–7: Registration of
Successor to Municipal Advisor
Proposed Rule 15Ba1–6 was designed
to govern the registration of a successor
to a registered municipal advisor.1293
advisory firm or non-resident natural person
associated with a municipal advisor who engages in
municipal advisory activities on behalf of the
advisor, may delay SEC consideration of the
municipal advisor’s application for registration.
Additionally, an SEC-registered municipal advisory
firm that becomes a non-resident after the
municipal advisor firm’s initial application has
been submitted must file a Form MA–NR within 30
days of becoming a non-resident. The same applies
when a general partner or managing agent of a
municipal advisory firm becomes a non-resident, or
a non-resident becomes a general partner or
managing agent of a municipal advisory firm, after
the firm’s initial application. Also, a municipal
advisory firm must file a Form MA–NR together
with Form MA–I if, after the firm’s initial
registration, a non-resident natural person becomes
associated with the firm and engages in municipal
advisory activities on the firm’s behalf. In addition,
a municipal advisory firm must file a form MA–NR
if a natural person associated with the firm and
engaged in municipal advisory activities on behalf
of the firm becomes a non-resident after the firm
has filed a Form MA–I relating to that individual.
The firm must file the Form MA–NR within 30 days
of such individual becoming a non-resident. See
Instruction 3 in the General Instructions to Form
MA–NR. See also Proposal, 76 FR 859, note 263.
1290 See General Instruction 2.c.
1291 See id.
1292 See id.
1293 As discussed in the Proposal, the purpose of
Rule 15Ba1–7 is to enable a successor municipal
advisor to operate without an interruption of
business by relying for a limited period of time on
the registration of the predecessor municipal
advisor until the successor’s own registration
becomes effective. See Proposal, 76 FR 860. The
rule is intended to facilitate the legitimate transfer
of business between two or more municipal
advisors and to be used only where there is a direct
and substantial business nexus between the
predecessor and the successor municipal advisor.
The rule is not designed to allow a registered
municipal advisor to sell its registration, eliminate
substantial liabilities, spin off personnel, or
facilitate the transfer of the registration of a ‘‘shell’’
organization that does not conduct any business. As
discussed in the Proposal, no entity is permitted to
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The rule is substantially similar to Rule
15b1–3 under the Exchange Act, which
governs the registration of a successor to
a registered broker-dealer.1294 The
Commission received no comments on
the proposed Rule 15Ba1–6 and is
adopting the rule as Rule 15Ba1–7
without modification.
Succession by Application
Rule 15Ba1–7(a) provides that in the
event that a municipal advisor succeeds
to and continues the business of a
municipal advisor registered pursuant
to Exchange Act Section 15B(a), the
registration of the predecessor will be
deemed to remain effective as the
registration of the successor if the
successor, within 30 days after the
succession, files an application for
registration on Form MA and the
predecessor files a notice of withdrawal
from registration with the Commission
on Form MA–W. The rule further
provides that the registration of the
predecessor municipal advisor will
cease to be effective as the registration
of the successor municipal advisor 45
days after the application for
registration on Form MA is filed by the
successor.1295 In other words, the 45day period will not begin to run until
a complete Form MA has been filed by
the successor with the Commission.
This 45-day period is consistent with
Exchange Act Section 15B(a)(2),
pursuant to which the Commission has
45 days to grant a registration or
institute proceedings to determine if a
registration should be denied.1296
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Succession by Amendment
Rule 15Ba1–7(b) provides that,
notwithstanding Rule 15Ba1–7(a), if a
municipal advisor succeeds to and
continues the business of a registered
predecessor municipal advisor, and the
succession is based solely on a change
rely on Rule 15Ba1–7 unless it is acquiring or
assuming substantially all of the assets and
liabilities of the predecessor’s municipal advisor
business, or there has been no practical change of
control. See General Instruction 1 to Form MA.
The Commission will not apply Rule 15Ba1–7 to
a reorganization that involves only registered
municipal advisors. See Proposal, 76 FR 860. In
those situations, the registered municipal advisors
need not rely on the rule because they can continue
to rely on their existing registrations. The rule also
will not apply to situations in which the
predecessor intends to continue to engage in
municipal advisory activities. Otherwise, confusion
may result as to the identities and registration
statuses of the parties.
1294 See 17 CFR 240.15b1–3. See also Registration
of Successors to Broker-Dealers and Investment
Advisers, Exchange Act Release No. 31661
(December 28, 1992), 58 FR 7 (January 4, 1993)
(providing interpretive guidance regarding
amendments to Rule 15b1–3).
1295 See Rule 15Ba1–7(a).
1296 See 15 U.S.C. 78o–4(a)(2).
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in the predecessor’s date or state of
incorporation, form of organization, or
composition of a partnership, the
successor may, within 30 days after the
succession, amend the registration of
the predecessor municipal advisor on
Form MA to reflect these changes. Such
an amendment will be deemed an
application for registration filed by the
predecessor and adopted by the
successor.
In all three types of successions
specified in Rule 15Ba1–7(b) (change in
the date or state of incorporation,
change in form of organization, and
change in composition of a partnership),
the predecessor must cease operating as
a municipal advisor. As stated in the
Proposal, the Commission believes that
it is appropriate to allow a successor to
file an amendment to the predecessor’s
Form MA in these types of successions
because such successions do not
typically result in a change of control of
the municipal advisor.1297
8. General Instructions and Glossary
The Commission proposed a set of
instructions, which includes general
instructions for proper completion and
submission of Forms MA, MA–I, MA–
W, and MA–NR (‘‘General
Instructions’’),1298 as well as specific
instructions relating to each of the forms
individually, as applicable. A glossary
of terms (‘‘Glossary’’) is included at the
end of the General Instructions to help
applicants complete the forms. As
discussed in the Proposal, the
definitions in the Glossary generally are
derived from the terms in Exchange Act
Section 15B(e),1299 the definitions in
Rule 15Ba1–1,1300 and Form ADV.1301
For ease of reference, the Commission
proposed one Glossary to define terms
that may appear in any or all of the
forms. All terms that are defined or
described in the Glossary appear in the
forms in italics.
The Commission did not receive any
comments on the General Instructions
and Glossary and is adopting the
General Instructions and Glossary
generally as proposed. However, some
1297 See
Proposal, 76 FR 860.
MA–W is for withdrawal from
registration as a municipal advisor, and Form MA–
NR is for the appointment of an agent for service
of process by a non-resident municipal advisor,
non-resident general partner or managing agent of
a municipal advisor, or non-resident natural person
associated with a municipal advisor and engaged in
municipal advisory activities on behalf of the
municipal advisor. See supra Sections III.A.4.b. and
III.A.6. (discussing Forms MA–W and MA–NR,
respectively).
1299 See 15 U.S.C. 78o–4(e).
1300 See Rule 15Ba1–1. See also Proposal, 76 FR
839.
1301 See 17 CFR 279.1.
1298 Form
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revisions have been made to clarify or
modify instructions and definitions or
to provide additional guidance, as
discussed more fully below. In
particular, the instructions are being
revised to reflect that Form MA–I, as
adopted, will not serve as a registration
form and that municipal advisory firms,
rather than natural persons (other than
sole proprietors), have the obligation to
file and complete Form MA–I. In
addition, some sections of the General
Instructions have been reorganized to
enhance their readability, three new
instructions have been added,
additional defined terms have been
introduced and included in the
Glossary, and one term has been
removed from the Glossary.
General Instruction 1, as proposed,
directed applicants to the Commission’s
Web site for additional information
about the Commission’s rules regarding
municipal advisors and the Exchange
Act. General Instruction 1, as adopted,
notes that a comprehensive explanation
of the form requirements is provided in
this release.
General Instruction 2, as proposed,
discussed who should file Form MA
and Form MA–I and explained that
these forms must be used to register
with the Commission and to amend
previously submitted Forms MA and
MA–I. The instruction also discussed
the responsibility of sole proprietors to
file both forms. General Instruction 2, as
proposed, further included information
regarding voluntary registration for
certain individuals; the requirement that
a Form MA–NR must be submitted for
municipal advisors and general partners
and managing agents of municipal
advisors that are not residents of the
United States; and the requirement that
a municipal advisor that is no longer
required to be registered must file Form
MA–W.
As adopted, General Instruction 2 has
been revised for clarity and now also
provides more details about the use of
Form MA. For example, it now notes the
requirement for a municipal advisor that
registers on Form MA to submit an
annual update of that form.1302
General Instruction 2 has been revised
to reflect the fact that Form MA–I is no
longer a registration form. It explains
that municipal advisory firms must
complete and file Form MA–I on behalf
of natural persons associated with the
firm and engaged in municipal advisory
activities on behalf of the firm,
including employees of the firm. In
1302 The instruction, as proposed, referred only to
amendments, which may have implied that
additional filings are required only in the instance
of changes in the information provided on
previously-submitted forms.
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addition, General Instruction 2 notes
that independent contractors are
included in the definition of
‘‘employee’’ of a municipal advisor for
purposes of a firm’s obligation to
complete and file Form MA–I.1303 The
instruction explains that Form MA–I is
also used to amend a previously
submitted Form MA–I.
With regard to Form MA–NR, General
Instruction 2 now more clearly indicates
that every municipal advisory firm must
file with the firm’s Form MA a
separately completed and executed
Form MA–NR for every general partner
and/or managing agent of a firm that is
a non-resident. In addition, the
instruction has been revised to indicate
that municipal advisory firms must also
file Form MA–NR for every non-resident
natural person associated with the firm
and engaged in municipal advisory
activities on the firm’s behalf together
with the Form MA–I related to the
person. General Instruction 2 indicates
that firms have an obligation to file
Form MA–NR in these circumstances,
regardless of whether the firm itself is
domiciled in the United States or is a
non-resident filing a Form MA–NR on
its own behalf. In addition, General
Instruction 2 clarifies that a Form MA–
NR for a non-resident general partner or
managing agent of a municipal advisor
must be filed with the Form MA of the
municipal advisor. The instruction, as
adopted, also explains that, unlike the
other forms in the Form MA series,
which are completed online and signed
electronically, Form MA–NR must be
printed out and signed manually by
both the non-resident and the person
designated as agent for service of
process. Each of the signatures must be
separately notarized, and a scanned
copy of the signed and notarized form
must then be attached as a PDF file to
the electronically-completed Form MA
or Form MA–I. To emphasize the
importance of submitting a Form MA–
NR, where required, General Instruction
2, as adopted, includes a warning that
failure to attach a signed and notarized
Form MA–NR for a non-resident
municipal advisor, any non-resident
general partner or managing agent of a
municipal advisory firm, or nonresident natural person associated with
a municipal advisory firm who engages
in municipal advisory activities on
behalf of the firm may delay
Commission consideration of the
1303 Although independent contractors are
included in the definition of employee for purposes
of these forms in the Glossary (as both proposed
and adopted), their inclusion is noted in General
Instruction 2, as adopted, because it might
otherwise be overlooked.
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municipal advisor’s application for
registration.
General Instruction 2 indicates that
Form MA–W does not need to be
completed when a natural person with
respect to whom a municipal advisory
firm filed Form MA–I is no longer
associated with the firm or no longer
engaged in municipal advisory activities
on behalf of the firm. The instruction
now explains that the firm must
indicate this change by filing an
amendment to Form MA–I.
The proposed instructions in General
Instruction 2 regarding voluntary
registration as a municipal advisor have
been deleted, as the purpose for which
this option was created is no longer
relevant.1304
General Instruction 3, as proposed,
instructed applicants with respect to the
organization of Form MA (for example,
that Form MA also includes Schedules
A, B, C, and D, as well as Criminal
Action, Regulatory Action, and Civil
Judicial Action DRPs) and made clear
that an applicant must complete all
items in Form MA. General Instruction
3 is being adopted substantially as
proposed, with only minor revisions,
including an explanation that Form MA
includes an ‘‘Execution Page’’ where the
form is signed.
General Instruction 4, as proposed,
provided comparable instructions with
respect to the organization and
1304 The Commission notes that several
commenters raised concerns regarding the
interaction of the Commission’s proposed rule
regarding voluntary municipal advisor registration
with amendments that had been proposed in
November 2010 to the Commission’s ‘‘Pay-to-Play
Rule.’’ See, e.g., ICI Letter and MFA Letter. See also
Investment Advisers Act Release No. 3010
(November 10, 2010), 75 FR 77052 (December 10,
2010) (Pay-to-Play Proposed Amendments); and
Proposal, 76 FR 832 n.104 and accompanying text.
The Commission notes that it adopted amendments
to its Pay-to-Play Rule on June 22, 2011. See Rules
Implementing Amendments to the Investment
Advisers Act of 1940, Investment Advisers Act
Release No. 3221 (June 22, 2011), 76 FR 42950 (July
19, 2011). As proposed, the amendments to the Payto-Play Rule would have excepted only registered
municipal advisors from that rule’s ban on
compensating third-party solicitors. If the
amendments had been adopted as proposed, an
investment adviser may have been unable to hire
an affiliated solicitor to solicit government entities
on its behalf (absent the option for voluntary
municipal advisor registration) because affiliated
solicitors would not fall within the statutory
definition of municipal advisor. The final
amendments to the Pay-to-Play Rule, however,
permit advisers to compensate municipal advisors
and Commission registered investment advisers and
broker-dealers for soliciting government entities if
they are subject to restrictions substantially
equivalent to or more stringent than the Pay-to-Play
Rule. See id. See also Rule 206(4)–5 under the
Investment Advisers Act (17 CFR 275.206(4)(5)).
Consequently, the option of voluntary registration
as a municipal advisor for persons undertaking
solicitation of a municipal entity is no longer
necessary.
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completion of Form MA–I and the
schedules and the DRPs required by that
form. General Instruction 4 is being
revised to state that Form MA–I asks
questions about sole proprietors and
natural persons associated with a
municipal advisory firm and engaged in
municipal advisory activities on behalf
of the firm, and to reflect the fact that
Form MA–I, as adopted, is not a
registration form.
General Instructions 5–7 are being
adopted substantially as proposed, with
revisions to reflect the fact that
municipal advisory firms, not natural
persons associated with the firms and
engaged in municipal advisory activities
on behalf of the firms, must sign and file
Form MA–I. However, the order of these
instructions has been rearranged in their
adopted version for purposes of clarity.
First, General Instruction 5 (in the
order as adopted) sets forth who must
sign Form MA or MA–I. General
Instruction 5 explains that such person
will be a sole proprietor (in the case of
a sole proprietorship), a general partner
(in the case of a partnership), an
authorized principal (in the case of a
corporation), and, for all others, an
authorized individual who participates
in managing or directing the municipal
advisor’s affairs.1305 It further makes
clear that in all cases the signature
should be a typed name. Next, General
Instruction 6 makes clear where Form
MA must be signed, explaining that
domestic municipal advisors are
required to execute the Domestic
Execution Page to Form MA, while nonresident municipal advisors are required
to execute the Non-Resident Municipal
Advisor Execution Page.1306 General
Instruction 7 provides that a municipal
advisory firm signs Item 7 of Form MA–
I.
General Instructions 8 and 9 discuss
when to amend and/or update Forms
MA and MA–I respectively, as
discussed above.1307 General Instruction
8 (which pertains to Form MA), has
been adopted substantially as proposed,
but has been revised to distinguish more
clearly between an amendment and an
annual update. To clarify how
amendments and updates will work in
the electronic filing system, the
instruction also now explains that each
time a firm accesses its Form MA after
its initial filing of the form, the
1305 Because natural persons that are not sole
proprietors are not required to file Form MA–I, the
part of General Instruction 5 set forth in the
Proposal that stated that a natural person filing
Form MA–I on his or her own behalf must sign the
form has been deleted.
1306 See supra Section III.A.6. (discussing Rule
15Ba1–6 and Form MA–NR).
1307 See supra Section III.A.5.
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information from the firm’s most recent
previous filing will appear. Only the
information that has changed will need
to be amended; the applicant will not
need to complete the entire form again.
The statement in General Instruction 8
regarding the requirement for a nonresident municipal advisor to amend its
form and attach an updated opinion of
counsel has been revised to more
accurately reflect the required content of
the opinion of counsel as stated on
Form MA.1308 General Instruction 9, as
proposed, concerned when Form MA–I
(for natural person municipal advisors)
needs ‘‘to be updated.’’ The instruction
has been revised in its adopted form to
state generally that Form MA–I must
‘‘be amended’’ whenever information
previously provided on the form
becomes inaccurate.1309
General Instruction 10, as proposed,
provided that an applicant must
complete and file the forms
electronically. As adopted, General
Instruction 10 provides that a municipal
advisor must complete and submit the
relevant form, including any required
attachments, electronically. General
Instruction 10 reflects the change to
Rule 15Ba1–2(c), as adopted,1310 that
Form MA is considered filed upon
submission of a completed Form MA,
together with all additional required
documents, including all required
filings of Form MA–I (17 CFR 249.1310),
to EDGAR. General Instruction 10 also
explains that when a municipal
advisor’s submitted Form MA is
accepted by the Commission, the
municipal advisor will receive an SEC
file number. General Instruction 11 is
being adopted to provide more specific
information about how to electronically
file the forms in the Form MA series
and, specifically, how to obtain access
to EDGAR to do so.1311
A new General Instruction 12 has
been added to the General Instructions,
as adopted, to clarify what a municipal
advisor (or, in the case of a firm, its
authorized representative) represents by
signing and executing the form as a
1308 See supra note 1264 and accompanying text
for the revised language.
1309 The instruction no longer states that every
‘‘natural person municipal advisor’’ must amend
Form MA–I because the rule, as adopted, requires
municipal advisory firms, and not natural persons
(other than sole proprietors), to complete and file
Form MA–I. See Rule 15Ba1–2(b)(1) of the adopted
rules.
1310 See supra note 971 and accompanying text.
1311 See supra note 961. General Instructions 12
and 13 as proposed, regarding self-certification by
municipal advisors filing on Form MA and Form
MA–I, have been removed, because, as discussed
above, the Commission has eliminated the selfcertification requirement in Form MA and Form
MA–I as adopted.
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whole.1312 General Instruction 12
explains that, by signing the Execution
Page of Form MA, the authorized
signatory of a domestic municipal
advisory firm is appointing the
Secretary of State or other legally
designated officer of the state in which
the firm maintains its principal office
and place of business as the firm’s agent
to receive service of process.1313 The
signatory is also attesting to the truth
and correctness of the information
provided in the form and declaring that
the firm’s books and records will be
preserved and available for inspection
and that any person having custody of
the books and records is authorized to
make them available to federal
regulators.
General Instruction 12 further
explains that a signatory on behalf of a
non-resident municipal advisory firm
must use the version of the Execution
Page of Form MA that is specifically
required for non-resident firms. Besides
attesting to the truth and correctness of
the information provided on the form
and making the same representations as
a U.S. firm regarding books and records,
the signatory on behalf of the firm is
agreeing to provide, at the firm’s own
expense, current, correct, and complete
copies of its books and records to the
SEC upon request. The instruction
explains that a non-resident firm must
designate an agent for service of process
on a separate form, Form MA–NR.
General Instruction 12 explains that
an authorized signatory of a domestic
municipal advisory firm filing Form
MA–I with respect to a natural person
who is associated with the firm and
engaged in municipal advisory activities
on behalf of the firm, by signing the
Execution Page of Form MA–I, is
attesting to the truth and correctness of
the information provided in the form.
The instruction also explains that the
authorized signatory is attesting that the
firm has obtained and retained written
consent from the natural person
associated with the firm that service of
any civil action brought by, or notice of
any proceeding before, the SEC or any
SRO in connection with the individual’s
municipal advisory activities may be
given by registered or certified mail to
the individual’s address provided in
Item 1 of the form.
1312 General Instruction 12 does not introduce
new substantive requirements that are being added
in the adopting phase of this rulemaking. They were
set forth in the forms, as proposed, and are now
being added to the General Instructions in order to
highlight them for applicants preparing to file. See
also supra notes 1150–1156 and accompanying text.
1313 See also supra notes 1275–1287 and
accompanying text.
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General Instruction 12 further
explains that by signing the Execution
Page of Form MA–I, a sole proprietor
filing Form MA–I is consenting that
service of process may be given by
registered or certified mail to the
address the sole proprietor has supplied
in Item 1 of the form and is also
attesting to the truth and correctness of
the information he or she has provided
in the form.
General Instruction 13, as adopted,
(General Instruction 14 as proposed)
discusses the requirement for a nonresident municipal advisory firm to
attach a legal opinion to its Form MA
that the municipal advisor can, as a
matter of law, provide the Commission
with access to its books and records and
that the municipal advisor can, as a
matter of law, submit to inspection and
examination by the Commission.1314 As
adopted, General Instruction 13 reflects
the fact that the opinion of counsel that
non-residents must file no longer needs
to state that the municipal advisor can
submit to ‘‘onsite’’ inspection and
examination.1315
The Commission has also added new
General Instruction 14 to list together in
one place all the circumstances in
which additional documents must be
attached to a Form MA or Form MA–I.
The list of such documents does not
include any new requirements that were
not included in the Proposal. General
Instruction 14 has been added for
purposes of clarity and convenience.
The required documents enumerated
include: (1) any documents relating to
criminal actions, as specified in the
Criminal Action DRPs of Form MA and
Form MA–I, and any other supporting
documentation; (2) a manually-signed
Form MA–NR for each non-resident for
whom such form is required; 1316 (3) any
written document (e.g., board resolution
or power of attorney) authorizing a
signatory to sign a Form MA–NR; and
(4) any written contractual agreements
relating to Form MA–NR; and (5) the
required opinion of counsel for nonresident municipal advisory firms.
The Commission has added new
General Instruction 15 to provide clarity
1314 See
supra note 1154 and accompanying text.
supra note 1280 and accompanying text.
1316 Form MA–NR, by which a non-resident
municipal advisor designates an agent for service of
process in the U.S., is accessed electronically via
links within Form MA and Form MA–I. The
information requested by the form may be entered
online. However, the form must be printed out and
signed manually—both by the applicant (an
authorized signatory in the case of a firm) and by
the designated agent for service of process—and
each of the signatures must be notarized. After the
signatures and notarizations are completed, Form
MA–NR must be attached in PDF format to the
Form MA or Form MA–I.
1315 See
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with respect to filing deadlines. General
Instruction 15 provides that if the
deadline for submitting an initial filing,
annual update, or amendment to a form
occurs on a Saturday, Sunday, or
holiday on which the Commission is not
open for business, then the deadline
shall be the next business day.
The General Instructions also provide
some instructions and explanations
specific to certain items in Form MA
and Form MA–I.1317 In addition, the
General Instructions provide some
instructions and explanations specific to
Form MA–NR. Specific Instruction 1 for
Form MA, as adopted, explains that a
municipal advisor that is not currently
registered as a municipal advisor and
has taken over the business of another
municipal advisor or was registered as
a municipal advisor but has changed its
structure or legal status will be a new
organization with registration
obligations under the Exchange Act.1318
It further explains that an applicant not
registered with the SEC as a municipal
advisor that is acquiring or assuming
substantially all of the assets and
liabilities of the advisory business of a
registered municipal advisor will be
required to file a new application for
registration on Form MA within 30
calendar days after the succession. The
instruction also provides that, once the
new registration is effective, Form MA–
W (as described above) must be filed to
withdraw the registration of the
acquired municipal advisor. The
instruction also explains that, if a new
municipal advisor is formed solely as a
result of a change in the form of
organization or in the composition of a
partnership or the date or the state of
incorporation, and there has been no
practical change in control or
management, the applicant will be
permitted to amend the existing
registration to reflect the changes by
filing an amendment within 30 calendar
days after the change or reorganization.
Specific Instruction 2 for Form MA is
being adopted substantially as proposed
and has been revised only for clarity
and to correct certain citations that have
changed. The instruction provides
guidance for newly-formed municipal
advisors regarding how to respond to
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1317 As
proposed, the sections of the General
Instructions that explained how to complete certain
items in Form MA and Form MA–I did not have
names. As adopted, these sections are now called
‘‘Specific Instructions for Certain Items in Form
MA’’ and ‘‘Specific Instructions for Certain Items in
Form MA–I.’’
1318 Specific Instruction 1 for Form MA as
adopted has been significantly revised for purposes
of clarity but includes no substantive changes. See
also infra Section III.A.7, regarding Rule 15Ba1–7,
adopted as part of this rulemaking, upon which this
instruction is based.
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several questions in Item 4 of Form MA
(described above) that may be difficult
to answer when the applicant for
registration has not been in existence for
a significant amount of time. The
instruction advises that, for a newlyformed municipal advisor, responses
should reflect the applicant’s current
municipal advisory activities (i.e., its
activities at the time of filing, with
certain exceptions). With respect to
specified questions regarding the
applicant’s compensation arrangements,
the instructions provide that the
applicant base its responses on the types
of compensation it expects to accept.
Further, with respect to its business
activities relating to municipal
securities, the applicant is instructed to
base its responses on the types of
municipal advisory activities in which
it expects to engage during the next
year.
Specific Instruction 3 for Form MA is
being adopted substantially as
proposed, with non-substantive
revisions. The instruction explains that
Schedule D is to be completed if any
response to Form MA requires further
explanation, or if the applicant wishes
to provide additional information.
The Specific Instructions for Certain
Items in Form MA–I, as adopted, have
been revised to reflect the fact Form
MA–I is not a registration form and that
municipal advisory firms, rather than
natural persons (other than sole
proprietors), have the obligation to
complete and file Form MA–I. Specific
Instruction 1 for Form MA–I explains
that, in Item 1 of Form MA–I, the
municipal advisory firm must enter the
individual’s CRD Number (if assigned),
the individual’s social security
number,1319 and the addresses of all
offices at which the individual is or will
be physically located or from which the
individual is or will be supervised, even
if the individual does not work at that
location.1320
Specific Instruction 2 for Form MA–
I is being adopted substantially as
proposed, with revisions made for
clarity. The instruction emphasizes that,
for purposes of completing Item 2 to
Form MA–I, the firm must enter all the
1319 As discussed above, social security numbers
will not be made publicly available. This
information is necessary in connection with the
Commission’s enforcement and examination
functions pursuant to Section 15B(c) of the
Exchange Act (15 U.S.C. 78o–4(c)). See Proposal, 76
FR 840, note 171.
1320 General Instruction 1 to Form MA–I in its
adopted form has been expanded to provide more
explanation for a firm that submits Form MA–I on
behalf of natural persons associated with the firm
and engaged in municipal advisory activities on the
firm’s behalf, but no new requirements have been
added.
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other names that the individual is using,
has used, is known or has been known
by, other than the individual’s legal
name, since the age of 18, which
includes nicknames, aliases, and names
used before and after marriage.
Specific Instruction 3 for Form MA–
I is being adopted substantially as
proposed, but expanded with more
information. The instruction explains
that, for purposes of Item 3, with respect
to the individual’s residential history for
the past 5 years, post office boxes may
not be used to complete the response
and the firm may not leave any gaps in
the individual’s residential history
greater than three months. As adopted,
this instruction also includes the
statement: ‘‘This information is needed
for regulatory purposes. However, the
version of completed Form MA–I that
will be available for viewing by the
public will not show the private
residential addresses that you enter.’’
Specific Instruction 4 for Form MA–
I is being adopted substantially as
proposed, with an added clarification.
The instruction provides that, with
respect to Item 4 of Form MA–I, the
individual’s employment history for the
past 10 years must be provided with no
gaps greater than three months; that the
history should account for full-time and
part-time employment, selfemployment, military service and
homemaking; and that unemployment,
full-time education, extended travel,
and other similar statuses should be
included. The added clarification
explains that such statuses should be
entered on the line provided for ‘‘Name
of Municipal Advisor or Company.’’
Specific Instruction 5 for Form MA–
I, regarding Item 5 of Form MA–I
(‘‘Other Business’’), has been revised in
its adopted version. Instead of restating,
as proposed, some of the information
requests specified in Item 5, the
instruction explains that other
businesses in which the individual ‘‘is
engaged’’ is intended to capture such
engagements as a proprietor, partner,
officer, director, or employee (including
independent contractor, trustee, agent or
otherwise). As adopted, the instruction
also informs firms that if the number of
hours per week that individuals devote
to the other business varies, the firms
should provide an average.
Specific Instruction 6 for Form MA–
I, regarding Item 6 of Form MA–I, is
being adopted as proposed. The
instruction advises firms that
affirmative responses to certain
disclosure questions in the form could
make an individual subject to a
statutory disqualification.
Specific Instruction 7 for Form MA–
I is being adopted as proposed, with an
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added reminder for non-residents. The
instruction indicates that, as with Form
MA, the form is to be signed (in Item 7
of Form MA–I) by typing a signature in
the designated field and makes clear
that, by typing a name, the signatory
acknowledges and represents that the
entry constitutes in every way, use, or
aspect, his or her legally binding
signature. The added reminder advises
the firm that if the individual is a nonresident, the firm must attach a
manually-signed Form MA–NR to the
form.
The General Instructions contain a
new section called ‘‘General
Instructions to Form MA–NR’’ that
consists of instructions and
explanations specific to Form MA–NR.
General Instruction 1 to Form MA–NR
repeats the information in General
Instruction 2, discussed above,
regarding when Form MA–NR must be
filed.
General Instruction 2 to Form MA–NR
describes the circumstances in which
more than one Form MA–NR must be
filed by a municipal advisory firm. For
example, the instruction states that a
non-resident municipal advisory firm
filing a Form MA for itself would also
need to file Form MA–NR for each of its
non-resident general partners and
managing agents, even if a Form MA–
NR had been previously filed by another
municipal advisor for the general
partner or managing agent. In addition,
a firm filing Form MA–I must attach
Form MA–NR for every non-resident
natural person associated with the firm
and engaged in municipal activities on
the firm’s behalf.
General Instruction 3 to Form MA–NR
describes when a Form MA–NR must be
filed at times other than when a
municipal advisor submits its initial
application for registration. The
instruction explains that a registered
municipal advisory firm must file a
Form MA–NR within 30 days of the firm
becoming a non-resident. The same
applies when a general partner or
managing agent of the municipal
advisory firm becomes a non-resident,
or a non-resident becomes a general
partner or managing agent of the firm
after the firm’s initial application for
registration. In such cases, the
municipal advisor must file an
amendment to Form MA with the new
Form MA–NR attached. The instruction
explains that a municipal advisory firm
must also file Form MA–NR with Form
MA–I if, after the firm’s initial
registration, a non-resident natural
person becomes associated with the firm
and engages in municipal advisory
activities on the firm’s behalf. In
addition, a firm must file Form MA–NR
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if a natural person associated with the
firm and engaged in municipal advisory
activities on behalf of the firm becomes
a non-resident after the firm has filed
Form MA–I relating to that individual.
The firm must file Form MA–NR within
30 days of the individual becoming a
non-resident.1321
General Instruction 4 to Form MA–NR
describes when a new Form MA–NR
must be filed. The instruction indicates
that a new Form MA–NR must be filed
promptly if a previously-filed Form
MA–NR becomes invalid or
inaccurate.1322 This includes any
change to the name or address of the
non-resident municipal advisory firm,
general partner, managing agent, or
natural person associated with the firm
and engaged in municipal advisory
activities on behalf of the firm, or any
change to the name or address of the
agent of service of process of such nonresident, to which the previously-filed
Form MA–NR relates. The instruction
explains that a non-resident must
promptly appoint a successor agent for
service of process and the municipal
advisor must file a new Form MA–NR
if the non-resident discharges its
identified agent for service of process or
if its agent for service of process
becomes unwilling or unable to accept
service on behalf of the non-resident.
In the Proposal, the term ‘‘nonresident’’ was defined as an individual,
corporation, or partnership or other
unincorporated organization or
association that resides in or has his or
its principal office and place of business
in ‘‘any place not in the United States.’’
As adopted, the language in the term
‘‘non-resident’’ that determines whether
an individual, corporation, or
partnership or other unincorporated
organization or association is a ‘‘nonresident’’ has been slightly modified to
whether the person resides in or has his
or its principal office and place of
business in ‘‘any place not subject to the
jurisdiction of the United States.’’ The
language has been changed to clarify
that persons that reside or have their
principal office and place of business in
United States territories do not fall
within the definition of ‘‘non-resident.’’
1321 General Instruction 3 to Form MA–NR also
contains a note reminding non-resident municipal
advisory firms of two additional requirements for
non-resident municipal advisory firms that are
discussed in General Instruction 12 (to complete
Form MA Execution Page for non-residents and the
undertaking regarding books and records) and
General Instruction 13 (to attach an opinion of
counsel that the firm can provide the Commission
with access to its books and records and can submit
to inspection and examination by the Commission).
1322 A new Form MA–NR is filed by submitting
an amendment to Form MA with a new Form MA–
NR attached.
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The Glossary of Terms is being
adopted substantially as proposed.
However, the Glossary, as adopted,
contains some revisions that are being
made for clarity. As adopted, the
Glossary includes some revisions to
terms that reflect changes to the
definitions being adopted in Rule
15Ba1–1. For example, the definition of
‘‘Guaranteed Investment Contract’’ has
been revised to clarify that the contract
at issue must relate to investments of
proceeds of municipal securities or
municipal escrow investments. The
definition of the term ‘‘municipal
advisor,’’ as adopted, has been revised
to make clear that the definition is
subject to the exclusions that are being
adopted under Rule 15Ba1–1(d)(2) 1323
and the exemptions under Rule 15Ba1–
1(d)(3).1324 Likewise, the definition of
the term ‘‘obligated persons,’’ consistent
with the definition in adopted Rule
15Ba1–1, has been revised to state that
the term does not include a person
whose financial information or
operating data is not material to a
municipal securities offering or the
federal government. The Glossary
contains other revisions to terms that
are consistent with revisions to the
definitions in Rule 15Ba1–1, as adopted.
The Glossary includes some new
definitions that were not in the
Proposal. For example, the Glossary
now defines the term ‘‘federal regulatory
agency’’ to include any federal banking
agency and the National Credit Union
Administration. The Glossary also
defines the term ‘‘state regulatory
agency’’ to include any State securities
commission (or any agency or officer
performing like functions); State
authority that supervises or examines
banks, savings associations, or credit
unions; or State insurance commission
(or any agency or office performing like
functions to the above). The definitions
of the terms ‘‘federal regulatory agency’’
and ‘‘state regulatory agency’’ are
consistent with the language in
Exchange Act Section 15(b)(4)(H).1325
The Glossary has also been revised to
include a new definition of the term
‘‘affiliate, affiliated, affiliation,’’ which
is derived from the definition of
‘‘advisory affiliate’’ for Form ADV.
The term ‘‘natural person municipal
advisor’’ has been removed from the
Glossary, as adopted. In the Proposal,
1323 17
CFR 240.15Ba1–1(d)(2).
CFR 240.15Ba1–1(d)(3).
1325 The statutory disqualification language of
Section 15(b)(4)(H) is referenced in Exchange Act
Section 15B(c)(2), which describes the
Commission’s power to censure, place limitations
on the activities, functions, or operations, or
suspend, or revoke the registration of a municipal
advisor.
1324 17
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the term was defined to mean any
natural person that is a municipal
advisor, including sole proprietors. The
term had been included in the Proposal
to collectively describe natural persons
who were required to file Form MA–I.
Because municipal advisory firms,
rather than natural persons (other than
sole proprietors), are now responsible
for filing Form MA–I, the term is no
longer necessary, and is therefore being
removed from the Glossary.
9. Rule 15Bc4–1: Persons Associated
With Municipal Advisors
As noted in the Proposal, Section
975(c)(5) of the Dodd-Frank Act
provides the Commission with authority
to censure or place limitations on the
activities or functions of any person
associated with a municipal advisor or
to suspend or bar any such person from
being associated with a municipal
advisor. As discussed in the Proposal,
however, it appears that a technical
error was made in the final draft of this
provision.1326 Specifically, Section
975(c)(5) of the Dodd-Frank Act
provides that Section 15B(c)(4) of the
Exchange Act be amended ‘‘by inserting
‘or municipal advisor’ after ‘municipal
securities dealer or obligated person’
each place that term appears.’’ 1327 At
the time the Dodd-Frank Act was
enacted, however, Section 15B(c)(4) of
the Exchange Act included the term
‘‘municipal securities dealer,’’ but did
not include the phrase ‘‘municipal
securities dealer or obligated person’’
(emphasis added).
To address any ambiguity created by
this error, the Commission stated in the
Proposal its intent to recommend a
technical amendment to Section
975(c)(5) of the Dodd-Frank Act.1328 To
date, however, the Exchange Act has not
been amended to correct this technical
error. Therefore, to clarify the
Commission’s interpretation of Section
15B(c)(4) of the Exchange Act, the
Commission is adopting new Rule
15Bc4–1 to make clear the
Commission’s understanding of its
authority with respect to associated
persons of municipal advisors.
Specifically, Rule 15Bc4–1 states that
the Commission has the authority to, by
order, censure or place limitations on
the activities or functions of any person
associated, seeking to become
associated, or, at the time of the alleged
misconduct, associated or seeking to
become associated with a municipal
advisor, or suspend for a period not
exceeding 12 months or bar any such
1326 See
Proposal, 76 FR 850, n.233.
Section 975(c)(5) of the Dodd-Frank Act.
1328 See Proposal, 76 FR 850, n.233.
person from being associated with a
broker, dealer, investment adviser,
municipal securities dealer, municipal
advisor, transfer agent, or nationally
recognized statistical rating
organization, if the Commission finds,
on the record after notice and
opportunity for hearing, that such
censure, placing of limitations,
suspension, or bar is in the public
interest and that such person has
committed any act, or is subject to an
order or finding, enumerated in
subparagraph (A), (D), (E), (H), or (G) of
paragraph (4) of Section 15(b) of the
Exchange Act, has been convicted of
any offense specified in subparagraph
(B) of such paragraph (4) within 10
years of the commencement of the
proceedings under section 15B(c)(4) of
the Exchange Act, or is enjoined from
any action, conduct, or practice
specified in subparagraph (C) of Section
15(b)(4). Rule 15Bc4–1 also states the
Commission’s interpretation that
Section 15B(c)(4) of the Exchange Act
makes it unlawful for any person, as to
whom an order is entered pursuant to
Section 15B(c)(4) or Section 15B(c)(5) of
the Exchange Act suspending or barring
him from being associated with a
municipal advisor is in effect, willfully
to become, or to be, associated with a
municipal advisor without the consent
of the Commission. Further, Rule
15Bc4–1 sets forth the Commission’s
understanding that it is unlawful for any
municipal advisor to permit such a
person to become, or remain, an
associated person without the consent
of the Commission, if such municipal
advisor knew, or, in the exercise of
reasonable care should have known, of
such order. Not only does the
Commission believe that such
interpretation is the only one that is
consistent with the Congressional intent
underlying Section 975(c)(5) of the
Dodd-Frank Act, and that any other
reading would produce the absurd
result that no amendment would be
made to Section 15(c)(4) of the
Exchange Act, but the Commission also
believes that this interpretation and the
adoption of Rule 15Bc4–1 are necessary
and appropriate to ensure that the
Commission may censure or place
limitations on the activities or functions
of any person associated with a
municipal advisor or to suspend or bar
any such person from being associated
with a municipal advisor.
the filing of an application to register as
a municipal advisor,1330 the
Commission must either: ‘‘(A) by order
grant registration, or (B) institute
proceedings to determine whether
registration should be denied. Such
proceedings shall include notice of the
grounds for denial under consideration
and opportunity for hearing and shall be
concluded within one hundred twenty
days of the date of the filing of the
application for registration. At the
conclusion of such proceedings, the
Commission, by order, shall grant or
deny such registration. The Commission
may extend the time for the conclusion
of such proceedings for up to ninety
days if it finds good cause for such
extension and publishes its reasons for
so finding or for such longer period as
to which the applicant consents.’’ 1331
In accordance with Exchange Act
Section 15B(a)(2), the Commission will
grant the registration of a municipal
advisor if the Commission finds that the
requirements of Section 15B of the
Exchange Act are satisfied. The
Commission will deny the registration
of a municipal advisor if the
Commission does not make such a
finding or if it finds that, if the applicant
were registered, its registration would
be subject to suspension or revocation
under Section 15B(c) of the Exchange
Act.1332
As discussed in the Proposal, the
information currently required by Form
MA–T is not reviewed by the
Commission prior to registration,
although the Commission retains full
authority to review such information
and examine any registered municipal
advisor at any time.1333 The
Commission intends that the permanent
registration process will entail a review
of each filed Form MA.
In considering whether to grant an
application for registration as a
municipal advisor, the Commission will
review the information provided on
Form MA. For example, as discussed in
the Proposal, the Commission may
perform cross checks of applicants
through the use of the applicant’s other
registration numbers, such as its CRD or
other SEC registration numbers, to the
extent available.1334 Also, the
Commission may review the disclosures
required by Item 9 of Form MA,
including the disciplinary history of an
applicant.1335 In addition, as discussed
B. Approval or Denial of Registration
As discussed in the Proposal,1329
Exchange Act Section 15B(a)(2)
provides that within forty-five days of
1330 The statute allows for a longer period if the
applicant consents. See 15 U.S.C. 78o–4(a)(2).
1331 See 15 U.S.C. 78o–4(a)(2).
1332 See 15 U.S.C. 78o–4(c).
1333 See Proposal, 76 FR 860.
1334 See id.
1335 See id.
1327 See
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1329 See
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in the Proposal, the municipal advisor
registration process will allow the
Commission and staff to ask questions
and, as needed, to request amendments
before granting an application for
registration.1336
C. Rule 15Ba1–8: Books and Records To
Be Made and Maintained by Municipal
Advisors
Section 17(a)(1) of the Exchange Act
provides, in pertinent part, that all
registered municipal advisors shall
make and keep for prescribed periods
such records, furnish such copies
thereof, and make and disseminate such
reports as the Commission, by rule,
prescribes as necessary or appropriate in
the public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Exchange Act.1337
With proposed Rule 15Ba1–7, the
Commission proposed to specify the
books and records requirements
applicable to municipal advisors.1338
The Commission is adopting Rule
15Ba1–7 as proposed, but renumbered
as Rule 15Ba1–8, with a few technical
clarifications, the addition of general
ledgers, and the addition of written
consents to service of process from
certain natural persons.
Record-Keeping for Municipal Advisors
As discussed in the Proposal, the
Commission based Rule 15Ba1–7(a) (as
adopted, Rule 15Ba1–8(a)) generally on
the books and records requirements for
broker-dealers and investment
advisers.1339 Rule 15Ba1–8(a), among
other things, requires a municipal
advisory firm to make and keep true,
accurate, and current certain books and
records relating to its municipal
advisory activities.1340 Specifically,
Rule 15Ba1–8(a) requires all municipal
advisory firms to make and keep
originals or copies of all written
communications received, and originals
or copies of all written communications
sent, by such municipal advisor
(including inter-office memoranda and
communications) relating to municipal
advisory activities, regardless of the
format of the communications.1341
1336 See
id.
15 U.S.C. 78q(a)(1).
1338 See Proposal, 76 FR 860–862. In addition,
Section 15B(b)(2)(G) of the Exchange Act provides
that the rules of the MSRB shall ‘‘prescribe records
to be made and kept by . . . municipal advisors and
the periods for which such records shall be
preserved.’’ 15 U.S.C. 78o–4(b)(2)(G).
1339 See Proposal, 76 FR 861, note 274 and
accompanying text.
1340 Therefore, the books and records listed in
Rule 15Ba1–8(a) are limited to those relating to a
municipal advisor’s municipal advisory activities.
1341 As discussed in the Proposal, materials
posted on a municipal advisor’s Web site relating
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Municipal advisory firms also must
keep all check books, bank statements,
general ledgers,1342 cancelled checks,
and cash reconciliations; a copy of each
version of the municipal advisor’s
policies and procedures, if any, that (i)
are in effect or (ii) at any time within the
last five years were in effect (not
including those in effect prior to the
effective date of Rule 15Ba1–8); and a
copy of any document created by the
municipal advisor that was material to
making a recommendation to a
municipal entity or obligated person
that memorializes the basis for that
recommendation. In addition, a
municipal advisory firm must keep all
written agreements (or copies thereof)
entered into by the municipal advisor
with any municipal entity, employee of
a municipal entity, or an obligated
person or otherwise relating to the
business of the municipal advisor as
such. Further, a municipal advisory firm
is required to keep a record of the names
of persons who are, or have been in the
past five years, associated with the
municipal advisor (not including
persons associated with the municipal
advisor prior to the effective date of
Rule 15Ba1–8); names, titles, and
business and residence addresses of all
persons associated with the municipal
advisor;1343 all municipal entities or
obligated persons with which the
municipal advisor is engaging or has
engaged in municipal advisory activities
in the past five years (not including
to municipal advisory activities are written
communications sent by the municipal advisor for
purposes of this provision. See Proposal, 76 FR 861,
note 275. The Commission notes that written
communications may be in electronic form, such as
emails or instant messages. Further, as discussed
above, in determining whether or not funds to be
invested constitute proceeds of municipal securities
for purposes of Rule 15Ba1–1(m), a person may rely
on representations in writing made by a
knowledgeable official of a municipal entity or
obligated person whose funds are to be invested
regarding the nature of such funds, provided that
the person seeking to rely on such representations
has a reasonable basis for such reliance. See Rule
15Ba1–1(m)(3). Similarly, in determining whether
or not funds to be invested or reinvested constitute
municipal escrow investments for purposes of Rule
15Ba1–1(h), a person may rely on representations
in writing made by a knowledgeable official of a
municipal entity or obligated person whose funds
are to be invested or reinvested regarding the nature
of such investments, provided that the person
seeking to rely on such representations has a
reasonable basis for such reliance. See Rule 15Ba1–
1(h)(2). Such representations provided by the
municipal entity or obligated person official
constitute written communications received by a
municipal advisor relating to municipal advisory
activities.
1342 As discussed below in this section, the
Commission is including ‘‘general ledgers’’ in the
final books and records rule.
1343 The Commission notes that this provision
does not cover persons who were previously and
are no longer associated with the municipal
advisor.
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those prior to the effective date of Rule
15Ba1–8); the name and business
address of each person to whom the
municipal advisor provides or agrees to
provide payment to solicit a municipal
entity, an employee of a municipal
entity, or an obligated person on its
behalf; and the name and business
address of each person that provides or
agrees to provide payment to the
municipal advisor to solicit a municipal
entity, an employee of a municipal
entity, or an obligated person on its
behalf.1344 Finally, a municipal advisory
firm must keep written consents to
service of process from each natural
person who is a person associated with
the municipal advisor and engages in
municipal advisory activities solely on
behalf of such municipal advisor.1345
Rule 15Ba1–8(b)(1) requires
municipal advisory firms to maintain
and preserve all books and records
required to be made for a period of not
less than five years, the first two years
in an easily accessible place. Further,
corporate governance documents, such
as articles of incorporation and stock
certificate books of the municipal
advisor, and those of any predecessor,
excluding those that were only in effect
prior to the effective date of Rule
15Ba1–8, must be maintained in the
principal office of the municipal advisor
and preserved until at least three years
after termination of the business or
withdrawal from registration as a
municipal advisor.
As discussed in the Proposal, Rule
15Ba1–7(d) (as adopted, Rule 15Ba1–
8(d)) is modeled on Rule 204–2 under
the Investment Advisers Act.1346
Specifically, Rule 15Ba1–8(d) permits,
and sets forth the requirements for,
electronic storage of the records
required to be maintained and preserved
pursuant to Rule 15Ba1–8. The rule
further sets forth requirements with
respect to the prompt 1347 provision of
1344 Proposed Rule 15Ba1–7 also required
municipal advisory firms to make and keep a record
of the initial or annual review, as applicable,
conducted by the municipal advisory firm of its
business in connection with its self-certification on
Form MA. Because the Commission is not adopting
a self-certification requirement, the Commission is
also not adopting this corresponding books and
records requirement.
1345 As discussed below in this section, the
Commission is including ‘‘written consents to
service of process from each natural person who is
a person associated with the municipal advisor and
engages in municipal advisory activities solely on
behalf of such municipal advisor’’ in the final books
and records rule.
1346 See 17 CFR 275.204–2. See also Proposal, 76
FR 861.
1347 For purposes of Rule 15Ba1–8(d), the
Commission interprets the term ‘‘prompt’’ to mean
making reasonable efforts to produce records that
are requested by the staff during an examination
without delay. The Commission believes that in
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records upon request by the
Commission or by its staff or other
representatives. In addition, Rule
15Ba1–8(e) provides that any books or
records made, kept, maintained, and
preserved in compliance with Rules
17a–3 and 17a–4 under the Exchange
Act, rules of the MSRB, or Rule 204–2
under the Investment Advisers Act,
which are substantially the same as the
books and records required to be made,
kept, maintained, and preserved under
Rule 15Ba1–8, will satisfy the recordkeeping requirements under Rule
15Ba1–8.1348 Subparagraph (e) of Rule
15Ba1–8 is designed to minimize the
record-keeping burden for municipal
advisory firms that are otherwise subject
to similar record-keeping
requirements.1349
In the Proposal, the Commission
requested comment on the proposed
books and records requirements.
Specifically, the Commission requested
comment regarding, among other things,
the types of documents and data that
should be retained; whether it is
appropriate for the books and records
requirements to be based on the books
and records requirements for brokerdealers and investment advisers; the
length of the period for maintaining and
preserving books and records; the
format of the records retained; and
whether the proposed requirements are
overly burdensome.1350
The Commission received several
letters that specifically addressed the
books and records requirements. One
commenter generally supported the
proposed record-keeping rule. This
commenter stated it does not oppose
establishing a five-year period for
municipal advisor record retention and
suggested that a record retention period
of five years should be the same for
broker-dealers, investment advisers, and
municipal advisors.1351 However, other
commenters criticized some of the
requirements as being too burdensome,
especially for small independent
municipal advisors.1352 For example,
many cases a municipal advisor could, and
therefore will be required to, furnish records
immediately or within a few hours of a request. The
Commission expects that only in unusual
circumstances would a municipal advisor be
permitted to delay furnishing records for more than
24 hours.
1348 See Rule 15Ba1–8(e).
1349 See Proposal, 76 FR 861.
1350 See id., at 862.
1351 See MSRB Letter I.
1352 See, e.g., letter from Gerald Gornish, Chief
Counsel, Pennsylvania Public School Employees’
Retirement System, Pennsylvania Municipal
Retirement System, Jeffrey B. Clay, Executive
Director, Pennsylvania Public School Employees’
Retirement System, and James B. Allen, Secretary,
Pennsylvania Municipal Retirement System, dated
February 22, 2011 (‘‘Pennsylvania Public School
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one commenter noted that the expense
required for firms to retain originals or
copies of all written communications,
internal or external, relating to their
municipal advisory activities caused
particular concern.1353 This commenter
recommended that this requirement be
eliminated, while all other books and
records requirements could remain.1354
Alternatively, this commenter suggested
that only certain communications with
a client or generated internally be
required to be kept.1355 Another
commenter stated that, because
independent municipal advisors neither
hold client accounts nor hold custody of
monies from clients, audited financial
statements should not be required,
particularly as they are costly and
burdensome for small firms.1356 This
commenter suggested that the
Commission should narrow the recordkeeping requirements to communication
material specifically relevant to
financing topics and financing
recommendations or advice.1357 One
commenter also requested that the
Commission clarify that every iteration
of commonly used and routinely
changing technical financial documents,
typically referred to as ‘‘numbers runs,’’
need not be retained, and that only
iterations either sent to a client or used
Employees’ Retirement Board Letter’’) (noting that
the Commission’s estimate of 181 burden hours for
books and records is not broken down further to an
individual municipal advisor); letter from John B.
Payne, Principal, B-Payne Group Financial
Advisors, dated March 28, 2011 (‘‘Bradley Payne
Letter’’) (‘‘I can manage and support fee and conflict
disclosures and outgoing email and client file
retention, but that is it.’’); letter from UFS Bancorp,
dated February 22, 2011 (‘‘UFS Bancorp Letter’’)
(‘‘[The 181-hour annual burden for books and
records] is nearly ten percent of a full-time person’s
time.’’); letter from Adam W. Rygmyr, Associate
General Counsel, TIAA–CREF, Individual &
Institutional Services, LLC, dated February 22, 2011
(stating that the books and records requirement
would largely duplicate existing record-keeping
requirements for broker-dealers).
1353 See Rule 15Ba1–8(a)(1) and NAIPFA Letter I
(‘‘The information technology and storage facilities
required to keep all email or similar electronic
communication and to segregate those that relate to
municipal advisory business from other unrelated
email is expensive. Firms would be required to
either outsource this function or develop the
capability in-house, which would necessitate hiring
one or more IT professionals. Either way, the cost
would be significant to firms with such limited
revenue.’’). See also letter from Thomas DeMars,
Managing Principal, Fieldman, Rolapp &
Associates, dated February 22, 2011 (‘‘Fieldman
Rolapp Letter’’) (recommending that the
Commission modify the record-keeping
requirements to eliminate the need to retain all
written communications, and clarify all other
record-keeping requirements); and letter from
Phillip C. Dotts, President, Public FA, Inc., dated
February 22, 2011 (‘‘Public FA Letter’’).
1354 See NAIPFA Letter I.
1355 See id.
1356 See Public FA Letter.
1357 See id.
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internally to form the basis for a
recommendation to a client must be
retained.1358
The Commission has carefully
considered the issues raised by
commenters and is adopting Rule
15Ba1–7 generally as proposed, but
renumbered as Rule 15Ba1–8 and with
modifications to include general
ledgers, as well as written consents to
service of process from each natural
person who is a person associated with
the municipal advisor and engages in
municipal advisory activities solely on
behalf of such municipal advisor.
General ledgers would reflect asset,
liability, reserve, capital, income and
expense accounts.1359 In the Proposal,
the Commission inadvertently omitted
general ledgers from proposed Rule
15Ba1–7. The Commission notes that
ledgers are part of the books and records
requirements for broker-dealers and
investment advisers, and would already
be made and kept by dually-registered
municipal advisors.1360 The
Commission believes that general
ledgers will assist its staff in
understanding a municipal advisor’s
business dealings and financial
condition, identifying and tracking
illicit expenses, identifying sources of
revenue that were previously
undisclosed or that pose a conflict of
interest, identifying and tracing possible
acts of fraud and violations of
applicable laws and rules (e.g., MSRB
Rule G–37 (Political Contributions and
Prohibitions on Municipal Securities
Business)), and conducting asset
verification. In addition, the
Commission notes that a municipal
advisor’s balance sheet and profit loss
statement are derived from the general
ledger.
The Commission believes it is also
appropriate to include in the recordkeeping requirement written consents to
service of process from each natural
person who is a person associated with
the municipal advisor and engages in
municipal advisory activities solely on
behalf of such municipal advisor. Under
proposed Rule 15Ba1–2(b), each natural
person who met the definition of
municipal advisor would have been
required to register as a municipal
advisor by filing Form MA–I.1361
Proposed Form MA–I included consent
to service of process that a natural
person would have been required to
execute. In contrast, adopted Rule
15Ba1–2(b) requires a person applying
1358 See
NAIPFA Letter I.
Rule 15Ba1–8(a)(2).
1360 See 17 CFR 240.17a–3(a)(2) and 17 CFR
275.204–2(a)(2).
1361 See proposed Rule 15Ba1–2(b).
1359 See
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for registration or registered as a
municipal advisor to complete Form
MA–I with respect to each natural
person who is a person associated with
the municipal advisor and engaged in
municipal advisory activities on its
behalf.1362 As such, Form MA–I no
longer includes consents to service of
process executed by such natural
persons. Because the Commission
would no longer receive these consents
to service of process as part of Form
MA–I, the Commission believes it is
appropriate to include in the recordkeeping requirement written consents to
service of process from each natural
person who is a person associated with
the municipal advisor and engages in
municipal advisory activities solely on
behalf of such municipal advisor.
Specifically, the Commission believes
that this requirement will help ensure
that such natural persons have indeed
executed consents to service of process
and will allow Commission staff to
examine such consents to service of
process.
With respect to concerns related to
the burden of the books and records
requirements, including the burden for
retaining originals or copies of all
written communications relating to
municipal advisory activities,1363 the
Commission continues to believe that
the final books and records
requirements are appropriate for all
municipal advisors because they will
facilitate the Commission’s inspections
and examinations of municipal advisors
and assist the Commission in evaluating
a municipal advisor’s compliance with
Section 15B of the Exchange Act, the
rules and regulations thereunder, and
MSRB rules. Moreover, even though it
recognizes that such requirements may
impose burdens and costs upon
municipal advisors, the Commission
understands that many municipal
advisors already make and keep certain
types of the books and records required
to be made and kept under Rule 15Ba1–
8(a) under other regulatory requirements
or general industry practices.
Specifically, because the books and
records required to be made and kept
under Rule 15Ba1–8(a) are generally
based on the existing books and records
requirements for broker-dealers and
investment advisers, the Commission
believes that many municipal advisors
would already be familiar and in
compliance with such requirements
because they are also registered as
broker-dealers or investment advisers.
Moreover, as noted above, to reduce the
burden that would result from the books
1362 See
1363 See
Rule 15Ba1–2(b).
supra notes 1353–1355.
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and records requirements, Rule 15Ba1–
8(e)(1) provides that any books or other
records made, kept, maintained, and
preserved in compliance with Rules
17a–3 and 17a–4 under the Exchange
Act, rules of the MSRB, or Rule 204–2
under the Investment Advisers Act,
which are substantially the same as the
books and records required to be made,
kept, maintained, and preserved under
Rule 15Ba1–8, will satisfy the
requirements of Rule 15Ba1–8.
With respect to those municipal
advisors that are not also registered with
the Commission as broker-dealers or
investment advisers, the Commission
recognizes that Rule 15Ba1–8
establishes new record-keeping
requirements for these entities and may
impact these entities to a greater degree
than entities that have previously
registered as broker-dealers or
investment advisers.1364 However, the
Commission believes that all municipal
advisors should be subject to the same
record-keeping requirements, regardless
of whether they have previously
registered with the Commission in
another capacity. As noted above, the
Commission believes that Rule 15Ba1–
8 is appropriate for all municipal
advisors because it will facilitate the
Commission’s inspections and
examinations of municipal advisors 1365
and assist the Commission in evaluating
a municipal advisor’s compliance with
Section 15B of the Exchange Act, the
rules and regulations thereunder, and
MSRB rules. The Commission also
believes that regulation of municipal
advisors is in the public interest and
will improve the protection of
municipal entities and investors.
Further, because the Commission is
adopting certain additional exemptions
from the definition of municipal
advisor, including an exemption for
persons providing advice with respect
to investment strategies that are not
plans or programs for the investment of
the proceeds of municipal securities or
the recommendation of and brokerage of
municipal escrow investments, the
burden of the books and records
requirements is similarly reduced (i.e.,
fewer persons would be required to
register as municipal advisors and the
record-keeping requirements would not
1364 See infra Sections VII.D.8.; VIII.D.3.a.; and
X.D. (discussing the costs and burdens of Rule
15Ba1–8).
1365 See 15 U.S.C. 78o-4(c)(7)(A). Based on the
Commission’s experience in conducting
examinations of broker-dealers and investment
advisers, which includes examinations of the types
of books and records required by Rule 15Ba1–8(a),
the Commission believes that the municipal advisor
books and records requirements under Rule 15Ba1–
8 will facilitate the Commission’s inspections and
examinations of municipal advisors.
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cover activities that fall under an
exemption or exclusion from the
definition of municipal advisor). The
Commission also notes that the burden
of the books and records requirements
for municipal advisors depends on the
complexity of the business of a
municipal advisor, which means
smaller municipal advisors would be
subject to proportionately lower burden
in complying with such
requirements.1366 Further, as noted
below, the Commission assumes that
municipal advisors will use the most
cost-effective method available,
depending on their size and specific
circumstances, to comply with Rule
15Ba1–8. The Commission understands
that many municipal advisors generally
make and keep the required records in
electronic form, which will likely
minimize the burdens and costs
associated with record-keeping.1367
Therefore, the Commission does not
believe Rule 15Ba1–8 will be overly
burdensome for municipal advisory
firms, including small municipal
advisory firms.1368
Finally, in response to comments, the
Commission confirms that only
iterations of ‘‘numbers runs’’ sent to a
client or that are used to form the basis
for a recommendation to a client must
be retained.1369 With respect to a
commenter’s suggestion that audited
financial statements should not be
required, the Commission notes that the
requirements of Rule 15Ba1–8 do not
apply to audited financial
statements.1370
Record-keeping After a Municipal
Advisor Ceases To Do Business
As proposed, Rule 15Ba1–8(c)1371
requires a municipal advisory firm,
before ceasing to conduct or
discontinuing business as a municipal
advisor, to arrange and be responsible
for the continued preservation of the
books and records for the remainder of
the period required by Rule 15Ba1–8. It
also requires the municipal advisory
firm to notify the Commission in writing
of the exact address where such books
and records will be maintained during
such period. The Commission did not
1366 See also infra notes 1594 and accompanying
text (discussing PRA burdens of Rule 15Ba1–8) and
1867 and accompanying text (discussing the
technological costs of Rule 15Ba1–8).
1367 See infra note 1601 and accompanying text
(discussing PRA burdens in connection with
electronic storage of books and records).
1368 Concerns expressed with respect to the
impact of the rule on small municipal advisors are
further discussed in Section IX below.
1369 See supra note 1358 and accompanying text.
1370 See supra note 1356 and accompanying text.
1371 In the Proposal, this provision was numbered
Rule 15Ba1–7(c).
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receive any comments on this aspect of
the proposal and is adopting Rule
15Ba1–8(c) without modification.
Requirements for Non-Residents
As proposed, Rule 15Ba1–8(f), which
is modeled on Rule 204–2(j) under the
Investment Advisers Act,1372 sets forth
the books and records requirements for
non-resident municipal advisory firms,
including requirements for keeping,
maintaining, and preserving copies of
the books and records that these
municipal advisors are required to
make, keep, maintain, and preserve
under any rule or regulation adopted
under the Exchange Act, as well as
requirements for providing written
notice to the Commission of the location
of such books and records.1373
Specifically, Rule 15Ba1–8(f) requires
non-resident municipal advisory firms
to keep, maintain, and preserve all such
books and records in the United
States 1374 and provide notice to the
Commission of the address of such
location within 30 calendar days 1375
after Rule 15Ba1–8 becomes effective (in
the case of municipal advisory firms
that are already registered or in the
process of applying for registration
when the rule becomes effective) or
when filing an application for
registration (in the case of municipal
advisory firms that file applications for
registration after the rule becomes
effective).1376 A non-resident municipal
advisory firm is not required to keep,
maintain, and preserve such books and
records in the United States if the
municipal advisor timely files with the
Commission a written undertaking (in a
form acceptable to the Commission and
signed by a duly authorized person) to
furnish the Commission, upon demand,
copies of any or all of such books and
records at the municipal advisor’s
expense at the Commission’s principal
or regional office (as specified by the
Commission).1377 Specifically, a nonresident municipal advisory firm must
furnish the requested books and records
within 14 calendar days 1378 of the
Commission’s written demand to the
offices of the Commission as specified
in the written demand.1379
1372 17
CFR 275.204–2(j).
the Proposal, this provision was numbered
Rule 15Ba1–7(f).
1374 See Rule 15Ba1–8(f)(1).
1375 The Commission is clarifying that the 30-day
period refers to 30 calendar days.
1376 See Rule 15Ba1–8(f)(2).
1377 See Rule 15Ba1–8(f)(3)(i). Rule 15Ba1–
8(f)(3)(i) sets forth the form of the undertaking.
1378 The Commission is clarifying that the 14-day
period refers to 14 calendar days.
1379 See Rule 15Ba1–8(f)(3)(ii). The rule requires
that any written demand be forwarded by the
Commission to the municipal advisor by registered
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The Commission did not receive any
comments on its proposed recordkeeping requirements for non-resident
municipal advisory firms and is
adopting Rule 15Ba1–8(f) without
substantive modification.1380 The
Commission believes the requirements
for non-resident municipal advisory
firms will help ensure the Commission’s
effective regulation of municipal
advisors. Further, as discussed in the
Proposal, such requirements are
designed to ensure that the Commission
has access to the books and records of
municipal advisors located outside of
the United States to enable it to perform
effective examinations and inspections.
The requirements will also serve to
mitigate the time and cost burdens the
Commission may otherwise face in
attempting to gain access to books and
records located outside of the United
States, such as in the case of any
jurisdictional dispute relating to such
access.1381
IV. Designation of FINRA To Examine
FINRA Member Municipal Advisors
The Dodd-Frank Act amended the
Exchange Act to, among other things,
require new entities and individuals to
register with the Commission and
authorize the Commission to examine
such registrants, including municipal
advisors. Some entities that are
currently registered, or will be
registered, with the Commission as
municipal advisors are also registered
with the Commission as broker-dealers
and are members of FINRA. The
Commission anticipates that FINRA will
conduct examinations of Commissionregistered municipal advisors that are
also FINRA members, subject to the
Commission’s oversight. The
Commission will be responsible for
examining registered municipal
advisors that are not FINRA members,
which comprise the vast majority of the
anticipated registrants.1382
The Commission believes that Section
15A of the Exchange Act provides
authority to FINRA to examine its
members’ municipal advisory activities.
Section 15A provides, in relevant part,
that an association of brokers and
dealers shall not be registered as a
national securities association unless
the Commission determines that: (1)
mail at the municipal advisor’s last address of
record filed with the Commission. See id.
1380 See supra notes 1375 and 1378.
1381 See Proposal, 76 FR 862.
1382 As of December 31, 2012, approximately
twenty-five percent of the 1,110 MA–T registrants
were also registered with FINRA as broker-dealers.
Accordingly, under the permanent registration
regime, the Commission believes that FINRA will
examine but a small percentage of registered
municipal advisors.
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The association has the capacity to be
able to enforce compliance by its
members and persons associated with
its members with the provisions of the
Exchange Act, the rules and regulations
thereunder, the rules of the MSRB, and
the rules of the association; 1383 and (2)
the rules of the association provide that
the association shall provide
information to the MSRB about the
examinations of the association so that
the MSRB may assist in such
examinations.1384 In accordance with
these provisions, FINRA, as a registered
national securities association, has
traditionally conducted examinations of
its members’ activities in connection
with municipal securities for
compliance with the Exchange Act,
rules and regulations thereunder, and
MSRB rules.
Registered municipal advisors are
subject to the Exchange Act, rules and
regulations thereunder, and MSRB
rules. As such, Section 15A provides
FINRA with authority to conduct
examinations of its members’ activities
as registered municipal advisors in
order to evaluate their compliance with
the applicable laws and rules.1385 In
addition, the Dodd-Frank Act amended
Section 15B of the Exchange Act to
expressly provide that ‘‘the
Commission, or its designee, in the case
of municipal advisors,’’ conduct
periodic examinations.1386 Accordingly,
the Commission designates FINRA as a
designee to examine its members’
activities as registered municipal
advisors and evaluate compliance by
such members with federal securities
laws, Commission rules and regulations,
and MSRB rules applicable to municipal
advisors.
V. Implementation and Compliance
Dates
As discussed above, Section 15B of
the Exchange Act, as amended by the
Dodd-Frank Act, makes it unlawful for
a municipal advisor to provide advice to
1383 See
15 U.S.C. 78o–3(b)(2).
15 U.S.C. 78o–3(b)(15).
1385 Moreover, as noted above, Section 15A(b)(15)
of the Exchange Act requires FINRA rules to specify
that it shall provide information to the MSRB about
its examinations so that the MSRB may ‘‘assist in
such . . . examinations.’’ 15 U.S.C. 78o–3(b)(15).
This statutory provision implies that FINRA has the
requisite authority to examine municipal advisors.
1386 15 U.S.C. 78o–4(c)(7)(A)(iii). Specifically,
Section 15B(c)(7) provides that ‘‘periodic
examinations . . . shall be conducted by—(i) a
registered securities association, in the case of
municipal securities brokers and municipal
securities dealers who are members of such
association; (ii) the appropriate regulatory agency
for any municipal securities broker or municipal
securities dealer, in the case of all other municipal
securities brokers and municipal securities dealers;
and (iii) the Commission, or its designee, in the case
of municipal advisors.’’
1384 See
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or on behalf of a municipal entity or
obligated person with respect to
municipal financial products or the
issuance of municipal securities, or to
undertake a solicitation of a municipal
entity or obligated person, unless the
municipal advisor is registered with the
Commission.1387 Section 15B of the
Exchange Act also provides that a
municipal advisor may be registered by
filing with the Commission an
application for registration in such form
and containing such information and
documents concerning the municipal
advisor and any person associated with
the municipal advisor as the
Commission, by rule, may prescribe as
necessary or appropriate in the public
interest or for the protection of
investors.1388 The temporary municipal
advisor registration regime, also as
discussed above, is set to expire on
December 31, 2014.1389 Rules 15Ba1–1
through 15Ba1–8, Rule 15Bc4–1, and
Forms MA, MA–I, MA–W, and MA–NR
will become effective 60 days after
publication of the rules in the Federal
Register, and municipal advisors must
comply with the new rules within the
applicable compliance filing periods
described below.
The permanent municipal advisor
registration system on EDGAR will be
available to accept registration
applications for municipal advisory
firms, including sole proprietors,
beginning July 1, 2014. As discussed
below, however, the Commission is
providing specific compliance filing
periods for filing applications for
registration under the permanent
registration regime. To continue doing
business as a municipal advisory firm,
any firm that is registered as a
municipal advisor under Rule 15Ba2–6T
and Form MA–T as of the Effective Date
must file a complete application for
registration as a municipal advisor
within the applicable filing period, as
set forth below. In accordance with
Section 15B(a)(2) of the Exchange Act,
within forty-five days of the date such
complete application is considered filed
(or within such longer period as to
which the applicant consents), the
Commission shall grant registration or
institute proceedings to determine
whether registration should be
denied.1390 Before filing applications for
registration as municipal advisors,
municipal advisory firms will need to
file a Form ID requesting an EDGAR
1387 See
15 U.S.C. 78o–4(a)(1)(B).
15 U.S.C. 78o–4(a)(2).
1389 See supra Section II.C. See also Rule 15Ba2–
6T and Form MA–T Extension Release, supra note
7.
1390 See 15 U.S.C. 78o–4(a)(2).
1388 See
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access code as soon as possible, and
should do so by no later than 30 days
after the Effective Date to minimize
processing delays.1391
To help ensure an orderly transition
from the temporary registration regime
to the permanent registration regime
and the submission of applications
through EDGAR, the Commission is
providing the following compliance
dates for municipal advisory firms to
complete their applications for
registration under the permanent
registration regime. These compliance
dates are based on the registration
number a municipal advisor received
(or will receive) when it registered (or
will register) as a municipal advisor
under Rule 15Ba2–6T and on Form
MA–T (‘‘temporary registration
number’’). A municipal advisory firm
that has a temporary registration
number falling within the range that
begins on 866–00001–00 and ends on
866–00400–00 must file a complete
application for registration under the
permanent registration regime on or
after July 1, 2014, but no later than July
31, 2014. A municipal advisory firm
that has a temporary registration
number falling within the range that
begins on 866–00401–00 and ends on
866–00800–00 must file a complete
application for registration under the
permanent registration regime on or
after August 1, 2014, but no later than
August 31, 2014. A municipal advisory
firm that has a temporary registration
number falling within the range that
begins on 866–00801–00 and ends on
866–01200–00 must file a complete
application for registration under the
permanent registration regime on or
after September 1, 2014, but no later
than September 30, 2014. A municipal
advisory firm that has a temporary
registration number that falls after 866–
01200–00 must file a complete
application for registration under the
permanent registration regime on or
after October 1, 2014, but no later than
October 31, 2014.
A municipal advisory firm that enters
into the municipal advisory business on
or after October 1, 2014 and does not
have a temporary registration number as
of October 1, 2014, must file a complete
application for registration under the
1391 As
discussed in the Instructions, before a
municipal advisory firm can electronically file the
application with the Commission on EDGAR, such
person must become an EDGAR filer with
authorized access codes through the ‘‘Form ID’’
authorization process. Form ID is available on the
Commission’s Web site at http://www.sec.gov/
about/forms/secforms.htm#EDGAR. For staff
guidance regarding Form ID, Electronic Form ID
Frequently Asked Questions are available on the
Commission’s Web site at http://www.sec.gov/info/
edgar/feifaq052306.htm.
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permanent registration regime on or
after October 1, 2014 and be registered
with the Commission before engaging in
municipal advisory activities. The
Commission believes that this staggered
compliance approach will help to
facilitate an orderly transition from the
temporary registration regime to the
permanent registration regime.
For a municipal advisory firm that
files a complete application during the
applicable filing period, its temporary
municipal advisor registration will
continue in effect until the Commission
grants or denies the application for
registration, unless the temporary
registration is rescinded by the
Commission or withdrawn by the
municipal advisory firm. Any complete
application for registration received
prior to the start of the applicable filing
period for a municipal advisory firm
will be considered filed 1392 on the first
day of the applicable filing period.1393
For a municipal advisory firm that
engages in municipal advisory activities
before and during the applicable filing
period but that fails to file a complete
application within the applicable filing
period, the firm’s temporary registration
will expire forty-five days after the end
of the applicable filing period.
Therefore, a firm that continues to
engage in municipal advisory activities
after the expiration of its temporary
registration would be in violation of
Section 15B of the Exchange Act until
it submits a complete application and
the Commission grants its application
for registration under the permanent
registration regime.
A municipal advisory firm that is
required to register as a municipal
advisor with the Commission on or after
the Effective Date but before the
applicable filing period must register
under the temporary registration regime
as a municipal advisor and must file an
application for registration under the
permanent registration regime during
the applicable filing period. Such
municipal advisory firm’s temporary
registration will continue to be in effect
until the date that its registration is
granted or denied by the Commission
under the permanent registration
regime, unless the municipal advisory
1392 See Rule 15Ba1–2(c). See also supra note 971
and accompanying text (discussing that a Form MA
is considered filed upon submission of a completed
Form MA, together with all additional required
documents, and clarifying that, if a Form MA is not
considered complete, the Commission’s statutory
forty-five day review period will not commence).
1393 For example, if a municipal advisory firm
with a temporary registration number that falls
between 866–00401–00 and 866–00800–00 files a
complete application for registration on July 15,
2014, its application will be considered filed on
August 1, 2014.
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firm’s temporary registration is
rescinded by the Commission or
withdrawn by the municipal advisory
firm. A municipal advisory firm that is
required to register as a municipal
advisor with the Commission after the
commencement of the applicable filing
period must file an application with the
Commission under the permanent
registration regime.
VI. Delegation of Authority 1394
A. Delegation to the Director of the
Office of Municipal Securities
Rule 30–3a of the Commission’s Rules
of Organization and Program
Management
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The Commission is amending its
existing delegations of authority by
adding Rule 30–3a to its Rules of
Organization and Program Management,
which governs the delegations of
authority to the Director of the Office of
Municipal Securities (‘‘Director’’).1395
Section 15B(a)(2) of the Exchange Act,
as amended by the Dodd-Frank Act,
provides that ‘‘[w]ithin forty-five days of
the date of the filing of [a municipal
advisor registration] application (or
within such longer period as to which
the applicant consents), the Commission
shall . . . by order grant registration, or
. . . institute proceedings to determine
whether registration should be
denied.’’ 1396 New Rule 30–3a delegates
to the Director the authority to issue
orders granting registration of municipal
advisors within forty-five days of the
filing of an application for registration
as a municipal advisor (or within such
1394 The Administrative Procedure Act (‘‘APA’’)
generally requires an agency to publish notice of a
proposed rulemaking in the Federal Register. See
5 U.S.C. 553(b). This requirement does not apply,
however, to rules of agency organization,
procedure, or practice. See 5 U.S.C. 553(b)(3)(A).
Because the amendments described in this Section
VI are limited to the Commission’s Rules of
Organization and Program Management, they are
not subject to the provisions of the APA requiring
notice and opportunity for comment. Because the
Commission is not publishing these rule
amendments in a notice of proposed rulemaking,
the provisions of the Regulatory Flexibility Act are
not applicable. See 5 U.S.C. 603. For the same
reason, and because these amendments do not
substantially affect the rights or obligations of nonagency parties, the provisions of the Small Business
Regulatory Enforcement Fairness Act are also not
applicable. See 5 U.S.C. 804(3)(C). Additionally, the
Commission does not believe the amendments will
have any anti-competitive effects for purposes of
Section 23(a)(2) of the Exchange Act because they
will not impose any new burden on municipal
advisors or other market participants. See 15 U.S.C.
78w(a)(2). Finally, this amendment does not
contain any collection of information requirements
as defined by the Paperwork Reduction Act of 1980,
as amended. See 44 U.S.C. 3501 et seq.
1395 17 CFR 200.30–3a.
1396 15 U.S.C. 78o–4(a)(2).
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longer period as to which the applicant
consents).1397
Section 15B(c)(3) of the Exchange Act,
as amended by the Dodd-Frank Act,
provides the Commission with the
authority to cancel the registration of a
municipal advisor if it finds that such
municipal advisor is no longer in
existence or has ceased to do business
as a municipal advisor.1398 Rule 30–3a
delegates to the Director the authority to
issue orders canceling the registration of
a municipal advisor, if such municipal
advisor is no longer in existence or has
ceased to do business as a municipal
advisor.1399
The delegations of authority to the
Director in Rule 30–3a will allow the
staff, on behalf of the Commission,
pursuant to Section 15B of the Exchange
Act,1400 to review and act upon
applications for registration, and to
issue orders canceling municipal
advisor registrations. The Commission
believes that these delegations of
authority will facilitate efficient
registration and regulation of municipal
advisors. Also, pursuant to Rule 30–3a,
the Director may submit matters to the
Commission for consideration as it
deems appropriate.1401
Rule 19d of the Commission’s Rules of
Organization and Program Management
The Commission is also amending its
existing Rules of Organization and
Program Management by adding Rule
19d, which sets forth the
responsibilities of the Director.1402 In
light of the changes made by the DoddFrank Act to Section 15B of the
Exchange Act regarding the registration
and regulation of municipal advisors,
the Commission is adding Rule 19d,
which states that the Director is
responsible to the Commission for the
administration and execution of the
Commission’s programs under the
Exchange Act relating to the registration
and regulation of municipal advisors.
Rule 19d also states that the functions
involved in the regulation of municipal
advisors include recommending the
adoption and amendment of
Commission rules, and responding to
interpretive and no-action requests.
Therefore, Rule 19d specifies the role of
staff in the registration and regulation of
municipal advisors.
17 CFR 200.30–3a(a)(1)(i).
15 U.S.C. 78o–4(c)(3).
1399 See 17 CFR 200.30–3a(a)(1)(ii).
1400 15 U.S.C. 78o–4.
1401 See 17 CFR 200.30–3a(b).
1402 17 CFR 200.19d.
B. Delegation to the Director of the
Office of Compliance Inspections and
Examinations
Rule 30–18 of the Commission’s Rules
of Organization and Program
Management
The Commission is amending its
existing delegations of authority by
amending Rule 30–18 of its Rules of
Organization and Program Management
governing the delegations of authority to
the Director of the Office of Compliance
Inspections and Examinations (‘‘OCIE
Director’’).1403 As noted above, Section
15B(a)(2) of the Exchange Act, as
amended by the Dodd-Frank Act,
provides that ‘‘[w]ithin forty-five days of
the date of the filing of [a municipal
advisor registration] application (or
within such longer period as to which
the applicant consents), the Commission
shall . . . by order grant registration, or
. . . institute proceedings to determine
whether registration should be
denied.’’ 1404 The Commission delegates
to the OCIE Director the authority to
issue orders granting registration of
municipal advisors within 45 days of
the filing of an application for
registration as a municipal advisor (or
within such longer period as to which
the applicant consents), and to grant
registration of municipal advisors
sooner than 45 days after the filing of an
application for registration.1405
Section 15B(c)(3) of the Exchange Act,
as amended by the Dodd-Frank Act,
provides the Commission with the
authority to cancel the registration of a
municipal advisor if the Commission
finds that such municipal advisor is no
longer in existence or has ceased to do
business as a municipal advisor.1406 The
amendment to Rule 30–18 delegates to
the OCIE Director the authority to issue
orders to cancel the registration of a
municipal advisor, if such municipal
advisor is no longer in existence or has
ceased to do business as a municipal
advisor.1407
Section 15B(c)(3) of the Exchange Act,
as amended by the Dodd-Frank Act, also
provides for the withdrawal of
municipal advisors from registration
under such terms and conditions that
the Commission deems necessary in the
public interest or for the protection of
investors or municipal entities or
obligated persons.1408 The amendment
to Rule 30–18 delegates to the OCIE
Director the authority to determine
1397 See
1403 17
1398 See
1404 15
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CFR 200.30–18.
U.S.C. 78o–4(a)(2).
1405 See 17 CFR 200.30–18(j)(7).
1406 See 15 U.S.C. 78o–4(c)(3).
1407 See 17 CFR 200.30–18(j)(8)(i).
1408 See 15 U.S.C. 78o–4(c)(3).
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whether notices of withdrawal from
registration on Form MA–W may
become effective sooner than the 60-day
waiting period.1409
These delegations of authority to the
OCIE Director will allow the staff, on
behalf of the Commission, pursuant to
Section 15B of the Exchange Act,1410 to
review and act upon applications for
registration and withdrawals from
registration, and to make determinations
with regard to the cancellation of
municipal advisor registrations. These
delegations of authority will facilitate
efficient registration and regulation of
municipal advisors. Also, the OCIE
Director may submit matters to the
Commission for consideration as it
deems appropriate.1411
Rule 19c of the Commission’s Rules of
Organization and Program Management
The Commission is also amending its
existing Rules of Organization and
Program Management by amending Rule
19c, which sets forth the responsibilities
of the OCIE Director.1412 Currently, Rule
19c provides that the OCIE Director is
responsible for the compliance
inspections and examinations relating to
the regulation of exchanges, national
securities associations, clearing
agencies, securities information
processors, the MSRB, brokers and
dealers, municipal securities dealers,
transfer agents, investment companies,
and investment advisers. Under
Sections 15B and 17(a) of the Exchange
Act, as amended by the Dodd-Frank Act,
municipal advisors are now required to
be registered with the Commission and
are subject to record-keeping
requirements promulgated by the
Commission.1413 Further, Section 17(b)
of the Exchange Act provides that all
records of persons described in Section
17(a) are subject ‘‘to such reasonable
periodic, special, or other examinations
by representatives of the Commission
. . . as the Commission * * * deems
necessary or appropriate in the public
interest, for the protection of investors,
or otherwise in furtherance of the
purposes of this title.’’ 1414 In light of the
changes made by the Dodd-Frank Act,
the Commission is amending Rule 19c
to reflect the responsibilities of the OCIE
Director with respect to all persons
subject to compliance inspections and
examinations, including municipal
advisors. These amendments specify the
role of OCIE staff in the inspection and
1409 See
17 CFR 200.30–18(j)(8)(ii).
U.S.C. 78o–4.
1411 See 17 CFR 200.30–18(m).
1412 17 CFR 200.19c.
1413 15 U.S.C. 78o–4 and 78q(a).
1414 15 U.S.C. 78q(b).
1410 15
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18:18 Nov 08, 2013
examination of records kept by
municipal advisors.
VII. Paperwork Reduction Act
Certain rules that the Commission is
adopting impose new ‘‘collection of
information’’ requirements within the
meaning of the Paperwork Reduction
Act of 1995 (‘‘PRA’’).1415 An agency
may not conduct or sponsor, and a
person is not required to respond to, a
collection of information unless it
displays a currently valid control
number. In accordance with 44 U.S.C.
3507 and 5 CFR 1320.11, the
Commission submitted these collections
of information to the Office of
Management and Budget (‘‘OMB’’) for
review. The title for the collection of
information requirement is ‘‘Rules
15Ba1–1 to 15Ba1–8—Registration of
Municipal Advisors.’’ The collection of
information was assigned OMB Control
No. 3235–0681.
In the Proposal, the Commission
solicited comments on the collection of
information requirements. In particular,
the Commission solicited comments on
whether the calculations of either the
burden hours or associated costs were
too high or too low.1416 Some
commenters addressed the collection of
information aspects of the Proposal.
Many commenters opined generally
that municipal advisor registration
under the proposed rules would be
overly burdensome and would impose
significant costs that would prove
detrimental, especially to smaller
‘‘community banks’’ and local and state
municipalities.1417 Although most of
these letters neither provided specific
suggestions to revise the Commission’s
estimates, nor provided specific
alternative figures or calculations for
actual burden hour figures, the
Commission addresses the comments
below.
A. Summary of Collection of
Information
Section 15B(a)(2) of the Exchange Act,
as amended by the Dodd-Frank Act,
provides that a municipal advisor may
be registered by filing with the
Commission an application for
registration in such form, and
containing such information and
documents concerning the municipal
advisor and any persons associated with
the municipal advisor, as the
Commission, by rule, may prescribe as
necessary or appropriate in the public
1415 44
U.S.C. 3501 et seq.
Proposal, 76 FR 872, 878.
1417 See, e.g., Form Letter A.
1416 See
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interest or for the protection of
investors.1418
Under the final rules and forms, the
permanent registration regime for
municipal advisors will be more
comprehensive than the temporary one
and will require more detailed
disclosures. Under Rule 15Ba1–2(a),
each firm applying for registration with
the Commission as a municipal advisor
is required to complete and file
electronically with the Commission
Form MA. In addition, each person
applying for registration, or registered
with, the Commission as a municipal
advisor must complete and file
electronically with the Commission
Form MA–I with respect to each natural
person who is a person associated with
the municipal advisor and engages in
municipal advisory activities on its
behalf.1419 Each Form MA shall be
considered filed with the Commission
upon acceptance of Form MA, together
with all additional required documents,
including all required Form MA–Is, by
the Commission’s EDGAR system.1420 A
sole proprietor will have to complete
both Form MA and Form MA–I.1421
Under the permanent registration
regime, municipal advisors will include
sole proprietorships and firms of
varying sizes. In addition, municipal
advisors will include firms that engage
in municipal advisory activities as part
of a broader array of financial services,
serving many types of clients, and that
have many associated persons. Thus,
the paperwork burden will reflect these
differences in size and types of other
financial services in which the
municipal advisors engage.
Pursuant to Rule 15Ba1–5(a), a
municipal advisory firm that registers
on Form MA must amend its Form MA
at least annually, within 90 days of the
end of the municipal advisor’s fiscal
year in the case of firms or within 90
days of the end of the calendar year for
sole proprietors, and more frequently as
required by the General Instructions. In
addition, a registered municipal advisor
must promptly amend Form MA–I
whenever any information previously
provided therein becomes
inaccurate.1422 Municipal advisory
firms must also amend Form MA–I to
indicate that an individual is no longer
an associated person of the municipal
advisory firm filing the form or no
longer engaged in municipal advisory
1418 See
15 U.S.C. 78o–4(a)(2).
Rule 15Ba1–2(b)(1).
1420 See Rule 15Ba1–2(c).
1421 See Rule 15Ba1–2(b)(2). The Commission has
developed an online filing system to permit
municipal advisors to file a completed Form MA
and Form MA–I through the EDGAR system.
1422 See Rule 15Ba1–5(b).
1419 See
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activities on its behalf. Finally,
registered municipal advisors must
report successions of registration on
Form MA.1423
Pursuant to Rule 15Ba1–4, all
registered municipal advisors are
required to file Form MA–W to
withdraw from registration with the
Commission as a municipal advisor. As
will be the case with both Forms MA
and MA–I, Form MA–W will be
required to be filed electronically with
the Commission.
Rule 15Ba1–6 sets forth the general
procedures for serving non-residents.
Pursuant to Rule 15Ba1–6 and the
instructions to Form MA–NR, each nonresident municipal advisor applying for
registration, at the time of filing of the
municipal advisor’s application on
Form MA, must file with the
Commission a written irrevocable
consent and power of attorney on Form
MA–NR to appoint an agent in the
United States upon whom may be
served any process, pleadings, or other
papers in any action brought against the
non-resident municipal advisor. In
addition, each municipal advisor
applying for registration pursuant to, or
registered under, Section 15B of the
Exchange Act must file Form MA–NR
with the Commission for each nonresident general partner, non-resident
managing agent, and non-resident
natural person associated with the
municipal advisor who engages in
municipal advisory activities on behalf
of the municipal advisor.1424 Rule
15Ba1–6(d) requires each non-resident
municipal advisor to provide an opinion
of counsel that the municipal advisor
can, as a matter of law, provide the
Commission with access to its books
and records and submit to inspection
and examination by the Commission.
Rule 15Ba1–8 requires all registered
municipal advisors to maintain true,
accurate, and current books and records
relating to their municipal advisory
activities. Generally, Rule 15Ba1–8
requires such books and records to be
maintained and preserved for a period
of not less than five years, the first two
years in an easily accessible place.
Rule 15Ba1–1(d)(3)(vi) exempts from
the definition of ‘‘municipal advisor’’
any person engaging in municipal
advisory activities in a circumstance in
which a municipal entity or obligated
person is otherwise represented by an
independent registered municipal
advisor with respect to the same aspects
of a municipal financial product or an
issuance of municipal securities,
provided that certain requirements are
1423 See
1424 See
Rule 15Ba1–7.
Rule 15Ba1–6(a)(2).
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met. First, an independent registered
municipal advisor must be providing
advice with respect to the same aspects
of the municipal financial product or
issuance of municipal securities.1425
Second, the person seeking to rely on
Rule 15Ba1–1(d)(3)(vi) must receive
from the municipal entity or obligated
person a representation in writing that
the municipal entity or obligated person
is represented by, and will rely on the
advice of, an independent registered
municipal advisor.1426 Third, the person
must make certain disclosures to the
municipal entity or obligated person
and provide a copy of such disclosures
to the municipal entity’s or obligated
person’s independent registered
municipal advisor.1427 With respect to a
municipal entity, the person seeking to
rely on the exemption must disclose in
writing that, by obtaining the
representation discussed above from the
municipal entity, such person is not a
municipal advisor and is not subject to
the fiduciary duty set forth in Section
15B(c)(1) of the Exchange Act 1428 with
respect to the municipal financial
product or the issuance of municipal
securities.1429 With respect to an
obligated person, the person seeking to
rely on the exemption must disclose in
writing that, by obtaining the
representation discussed above from the
obligated person, such person is not a
municipal advisor with respect to the
municipal financial product or issuance
of municipal securities.1430
Rule 15Ba1–1(h) defines ‘‘municipal
escrow investments’’ to mean proceeds
of municipal securities and any other
funds of a municipal entity that are
deposited in an escrow account to pay
the principal of, premium, if any, and
interest on one or more issues of
municipal securities. In determining
whether or not funds to be invested or
reinvested constitute municipal escrow
investments, a person may rely on
1425 See Rule 15Ba1–1(d)(3)(vi)(A). For purposes
of this exemption, the term ‘‘independent registered
municipal advisor’’ means a municipal advisor
registered pursuant to Section 15B of the Exchange
Act (15 U.S.C. 78o–4) and the rules and regulations
thereunder and that is not, and within at least the
past two years was not, associated with the person
seeking to rely on Rule 15Ba1–1(d)(3)(vi).
1426 See Rule 15Ba1–1(d)(3)(vi)(B). The person
receiving the written representation may rely on the
representation, provided that the person receiving
such representation has a reasonable basis for
relying on the representation.
1427 Each such disclosure must be made at a time
and in a manner reasonably designed to allow the
municipal entity or obligated person to assess the
material incentives and conflicts of interest that
such person may have in connection with the
municipal advisory activities. See Rule 15Ba1–
1(d)(3)(vi)(C)(3).
1428 15 U.S.C. 78o–4(c)(1).
1429 See Rule 15Ba1–1(d)(3)(vi)(C)(1).
1430 See Rule 15Ba1–1(d)(3)(vi)(C)(2).
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67585
representations in writing made by a
knowledgeable official of a municipal
entity or obligated person whose funds
are to be invested or reinvested
regarding the nature of such
investments, provided that the person
seeking to rely on such representations
has a reasonable basis for such
reliance.1431
Similarly, the Commission is adopting
a qualification to the definition of
‘‘proceeds of municipal securities’’ that
provides that in determining whether or
not funds to be invested constitute
proceeds of municipal securities, a
person may rely on representations in
writing made by a knowledgeable
official of a municipal entity or
obligated person whose funds are to be
invested regarding the nature of such
funds, provided that the person seeking
to rely on such representations has a
reasonable basis for such reliance.1432
B. Use of Information
The Commission believes Form MA
and Form MA–I will help to ensure that
the Commission can make information
about municipal advisors transparent
and easily accessible to the investing
public, including municipal entities and
obligated persons who engage
municipal advisors; investors who may
purchase securities from offerings in
which municipal advisors participated;
and other regulators. Further, the
information provided on Form MA and
Form MA–I will expand the amount of
publicly available information about
municipal advisors, including conflicts
of interest and disciplinary history.
Although much of the information
required by Form MA is already
publicly available with respect to
municipal advisors that are already
registered with the Commission as
investment advisers or broker-dealers,
many municipal advisors that are not
currently registered with the
Commission in another capacity will
make this information available for the
first time. In addition, while municipal
advisors are currently required to
disclose disciplinary history for some of
their associated persons on Form MA–
T, municipal advisors will be required
to disclose on Form MA disciplinary
history for all associated persons.
Consequently, the final rules and forms
will allow municipal entities and
obligated persons, as well as others, to
become more fully informed about
municipal advisors in a more efficient
manner.
In addition, the requirement that each
municipal advisory firm register with
1431 See
1432 See
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Rule 15Ba1–1(h)(2).
Rule 15Ba1–1(m)(3).
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the Commission on Form MA and
complete Form MA–I with respect to
each natural person who is a person
associated with the municipal advisor
and engages in municipal advisory
activities on its behalf will help ensure
that the Commission has information to
oversee respondents and their activities
in the municipal securities market
effectively. In particular, the
information provided in Form MA will
be used to determine whether to grant
a municipal advisor’s application for
registration or to institute proceedings
to determine whether registration
should be denied. The information will
also be used to focus examinations and
aid in risk-based examination.
Moreover, Form MA and Form MA–I
will enable the Commission to obtain an
accurate estimate of the number of
municipal advisors, by size and by
municipal advisory activity; analyze
data regarding the various types of
municipal advisory activities in which
municipal advisors engage; and evaluate
the disciplinary history of all municipal
advisors and associated persons,
including all regulatory, civil, and
criminal proceedings.
The requirement that a municipal
advisor make and keep books and
records, including written
communications and records of
associated persons, will help to ensure
that records of the respondent’s primary
municipal advisory activities, as well as
the activities of its associated persons,
exist. The Commission and other
regulators could potentially request
books and records during an
examination to evaluate the municipal
advisor’s compliance with the Exchange
Act, the rules thereunder, and MSRB
rules, as well as for other regulatory
purposes.
The requirement that a non-resident
municipal advisor complete Form MA–
NR, and furnish Form MA–NR for its
non-resident general partners, nonresident managing agents, and
associated persons engaged in
municipal advisory activities, will help
minimize legal or logistical obstacles
that the Commission may encounter
when attempting to effect service,
conserve Commission resources, and
avoid potential conflicts of law. The
requirement that a non-resident
municipal advisor provide an opinion of
counsel on Form MA will help ensure
that such non-resident municipal
advisor can provide access to its books
and records and submit to inspection
and examination by the Commission.
The requirement that certain written
representations and disclosures be made
in order for a person to be exempt from
the definition of municipal advisor
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18:18 Nov 08, 2013
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where a municipal entity or obligated
person is represented by an
independent registered municipal
advisor with respect to the same aspects
of a municipal financial product or an
issuance of municipal securities will
allow the Commission staff to determine
whether a person engaging in municipal
advisory activities has failed to register
with the Commission. Further, the
information will allow municipal
entities and obligated persons to
understand whether a person is acting
as a municipal advisor. Similarly, the
exceptions from the definitions of
municipal escrow investments and
proceeds of municipal securities for
reasonable inquiries will allow the
Commission staff to determine whether
a person engaging in municipal advisory
activities has failed to register with the
Commission.
C. Respondents
In the Proposal, the Commission
estimated that the proposed ‘‘collections
of information’’ would initially apply to
approximately 1,000 municipal advisory
firms, including sole proprietors.1433
This estimate was based partly on the
number of municipal advisors that had
registered with the Commission under
Rule 15Ba2–6T. As of October 2010,
there were approximately 800 total
unique electronic temporary
registrations for municipal advisors
where Form MA–T was completed and
not withdrawn.1434 In the Proposal, the
Commission stated its belief that the
number of Form MA–T registrants
would likely increase beyond 800
because numerous applicants that
would have been required to register
might have missed the October 1, 2010,
deadline for a variety of reasons, such
as concluding, based on their
interpretation of the Dodd-Frank Act,
that they were not required to register as
municipal advisors.1435 For the PRA
analysis of Rule 15Ba2–6T, the
Commission estimated that
approximately 1,000 applicants would
be required to complete Form MA–
T.1436 The Commission therefore
believed that 1,000 applicants would
remain an appropriate estimate for the
total number of municipal advisory
firms that would be required to register
on Form MA under the proposed
permanent registration regime. The
Commission also estimated that the
1433 See
Proposal, 76 FR 865.
id.
1435 See id.
1436 See Temporary Registration Rule Release, 75
FR 54473.
1434 See
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Frm 00120
Fmt 4701
Sfmt 4700
average number of new Form MA
applicants per year would be 100.1437
In the Proposal, the Commission also
estimated that approximately 21,800
individuals would be required to
register as natural person municipal
advisors on Form MA–I,1438 while the
average number of new Form MA–I
applicants per year would be 1,800.1439
These estimates were based on trends
observed in registrations of investment
advisers and Form U4 applications
submitted to FINRA.
In the Proposal, the Commission
solicited comments on how many
municipal advisors would incur
collection of information burdens if the
proposed rules and forms were adopted
by the Commission.1440 The
Commission received no comments
regarding the estimated number of
municipal advisory firms that would be
required to register initially on Form
MA 1441 and no comments regarding
estimates for the average annual number
of new Form MA and Form MA–I
applicants. Nevertheless, the
Commission is revising its initial
estimates of the numbers of applicants
required to complete Form MA. The
Commission’s decision to revise its
estimates is based, in part, on a
comparison between the current number
of Form MA–T registrants and the
number of municipal advisors that are
registered with the MSRB.
In October 2010, there were
approximately 800 Form MA–T
registrants. According to Form MA–T
data, as of December 31, 2012, there
were approximately 1,110 Form MA–T
registrants. Of these Form MA–T
registrants, as of December 31, 2012,
approximately 901 were also registered
as municipal advisors with the MSRB,
as they are required to do prior to
engaging in municipal advisory
activities.1442 For the reasons discussed
below, the Commission believes that the
number of Form MA–T registrants may
not be an accurate representation of the
number of municipal advisors and that
MSRB data represents a better basis on
which to estimate the number of
municipal advisors active in the market.
The Commission believes that a
number of persons, recognizing that the
1437 See
Proposal, 76 FR 866.
id. at 865.
1439 See id.
1440 See id. at 872.
1441 For a discussion of comments regarding the
number of natural persons who will need to
initially register on Form MA–I, see infra note
1447–1467 and accompanying text.
1442 The Commission staff obtained this estimate
by comparing the list of MSRB registrants to the
Commission’s list of Form MA–T registrants as of
December 31, 2012.
1438 See
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Commission does not impose any fees
for registration, may have registered
with the Commission as municipal
advisors out of an initial overabundance
of caution. Although some current Form
MA–T registrants may not have
registered with the MSRB because of
uncertainty regarding the scope of the
temporary registration regime, others
may have determined in the intervening
time after October 1, 2010, that
registration with the MSRB was not
required because they were not engaging
in municipal advisory activities. The
Commission staff understands based on
discussions with market participants
that these Form MA–T registrants may
have retained Commission registration
because there are no associated fees to
maintain such registration.1443 In
addition, the Commission anticipates
that the exemption for persons
providing advice with respect to
investment strategies that are not plans
or programs for the investment of
proceeds of municipal securities or the
recommendation of and brokerage of
municipal escrow investments 1444 will
reduce the estimated number of initial
Form MA applicants. Likewise, the
Commission anticipates the additional
exemptions adopted today will also
reduce the estimated number of initial
Form MA applicants.1445 For these
reasons, the Commission now estimates
that the ‘‘collections of information’’
will initially apply to approximately
910 municipal advisory firms, including
sole proprietors.1446
In addition, the Commission is
revising its estimate of the number of
Form MA–I submissions the
Commission expects municipal advisory
firms will be required to file.1447 For
1443 The Commission staff also understands based
on discussions with market participants that some
municipal advisors may have maintained Form
MA–T registration instead of withdrawing from
registration to wait and see whether registration
would be required under the permanent registration
regime, while others may not have realized they
could withdraw from registration or may have
determined not to withdraw for other reasons.
1444 See Rule 15Ba1–1(d)(3)(vii).
1445 See supra Section III.A.1.c.
1446 This estimate rounds to the nearest higher
multiple of ten the number of municipal advisors
that are registered with the MSRB to engage in
municipal advisory activities. The Commission uses
a similar rounding convention in estimating the
number of municipal advisors that will newly
register with the Commission in subsequent years,
amend prior filings, and withdraw from
registration.
1447 As discussed above, natural person
municipal advisors who are not sole proprietors no
longer need to register with the Commission.
However, the Commission is retaining Form MA–
I to obtain information about individuals associated
with municipal advisory firms engaged in
municipal advisory activities on behalf of such
firms. The Commission notes, moreover, that it is
the municipal advisory firms, not the individuals,
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reasons discussed below, the
Commission is revising its estimate of
approximately 21,800 Form MA–I
submissions downward and currently
estimates that, during the first year,
municipal advisors will need to
complete a Form MA–I for
approximately 11,250 individuals.1448
In the Proposal, the Commission
divided the number of Form MA–I
applicants into three main categories:
(1) Individuals who are currently also
registered as investment adviser
representatives, registered
representatives of broker-dealers, or
both, and who are employed at
investment advisory firms, broker-dealer
firms, or banks; (2) individuals who are
employed at financial advisor firms that
are not registered as broker-dealers or
investment advisers; and (3) individual
solicitors who are employed at thirdparty marketing and solicitor firms.1449
First, the Commission estimated the
number of individuals who are
currently registered as investment
adviser representatives, registered
representatives of broker-dealers, or
both, and would register on Form MA–
I. To calculate this estimate in the
Proposal, the Commission compared the
proportion of FINRA Form U4 filers
(i.e., individuals who are investment
adviser representatives and/or registered
representatives of broker-dealers) to the
sum of all investment advisers
registered on Form ADV and all brokerdealers registered on Form BD. FINRA
estimated that, as of October 2010,
637,000 individuals had registered as
investment adviser representatives and/
or registered representatives of brokerdealers on Form U4.1450 The
Commission estimated that as of
October 2010, 11,888 investment
advisers had registered on Form ADV,
while as of March 2010, 5,163 brokerdealers had registered on Form BD. The
proportion of Form U4 registrants to the
sum of Form ADV and Form BD
registrants was approximately 37.36 to
that will be required to file Form MA–I with the
Commission.
1448 5,602 (estimated number of individuals who
are registered as investment adviser representatives,
registered representatives of broker-dealers, or both,
for whom a municipal advisor will be required to
file Form MA–I) + 4,910 (estimated number of
individuals employed by a municipal advisor not
otherwise registered with the Commission for
whom a municipal advisor will be required to file
Form MA–I) + 730 (estimated number of
individuals who are employed at solicitors) =
11,242 Form MA–I applicants.
1449 See Proposal, 76 FR 865.
1450 See October 2010 ‘‘Registered Reps’’ in
‘‘FINRA Statistics,’’ available at http://
www.finra.org/Newsroom/Statist
