Self-Regulatory Organizations; Municipal Securities Rulemaking Board; Notice of Filing of Amendment No. 1 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 1, To Extend the MSRB's Customer Complaint and Related Recordkeeping Rules to Municipal Advisors and To Modernize Those Rules, 7898-7904 [2017-01300]
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7898
Federal Register / Vol. 82, No. 13 / Monday, January 23, 2017 / Notices
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.21
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–01296 Filed 1–19–17; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–79801; File No. SR–MSRB–
2016–15]
Self-Regulatory Organizations;
Municipal Securities Rulemaking
Board; Notice of Filing of Amendment
No. 1 and Order Granting Accelerated
Approval of a Proposed Rule Change,
as Modified by Amendment No. 1, To
Extend the MSRB’s Customer
Complaint and Related Recordkeeping
Rules to Municipal Advisors and To
Modernize Those Rules
January 13, 2017.
I. Introduction
On November 1, 2016, the Municipal
Securities Rulemaking Board (the
‘‘MSRB’’ or ‘‘Board’’) filed with the
Securities and Exchange Commission
(the ‘‘SEC’’ or ‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
19b–4 thereunder,2 a proposed rule
change consisting of (i) proposed
amendments to Rule G–10, on delivery
of investor brochure, Rule G–8, on
books and records to be made by
brokers, dealers, and municipal
securities dealers and municipal
advisors, and Rule G–9, on preservation
of records, and (ii) a proposed Board
notice regarding electronic delivery and
receipt of information by municipal
advisors under Rule G–32, on
disclosures in connection with primary
offerings (collectively, the ‘‘proposed
rule change’’). The proposed rule
change was published for comment in
the Federal Register on November 18,
2016.3
The Commission received five
comment letters on the proposed rule
change.4 On January 10, 2017, the
21 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 Securities Exchange Act Release No. 79295
(November 14, 2016) (the ‘‘Notice of Filing’’), 81 FR
81837 (November 18, 2016).
4 See Letters to Secretary, Commission, from Mike
Nicholas, Chief Executive Officer, Bond Dealers of
America (‘‘BDA’’), dated December 9, 2016 (the
‘‘BDA Letter’’); Matthew J. Gavaghan, Associate
General Counsel, Janney Montgomery Scott LLC
(‘‘Janney’’), dated December 9, 2016 (the ‘‘Janney
Letter’’); Marnie Lambert, President, Public
Investors Arbitration Bar Association (‘‘PIABA’’),
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MSRB responded to the comments
received by the Commission 5 and filed
Amendment No. 1 to the proposed rule
change (‘‘Amendment No. 1’’).6 The
Commission is publishing this notice to
solicit comments on Amendment No. 1
to the proposed rule change from
interested persons and is approving the
proposed rule change, as modified by
Amendment No. 1, on an accelerated
basis.
II. Description of Proposed Rule Change
The proposed rule change, as
modified by Amendment No. 1, consists
of (i) proposed amendments to Rule G–
10, on delivery of investor brochure,
Rule G–8, on books and records to be
made by brokers, dealers, and municipal
securities dealers and municipal
advisors, and Rule G–9, on preservation
of records, and (ii) a proposed MSRB
notice regarding electronic delivery and
receipt of information by municipal
advisors under Rule G–32, on
disclosures in connection with primary
offerings.7
Following the financial crisis of 2008,
Congress enacted the Dodd-Frank Wall
Street Reform and Consumer Protection
Act (the ‘‘Dodd-Frank Act’’).8 The DoddFrank Act amended Section 15B of the
Exchange Act to establish a new federal
regulatory regime requiring municipal
advisors to register with the
Commission, deeming them to owe a
fiduciary duty to their municipal entity
clients and granting the MSRB
rulemaking authority over them. The
MSRB, in the exercise of that
rulemaking authority, has been
developing a comprehensive regulatory
dated December 9, 2016 (the ‘‘PIABA Letter’’);
Susan Gaffney, Executive Director, National
Association of Municipal Advisors (‘‘NAMA’’),
dated December 12, 2016 (the ‘‘NAMA Letter’’); and
Leo Karwejna, Chief Compliance Officer and Cheryl
Maddox, General Counsel, Public Financial
Management, Inc. and PFM Financial Advisors LLC
(collectively, ‘‘PFM’’), dated December 13, 2016 (the
‘‘PFM Letter’’).
5 See Letter to Secretary, Commission, from
Pamela K. Ellis, Associate General Counsel, MSRB,
dated January 10, 2017 (the ‘‘MSRB Response
Letter’’), available at https://www.sec.gov/
comments/sr-msrb-2016-15/msrb201615-1473509130471.pdf.
6 See Letter to Secretary, Commission, from
Pamela K. Ellis, Associate General Counsel, MSRB,
dated January 10, 2017, available at https://
www.sec.gov/comments/sr-msrb-2016-15/
msrb201615-1473522-130450.pdf. In Amendment
No. 1, the MSRB partially amended the text of the
proposed rule change to provide certain
clarifications relating to the notifications that would
be provided by municipal advisors to their
municipal advisory clients and to the terms used
with the recordkeeping of municipal advisory client
complaints, to extend the proposed effective date,
and to make other technical changes to clarify or
simplify rule text.
7 See Notice of Filing.
8 Public Law No. 111–203, 124 Stat. 1376 (2010).
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framework for municipal advisors and
their associated persons.9
Further, and concurrent with its
efforts to develop a comprehensive
regulatory framework for municipal
advisors and their associated persons,
the MSRB initiated a review of its rules
and related interpretive guidance for
brokers, dealers and municipal
securities dealers (collectively,
‘‘dealers’’) and municipal advisors
(municipal advisors, together with
dealers, ‘‘regulated entities’’). The
MSRB initiated that review in the
context of the Board’s obligation to
protect investors, municipal entities,
obligated persons, and the public
interest. As part of that review, the
MSRB solicited comments from market
participants.10 In response, market
participants recommended that the
Board update Rule G–10.11 The MSRB
has stated that the proposed rule
change, as modified by Amendment No.
1, consisting of amendments to Rule G–
10 and its related recordkeeping rules,
Rules G–8 and G–9, and guidance under
Rule G–32, is an important element of
both MSRB regulatory initiatives.12
To extend its customer complaint and
recordkeeping rules to municipal
advisors and to modernize those rules,
the Board filed the proposed rule
change, as modified by Amendment No.
1, with the Commission. Specifically,
9 MSRB Rule D–11 defines ‘‘associated persons’’
as follows:
Unless the context otherwise requires or a rule of
the Board otherwise specifically provides, the terms
‘‘broker,’’ ‘‘dealer,’’ ‘‘municipal securities broker,’’
‘‘municipal securities dealer,’’ ‘‘bank dealer,’’ and
‘‘municipal advisor’’ shall refer to and include their
respective associated persons. Unless otherwise
specified, persons whose functions are solely
clerical or ministerial shall not be considered
associated persons for purposes of the Board’s rules.
10 MSRB Notice 2012–63, Request for Comment
on MSRB Rules and Interpretive Guidance (Dec. 18,
2012).
11 See, e.g., Letter from David L. Cohen, Managing
Director and Associate General Counsel, Securities
Industry and Financial Markets Association, dated
February 19, 2013, to Ronald W. Smith, Corporate
Secretary, Municipal Securities Rulemaking Board
(commenting that (i) the requirement to deliver an
investor brochure under Rule G–10 should be
eliminated, (ii) the investor brochure is of limited
value, if any, to institutional investors as well as
investors in municipal fund securities, and (iii)
alternatively, the MSRB could accomplish the
objective of Rule G–10 by posting the investor
brochure on its Web site); Letter from Gerald K.
Mayfield, Senior Counsel, Wells Fargo & Company
Law Department, dated February 19, 2013, to
Ronald W. Smith, Corporate Secretary, Municipal
Securities Rulemaking Board (commenting that (i)
the requirement to deliver an investor brochure
under Rule G–10 should be eliminated, (ii) the
investor brochure is of limited value, if any, to
institutional investors as well as investors in
municipal fund securities, and (iii) alternatively,
the MSRB could accomplish the objective of Rule
G–10 by posting the investor brochure on its Web
site).
12 See Notice of Filing.
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the proposed rule change would (i)
extend the Board’s customer complaint
recordkeeping requirements to all
municipal advisors (i.e., non-solicitor
and solicitor municipal advisors) as
well as align those recordkeeping
requirements more closely with the
customer complaint recordkeeping
requirements of other financial
regulators, (ii) require that all regulated
entities retain their customer or
municipal advisory client 13 complaint
records for six years, (iii) overhaul Rule
G–10 so that the rule would more
closely focus on customer and
municipal advisory client education and
protection as well as align that rule with
customer education and protection rules
of other financial regulators, and (iv)
extend the Board’s guidance under Rule
G–32, Notice Regarding Electronic
Delivery and Receipt of Information by
Brokers, Dealers and Municipal
Securities Dealers (Nov. 20, 1998) (the
‘‘1998 Notice’’), to municipal advisors.
In summary, by regulated entity, the
proposed rule change, as modified by
Amendment No. 1, would do the
following:
Municipal Advisors
• amend Rule G–8 to exclude
municipal advisors from the definition
of ‘‘customers;’’
• amend Rule G–8 to include the
definition of ‘‘municipal advisory
client;’’
• amend Rule G–8 to extend the
requirements that are similar to the
rule’s customer complaint
recordkeeping requirements to
municipal advisory client complaint
recordkeeping;
• amend Rule G–8 to provide
guidance in supplementary material that
would define electronic recordkeeping;
• amend Rule G–8 to provide
guidance in supplementary material that
would remind a municipal advisor that
it may be required to promptly report
certain municipal advisory client
complaints to other regulatory
authorities;
• amend Rule G–9 to require that the
records of municipal advisory client
complaints be kept for at least six years;
• amend Rule G–10 to extend
requirements that are similar to the
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13 The
proposed rule change, as amended by
Amendment No. 1, in Rule G–8(e)(ii), would define
a municipal advisory client as either a municipal
entity or obligated person for whom the municipal
advisor engages in municipal advisory activities as
defined in MSRB Rule G–42(f)(iv), or a broker,
dealer, municipal securities dealer, municipal
advisor, or investment adviser (as defined in section
202 of the Investment Advisers Act of 1940) on
behalf of whom the municipal advisor undertakes
a solicitation of a municipal entity or obligated
person, as defined in Rule 15Ba1–1(n), 17 CFR
240.15Ba1–1(n), under the Act.
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rule’s dealer customer protection and
education requirements to municipal
advisory client protection and
education; and
• extend to municipal advisors, under
Rule G–32, the guidance provided by
the 1998 Notice, as relevant.
Dealers
• Amend Rule G–8 to require that
dealers keep a standardized complaint
log electronically, using product and
problem codes tailored for municipal
securities, to document the written
complaints of customers;
• amend Rule G–8 to define written
customer complaints to include
complaints received electronically by
the dealer;
• amend Rule G–8 to provide
guidance in supplementary material that
would define electronic recordkeeping;
• amend Rule G–8 to provide
guidance in supplementary material that
would remind a dealer that it may be
required to promptly report certain
written customer complaints to other
regulatory authorities; and
• amend Rule G–10 in its entirety so
that the rule would more clearly focus
on customer protection and education.
A detailed rule discussion of the
proposed rule change’s recordkeeping
requirements, customer and municipal
advisory client education and protection
requirements, and electronic delivery
guidance to municipal advisors is
contained in the Notice of Filing.
The MSRB requested in the Notice of
Filing that the proposed rule change be
approved with an implementation date
of six months after the Commission
approval date for all changes.14
Pursuant to Amendment No. 1, the
MSRB now requests that the proposed
rule change be approved with an
implementation date of nine months
after the Commission approval date for
all changes.15
III. Summary of Comments Received
and MSRB’s Responses to Comments
As noted previously, the Commission
received five comment letters on the
proposed rule change, and the MSRB
Response Letter. Commenters generally
expressed support for the principles
behind the proposed rule change, but
also expressed various concerns or
suggested revisions.
1. Effective Date
BDA urged that the MSRB provide at
least 12 months, rather than the six
months proposed in the Notice of Filing,
to provide dealers with adequate time
14 See
15 See
PO 00000
Notice of Filing.
Amendment No. 1.
Frm 00117
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7899
for implementation, especially given the
resources required to implement other
ongoing regulatory initiatives.16 The
MSRB acknowledged that those other
regulatory initiatives require significant
attention by compliance and technology
staff. In response, the MSRB, pursuant
to Amendment No. 1, proposes an
effective date of nine months after the
Commission’s approval date of all
changes.17
2. Municipal Advisor Terms
NAMA suggested that certain terms
used in the proposed amendments to
Rule G–8 be revised to more closely
reflect terms more commonly used by
municipal advisors. In particular,
NAMA noted that the proposed
rulemaking refers to a municipal
advisory client’s ‘‘account.’’ 18 NAMA
stated that such a phrase does not
‘‘translate’’ to municipal advisors. In
response, the MSRB, pursuant to
Amendment No. 1, proposes to replace
‘‘account’’ when used with a municipal
advisory client with the phrase ‘‘number
or code, if any.’’ 19
3. Customer and Municipal Advisory
Client Brochures
PIABA supported giving investors
information about the protections
provided by the MSRB and about how
to file a complaint with a regulator,
noting that the proposed amendments to
Rule G–10 would provide for the
education of customers or municipal
advisory clients before they encounter a
problem.20 PFM submitted that the
‘‘proposed Rules . . . unnecessarily
impose undue encumbrances of
additional brochure delivery.’’ 21 BDA
also requested clarity about when a
municipal advisor should send the
investor brochure to a municipal
advisory client, and suggested that it
was not necessary to send the investor
brochure to an institutional investor.
BDA suggested that the Board should
develop a brochure that focuses on
municipal advisory clients.22 NAMA
and PFM commented that they needed
16 See
BDA Letter.
MSRB Response Letter.
18 See NAMA Letter.
19 See MSRB Response Letter.
20 See PIABA Letter.
21 See PFM Letter.
22 BDA states that it ‘‘requests clarity with when
a municipal advisor should send the G–10 brochure
to a municipal advisory client.’’ BDA also stated
that ‘‘[i]f the MSRB is committed to requiring
dealers to send the investor brochure to
institutional investors, BDA recommends that
MSRB provide clarity on ‘customer’ for the
purposes of G–10.’’ See BDA Letter.
17 See
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to review the brochure to provide
sufficient comment.23
The MSRB responded by stating that,
unlike the current requirements of Rule
G–10, the proposed amendments to Rule
G–10 would not require that a regulated
entity deliver a Rule G–10 brochure to
its customer or municipal advisory
client, but would require that a
regulated entity provide only annual
notifications to its customer or
municipal advisory client about the
availability of the brochure on the
MSRB’s Web site.24 Further, after
carefully considering BDA’s request for
clarity regarding the use of the term
‘‘promptly’’ relating to when a
municipal advisor must send the annual
notifications required by the
amendments to Rule G–10 to its
municipal advisory client, the MSRB
provided a technical change in
Amendment No. 1 to clarify that
‘‘promptly’’ means ‘‘promptly, after the
establishment of a municipal advisory
relationship.’’ 25 Although municipal
advisors may elect to provide the first
notification earlier, the MSRB believes
this standard is consistent with the
flexibility provided by the proposed
rule change to include the proposed
annual notifications with other
materials required to be given by
municipal advisors.26
The MSRB further states that it
believes that all customers and
municipal advisory clients should be
aware of the important protections
provided by the MSRB’s rules, the
reminder that regulated entities are
registered with the Commission, and the
information about how to file a
complaint with a regulator. Rule G–10
currently provides no exception from its
requirements for institutional investors,
and the MSRB believes that there is no
reason why institutional investors
should receive less of this information
about the protections provided by
MSRB rules and education than other
investors.27 As discussed in the Notice
of Filing, the MSRB believes that the
annual notifications required by Rule
G–10 present only a slight burden to
regulated entities, but could represent a
significant enhancement to customer or
municipal advisory client protection
and education.28
The MSRB agrees with BDA’s view
that the Board should use a separate
brochure focused on municipal advisory
activities. The Notice of Filing
NAMA Letter, PFM Letter.
24 See MSRB Response Letter.
25 Id.
26 Id.
27 Id.
28 See Notice of Filing.
contemplated a separate brochure
focused on municipal advisory
activities, and the MSRB has stated that
it will develop such a brochure.29
However, the MSRB notes that the
content of the current investor brochure
was not made part of Rule G–10.
Likewise, the content of the future
brochures has not been made part of the
proposed amendment text.
4. Product and Problem Codes
BDA, Janney, NAMA and PFM
commented on the problem and product
codes that would be required by the
proposed amendments to Rule G–8 for
the electronic customer or municipal
advisory client complaint logs.30 BDA
and Janney commented that such codes
should harmonize with the problem and
product codes required by FINRA Rule
4530. BDA also commented that it
believed that the MSRB and the
Commission have existing independent
reporting systems that allow municipal
entities or obligated persons to file
complaints directly to a regulator,
which are more appropriate systems to
monitor complaints than the MSRB
developing an ‘‘expansive set of
problem codes.’’ BDA, NAMA, and PFM
urged that the Board publish the
product and problem codes for
comment.31
The MSRB notes that it coordinates its
rule interpretations and requirements
with those of other financial regulators,
including FINRA. This coordination has
been and is occurring on an ongoing
basis with respect to the product and
problem codes. The MSRB is aware that
having two different sets of compliance
codes for dually registered regulated
entities would impose significant
compliance and cost burdens, and to
lessen such burdens, the MSRB states
that it would coordinate and harmonize
the product and problem codes, and the
methods for determining the
appropriate codes, required by the
proposed amendments to Rule G–8 with
FINRA.32
In response to BDA’s comment that
the MSRB and the SEC have existing
independent reporting systems that
allow municipal entities or obligated
persons to file complaints directly with
a regulator, the MSRB states that its
complaint referral system is quite
different than, for example, the
Commission’s well-established and
comprehensive independent reporting
system through its Office of Investor
23 See
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19:02 Jan 19, 2017
29 See
MSRB Response Letter.
BDA Letter, NAMA Letter, Janney Letter,
PFM Letter.
31 See BDA Letter, NAMA Letter, PFM Letter.
32 See MSRB Response Letter.
30 See
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Education and Advocacy. The MSRB
notes that its role has been to provide
information about how an individual or
firm may make a complaint to a
regulator. If an individual or a regulated
entity is unsure about which regulator
the individual or firm should file the
complaint with, that individual or firm
may submit the complaint with the
MSRB, and the MSRB then will forward
the complaint to the appropriate
regulator. The MSRB states that, unlike
the Commission, the MSRB neither
enforces its own rules nor surveils
regulated entities; rather, other financial
regulators enforce MSRB rules and
perform market surveillance
functions.33 The MSRB further notes
that other financial regulators subject to
the Commission’s jurisdiction, such as
FINRA, currently require that written
customer complaints be tracked using
an electronic log. In approving FINRA
Rule 4530, the Commission found that
the FINRA Rule 4530 was consistent
with the requirements of the Act and the
rules and regulations thereunder that
are applicable to a national securities
association.34
As to the assertion that the electronic
complaint log represents overregulation
by the MSRB, the MSRB notes that
dealers that are registered with FINRA
are currently using electronic logs to
track and code written customer
complaints. The MSRB believes that the
electronic complaint log requirement
not only would assist regulators in
enforcing MSRB rules and performing
market surveillance, but also that the
electronic complaint log would be used
as a tool by regulated entities as part of
their risk management programs. The
MSRB believes that FINRA, the
Commission, and numerous FINRA
members, including members that are
also registered with the MSRB, have
found such electronic complaint logs to
be valuable.35
The MSRB states that federal
securities laws do not require that the
Board solicit public comment on the
product and problem codes to be used
under the proposed amendments to
Rule G–8. The MSRB notes that FINRA
recently revised its product and
problem codes used for reporting
customer complaints under FINRA Rule
4530.36 FINRA did not seek public
comment on the revisions to those
product and problem codes; the Board
33 Id.
34 Securities Exchange Act Release No. 63260
(Nov. 5, 2010), 75 FR 69508 (Nov. 12, 2010).
35 See MSRB Response Letter.
36 In 2014, FINRA updated FINRA Rule 4530’s
problem and product codes and provided a sixmonth implementation date. See Regulatory Notice
14–20 (May 7, 2014).
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would not expect to seek public
comment on the product and problem
codes to be used with the proposed
amendments to Rule G–8.37
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5. Recordkeeping
BDA, NAMA, PIABA, and PFM
provided comments and suggestions
about the Board’s proposed
amendments to Rule G–8.38 Those
comments and suggestions related to the
regulatory burden caused by the
proposed amendments to Rule G–8,
guidance as to certain of the terms used
in the electronic complaint log, and
guidance as to the development of the
electronic complaint log itself.
PFM asserted that the proposed rule
change ‘‘unnecessarily impose[s] undue
encumbrances of additional brochure
delivery and recordkeeping
requirements.’’ 39 BDA submitted that it
did not think that this type of
‘‘complaint and recordkeeping system is
valuable for municipal advisory
clients,’’ 40 and NAMA asserted that the
recording of ‘‘actions’’ in the electronic
complaint log required by the proposed
amendments to Rule G–8 is not
necessary because of the supervisory
requirements set forth in MSRB Rule G–
44.41
The MSRB states that it believes that
the burden on regulated entities from
the proposed rule change would not be
significant.42 The proposed rule change
would align Rule G–8 with the customer
complaint recordkeeping requirements
of other financial regulators. Rule 17a–
3(a)(18) under the Act 43 and FINRA
Rules 4513 and 4530 require
information about customer complaints
that is similar to what is required by the
proposed rule change. The MSRB has
stated that it would harmonize its
product and problem codes with those
required by FINRA Rule 4530.44
Although the proposed rule change
would represent a new recordkeeping
burden on municipal advisors, the
MSRB believes that it would not be a
significant burden. The MSRB states
that it is generally a good business
practice, especially for the development
of a regulated entity’s risk management
systems, to track written complaints
using standard codes in an electronic
complaint log. Any regulatory burden
imposed by the proposed rulemaking is,
in part, dependent upon the municipal
37 See
MSRB Response Letter.
BDA Letter, NAMA Letter, PIABA Letter,
PFM letter.
39 See PFM Letter.
40 See BDA Letter.
41 See NAMA Letter.
42 See MSRB Response Letter.
43 17 CFR 240.19b–4.
44 See MSRB Response Letter.
38 See
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advisor and the number of municipal
advisory client complaints that the
municipal advisor receives. The MSRB
anticipates that smaller municipal
advisors would have fewer clients and
accordingly may be likely to receive
fewer complaints than larger municipal
advisors. Further, the MSRB states that
it mitigates that regulatory burden by
providing flexibility as to how those
electronic records may be kept.45
The MSRB believes that an electronic
log of complaints is necessary, and that
such need is not lessened by the
supervisory and compliance obligations
of municipal advisors set forth in MSRB
Rule G–44. The standard electronic
format required by the proposed
amendments would enhance the ability
of financial regulators to conduct more
cost-effective and efficient inspections
and surveillance of regulated entities.
MSRB Rule G–44 does not require that
records of complaints be kept in a
standard electronic format across all
regulated entities. Further, the MSRB
notes that many dealers that have been
subject to MSRB Rule G–27, on
supervision, a rule that is similar to
MSRB Rule G–44, also have been
subject to FINRA’s electronic customer
complaint recordkeeping requirements.
The MSRB believes that the FINRA
electronic customer complaint log
requirements have proven useful in
addition to general supervisory
obligations.46
NAMA requested guidance about the
meaning of certain terms to be used in
the electronic complaint log.47 The
MSRB believes that the titles of the
codes, as well as the brief description of
those codes published by the Board, as
appropriate, will provide guidance as to
the terms used with the electronic
complaint log. Further, as discussed
above under ‘‘Product and Problem
Codes,’’ the MSRB would harmonize the
product and problem terms used for the
electronic log of customer and
municipal advisory client complaints
with the codes required by FINRA Rule
4530.48
NAMA requested guidance as to how
a municipal advisor should create an
electronic complaint log. The MSRB
notes that Proposed Supplementary
Material .01 broadly defines electronic
format to include ‘‘any computer
software program that is used for
storing, organizing and/or manipulating
data that can be provided promptly
upon request to a regulatory
authority.’’ 49 The MSRB states that it
has determined that the degree of
flexibility the MSRB is providing with
the proposed rule change about the
format of the electronic complaint log is
preferable at this juncture.50
NAMA and PFM commented about
the municipal advisor record retention
requirements set forth in the proposed
amendments to Rule G–9. NAMA
commented that municipal advisor
records should be kept for five years and
not six years.51 PFM commented that
the Board lacked statutory authority to
extend the record retention period for
municipal advisors for one year and
expressed ‘‘genuine concern regarding
the misalignment regarding the
proposed MSRB Rule changes and
current Exchange Act requirements.’’ 52
After carefully considering the
comments, the MSRB states that it has
determined that the important reasons
for retaining records of municipal
advisory client complaints for six years
remain valid. As discussed in the Notice
of Filing, such retention period would
assist other financial regulators with
their inspections of municipal advisors
(those inspections may not occur for
several years after the municipal
advisory client submitted the
complaint) and with their surveillance
of municipal advisors. Further, by
requiring that municipal advisors retain
records of municipal advisory client
complaints for six years, the MSRB
states that it would be ‘‘leveling the
playing field’’ between dealers and
municipal advisors and between dealer
municipal advisors and non-dealer
municipal advisors.53 Dealers, including
dealer municipal advisors, are required
to retain records of customer complaints
for six years under current Board rules.
The MSRB states that it disagrees with
PFM’s assertions that the Board lacks
statutory authority to develop a record
retention period under the Act for
municipal advisor records. The MSRB
notes that Section 15B(b)(2)(g) of the
Act 54 specifically requires that the
MSRB prescribe the records that are to
be made and kept by dealers and
municipal advisors and to prescribe the
length of time the records are to be kept.
The MSRB further notes that the
Commission has approved as consistent
with the Exchange Act the MSRB’s
several previous municipal advisor
49 See
Notice of Filing and Amendment No. 1.
MSRB Response Letter.
51 See NAMA Letter.
52 See PFM Letter.
53 See MSRB Response Letter.
54 15 U.S.C. 78o–4(b)(2)(g).
50 See
45 Id.
46 Id.
47 See
48 See
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MSRB Response Letter.
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recordkeeping proposals, including
select six-year retention periods.55
6. Annual Notifications
mstockstill on DSK3G9T082PROD with NOTICES
The Commission received several
comments about the annual
notifications concerning the municipal
advisor’s registration, the MSRB’s Web
site address, and availability of a
municipal advisory client brochure
about the protections provided by the
MSRB’s rules and information about
filing a complaint with a financial
regulator required by the proposed
amendments to Rule G–10 (the ‘‘annual
notifications’’). Those comments
concerned the location of those annual
notifications and the ability to include
the annual notifications with other
materials. NAMA suggested that in lieu
of providing the written annual
notifications to their municipal advisory
clients, municipal advisors should have
the option to post the annual
notifications on their Web sites.56
NAMA and PFM 57 suggested that the
annual notifications be included with
the written disclosure of all material
conflicts of interest and other
information required to be made by a
municipal advisor by Rule G–42(b).58
The MSRB states that it has carefully
considered commenters’ suggestions,
and has determined that a municipal
advisor should not have the option to
post the annual notifications on its Web
site in lieu of sending those
notifications to its municipal advisory
client. The Board believes that the
purpose of the proposed amendments is
best achieved by individual annual
notifications to a customer or municipal
advisor client. Nonetheless, if a
regulated entity would like to post the
annual notifications on its Web site, in
addition to sending the written annual
notifications to its customers or
municipal advisory clients, the
regulated entity may do so as long as the
information on the regulated entity’s
Web site complies with Board and any
55 See, e.g., Exchange Act Release No. 76753 (Dec.
23, 2015), 80 FR 81614 (Dec. 30, 2015) (approving
Rule G–42 and amendments to Rule G–8); Exchange
Act Release No. 73415 (Oct. 23, 2014), 79 FR 64423
(Oct. 29, 2014) (approving Rule G–44 and
amendments to Rules G–8 and G–9).
56 See NAMA Letter.
57 See NAMA Letter, PFM Letter.
58 Rule G–42(b) provides, in part: ‘‘Disclosure of
Conflicts of Interest and Other Information. A
municipal advisor must, prior to or upon engaging
in municipal advisory activities, provide to the
municipal entity or obligated person client full and
fair disclosure in writing of:
(i) all material conflicts of interest . . . [and]
(ii) any legal or disciplinary event that is material
to the client’s evaluation of the municipal advisor
or the integrity of its management or advisory
personnel. . . .’’
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19:02 Jan 19, 2017
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other applicable laws, rules and
regulations.59
As proposed, the amendments to Rule
G–10 would provide a regulated entity
with the flexibility to include the
written annual notifications with other
materials. The MSRB notes that those
other materials may include the written
disclosure of material conflicts of
interest and other information required
to be provided by a municipal advisor
under MSRB Rule G–42(b). Because the
proposed rule change would provide
municipal advisors with the option to
include the annual notifications with
the written disclosure of material
conflicts of interest and other
information required by MSRB Rule G–
42(b), the MSRB believes that the rule
language, as proposed, provides
sufficient flexibility to address NAMA’s
and PFM’s suggestion that the annual
notifications be included with the
written disclosures required under Rule
G–42(b).60
7. Sufficiency of Comment Period
BDA, NAMA, and PFM commented
that the Board did not solicit public
comment on the proposed rule change
before the Board filed the proposed rule
change with the Commission.61 BDA
submitted that the MSRB is proceeding
with ‘‘unnecessary haste’’ and that if the
MSRB issued a request for comment on
the proposed rule change, it could have
‘‘received feedback and tailored these
rule amendments to the activities of
municipal advisors.’’ 62 NAMA
commented that the municipal advisor
community should be afforded the same
opportunity to comment prior to a
proposal being sent to the Commission
that the dealer community is afforded
and submitted that municipal advisors
would have flagged some of the vague
and duplicative provisions of the
proposed rulemaking as well as use of
clearly inapplicable terminology.63 PFM
stated that it was ‘‘a bit dismayed’’ that
the MSRB did not publish a request for
comment before filing the proposed rule
change with the Commission, and
suggested that without such a prior
comment opportunity, PFM did not
have ‘‘adequate opportunity for review
and written comment.’’ 64
The MSRB responds that the
Commission provided market
participants with the fulsome comment
period generally required under the
federal securities laws, which do not
59 See
MSRB Response Letter.
require the Board to seek public
comment before submitting a
rulemaking proposal to the
Commission.65 Market participants
provided comment on the proposed rule
change, and as noted earlier, in response
to those comments, the Board is filing
Amendment No. 1.
Further, the MSRB notes that, in this
case, not only did market participants
request the proposed rule change, but
every commenter supported the
purposes of the proposed rule change.
The proposed rule change would
enhance the MSRB’s ability to protect
and educate customers and municipal
advisory clients, which protections are
vital to the Board’s mission. The
proposed rule change also would
harmonize the Board’s customer
complaint rule with that of other
financial regulators—a goal that is
important both to the Board and to
market participants.66
8. Electronic Guidance
BDA commented that the MSRB’s
Notice Regarding Electronic Delivery
and Receipt of Information by Brokers,
Dealers and Municipal Securities
Dealers—November 20, 1998 (the ‘‘1998
Notice’’) should not apply to municipal
advisory relationships. BDA stated that
‘‘[a]s with attorney-client relationships
. . ., municipal entities and obligated
persons know exactly how they prefer to
communicate and there is no need for
a Federal regulator to regulate electronic
communications in those
relationships.’’ 67
The MSRB stated that the 1998 Notice
provides dealers with the MSRB’s
interpretation about the use of
electronic media to deliver and receive
information under Board rules. The
proposed rule change would extend that
interpretation to municipal advisors.
Without that extension, some vagueness
might exist regarding municipal
advisors’ ability to use electronic media
to deliver and receive information
required under Board rules.68
9. Other Comments
The other suggestions that the
Commission received about the
proposed rule change related to (i)
expansion of the proposed rule change,
(ii) concerns about the complaint
process, and (iii) concerns about the
economic impact of the proposed rule
change on small municipal advisors.
PIABA supported the proposed rule
change, but also suggested that the
60 Id.
61 See
65 See
62 See
BDA Letter, NAMA Letter, PFM Letter.
BDA Letter.
63 See NAMA Letter.
64 See PFM Letter.
66 Id.
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68 See
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MSRB Response Letter.
BDA Letter.
MSRB Response Letter.
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proposed rule change ‘‘go a step
further’’ to provide investors with
access to the electronic complaint
logs.69 NAMA expressed concern that
the proposed rule change would require
that a municipal advisory client make
its complaint directly with the
municipal advisor instead of with a
regulator. NAMA also suggested that the
Board consider the economic impact of
the proposed rule change, and the
cumulative effect of all Board rules on
small municipal advisors.70
The MSRB states that it recognizes
that market transparency is important
for investors. However, the MSRB is
concerned that requiring electronic
complaint logs to be available to
customers and municipal advisory
clients may not only mislead them
because certain complaints may not be
as material as others, but also may have
a chilling effect on a regulated entity’s
reporting of written customer or client
complaints, which could undermine the
goals of the rule.71
In addition, the proposed
amendments to Rule G–10 do not set
forth any requirement that a municipal
advisory client make a complaint to its
municipal advisor nor do those
proposed amendments require that a
municipal advisory client submit any
complaint that it may have to a
particular regulator. A municipal
advisory client would continue to be
able to submit its complaint to any party
it considers appropriate, based on,
among other things, the notifications
and educational materials it receives.72
Further, in connection with concerns
about the economic impact of the
proposed rule change on small
municipal advisors, the MSRB states
that it anticipates that smaller
municipal advisors would have fewer
clients and accordingly may be likely to
receive fewer complaints than larger
municipal advisors.73 Further, the
MSRB states that it mitigates that
regulatory burden by providing
flexibility as to how those electronic
records may be kept.74
mstockstill on DSK3G9T082PROD with NOTICES
IV. Discussion and Commission
Findings
The Commission has carefully
considered the proposed rule change, as
modified by Amendment No. 1, the
comments letters received, and the
MSRB Response Letter. The
Commission finds that the proposed
69 See
PIABA Letter.
NAMA Letter.
71 See MSRB Response Letter.
72 Id.
73 See MSRB Response Letter.
74 Id.
70 See
VerDate Sep<11>2014
19:02 Jan 19, 2017
rule change, as modified by Amendment
No. 1, is consistent with the
requirements of the Act and the rules
and regulations thereunder applicable to
the MSRB.
In particular, the proposed rule
change, as modified by Amendment
No.1, is consistent with Sections
15B(b)(2) and 15B(b)(2)(C) of the Act.75
Section 15B(b)(2) of the Act provides
that the MSRB shall propose and adopt
rules to effect the purposes of that title
with respect to transactions in
municipal securities effected by brokers,
dealers, and municipal securities
dealers and advice provided to or on
behalf of municipal entities or obligated
persons by brokers, dealers, municipal
securities dealers, and 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.76 Section
15B(b)(2)(C) of the Act, provides that,
among other things, the rules of the
MSRB shall be designed to prevent
fraudulent and manipulative acts and
practices, to promote just and equitable
principles of trade, to foster cooperation
and coordination with persons engaged
in regulating, clearing, settling,
processing information with respect to,
and facilitating transactions in
municipal securities and municipal
financial products, to remove
impediments to and perfect the
mechanism of a free and open market in
municipal securities and municipal
financial products, and, in general, to
protect investors, municipal entities,
obligated persons, and the public
interest.77 The Commission believes
that the proposed rule change is
reasonably designed to prevent
fraudulent and manipulative practices,
promote just and equitable principles of
trade, foster cooperation and
coordination with persons engaged in
regulating transactions in municipal
securities and municipal financial
products, and protect investors,
municipal entities, obligated persons
and the public interest by developing
more comprehensive and modern
customer and municipal advisory client
complaint and recordkeeping rules.
Furthermore, the Commission believes
that by focusing on customer and
municipal advisory client education and
protection and enhancing the related
recordkeeping requirements, the
proposed rule change is reasonably
U.S.C. 78o–4(b)(2) and (b)(2)(C).
U.S.C. 78o–4(b)(2).
77 15 U.S.C. 78o–4(b)(2)(C).
designed to protect investors, municipal
entities, obligated persons, and the
public interest. Additionally, the
proposed rule change would align the
MSRB’s customer and municipal
advisory client complaint rules and
related recordkeeping requirements
with those of other financial regulators
which will, among other things,
promote compliance with MSRB rules
by providing regulated entities with the
opportunity to streamline their
compliance procedures. In addition, the
proposed rule change, according to the
MSRB, would enhance the ability of
other financial regulators to conduct
more cost-effective and efficient
inspections and surveillance of
regulated entities.
The Commission also finds that the
proposed rule change, as modified by
Amendment No.1, is consistent with
Section 15B(b)(2)(L)(iv) of the Act in
that it does 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.78 Although the proposed rule
change would affect all municipal
advisors, including small municipal
advisors, the proposed rule change is a
necessary and appropriate regulatory
burden in order to protect municipal
entities and obligated persons. For
example, under the proposed rule
change, a municipal advisory client
would be able to receive detailed and
relevant information about its municipal
advisor, the protections provided by
MSRB rules, and how to make a
complaint in a timely and consistent
fashion.
The Commission also finds that the
proposed rule change, as modified by
Amendment No.1, is consistent with
Section 15B(b)(2)(G) of the Act which
provides that the MSRB’s rules shall
prescribe records to be made and kept
by municipal securities brokers,
municipal securities dealers, and
municipal advisors and the periods for
which such records shall be
preserved.79 The proposed rule change
would, among other things, enhance the
current customer complaint
recordkeeping requirements under Rule
G–8 by requiring that dealers keep more
detailed information about written
customer complaints in an electronic
format and then would extend those
recordkeeping requirements to
municipal advisors. In addition, the
proposed rule change would extend the
75 15
76 15
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78 15
79 15
E:\FR\FM\23JAN1.SGM
U.S.C. 78o–4(b)(2)(L)(iv).
U.S.C. 78o–4(b)(2)(G).
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six-year record retention period
applicable to customer complaints to
municipal advisory client complaints.
In approving the proposed rule
change, as modified by Amendment
No.1, the Commission has also
considered the impact of the proposed
rule change on efficiency, competition,
and capital formation.80 The
Commission does not believe that the
proposed rule change, as modified by
Amendment No. 1 would impose any
burden on competition not necessary or
appropriate in furtherance of the
purposes of the Act.
For the reasons noted above, the
Commission believes that the proposed
rule change, as modified by Amendment
No. 1, is consistent with the Act.
V. Solicitation of Comments on
Amendment No. 1
Interested persons are invited to
submit written data, views, and
arguments concerning Amendment No.
1, including whether the proposed rule
change, as modified by Amendment
No.1, is consistent with the Act.
Comments may be submitted by any of
the following methods:
mstockstill on DSK3G9T082PROD with NOTICES
Electronic Comments
• Use the Commission’s Internet
comment form (http://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
MSRB–2016–15 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549.
All submissions should refer to File
Number SR–MSRB–2016–15. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (http://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the MSRB. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–MSRB–
2016–15 and should be submitted on or
before February 13, 2017.
VI. Accelerated Approval of Proposed
Rule Change as Modified by
Amendment No. 1
The Commission finds good cause to
approve the proposed rule change, as
modified by Amendment No. 1, prior to
the 30th day after the date of
publication of Amendment No. 1 in the
Federal Register. As discussed above,
Amendment No. 1 partially amends the
text of the proposed rule change to
provide certain clarifications relating to
the notifications that would be provided
by municipal advisors to their
municipal advisory clients and to the
terms used with the recordkeeping of
municipal advisory client complaints, to
extend the proposed effective date, and
to make other technical changes to
clarify or simplify rule text.81
Specifically, the changes respond to
commenters’ concerns, are technical in
nature, and clarify or simplify the
proposed rule change. The MSRB states
that Amendment No. 1 in many respects
eliminates unnecessary language by
relying on terms that are defined in the
MSRB’s rule book, the Act, or
Commission rules under the Act.82 In
addition, the MSRB notes that the
changes are consistent with the
purposes of the proposed rule change to
advance the development of a
comprehensive regulatory framework
for municipal advisors and to update
the Board’s customer complaint rules.
With respect to those portions of
Amendment No. 1 that modify certain
definitions, the MSRB notes that the
proposed rule change, as described in
the Notice of Filing, contemplated that
the clients of both solicitor and nonsolicitor municipal advisors would be
covered by the proposed rule change.83
According to the MSRB, the precision
added to certain definitions by
Amendment No. 1 parallels the
precision with which the MSRB defines
U.S.C. 78c(f).
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19:02 Jan 19, 2017
Jkt 241001
VII. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,85 that the
proposed rule change, as modified by
Amendment No. 1 (SR–MSRB–2016–15)
be, and hereby is, approved on an
accelerated basis.
For the Commission, pursuant to delegated
authority.86
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–01300 Filed 1–19–17; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–79796; File No. SR–C2–
2017–003]
Self-Regulatory Organizations; C2
Options Exchange, Incorporated;
Notice of Filing and Immediate
Effectiveness of a Proposed Rule To
Amend the Fees Schedule
January 13, 2017.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on January 3,
2017, C2 Options Exchange,
Incorporated (the ‘‘Exchange’’ or ‘‘C2’’)
filed with the Securities and Exchange
Commission (‘‘SEC’’ or ‘‘Commission’’)
the proposed rule change as described
in Items I, II, and III below, which Items
have been prepared by the Exchange.
The Commission is publishing this
notice to solicit comments on the
proposed rule change from interested
persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend its
Fees Schedule. The text of the proposed
rule change is available on the
Exchange’s Web site (http://
84 See
Amendment No. 1.
U.S.C. 78s(b)(2).
86 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
85 15
81 Supra
note 6.
Amendment No. 1.
83 See Notice of Filing.
82 See
80 15
a municipal advisory client of a solicitor
municipal advisor and eliminates
unnecessary language.84 The MSRB
believes other technical changes made
serve to clarify or simplify the proposed
rule change.
For the foregoing reasons, the
Commission finds good cause for
approving the proposed rule change, as
modified by Amendment No. 1, on an
accelerated basis, pursuant to Section
19(b)(2) of the Act.
PO 00000
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23JAN1
]]>Agencies
[Federal Register Volume 82, Number 13 (Monday, January 23, 2017)]
[Notices]
[Pages 7898-7904]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-01300]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-79801; File No. SR-MSRB-2016-15]
Self-Regulatory Organizations; Municipal Securities Rulemaking
Board; Notice of Filing of Amendment No. 1 and Order Granting
Accelerated Approval of a Proposed Rule Change, as Modified by
Amendment No. 1, To Extend the MSRB's Customer Complaint and Related
Recordkeeping Rules to Municipal Advisors and To Modernize Those Rules
January 13, 2017.
I. Introduction
On November 1, 2016, the Municipal Securities Rulemaking Board (the
``MSRB'' or ``Board'') filed with the Securities and Exchange
Commission (the ``SEC'' or ``Commission''), pursuant to Section
19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ and Rule
19b-4 thereunder,\2\ a proposed rule change consisting of (i) proposed
amendments to Rule G-10, on delivery of investor brochure, Rule G-8, on
books and records to be made by brokers, dealers, and municipal
securities dealers and municipal advisors, and Rule G-9, on
preservation of records, and (ii) a proposed Board notice regarding
electronic delivery and receipt of information by municipal advisors
under Rule G-32, on disclosures in connection with primary offerings
(collectively, the ``proposed rule change''). The proposed rule change
was published for comment in the Federal Register on November 18,
2016.\3\
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Securities Exchange Act Release No. 79295 (November 14,
2016) (the ``Notice of Filing''), 81 FR 81837 (November 18, 2016).
---------------------------------------------------------------------------
The Commission received five comment letters on the proposed rule
change.\4\ On January 10, 2017, the MSRB responded to the comments
received by the Commission \5\ and filed Amendment No. 1 to the
proposed rule change (``Amendment No. 1'').\6\ The Commission is
publishing this notice to solicit comments on Amendment No. 1 to the
proposed rule change from interested persons and is approving the
proposed rule change, as modified by Amendment No. 1, on an accelerated
basis.
---------------------------------------------------------------------------
\4\ See Letters to Secretary, Commission, from Mike Nicholas,
Chief Executive Officer, Bond Dealers of America (``BDA''), dated
December 9, 2016 (the ``BDA Letter''); Matthew J. Gavaghan,
Associate General Counsel, Janney Montgomery Scott LLC (``Janney''),
dated December 9, 2016 (the ``Janney Letter''); Marnie Lambert,
President, Public Investors Arbitration Bar Association (``PIABA''),
dated December 9, 2016 (the ``PIABA Letter''); Susan Gaffney,
Executive Director, National Association of Municipal Advisors
(``NAMA''), dated December 12, 2016 (the ``NAMA Letter''); and Leo
Karwejna, Chief Compliance Officer and Cheryl Maddox, General
Counsel, Public Financial Management, Inc. and PFM Financial
Advisors LLC (collectively, ``PFM''), dated December 13, 2016 (the
``PFM Letter'').
\5\ See Letter to Secretary, Commission, from Pamela K. Ellis,
Associate General Counsel, MSRB, dated January 10, 2017 (the ``MSRB
Response Letter''), available at https://www.sec.gov/comments/sr-msrb-2016-15/msrb201615-1473509-130471.pdf.
\6\ See Letter to Secretary, Commission, from Pamela K. Ellis,
Associate General Counsel, MSRB, dated January 10, 2017, available
at https://www.sec.gov/comments/sr-msrb-2016-15/msrb201615-1473522-130450.pdf. In Amendment No. 1, the MSRB partially amended the text
of the proposed rule change to provide certain clarifications
relating to the notifications that would be provided by municipal
advisors to their municipal advisory clients and to the terms used
with the recordkeeping of municipal advisory client complaints, to
extend the proposed effective date, and to make other technical
changes to clarify or simplify rule text.
---------------------------------------------------------------------------
II. Description of Proposed Rule Change
The proposed rule change, as modified by Amendment No. 1, consists
of (i) proposed amendments to Rule G-10, on delivery of investor
brochure, Rule G-8, on books and records to be made by brokers,
dealers, and municipal securities dealers and municipal advisors, and
Rule G-9, on preservation of records, and (ii) a proposed MSRB notice
regarding electronic delivery and receipt of information by municipal
advisors under Rule G-32, on disclosures in connection with primary
offerings.\7\
---------------------------------------------------------------------------
\7\ See Notice of Filing.
---------------------------------------------------------------------------
Following the financial crisis of 2008, Congress enacted the Dodd-
Frank Wall Street Reform and Consumer Protection Act (the ``Dodd-Frank
Act'').\8\ The Dodd-Frank Act amended Section 15B of the Exchange Act
to establish a new federal regulatory regime requiring municipal
advisors to register with the Commission, deeming them to owe a
fiduciary duty to their municipal entity clients and granting the MSRB
rulemaking authority over them. The MSRB, in the exercise of that
rulemaking authority, has been developing a comprehensive regulatory
framework for municipal advisors and their associated persons.\9\
---------------------------------------------------------------------------
\8\ Public Law No. 111-203, 124 Stat. 1376 (2010).
\9\ MSRB Rule D-11 defines ``associated persons'' as follows:
Unless the context otherwise requires or a rule of the Board
otherwise specifically provides, the terms ``broker,'' ``dealer,''
``municipal securities broker,'' ``municipal securities dealer,''
``bank dealer,'' and ``municipal advisor'' shall refer to and
include their respective associated persons. Unless otherwise
specified, persons whose functions are solely clerical or
ministerial shall not be considered associated persons for purposes
of the Board's rules.
---------------------------------------------------------------------------
Further, and concurrent with its efforts to develop a comprehensive
regulatory framework for municipal advisors and their associated
persons, the MSRB initiated a review of its rules and related
interpretive guidance for brokers, dealers and municipal securities
dealers (collectively, ``dealers'') and municipal advisors (municipal
advisors, together with dealers, ``regulated entities''). The MSRB
initiated that review in the context of the Board's obligation to
protect investors, municipal entities, obligated persons, and the
public interest. As part of that review, the MSRB solicited comments
from market participants.\10\ In response, market participants
recommended that the Board update Rule G-10.\11\ The MSRB has stated
that the proposed rule change, as modified by Amendment No. 1,
consisting of amendments to Rule G-10 and its related recordkeeping
rules, Rules G-8 and G-9, and guidance under Rule G-32, is an important
element of both MSRB regulatory initiatives.\12\
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\10\ MSRB Notice 2012-63, Request for Comment on MSRB Rules and
Interpretive Guidance (Dec. 18, 2012).
\11\ See, e.g., Letter from David L. Cohen, Managing Director
and Associate General Counsel, Securities Industry and Financial
Markets Association, dated February 19, 2013, to Ronald W. Smith,
Corporate Secretary, Municipal Securities Rulemaking Board
(commenting that (i) the requirement to deliver an investor brochure
under Rule G-10 should be eliminated, (ii) the investor brochure is
of limited value, if any, to institutional investors as well as
investors in municipal fund securities, and (iii) alternatively, the
MSRB could accomplish the objective of Rule G-10 by posting the
investor brochure on its Web site); Letter from Gerald K. Mayfield,
Senior Counsel, Wells Fargo & Company Law Department, dated February
19, 2013, to Ronald W. Smith, Corporate Secretary, Municipal
Securities Rulemaking Board (commenting that (i) the requirement to
deliver an investor brochure under Rule G-10 should be eliminated,
(ii) the investor brochure is of limited value, if any, to
institutional investors as well as investors in municipal fund
securities, and (iii) alternatively, the MSRB could accomplish the
objective of Rule G-10 by posting the investor brochure on its Web
site).
\12\ See Notice of Filing.
---------------------------------------------------------------------------
To extend its customer complaint and recordkeeping rules to
municipal advisors and to modernize those rules, the Board filed the
proposed rule change, as modified by Amendment No. 1, with the
Commission. Specifically,
[[Page 7899]]
the proposed rule change would (i) extend the Board's customer
complaint recordkeeping requirements to all municipal advisors (i.e.,
non-solicitor and solicitor municipal advisors) as well as align those
recordkeeping requirements more closely with the customer complaint
recordkeeping requirements of other financial regulators, (ii) require
that all regulated entities retain their customer or municipal advisory
client \13\ complaint records for six years, (iii) overhaul Rule G-10
so that the rule would more closely focus on customer and municipal
advisory client education and protection as well as align that rule
with customer education and protection rules of other financial
regulators, and (iv) extend the Board's guidance under Rule G-32,
Notice Regarding Electronic Delivery and Receipt of Information by
Brokers, Dealers and Municipal Securities Dealers (Nov. 20, 1998) (the
``1998 Notice''), to municipal advisors.
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\13\ The proposed rule change, as amended by Amendment No. 1, in
Rule G-8(e)(ii), would define a municipal advisory client as either
a municipal entity or obligated person for whom the municipal
advisor engages in municipal advisory activities as defined in MSRB
Rule G-42(f)(iv), or a broker, dealer, municipal securities dealer,
municipal advisor, or investment adviser (as defined in section 202
of the Investment Advisers Act of 1940) on behalf of whom the
municipal advisor undertakes a solicitation of a municipal entity or
obligated person, as defined in Rule 15Ba1-1(n), 17 CFR 240.15Ba1-
1(n), under the Act.
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In summary, by regulated entity, the proposed rule change, as
modified by Amendment No. 1, would do the following:
Municipal Advisors
amend Rule G-8 to exclude municipal advisors from the
definition of ``customers;''
amend Rule G-8 to include the definition of ``municipal
advisory client;''
amend Rule G-8 to extend the requirements that are similar
to the rule's customer complaint recordkeeping requirements to
municipal advisory client complaint recordkeeping;
amend Rule G-8 to provide guidance in supplementary
material that would define electronic recordkeeping;
amend Rule G-8 to provide guidance in supplementary
material that would remind a municipal advisor that it may be required
to promptly report certain municipal advisory client complaints to
other regulatory authorities;
amend Rule G-9 to require that the records of municipal
advisory client complaints be kept for at least six years;
amend Rule G-10 to extend requirements that are similar to
the rule's dealer customer protection and education requirements to
municipal advisory client protection and education; and
extend to municipal advisors, under Rule G-32, the
guidance provided by the 1998 Notice, as relevant.
Dealers
Amend Rule G-8 to require that dealers keep a standardized
complaint log electronically, using product and problem codes tailored
for municipal securities, to document the written complaints of
customers;
amend Rule G-8 to define written customer complaints to
include complaints received electronically by the dealer;
amend Rule G-8 to provide guidance in supplementary
material that would define electronic recordkeeping;
amend Rule G-8 to provide guidance in supplementary
material that would remind a dealer that it may be required to promptly
report certain written customer complaints to other regulatory
authorities; and
amend Rule G-10 in its entirety so that the rule would
more clearly focus on customer protection and education.
A detailed rule discussion of the proposed rule change's
recordkeeping requirements, customer and municipal advisory client
education and protection requirements, and electronic delivery guidance
to municipal advisors is contained in the Notice of Filing.
The MSRB requested in the Notice of Filing that the proposed rule
change be approved with an implementation date of six months after the
Commission approval date for all changes.\14\ Pursuant to Amendment No.
1, the MSRB now requests that the proposed rule change be approved with
an implementation date of nine months after the Commission approval
date for all changes.\15\
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\14\ See Notice of Filing.
\15\ See Amendment No. 1.
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III. Summary of Comments Received and MSRB's Responses to Comments
As noted previously, the Commission received five comment letters
on the proposed rule change, and the MSRB Response Letter. Commenters
generally expressed support for the principles behind the proposed rule
change, but also expressed various concerns or suggested revisions.
1. Effective Date
BDA urged that the MSRB provide at least 12 months, rather than the
six months proposed in the Notice of Filing, to provide dealers with
adequate time for implementation, especially given the resources
required to implement other ongoing regulatory initiatives.\16\ The
MSRB acknowledged that those other regulatory initiatives require
significant attention by compliance and technology staff. In response,
the MSRB, pursuant to Amendment No. 1, proposes an effective date of
nine months after the Commission's approval date of all changes.\17\
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\16\ See BDA Letter.
\17\ See MSRB Response Letter.
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2. Municipal Advisor Terms
NAMA suggested that certain terms used in the proposed amendments
to Rule G-8 be revised to more closely reflect terms more commonly used
by municipal advisors. In particular, NAMA noted that the proposed
rulemaking refers to a municipal advisory client's ``account.'' \18\
NAMA stated that such a phrase does not ``translate'' to municipal
advisors. In response, the MSRB, pursuant to Amendment No. 1, proposes
to replace ``account'' when used with a municipal advisory client with
the phrase ``number or code, if any.'' \19\
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\18\ See NAMA Letter.
\19\ See MSRB Response Letter.
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3. Customer and Municipal Advisory Client Brochures
PIABA supported giving investors information about the protections
provided by the MSRB and about how to file a complaint with a
regulator, noting that the proposed amendments to Rule G-10 would
provide for the education of customers or municipal advisory clients
before they encounter a problem.\20\ PFM submitted that the ``proposed
Rules . . . unnecessarily impose undue encumbrances of additional
brochure delivery.'' \21\ BDA also requested clarity about when a
municipal advisor should send the investor brochure to a municipal
advisory client, and suggested that it was not necessary to send the
investor brochure to an institutional investor. BDA suggested that the
Board should develop a brochure that focuses on municipal advisory
clients.\22\ NAMA and PFM commented that they needed
[[Page 7900]]
to review the brochure to provide sufficient comment.\23\
---------------------------------------------------------------------------
\20\ See PIABA Letter.
\21\ See PFM Letter.
\22\ BDA states that it ``requests clarity with when a municipal
advisor should send the G-10 brochure to a municipal advisory
client.'' BDA also stated that ``[i]f the MSRB is committed to
requiring dealers to send the investor brochure to institutional
investors, BDA recommends that MSRB provide clarity on `customer'
for the purposes of G-10.'' See BDA Letter.
\23\ See NAMA Letter, PFM Letter.
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The MSRB responded by stating that, unlike the current requirements
of Rule G-10, the proposed amendments to Rule G-10 would not require
that a regulated entity deliver a Rule G-10 brochure to its customer or
municipal advisory client, but would require that a regulated entity
provide only annual notifications to its customer or municipal advisory
client about the availability of the brochure on the MSRB's Web
site.\24\ Further, after carefully considering BDA's request for
clarity regarding the use of the term ``promptly'' relating to when a
municipal advisor must send the annual notifications required by the
amendments to Rule G-10 to its municipal advisory client, the MSRB
provided a technical change in Amendment No. 1 to clarify that
``promptly'' means ``promptly, after the establishment of a municipal
advisory relationship.'' \25\ Although municipal advisors may elect to
provide the first notification earlier, the MSRB believes this standard
is consistent with the flexibility provided by the proposed rule change
to include the proposed annual notifications with other materials
required to be given by municipal advisors.\26\
---------------------------------------------------------------------------
\24\ See MSRB Response Letter.
\25\ Id.
\26\ Id.
---------------------------------------------------------------------------
The MSRB further states that it believes that all customers and
municipal advisory clients should be aware of the important protections
provided by the MSRB's rules, the reminder that regulated entities are
registered with the Commission, and the information about how to file a
complaint with a regulator. Rule G-10 currently provides no exception
from its requirements for institutional investors, and the MSRB
believes that there is no reason why institutional investors should
receive less of this information about the protections provided by MSRB
rules and education than other investors.\27\ As discussed in the
Notice of Filing, the MSRB believes that the annual notifications
required by Rule G-10 present only a slight burden to regulated
entities, but could represent a significant enhancement to customer or
municipal advisory client protection and education.\28\
---------------------------------------------------------------------------
\27\ Id.
\28\ See Notice of Filing.
---------------------------------------------------------------------------
The MSRB agrees with BDA's view that the Board should use a
separate brochure focused on municipal advisory activities. The Notice
of Filing contemplated a separate brochure focused on municipal
advisory activities, and the MSRB has stated that it will develop such
a brochure.\29\ However, the MSRB notes that the content of the current
investor brochure was not made part of Rule G-10. Likewise, the content
of the future brochures has not been made part of the proposed
amendment text.
---------------------------------------------------------------------------
\29\ See MSRB Response Letter.
---------------------------------------------------------------------------
4. Product and Problem Codes
BDA, Janney, NAMA and PFM commented on the problem and product
codes that would be required by the proposed amendments to Rule G-8 for
the electronic customer or municipal advisory client complaint
logs.\30\ BDA and Janney commented that such codes should harmonize
with the problem and product codes required by FINRA Rule 4530. BDA
also commented that it believed that the MSRB and the Commission have
existing independent reporting systems that allow municipal entities or
obligated persons to file complaints directly to a regulator, which are
more appropriate systems to monitor complaints than the MSRB developing
an ``expansive set of problem codes.'' BDA, NAMA, and PFM urged that
the Board publish the product and problem codes for comment.\31\
---------------------------------------------------------------------------
\30\ See BDA Letter, NAMA Letter, Janney Letter, PFM Letter.
\31\ See BDA Letter, NAMA Letter, PFM Letter.
---------------------------------------------------------------------------
The MSRB notes that it coordinates its rule interpretations and
requirements with those of other financial regulators, including FINRA.
This coordination has been and is occurring on an ongoing basis with
respect to the product and problem codes. The MSRB is aware that having
two different sets of compliance codes for dually registered regulated
entities would impose significant compliance and cost burdens, and to
lessen such burdens, the MSRB states that it would coordinate and
harmonize the product and problem codes, and the methods for
determining the appropriate codes, required by the proposed amendments
to Rule G-8 with FINRA.\32\
---------------------------------------------------------------------------
\32\ See MSRB Response Letter.
---------------------------------------------------------------------------
In response to BDA's comment that the MSRB and the SEC have
existing independent reporting systems that allow municipal entities or
obligated persons to file complaints directly with a regulator, the
MSRB states that its complaint referral system is quite different than,
for example, the Commission's well-established and comprehensive
independent reporting system through its Office of Investor Education
and Advocacy. The MSRB notes that its role has been to provide
information about how an individual or firm may make a complaint to a
regulator. If an individual or a regulated entity is unsure about which
regulator the individual or firm should file the complaint with, that
individual or firm may submit the complaint with the MSRB, and the MSRB
then will forward the complaint to the appropriate regulator. The MSRB
states that, unlike the Commission, the MSRB neither enforces its own
rules nor surveils regulated entities; rather, other financial
regulators enforce MSRB rules and perform market surveillance
functions.\33\ The MSRB further notes that other financial regulators
subject to the Commission's jurisdiction, such as FINRA, currently
require that written customer complaints be tracked using an electronic
log. In approving FINRA Rule 4530, the Commission found that the FINRA
Rule 4530 was consistent with the requirements of the Act and the rules
and regulations thereunder that are applicable to a national securities
association.\34\
---------------------------------------------------------------------------
\33\ Id.
\34\ Securities Exchange Act Release No. 63260 (Nov. 5, 2010),
75 FR 69508 (Nov. 12, 2010).
---------------------------------------------------------------------------
As to the assertion that the electronic complaint log represents
overregulation by the MSRB, the MSRB notes that dealers that are
registered with FINRA are currently using electronic logs to track and
code written customer complaints. The MSRB believes that the electronic
complaint log requirement not only would assist regulators in enforcing
MSRB rules and performing market surveillance, but also that the
electronic complaint log would be used as a tool by regulated entities
as part of their risk management programs. The MSRB believes that
FINRA, the Commission, and numerous FINRA members, including members
that are also registered with the MSRB, have found such electronic
complaint logs to be valuable.\35\
---------------------------------------------------------------------------
\35\ See MSRB Response Letter.
---------------------------------------------------------------------------
The MSRB states that federal securities laws do not require that
the Board solicit public comment on the product and problem codes to be
used under the proposed amendments to Rule G-8. The MSRB notes that
FINRA recently revised its product and problem codes used for reporting
customer complaints under FINRA Rule 4530.\36\ FINRA did not seek
public comment on the revisions to those product and problem codes; the
Board
[[Page 7901]]
would not expect to seek public comment on the product and problem
codes to be used with the proposed amendments to Rule G-8.\37\
---------------------------------------------------------------------------
\36\ In 2014, FINRA updated FINRA Rule 4530's problem and
product codes and provided a six-month implementation date. See
Regulatory Notice 14-20 (May 7, 2014).
\37\ See MSRB Response Letter.
---------------------------------------------------------------------------
5. Recordkeeping
BDA, NAMA, PIABA, and PFM provided comments and suggestions about
the Board's proposed amendments to Rule G-8.\38\ Those comments and
suggestions related to the regulatory burden caused by the proposed
amendments to Rule G-8, guidance as to certain of the terms used in the
electronic complaint log, and guidance as to the development of the
electronic complaint log itself.
---------------------------------------------------------------------------
\38\ See BDA Letter, NAMA Letter, PIABA Letter, PFM letter.
---------------------------------------------------------------------------
PFM asserted that the proposed rule change ``unnecessarily
impose[s] undue encumbrances of additional brochure delivery and
recordkeeping requirements.'' \39\ BDA submitted that it did not think
that this type of ``complaint and recordkeeping system is valuable for
municipal advisory clients,'' \40\ and NAMA asserted that the recording
of ``actions'' in the electronic complaint log required by the proposed
amendments to Rule G-8 is not necessary because of the supervisory
requirements set forth in MSRB Rule G-44.\41\
---------------------------------------------------------------------------
\39\ See PFM Letter.
\40\ See BDA Letter.
\41\ See NAMA Letter.
---------------------------------------------------------------------------
The MSRB states that it believes that the burden on regulated
entities from the proposed rule change would not be significant.\42\
The proposed rule change would align Rule G-8 with the customer
complaint recordkeeping requirements of other financial regulators.
Rule 17a-3(a)(18) under the Act \43\ and FINRA Rules 4513 and 4530
require information about customer complaints that is similar to what
is required by the proposed rule change. The MSRB has stated that it
would harmonize its product and problem codes with those required by
FINRA Rule 4530.\44\
---------------------------------------------------------------------------
\42\ See MSRB Response Letter.
\43\ 17 CFR 240.19b-4.
\44\ See MSRB Response Letter.
---------------------------------------------------------------------------
Although the proposed rule change would represent a new
recordkeeping burden on municipal advisors, the MSRB believes that it
would not be a significant burden. The MSRB states that it is generally
a good business practice, especially for the development of a regulated
entity's risk management systems, to track written complaints using
standard codes in an electronic complaint log. Any regulatory burden
imposed by the proposed rulemaking is, in part, dependent upon the
municipal advisor and the number of municipal advisory client
complaints that the municipal advisor receives. The MSRB anticipates
that smaller municipal advisors would have fewer clients and
accordingly may be likely to receive fewer complaints than larger
municipal advisors. Further, the MSRB states that it mitigates that
regulatory burden by providing flexibility as to how those electronic
records may be kept.\45\
---------------------------------------------------------------------------
\45\ Id.
---------------------------------------------------------------------------
The MSRB believes that an electronic log of complaints is
necessary, and that such need is not lessened by the supervisory and
compliance obligations of municipal advisors set forth in MSRB Rule G-
44. The standard electronic format required by the proposed amendments
would enhance the ability of financial regulators to conduct more cost-
effective and efficient inspections and surveillance of regulated
entities. MSRB Rule G-44 does not require that records of complaints be
kept in a standard electronic format across all regulated entities.
Further, the MSRB notes that many dealers that have been subject to
MSRB Rule G-27, on supervision, a rule that is similar to MSRB Rule G-
44, also have been subject to FINRA's electronic customer complaint
recordkeeping requirements. The MSRB believes that the FINRA electronic
customer complaint log requirements have proven useful in addition to
general supervisory obligations.\46\
---------------------------------------------------------------------------
\46\ Id.
---------------------------------------------------------------------------
NAMA requested guidance about the meaning of certain terms to be
used in the electronic complaint log.\47\ The MSRB believes that the
titles of the codes, as well as the brief description of those codes
published by the Board, as appropriate, will provide guidance as to the
terms used with the electronic complaint log. Further, as discussed
above under ``Product and Problem Codes,'' the MSRB would harmonize the
product and problem terms used for the electronic log of customer and
municipal advisory client complaints with the codes required by FINRA
Rule 4530.\48\
---------------------------------------------------------------------------
\47\ See NAMA Letter.
\48\ See MSRB Response Letter.
---------------------------------------------------------------------------
NAMA requested guidance as to how a municipal advisor should create
an electronic complaint log. The MSRB notes that Proposed Supplementary
Material .01 broadly defines electronic format to include ``any
computer software program that is used for storing, organizing and/or
manipulating data that can be provided promptly upon request to a
regulatory authority.'' \49\ The MSRB states that it has determined
that the degree of flexibility the MSRB is providing with the proposed
rule change about the format of the electronic complaint log is
preferable at this juncture.\50\
---------------------------------------------------------------------------
\49\ See Notice of Filing and Amendment No. 1.
\50\ See MSRB Response Letter.
---------------------------------------------------------------------------
NAMA and PFM commented about the municipal advisor record retention
requirements set forth in the proposed amendments to Rule G-9. NAMA
commented that municipal advisor records should be kept for five years
and not six years.\51\ PFM commented that the Board lacked statutory
authority to extend the record retention period for municipal advisors
for one year and expressed ``genuine concern regarding the misalignment
regarding the proposed MSRB Rule changes and current Exchange Act
requirements.'' \52\
---------------------------------------------------------------------------
\51\ See NAMA Letter.
\52\ See PFM Letter.
---------------------------------------------------------------------------
After carefully considering the comments, the MSRB states that it
has determined that the important reasons for retaining records of
municipal advisory client complaints for six years remain valid. As
discussed in the Notice of Filing, such retention period would assist
other financial regulators with their inspections of municipal advisors
(those inspections may not occur for several years after the municipal
advisory client submitted the complaint) and with their surveillance of
municipal advisors. Further, by requiring that municipal advisors
retain records of municipal advisory client complaints for six years,
the MSRB states that it would be ``leveling the playing field'' between
dealers and municipal advisors and between dealer municipal advisors
and non-dealer municipal advisors.\53\ Dealers, including dealer
municipal advisors, are required to retain records of customer
complaints for six years under current Board rules.
---------------------------------------------------------------------------
\53\ See MSRB Response Letter.
---------------------------------------------------------------------------
The MSRB states that it disagrees with PFM's assertions that the
Board lacks statutory authority to develop a record retention period
under the Act for municipal advisor records. The MSRB notes that
Section 15B(b)(2)(g) of the Act \54\ specifically requires that the
MSRB prescribe the records that are to be made and kept by dealers and
municipal advisors and to prescribe the length of time the records are
to be kept. The MSRB further notes that the Commission has approved as
consistent with the Exchange Act the MSRB's several previous municipal
advisor
[[Page 7902]]
recordkeeping proposals, including select six-year retention
periods.\55\
---------------------------------------------------------------------------
\54\ 15 U.S.C. 78o-4(b)(2)(g).
\55\ See, e.g., Exchange Act Release No. 76753 (Dec. 23, 2015),
80 FR 81614 (Dec. 30, 2015) (approving Rule G-42 and amendments to
Rule G-8); Exchange Act Release No. 73415 (Oct. 23, 2014), 79 FR
64423 (Oct. 29, 2014) (approving Rule G-44 and amendments to Rules
G-8 and G-9).
---------------------------------------------------------------------------
6. Annual Notifications
The Commission received several comments about the annual
notifications concerning the municipal advisor's registration, the
MSRB's Web site address, and availability of a municipal advisory
client brochure about the protections provided by the MSRB's rules and
information about filing a complaint with a financial regulator
required by the proposed amendments to Rule G-10 (the ``annual
notifications''). Those comments concerned the location of those annual
notifications and the ability to include the annual notifications with
other materials. NAMA suggested that in lieu of providing the written
annual notifications to their municipal advisory clients, municipal
advisors should have the option to post the annual notifications on
their Web sites.\56\ NAMA and PFM \57\ suggested that the annual
notifications be included with the written disclosure of all material
conflicts of interest and other information required to be made by a
municipal advisor by Rule G-42(b).\58\
---------------------------------------------------------------------------
\56\ See NAMA Letter.
\57\ See NAMA Letter, PFM Letter.
\58\ Rule G-42(b) provides, in part: ``Disclosure of Conflicts
of Interest and Other Information. A municipal advisor must, prior
to or upon engaging in municipal advisory activities, provide to the
municipal entity or obligated person client full and fair disclosure
in writing of:
(i) all material conflicts of interest . . . [and]
(ii) any legal or disciplinary event that is material to the
client's evaluation of the municipal advisor or the integrity of its
management or advisory personnel. . . .''
---------------------------------------------------------------------------
The MSRB states that it has carefully considered commenters'
suggestions, and has determined that a municipal advisor should not
have the option to post the annual notifications on its Web site in
lieu of sending those notifications to its municipal advisory client.
The Board believes that the purpose of the proposed amendments is best
achieved by individual annual notifications to a customer or municipal
advisor client. Nonetheless, if a regulated entity would like to post
the annual notifications on its Web site, in addition to sending the
written annual notifications to its customers or municipal advisory
clients, the regulated entity may do so as long as the information on
the regulated entity's Web site complies with Board and any other
applicable laws, rules and regulations.\59\
---------------------------------------------------------------------------
\59\ See MSRB Response Letter.
---------------------------------------------------------------------------
As proposed, the amendments to Rule G-10 would provide a regulated
entity with the flexibility to include the written annual notifications
with other materials. The MSRB notes that those other materials may
include the written disclosure of material conflicts of interest and
other information required to be provided by a municipal advisor under
MSRB Rule G-42(b). Because the proposed rule change would provide
municipal advisors with the option to include the annual notifications
with the written disclosure of material conflicts of interest and other
information required by MSRB Rule G-42(b), the MSRB believes that the
rule language, as proposed, provides sufficient flexibility to address
NAMA's and PFM's suggestion that the annual notifications be included
with the written disclosures required under Rule G-42(b).\60\
---------------------------------------------------------------------------
\60\ Id.
---------------------------------------------------------------------------
7. Sufficiency of Comment Period
BDA, NAMA, and PFM commented that the Board did not solicit public
comment on the proposed rule change before the Board filed the proposed
rule change with the Commission.\61\ BDA submitted that the MSRB is
proceeding with ``unnecessary haste'' and that if the MSRB issued a
request for comment on the proposed rule change, it could have
``received feedback and tailored these rule amendments to the
activities of municipal advisors.'' \62\ NAMA commented that the
municipal advisor community should be afforded the same opportunity to
comment prior to a proposal being sent to the Commission that the
dealer community is afforded and submitted that municipal advisors
would have flagged some of the vague and duplicative provisions of the
proposed rulemaking as well as use of clearly inapplicable
terminology.\63\ PFM stated that it was ``a bit dismayed'' that the
MSRB did not publish a request for comment before filing the proposed
rule change with the Commission, and suggested that without such a
prior comment opportunity, PFM did not have ``adequate opportunity for
review and written comment.'' \64\
---------------------------------------------------------------------------
\61\ See BDA Letter, NAMA Letter, PFM Letter.
\62\ See BDA Letter.
\63\ See NAMA Letter.
\64\ See PFM Letter.
---------------------------------------------------------------------------
The MSRB responds that the Commission provided market participants
with the fulsome comment period generally required under the federal
securities laws, which do not require the Board to seek public comment
before submitting a rulemaking proposal to the Commission.\65\ Market
participants provided comment on the proposed rule change, and as noted
earlier, in response to those comments, the Board is filing Amendment
No. 1.
---------------------------------------------------------------------------
\65\ See MSRB Response Letter.
---------------------------------------------------------------------------
Further, the MSRB notes that, in this case, not only did market
participants request the proposed rule change, but every commenter
supported the purposes of the proposed rule change. The proposed rule
change would enhance the MSRB's ability to protect and educate
customers and municipal advisory clients, which protections are vital
to the Board's mission. The proposed rule change also would harmonize
the Board's customer complaint rule with that of other financial
regulators--a goal that is important both to the Board and to market
participants.\66\
---------------------------------------------------------------------------
\66\ Id.
---------------------------------------------------------------------------
8. Electronic Guidance
BDA commented that the MSRB's Notice Regarding Electronic Delivery
and Receipt of Information by Brokers, Dealers and Municipal Securities
Dealers--November 20, 1998 (the ``1998 Notice'') should not apply to
municipal advisory relationships. BDA stated that ``[a]s with attorney-
client relationships . . ., municipal entities and obligated persons
know exactly how they prefer to communicate and there is no need for a
Federal regulator to regulate electronic communications in those
relationships.'' \67\
---------------------------------------------------------------------------
\67\ See BDA Letter.
---------------------------------------------------------------------------
The MSRB stated that the 1998 Notice provides dealers with the
MSRB's interpretation about the use of electronic media to deliver and
receive information under Board rules. The proposed rule change would
extend that interpretation to municipal advisors. Without that
extension, some vagueness might exist regarding municipal advisors'
ability to use electronic media to deliver and receive information
required under Board rules.\68\
---------------------------------------------------------------------------
\68\ See MSRB Response Letter.
---------------------------------------------------------------------------
9. Other Comments
The other suggestions that the Commission received about the
proposed rule change related to (i) expansion of the proposed rule
change, (ii) concerns about the complaint process, and (iii) concerns
about the economic impact of the proposed rule change on small
municipal advisors. PIABA supported the proposed rule change, but also
suggested that the
[[Page 7903]]
proposed rule change ``go a step further'' to provide investors with
access to the electronic complaint logs.\69\ NAMA expressed concern
that the proposed rule change would require that a municipal advisory
client make its complaint directly with the municipal advisor instead
of with a regulator. NAMA also suggested that the Board consider the
economic impact of the proposed rule change, and the cumulative effect
of all Board rules on small municipal advisors.\70\
---------------------------------------------------------------------------
\69\ See PIABA Letter.
\70\ See NAMA Letter.
---------------------------------------------------------------------------
The MSRB states that it recognizes that market transparency is
important for investors. However, the MSRB is concerned that requiring
electronic complaint logs to be available to customers and municipal
advisory clients may not only mislead them because certain complaints
may not be as material as others, but also may have a chilling effect
on a regulated entity's reporting of written customer or client
complaints, which could undermine the goals of the rule.\71\
---------------------------------------------------------------------------
\71\ See MSRB Response Letter.
---------------------------------------------------------------------------
In addition, the proposed amendments to Rule G-10 do not set forth
any requirement that a municipal advisory client make a complaint to
its municipal advisor nor do those proposed amendments require that a
municipal advisory client submit any complaint that it may have to a
particular regulator. A municipal advisory client would continue to be
able to submit its complaint to any party it considers appropriate,
based on, among other things, the notifications and educational
materials it receives.\72\
---------------------------------------------------------------------------
\72\ Id.
---------------------------------------------------------------------------
Further, in connection with concerns about the economic impact of
the proposed rule change on small municipal advisors, the MSRB states
that it anticipates that smaller municipal advisors would have fewer
clients and accordingly may be likely to receive fewer complaints than
larger municipal advisors.\73\ Further, the MSRB states that it
mitigates that regulatory burden by providing flexibility as to how
those electronic records may be kept.\74\
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\73\ See MSRB Response Letter.
\74\ Id.
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IV. Discussion and Commission Findings
The Commission has carefully considered the proposed rule change,
as modified by Amendment No. 1, the comments letters received, and the
MSRB Response Letter. The Commission finds that the proposed rule
change, as modified by Amendment No. 1, is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to the MSRB.
In particular, the proposed rule change, as modified by Amendment
No.1, is consistent with Sections 15B(b)(2) and 15B(b)(2)(C) of the
Act.\75\ Section 15B(b)(2) of the Act provides that the MSRB shall
propose and adopt rules to effect the purposes of that title with
respect to transactions in municipal securities effected by brokers,
dealers, and municipal securities dealers and advice provided to or on
behalf of municipal entities or obligated persons by brokers, dealers,
municipal securities dealers, and 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.\76\ Section 15B(b)(2)(C) of the Act, provides that, among
other things, the rules of the MSRB shall be designed to prevent
fraudulent and manipulative acts and practices, to promote just and
equitable principles of trade, to foster cooperation and coordination
with persons engaged in regulating, clearing, settling, processing
information with respect to, and facilitating transactions in municipal
securities and municipal financial products, to remove impediments to
and perfect the mechanism of a free and open market in municipal
securities and municipal financial products, and, in general, to
protect investors, municipal entities, obligated persons, and the
public interest.\77\ The Commission believes that the proposed rule
change is reasonably designed to prevent fraudulent and manipulative
practices, promote just and equitable principles of trade, foster
cooperation and coordination with persons engaged in regulating
transactions in municipal securities and municipal financial products,
and protect investors, municipal entities, obligated persons and the
public interest by developing more comprehensive and modern customer
and municipal advisory client complaint and recordkeeping rules.
Furthermore, the Commission believes that by focusing on customer and
municipal advisory client education and protection and enhancing the
related recordkeeping requirements, the proposed rule change is
reasonably designed to protect investors, municipal entities, obligated
persons, and the public interest. Additionally, the proposed rule
change would align the MSRB's customer and municipal advisory client
complaint rules and related recordkeeping requirements with those of
other financial regulators which will, among other things, promote
compliance with MSRB rules by providing regulated entities with the
opportunity to streamline their compliance procedures. In addition, the
proposed rule change, according to the MSRB, would enhance the ability
of other financial regulators to conduct more cost-effective and
efficient inspections and surveillance of regulated entities.
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\75\ 15 U.S.C. 78o-4(b)(2) and (b)(2)(C).
\76\ 15 U.S.C. 78o-4(b)(2).
\77\ 15 U.S.C. 78o-4(b)(2)(C).
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The Commission also finds that the proposed rule change, as
modified by Amendment No.1, is consistent with Section 15B(b)(2)(L)(iv)
of the Act in that it does 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.\78\ Although the proposed rule change would
affect all municipal advisors, including small municipal advisors, the
proposed rule change is a necessary and appropriate regulatory burden
in order to protect municipal entities and obligated persons. For
example, under the proposed rule change, a municipal advisory client
would be able to receive detailed and relevant information about its
municipal advisor, the protections provided by MSRB rules, and how to
make a complaint in a timely and consistent fashion.
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\78\ 15 U.S.C. 78o-4(b)(2)(L)(iv).
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The Commission also finds that the proposed rule change, as
modified by Amendment No.1, is consistent with Section 15B(b)(2)(G) of
the Act which provides that the MSRB's rules shall prescribe records to
be made and kept by municipal securities brokers, municipal securities
dealers, and municipal advisors and the periods for which such records
shall be preserved.\79\ The proposed rule change would, among other
things, enhance the current customer complaint recordkeeping
requirements under Rule G-8 by requiring that dealers keep more
detailed information about written customer complaints in an electronic
format and then would extend those recordkeeping requirements to
municipal advisors. In addition, the proposed rule change would extend
the
[[Page 7904]]
six-year record retention period applicable to customer complaints to
municipal advisory client complaints.
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\79\ 15 U.S.C. 78o-4(b)(2)(G).
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In approving the proposed rule change, as modified by Amendment
No.1, the Commission has also considered the impact of the proposed
rule change on efficiency, competition, and capital formation.\80\ The
Commission does not believe that the proposed rule change, as modified
by Amendment No. 1 would impose any burden on competition not necessary
or appropriate in furtherance of the purposes of the Act.
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\80\ 15 U.S.C. 78c(f).
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For the reasons noted above, the Commission believes that the
proposed rule change, as modified by Amendment No. 1, is consistent
with the Act.
V. Solicitation of Comments on Amendment No. 1
Interested persons are invited to submit written data, views, and
arguments concerning Amendment No. 1, including whether the proposed
rule change, as modified by Amendment No.1, is consistent with the Act.
Comments may be submitted by any of the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-MSRB-2016-15 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549.
All submissions should refer to File Number SR-MSRB-2016-15. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549 on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available
for inspection and copying at the principal office of the MSRB. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-MSRB-2016-15 and should be
submitted on or before February 13, 2017.
VI. Accelerated Approval of Proposed Rule Change as Modified by
Amendment No. 1
The Commission finds good cause to approve the proposed rule
change, as modified by Amendment No. 1, prior to the 30th day after the
date of publication of Amendment No. 1 in the Federal Register. As
discussed above, Amendment No. 1 partially amends the text of the
proposed rule change to provide certain clarifications relating to the
notifications that would be provided by municipal advisors to their
municipal advisory clients and to the terms used with the recordkeeping
of municipal advisory client complaints, to extend the proposed
effective date, and to make other technical changes to clarify or
simplify rule text.\81\ Specifically, the changes respond to
commenters' concerns, are technical in nature, and clarify or simplify
the proposed rule change. The MSRB states that Amendment No. 1 in many
respects eliminates unnecessary language by relying on terms that are
defined in the MSRB's rule book, the Act, or Commission rules under the
Act.\82\ In addition, the MSRB notes that the changes are consistent
with the purposes of the proposed rule change to advance the
development of a comprehensive regulatory framework for municipal
advisors and to update the Board's customer complaint rules. With
respect to those portions of Amendment No. 1 that modify certain
definitions, the MSRB notes that the proposed rule change, as described
in the Notice of Filing, contemplated that the clients of both
solicitor and non-solicitor municipal advisors would be covered by the
proposed rule change.\83\ According to the MSRB, the precision added to
certain definitions by Amendment No. 1 parallels the precision with
which the MSRB defines a municipal advisory client of a solicitor
municipal advisor and eliminates unnecessary language.\84\ The MSRB
believes other technical changes made serve to clarify or simplify the
proposed rule change.
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\81\ Supra note 6.
\82\ See Amendment No. 1.
\83\ See Notice of Filing.
\84\ See Amendment No. 1.
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For the foregoing reasons, the Commission finds good cause for
approving the proposed rule change, as modified by Amendment No. 1, on
an accelerated basis, pursuant to Section 19(b)(2) of the Act.
VII. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\85\ that the proposed rule change, as modified by Amendment No. 1
(SR-MSRB-2016-15) be, and hereby is, approved on an accelerated basis.
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\85\ 15 U.S.C. 78s(b)(2).
For the Commission, pursuant to delegated authority.\86\
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\86\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-01300 Filed 1-19-17; 8:45 am]
BILLING CODE 8011-01-P
