Self-Regulatory Organizations; Municipal Securities Rulemaking Board; Notice of Filing of a Proposed Rule Change to Rule G-3, on Professional Qualification Requirements, and Rule G-8, on Books and Records, To Establish Continuing Education Requirements for Municipal Advisors and Accompanying Recordkeeping Requirements, 16449-16456 [2017-06562]
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Federal Register / Vol. 82, No. 63 / Tuesday, April 4, 2017 / Notices
undisturbed valid opposite-side interest
where one side of a quote is rejected and
not booked.23 This proposal does not
relieve a Market Maker of its continuous
quoting, or firm quote, obligations
pursuant to Rules 925.1NY and 970NY,
respectively. For these reasons, the
Commission finds that the proposed
rule change is consistent with Section
6(b)(5) of the Act and the rules and
regulations thereunder applicable to a
national securities exchange.
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,24 that the
proposed rule change (SR–NYSEMKT–
2017–08) be, and hereby is, approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.25
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–06565 Filed 4–3–17; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–80327; File No. SR–MSRB–
2017–02]
Self-Regulatory Organizations;
Municipal Securities Rulemaking
Board; Notice of Filing of a Proposed
Rule Change to Rule G–3, on
Professional Qualification
Requirements, and Rule G–8, on
Books and Records, To Establish
Continuing Education Requirements
for Municipal Advisors and
Accompanying Recordkeeping
Requirements
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March 29, 2017.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Exchange Act’’ or ‘‘Act’’) 1 and Rule
19b–4 thereunder,2 notice is hereby
given that on March 22, 2017 the
Municipal Securities Rulemaking Board
(the ‘‘MSRB’’ or ‘‘Board’’) filed with the
Securities and Exchange Commission
(the ‘‘SEC’’ or ‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the MSRB. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
23 See
id.
U.S.C. 78s(b)(2).
25 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
24 15
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I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The MSRB filed with the Commission
a proposed rule change to amend MSRB
Rule G–3, on professional qualification
requirements, to establish continuing
education requirements for municipal
advisors; 3 and accompanying
amendments to MSRB Rule G–8, on
books and records to be made by
brokers, dealers and municipal
securities dealers (‘‘dealers’’) and
municipal advisors; and the proposed
rule change also makes minor technical
changes to Rule G–3 to reflect the
renumbering of sections and updates to
cross-referenced provisions (collectively
the ‘‘proposed rule change’’). The MSRB
requests that the proposed rule change
be approved with an implementation
date of January 1, 2018. Municipal
advisors would, therefore, have until
December 31, 2018 to complete a needs
analysis, develop a written training plan
and deliver the appropriate training to
comply with the annual training
requirement for calendar year 2018.
The text of the proposed rule change
is available on the MSRB’s Web site at
www.msrb.org/Rules-andInterpretations/SEC-Filings/2017Filings.aspx, at the MSRB’s principal
office, and at the Commission’s Public
Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
MSRB included statements concerning
the purpose of and basis for the
proposed rule change and discussed any
comments it received on the proposed
rule change. The text of these statements
may be examined at the places specified
in Item IV below. The MSRB has
prepared summaries, set forth in
Sections A, B, and C below, of the most
significant aspects of such statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
Now that the MSRB has launched the
Municipal Advisor Representative
Qualification Examination (Series 50),4
3 Municipal advisor would have the same
meaning as in Section 15B(e)(4) of the Act, 17 CFR
240.15Ba1–1(d)(1)–(4) and other rules and
regulations thereunder.
4 On February 26, 2015, the MSRB received
approval from the SEC amending Rule G–3 to
establish two new registration classifications for
municipal advisors: Municipal advisor
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in connection with its statutory
mandate,5 the MSRB seeks to amend
Rule G–3(i) to prescribe continuing
education requirements for municipal
advisors. Section 15B(b) of the Act, as
amended by the Dodd-Frank Wall Street
Reform and Consumer Protection Act
(‘‘Dodd-Frank Act’’), specifically
requires the MSRB to provide
professional standards and continuing
education requirements for municipal
advisors. The goal of continuing
education is to ensure that certain
associated persons of municipal
advisors stay abreast of issues that may
affect their job responsibilities and of
product and regulatory developments.
The proposed rule change also would
amend Rule G–8 to establish
recordkeeping requirements related to
the administration of a municipal
advisor’s continuing education program.
In addition, the proposed rule change
would make technical changes to Rule
G–3 to reflect the renumbering of
sections and updates to cross-referenced
provisions.
Background
In May 1993, due to the increasing
complexity of the securities industry, a
self-regulatory organization (‘‘SRO’’)
task force 6 was formed by the industry’s
SROs, to study and develop
recommendations regarding continuing
education needs in the securities
industry. In September 1993, the task
force issued a report recommending a
formal two-part continuing education
program.7 The task force also
recommended that a permanent council
on continuing education, composed of
broker-dealers and SRO representatives,
be formed to develop the content for the
continuing education program and
provide ongoing maintenance of the
program. Pursuant to this
recommendation, the Securities
Industry/Regulatory Council on
Continuing Education (‘‘CE Council’’)
was formed. 8 The CE Council prepared
representatives and municipal advisor principals;
and to require each prospective municipal advisor
representative and municipal advisor principal to
take and pass the municipal advisor representative
qualification examination. See Exchange Act
Release No. 74384 (February 26, 2015), 80 FR 11706
(March 4, 2015) (SR–MSRB–2014–08).
5 See 15 U.S.C. 78o–4(b)(2)(L)(ii) and (iii).
6 The SROs in the task force included the MSRB,
American Stock Exchange, Inc., the Chicago Board
Options Exchange, Inc., the National Association of
Securities Dealers, Inc. (n/k/a the Financial
Industry Regulatory Authority), the New York Stock
Exchange, Inc., and the Philadelphia Stock
Exchange, Inc.
7 Report and Recommendations of the Securities
Industry Task Force on Continuing Education
(September 1993).
8 The CE Council is currently composed of up to
20-industry members from broker-dealers,
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draft rules to implement the continuing
education program, which the SROs
filed as proposed enabling rules with
the Commission.9
The MSRB was a member of the CE
Council upon its formation and has
remained a member since. Consistent
with the CE Council’s recommendation,
the MSRB filed, and the SEC approved,
amendments to Rule G–3 establishing a
formal two-part continuing education
program for registered persons,
requiring uniform industry-wide
periodic training in regulatory matters,
and ongoing training programs
conducted by firms to enhance their
registered persons’ securities knowledge
and skills. Hence, continuing education
requirements for securities industry
participants are not a new regulatory
development.
Dealers are currently required,
pursuant to Rule G–3(i), to maintain a
continuing education program for their
‘‘covered registered persons’’ 10 after
their initial qualification and
registration. Rule G–3(i) also sets out the
two-pronged approach to continuing
education requirements consisting of a
Regulatory Element and a Firm Element
component. The Regulatory Element,
which is developed by the CE Council,
is a computer-based training program
that focuses on compliance, regulatory,
ethical and sales practice standards with
the content derived from common
industry rules and regulations, as well
as widely accepted standards and
practices within the industry. Under
Rule G–3(i)(i)(A), covered registered
persons are required to complete
Regulatory Element training within 120
days of the second anniversary of their
registration approval date, and every
three years thereafter.11
The Firm Element is a firmadministered training program that
requires dealers to annually evaluate
and prioritize their training needs. The
documentation evidencing such annual
evaluation is commonly referred to as a
needs analysis. A needs analysis
generally reflects a firm’s assessment of
representing a broad cross section of securities
industry firms, and representatives from the MSRB
and other SROs, as well as liaisons from the SEC
and the North American Securities Administrators
Association.
9 See Exchange Act Release No. 35341 (February
8, 1995), 60 FR 8426 (February 14, 1995) (SR–
MSRB–94–17, SR–AMEX–94–59, SR–CBOE–94–49,
SR–CHX–94–27, SR–NASD–94–72, SR–NYSE–94–
43, SR–PSE–94–35, and SR–PHLX–94–52).
10 Under Rule G–3(i)(ii)(A), a ‘‘covered registered
person’’ means ‘‘any person registered with a
broker, dealer or municipal securities dealer and
qualified as a representative or principal in
accordance with this rule or as a general securities
principal and who regularly engages in or
supervises municipal securities activities.’’
11 MSRB Rule G–3(i)(i)(A).
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its unique training needs based on
various factors, for example, the
business activities the firm and its
associated persons engage in, the level
of industry experience the firm’s
associated persons have and any
changes to applicable rules or
regulations. Upon completion of a needs
analysis, a dealer is required to develop
a written training plan consistent with
its analysis of the training priorities
identified. Dealers must maintain
records documenting the completion of
the needs analysis, the content of the
training programs and completion of the
training by each of the firm’s covered
registered persons.12
Proposed Amendments to Rule G–3:
Establishing Continuing Education
Requirements for Municipal Advisors
As described in detail below, the
MSRB is proposing amendments to Rule
G–3 to establish continuing education
requirements for municipal advisors.
Like the Firm Element component for
dealers, municipal advisors would be
required to, at least annually, conduct a
needs analysis that evaluates and
prioritizes their specific training needs,
develop a written training plan based on
the needs identified in the analysis, and
deliver training concerning municipal
advisory activities designed to meet
those training needs. However, the
proposed requirements for municipal
advisors would differ from the dealers’
Firm Element requirements with respect
to identifying those that are subject to
the training and the content that must
be covered in the training as part of the
minimum standards for the annual
training.
Under proposed Rule G–3(i)(ii),
municipal advisors would be required
to implement a continuing education
training program for those individuals
qualified as either a municipal advisor
representative or as a municipal advisor
principal (collectively, ‘‘covered
persons’’).13 The establishment of
continuing education requirements for
municipal advisors would assist in
ensuring that all firms provide a
minimum-level standard of training that
is appropriate in the public interest and
12 MSRB
Rule G–9(b)(viii)(C).
Rule G–3(d)(i)(A), ‘‘municipal advisor
representative’’ means ‘‘a natural person associated
with a municipal advisor who engages in municipal
advisory activities on the municipal advisor’s
behalf.’’ Under MSRB Rule G–3(e)(i), ‘‘municipal
advisor principal’’ means ‘‘a natural person
associated with a municipal advisor who is
qualified as a municipal advisor representative and
is directly engaged in the management, direction or
supervision of the municipal advisory activities of
the municipal advisor and its associated persons.’’
13 Under
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for the protection of investors and
municipal entities or obligated persons.
Pursuant to proposed Rule G–
3(i)(ii)(B)(1), a municipal advisor would
be required to, at least annually,
conduct a needs analysis that evaluates
and prioritizes its training needs,
develop a written training plan based on
the needs analysis, and deliver training
applicable to its municipal advisory
activities. Additionally, in developing a
written training plan, a municipal
advisor must take into consideration the
firm’s size, organizational structure,
scope of municipal advisory activities,
as well as regulatory developments.
Proposed Rule G–3(i)(ii)(B)(2) would
prescribe the minimum standards for
continuing education training by
requiring that each municipal advisor’s
training include, at a minimum, training
on the applicable regulatory
requirements and the fiduciary duty
obligations owed to municipal entity
clients. The minimum training on the
applicable regulatory requirements
would require a municipal advisor’s
continuing education program to
include training on the regulatory
requirements applicable to the
municipal advisory activities its covered
persons engage in. However, training on
the fiduciary duty obligation owed to
municipal entity clients is a minimum
component of the continuing education
training for all covered persons, even
those that may not engage in municipal
advisory activities on behalf of a
municipal entity client. The fiduciary
duty obligation owed to a municipal
entity client is a keystone principal of
the regulatory framework for municipal
advisors that the MSRB believes every
covered person engaged in municipal
advisory activities should be familiar
with. A municipal advisor would,
nonetheless, still have the flexibility to
determine the appropriate scope of
training that its covered persons need
on the fiduciary duty obligation based
on the municipal advisory activities that
its covered persons engage in.
Recognizing that the nature of
municipal advisory activities engaged in
by municipal advisors can be diverse,
the proposed rule change would provide
municipal advisors with sufficient
flexibility to determine their firmspecific training needs and the content
and scope of the training appropriate for
their covered persons. For example, a
municipal advisor that only provides
advice to municipal entities on swap
transactions would be permitted to
design its annual training plan based
upon the rules and practices applicable
to its limited business model, so long as
such training plan included the
applicable regulatory requirements
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applicable to that limited business and
a component regarding the fiduciary
duty obligation owed to municipal
entity clients. Moreover, municipal
advisors would be able to determine the
method for delivering such training. For
example, a municipal advisor could
determine that the most effective
manner for delivering the training
would be to require its covered persons
to attend an applicable seminar by
subject matter experts and/or to utilize
an on-line training resource.
The MSRB notes that the minimum
requirements for continuing education
training, outlined under the proposed
rule change, should not be viewed by
municipal advisors as the full scope of
the subject matter appropriate for
municipal advisors’ training programs.
The minimum standard for training
does not negate the need for each
municipal advisor to consider whether,
based on its needs analysis, additional
training applicable to the municipal
advisory activities it conducts are
appropriate.
Proposed Rule G–3(i)(ii)(B)(3) would
require a municipal advisor to
administer its continuing education
program in accordance with the annual
evaluation and prioritization of its
training needs and the written training
plan developed as consistent with its
needs analysis. Also, pursuant to this
provision, a municipal advisor would be
required to maintain records
documenting the content of its training
programs and a record that each of its
covered persons identified completed
the applicable training.
Under proposed Rule G–3(i)(ii)(C), a
municipal advisor’s covered persons
(those individuals qualified as a
municipal advisor representative or
municipal advisor principal) would be
required to participate in the firm’s
continuing education training programs.
If consistent with its training plan, a
municipal advisor could deliver training
appropriate for all covered persons. In
addition, a municipal advisor may
determine that its training needs
indicate that it should also deliver
particular training for certain covered
persons, for example, those covered
persons that have been designated with
supervisory responsibilities under Rule
G–44, or those covered persons that
have been engaged in municipal
advisory activities for a short period of
time.
Under proposed Rule G–3(i)(ii)(D), on
specific training requirements, the
appropriate examining authority may
require a municipal advisor,
individually or as part of a larger group,
to provide specific training to its
covered persons in such areas the
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appropriate examining authority deems
appropriate.14 Such a requirement may
stipulate the class of covered persons for
which it is applicable, the time period
in which the requirement must be
satisfied and, where appropriate, the
actual training content.
In an effort to reduce regulatory
overlap for dealer-municipal advisors,15
the proposed rule change would allow
a dealer-municipal advisor to deliver
continuing education training that
would satisfy its training needs for the
firm’s dealer and municipal advisor
activities. More specifically, pursuant to
Rule G–3(i)(ii)(E), as proposed, each
dealer-municipal advisor would be
permitted to develop a single written
training plan, if that training plan is
consistent with each needs analysis that
was conducted of the firm’s municipal
advisory activities and municipal
securities activities. In addition, the
proposed rule provision would allow a
municipal advisor to conduct training
for its covered persons and covered
registered persons, which would satisfy
the continuing education requirements
under Rules G–3(i)(i)(B) and G–3(i)(ii), if
such training is consistent with the
firm’s written training plan(s) and that
training meets the minimum standards
for the training programs, as required
under the rule.
Proposed Amendments to Rule G–8
The proposed amendments to Rule G–
8 address the books and records that
must be made and maintained by a
municipal advisor to show compliance
with recordkeeping requirements
related to the administration of a
municipal advisor’s continuing
education program. The Board adopted
the approach of specifying, in some
detail, the information to be reflected in
various records. Specifically, the
proposed amendments to Rule G–8(h)
would require each municipal advisor
to make and maintain records regarding
the firm’s completion of its needs
analysis and the development of its
corresponding written training plan.
Moreover, with respect to each
municipal advisor’s written training
plan, municipal advisors would be
required to make and keep records
documenting the content of the firm’s
training programs and a record
evidencing completion of the training
14 For purposes of Rule G–3(i)(ii)(D), ‘‘appropriate
examining authority’’ means ‘‘a registered securities
association with respect to a municipal advisor that
is a member of such association, or the
Commission, or the Commission’s designee, with
respect to any other municipal advisor.’’
15 A member of the Financial Industry Regulatory
Authority that is a municipal securities dealer and
municipal advisor is commonly referred to as a
‘‘dealer-municipal advisor.’’
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16451
programs by each covered person.16
Recordkeeping requirements are an
important element of compliance and
the proposed amendments to Rule G–8
are appropriately tailored to facilitate
the examination of a municipal
advisor’s compliance with the
continuing education requirements.
Technical Amendments
The MSRB is proposing minor
technical amendments to add paragraph
headers, and renumber and update rule
cross-references to Rule G–3(i)(i) and
Rule G–3(i)(ii). Rule G–3(i)(i) would be
revised by adding the paragraph header
‘‘Continuing Education Requirements
for Brokers, Dealers, and Municipal
Securities Dealers.’’ Rule G–3(i)(i)(D)
would be revised by adding the
paragraph header ‘‘Reassociation’’ and
renumbered Rule G–3(i)(i)(A)(4). Rule
G–3(i)(i)(E) would be relocated to
proposed subparagraph Rule G–
3(i)(i)(A)(4). Rule G–3(i)(ii) would be relettered Rule G–3(i)(i)(B). Due to these
changes, other paragraphs under Rule
G–3(i) would be renumbered and relettered.
As noted above, the MSRB is seeking
an implementation date for the
proposed rule change of January 1,
2018. To comply with the annual
training requirement for calendar year
2018, a municipal advisor would need
to complete a needs analysis, develop a
written training plan and deliver the
appropriate training by December 31,
2018.
2. Statutory Basis
The MSRB believes that the proposed
rule change is consistent with Section
15B(b)(2)(A) of the Act,17 which
provides that the MSRB’s rules shall:
provide that no municipal securities broker
or municipal securities dealer shall effect any
transaction in, or induce or attempt to induce
the purchase or sale of, any municipal
security, and no broker, dealer, municipal
securities dealer, or municipal advisor shall
provide advice to or on behalf of a municipal
entity or obligated person with respect to
municipal financial products or the issuance
of municipal securities, unless . . . such
municipal securities broker or municipal
securities dealer and every natural person
associated with such municipal securities
broker or municipal securities dealer meet
such standards of training, experience,
competence, and such other qualifications as
16 Rule G–9(h) generally requires municipal
advisors to preserve the books and records
described in Rule G–8(h) for a period of not less
than five years for purposes of consistency with
SEC Rule 15Ba1–8 of the Act on books and records
to be made and maintained by municipal advisors.
See Exchange Act Release No. 73415 (October 23,
2014), 79 FR 64423 (October 29, 2014) (SR–MSRB–
2014–06).
17 15 U.S.C. 78o–4(b)(2)(A).
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the Board finds necessary or appropriate in
the public interest or for the protection of
investors and municipal entities or obligated
persons.
This provision provides the MSRB
with authority to establish standards of
training, experience, competence and
other qualifications as the MSRB finds
necessary. The MSRB believes that the
proposed rule change is consistent with
this provision of the Act in that the
proposed rule change would provide for
minimum levels of training for persons
engaged in municipal advisory
activities, which is in the public interest
and for the protection of investors,
municipal entities and obligated
persons. The SEC noted that ‘‘[the] new
registration requirements and regulatory
standards are intended to mitigate some
of the problems observed with the
conduct of some municipal advisors,
including [. . .] advice rendered by
financial advisors without adequate
training or qualifications, and failure to
place the duty of loyalty to their clients
ahead of their own interests.’’ 18
Requiring municipal advisors to provide
continuing education, including
minimum training on the fiduciary duty
obligations owed to municipal entities,
is consistent with and in furtherance of
the stated objectives articulated in the
Municipal Advisor Registration Final
Rule. In addition, a continuing
education requirement provides
investors, municipal entities and
obligated persons with the confidence
that individuals who engage in
municipal advisory activities and those
who supervise municipal advisory
activities are kept informed of
regulatory developments that can occur
after such individuals pass a
qualification examination to engage in
municipal advisory activities.
Additionally, the MSRB believes that
the proposed rule change is consistent
with Section 15B(b)(2)(L) of the Act,19
which provides that the MSRB’s rules
shall, with respect to municipal
advisors:
(i) Prescribe means reasonably
designed to prevent acts, practices, and
courses of business as are not consistent
with a municipal advisor’s fiduciary
duty to its clients;
(ii) provide continuing education
requirements for municipal advisors;
(iii) provide professional standards;
and
(iv) not impose a regulatory burden on
small municipal advisors that is not
18 See Exchange Act Release No. 70462
(September 20, 2013), 78 FR 67467 at 67469
(November 12, 2013) (‘‘Municipal Advisor
Registration Final Rule’’).
19 15 U.S.C. 78o–4(b)(2)(L).
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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.
As noted by the SEC in the Municipal
Advisor Registration Final Rule, ‘‘the
municipal advisor regulatory regime
should continue to enhance municipal
entity and obligated person protections
and incentivize municipal advisors not
to engage in misconduct.’’ 20 The
proposed rule change would establish
continuing education program
requirements for municipal advisors. By
establishing a formal, robust continuing
education program, municipal advisors
would ensure their covered persons are
kept informed of issues that affect their
job responsibilities and of regulatory
developments, which is in furtherance
of the protection of investors against
fraud and misconduct.
The MSRB believes that, while the
proposed rule change would lead to
some associated costs, the costs would
be a necessary and appropriate
regulatory burden to ensure that
individuals engaging in municipal
advisory activities are adequately
trained and maintain an adequate level
of industry knowledge. Specifically, the
MSRB believes that requiring municipal
advisors to have a continuing education
program serves to maintain the integrity
of the municipal securities market and,
specifically, preserve the public
confidence, including the confidence of
municipal entities and obligated
persons, that those engaged in
municipal advisory activities meet
minimum standards of training,
experience, competence, and such other
qualifications as the Board finds
necessary or appropriate. A discussion
of the economic analysis of the
proposed rule change and its impact on
municipal advisors is provided below.
Lastly, the MSRB also believes that
the proposed rule change is consistent
with Section 15B(b)(2)(G) of the Act,21
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.
The proposed amendments to Rule G–
8 would assist in ensuring that
municipal advisors are complying with
proposed Rule G–3 by extending the
existing recordkeeping requirements
applicable to municipal advisors to
include making and maintaining records
20 See Municipal Advisor Registration Final Rule,
supra note 14, at 67611.
21 15 U.S.C. 78o–4(b)(2)(G).
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relating to their continuing education
program. Establishing a requirement for
municipal advisors to maintain records
reflecting their continuing education
programs would allow the appropriate
examining authority that examines
municipal advisors to better monitor
and promote compliance with the
proposed rule change.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
Section 15B(b)(2)(C) of the Act 22
requires that MSRB rules not be
designed to impose any burden on
competition not necessary or
appropriate in furtherance of the
purposes of the Act. The MSRB has
considered the economic impact
associated with the proposed rule
change, including a comparison to
reasonable alternative regulatory
approaches, relative to the baseline. The
MSRB does not believe that the
proposed rule change would impose any
burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act.
The MSRB believes that the proposed
rule change would produce benefits for
users of municipal advisory services by
ensuring compliance, by municipal
advisors, with existing regulations and
applicable laws that protect investors,
municipal entities, and obligated
persons. The proposed rule change
would keep covered persons informed
of issues and regulatory developments
that affect their job responsibilities with
respect to helping protect investors and
municipal entities. Such requirements
may reduce the risk that users of
municipal advisory services would
receive advice that results in harm or
negative impact. Thus, the proposed
rule change would help promote a larger
pool of qualified municipal advisor
professionals available for selection by
users of municipal advisory services,
resulting in the possibility of greater
meaningful competition between
providers of these services.
The MSRB recognizes that municipal
advisors would incur programmatic
costs associated with developing a
continuing education program,
delivering training and maintaining
records of compliance with the
continuing education requirements.
These costs are likely to be highest
when the rule’s requirements are
initially being implemented, but should
diminish over time after these initial
start-up costs are incurred. The effect on
competition between municipal
advisors may be impacted by these
upfront costs as some firms, particularly
22 15
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larger firms, may be better able to bear
these costs than other firms.
To mitigate these costs, the proposal
was modified, based on public
comments, to offer flexibility to
municipal advisors in how they
implement the requirements of the
proposed rule change. The proposed
rule change allows flexibility for
developing continuing education
training based on firm size,
organizational structure, and scope of
business activities. In addition, the
proposed rule change has been modified
to also allow for the development of a
single training plan that is consistent
with each needs analysis conducted by
a dealer-municipal advisor. Moreover,
dealer-municipal advisors can
incorporate identified, firm-specific
training needs, with respect to their
municipal advisory activities, into their
existing training programs, as long as
any offered training is consistent with
the written training plan(s).
The MSRB understands that most
small municipal advisors may not
employ full-time staff for the purpose of
developing and implementing
continuing education training. However,
the MSRB believes that the proposed
rule change, which provides sufficient
flexibility regarding how the
requirement is met, does not demand
that municipal advisors hire additional
staff. Moreover, third parties, including
the MSRB, may provide training
resources that would be available to
municipal advisors at a relatively low
cost. To the extent that the costs
associated with the proposed rule
change may cause some municipal
advisors to exit the market or to
consolidate with other firms, the MSRB
believes these effects are unlikely to
materially impact competition for the
provision of municipal advisory
services.
The MSRB considered alternatives,
including the development of a
mandatory training program, similar to
the Regulatory Element requirement for
dealers, and a more prescriptive
continuing education requirement.23
However, at this time, the MSRB does
not believe that such proposals are
necessary and that the current proposed
rule change achieves the proper balance
between the likely benefits associated
with the proposed rule change and the
likely costs associated with
implementing the requirements of the
proposed rule change.
23 MSRB Regulatory Notice 2016–24, Request for
Comment on Draft Provisions to Establish a
Continuing Education Requirement for Municipal
Advisors (‘‘draft amendments’’) (September 30,
2016)
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The MSRB considered the economic
impact of the proposed rule change and
has addressed comments relevant to the
impact in additional sections of the
filing.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The MSRB solicited comment on
establishing continuing education
requirements for municipal advisors in
a Request for Comment 24 and received
11 comment letters in response to the
draft amendments.25 A copy of MSRB
Notice 2016–24 is attached as Exhibit
2a; a list of the comment letters received
in response is attached as Exhibit 2b;
and copies of the comment letters are
attached as Exhibit 2c. Below is a
summary of the comments and the
MSRB’s responses are provided.
Support for the Proposed Rule Change
In response to MSRB Notice 2016–24,
commenters generally expressed
support for the establishment of
continuing education requirements for
municipal advisors.26 PFM commented
that they ‘‘[welcome] the
implementation of continuing education
requirements for municipal advisors
because [they] believe there are inherent
benefits of ongoing continuing
education which would assist
municipal advisors in expanding their
knowledge and promoting compliance
with applicable regulations necessary
within the current regulatory
environment.’’ FSI stated that it
supports the proposed rule change
because, as proposed, such amendments
24 See MSRB Regulatory Notice 2016–24, supra
note 23.
25 See Email from G. Letti, Breena LLC, dated
September 30, 2016 (‘‘Breena’’); Email from Garth
Schulz, Castle Advisory Company LLC, dated
September 30, 2016 (‘‘Castle Advisory’’); Letter
from Jeff White, Principal, Columbia Capital
Management, LLC, dated November 11, 2016
(‘‘Columbia Capital’’); Letter from David T. Bellaire,
Executive Vice President and General Counsel,
Financial Services Institute, dated November 14,
2016 (‘‘FSI’’); Letter from Robert A. Lamb,
President, Lamont Financial Services Corporation,
dated October 21, 2016 (‘‘Lamont Financial’’); Email
from Lawrence Goldberg, dated September 30,
2016(‘‘Goldberg’’); Letter from Susan Gaffney,
Executive Director, National Association of
Municipal Advisors, dated November 14, 2016
(‘‘NAMA’’); Letter from Leo Karwejna, Managing
Director and Chief Compliance Officer, PFM Group,
dated November 14, 2016 (‘‘PFM’’); Letter from
Marianne F. Edmonds, Senior Managing Director,
Public Resources Advisory Group, dated November
14, 2016 (‘‘PRAG’’); Email from Jonathan Roberts,
Roberts Consulting, LLC, dated October 14, 2016
(‘‘Roberts’’); Letter from Donna DiMaria, Chairman
of the Board of Directors, Third Party Marketers
Association, dated November 17, 2016 (‘‘3PM’’).
26 3PM, Breena, Castle Advisory, Columbia
Capital, FSI, Lamont Financial, NAMA, PFM and
PRAG.
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16453
would ‘‘establish a flexible, principlesbased rule that is harmonized with
current FINRA [continuing education]
requirements.’’ FSI also commended the
MSRB for ‘‘choosing a flexible and less
prescriptive approach to this rule
making.’’ PRAG commented that
‘‘continuing education is a necessary
part of the regulatory framework.’’
Similarly, NAMA commented
‘‘[c]ontinuing education requirements
are imperative to ensuring that MAs are
held to a professional standard that
strengthens their professional
responsibilities to municipal entities.’’
Although supportive, a few
commenters suggested the need for
clarification on aspects of the proposal
and additional guidance with respect to
the implementation of any continuing
education requirements.27
Implementation of the Proposed Rule
Change
Certain commenters asserted that the
proposal is premature and
recommended that the MSRB delay
implementing continuing education
requirements for municipal advisors.28
NAMA recommended that the MSRB
‘‘step back and complete an analysis on
the impact that the implementation of
all of the new rules and qualification
standards have on MAs, and then
determine the scope of continuing
education standards.’’ Lamont Financial
noted that a phased in implementation
period ‘‘would be the only appropriate
way to make the rule effective.’’
According to PFM, the MSRB should
consider ‘‘[t]he institution of a
reasonable [phased] in period that
considers additional requirements for
municipal advisor principals which
more likely consists of at least a twoyear timeframe for implementing the
proposed continuing education
requirements.’’ PRAG expressed a
similar sentiment, stating that the
‘‘implementation of continuing
education requirements [should] be
delayed until the ‘grace period’ for the
Series 50 exam has passed and
implementation of the Series 54 exam
has occurred.’’
The MSRB is supportive of a delayed
implementation period. The MSRB
believes that implementing the
continuing education requirements after
the one-year grace period for the
Municipal Advisor Representative
Qualification Examination (Series 50) 29
27 NAMA,
PFM and PRAG.
NAMA and PRAG.
29 The one-year grace period for the Series 50
examination ends on September 12, 2017. The oneyear grace period allows municipal advisor
professionals to continue to engage in or supervise
28 Lamont,
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affords municipal advisors time to
continue to more fully digest current
regulatory requirements and for
municipal advisor professionals to take
and pass the Series 50 exam. The MSRB
does not believe, however, that it is
necessary to delay the implementation
of continuing education requirements
until the development of the Municipal
Advisor Principal Qualification
Examination (Series 54), as any
municipal advisor must first be
qualified as a municipal advisor
representative. Moreover, the goal of the
continuing education requirement is to
enhance the knowledge, skill, and
professionalism of covered persons by
ensuring that all covered persons
receive regular training, and in an
acceptable depth, applicable to a firm’s
municipal advisory activities. As noted
earlier in the filing, the MSRB has
requested an implementation date of
January 1, 2018. As a result, municipal
advisors would have until December 31,
2018, to conduct the first required
annual training in compliance with the
rule.
Commercial Training Materials
Some commenters expressed concerns
regarding the lack of commercially
available materials specifically designed
to use in delivering continuing
education training for municipal
advisors.30 Columbia Capital indicated,
‘‘it is not likely that third-parties will
develop CE content that is broad enough
to encompass the full breadth of the
MA’s role with respect to governmental
issuers and obligated parties.’’
Moreover, according to Columbia
Capital, ‘‘most MA firms will be left to
develop their own CE programs—an
outcome that could be onerous for small
firms.’’ PRAG noted it is ‘‘not confident
that [third-party] providers will step
into this space and have concern [sic]
about both the cost and time required
for the development of appropriate
materials.’’ Lamont Financial stated,
‘‘the Board may be out over its skis in
considering [the] rule at this point
because the development of commercial
training resources for municipal
advisors has not been significant to
date.’’
Conversely, 3PM stated that ‘‘several
of the industry’s CE providers began
offering MA training modules as part of
their firm-element product offerings
over a year ago.’’ Columbia Capital
noted, ‘‘[w]e have historically provided
ongoing continuing education for our
municipal advisory activities, without having
passed the Series 50 examination, until the
expiration of the grace period.
30 Columbia Capital, Lamont Financial and
PRAG.
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MA professionals in-house using a mix
of formal and informal training/
education methods. We also leverage
free and low-cost resources provided by
third-parties—state GFOA conferences,
web-based seminars from organizations
like the Council of Development
Finance Agencies, etc.—to supplement
our advisors’ continuing education.’’
Lamont Financial acknowledged that
the MSRB is a resource for training
materials and expressed that ‘‘the Board
should continue to develop materials
that will help educate professionals in
the field.’’ Lamont Financial also added
that ‘‘[c]ertain national associations,
such as NAMA, may be a good source
for providing continuing education to
municipal advisors.’’
As proposed, the continuing
education requirements for municipal
advisors preserve flexibility as to the
content and delivery method for
continuing education training. The
proposed rule change does not prescribe
content requirements for the training
that municipal advisors must provide,
beyond addressing the regulatory
requirements and, specifically, the
fiduciary duty obligation to a firm’s
municipal entity clients. Instead, the
proposed rule change affords municipal
advisors the flexibility to identify and
deliver continuing education training in
the most convenient and effective
manner possible based on their business
model. A municipal advisor’s training
program may utilize multiple methods
of delivery, such as seminars, computerbased training, webcasts, or
dissemination of information requiring
written acknowledgement that the
materials have been received and read.
Moreover, industry trade associations
may be a good source of continuing
education training materials, in addition
to podcasts, webinars and educational
materials developed by the MSRB.
Accordingly, the MSRB does not believe
the lack of commercially-available
content would cause an undue burden
on municipal advisors.31
Conducting a Needs Analysis and
Developing a Written Training Plan
Two commenters noted the proposal
would benefit from additional clarity
and details regarding completing a
needs analysis, including the core
subjects to be covered, and on
developing a written training plan.32
31 For example, as suggested by Lamont
Financial, continuing education training would
most likely occur through attendance at conferences
or committee conference calls from membership in
organizations like the National Society of
Compliance Professionals or participation in
organizations related to the business of the advisor.
32 NAMA and PFM.
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NAMA suggested that the MSRB could
provide such details and expectations,
with respect to the development of a
needs analysis, by providing
representative sample needs analyses or
additional guidance. NAMA also stated,
more specifically, further guidance
would benefit municipal advisors with
respect to:
• How firms should identify and
evaluate applicable training needs,
including those related to the fiduciary
duty standard and regulatory issues that
arise with respect to current practices
for clients, as well as anticipated or
forthcoming responsibilities for clients;
• What content should be included in
a written training plan;
• Acceptable delivery mechanisms
for meeting continuing education
requirements; and
• How to document that training was
completed.
PFM requested that the MSRB
‘‘provid[e] more specific guidance on
required subjects with further
interpretive guidance describing
information to be covered on core
concepts within the municipal
industry.’’ Additionally, PFM suggested
that the MSRB publish core competency
subject requirements on a range of
various topics for purposes of ensuring
‘‘a level of consistency in educational
information so as to enhance the quality
and standard of training received by all
municipal advisors.’’
The MSRB recognizes that additional
guidance on conducting a needs
analysis and how to implement a
continuing education program may
benefit municipal advisors, especially
non-dealer municipal advisors. The
MSRB intends, before the proposed rule
change is implemented,33 whether in
collaboration with industry
associations, or otherwise, to provide
guidance to assist municipal advisors in
understanding their obligations to
develop a continuing education
program. The guidance would not be
designed to promote or establish a
uniform training program, but rather to
provide a common approach to assist
municipal advisors in the development
and implementation of a firm-specific
training program. Municipal advisors
should be aware that any guidance or
approaches recommended for
consideration would not create a safe
harbor and that each municipal advisor
would need to decide what measures
33 The MSRB notes, to assist broker-dealers in
complying with their continuing education program
requirements, the CE Council publishes a Guide to
Firm Element Needs Analysis and Training Plan
Development that is available at https://
www.cecouncil.com/media/232538/guide_to_firm_
element.pdf.
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should be taken in fulfilling its
continuing education obligations based
on the municipal advisory activities it
engages in.
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Additional Compliance Burdens and
Duplicative Documentation
Requirements
3PM expressed concerns that the
requirement for dealer-municipal
advisors to complete a separate needs
analysis and separate written training
plan for both its municipal advisory
activities and municipal securities
activities would be duplicative and did
not sufficiently reduce regulatory
overlap. 3PM stated, ‘‘by requiring firms
to complete separate needs analyses,
written training plans and other
documentation for its municipal
advisory and broker dealer activities, is
in fact creating, rather than reducing,
regulatory overlap.’’ According to 3PM,
given that dealer-municipal advisors are
examined by FINRA, there is ‘‘[no]
benefit to examiners in segregating [the
details of a firm’s] training that apply to
[its] MA business from other areas being
evaluated by FINRA.’’
The MSRB acknowledges that, in
some areas, additional regulatory
efficiencies could be achieved for
dealer-municipal advisors. With respect
to dealer-municipal advisors conducting
a separate needs analysis, accounting for
both their municipal advisory activities,
as well as, their dealer activities, the
MSRB notes that, because firms’
municipal advisory and municipal
securities lines of businesses are subject
to separate functions and regulatory
regimes, such regulatory burden is
appropriate. Dealer-municipal advisors
must evidence that a separate needs
analysis was conducted, by clearly
delineating the needs analysis, for the
separate business lines, within the
dealer-municipal advisor’s written
training plan(s). However, the MSRB
believes that permitting dealermunicipal advisors to develop a single
written training plan that
comprehensively details and satisfies
the needs analysis for both the firm’s
municipal advisory activities and dealer
activities could further reduce
regulatory overlap. To that end, the
proposed rule change, which differs
slightly from the draft amendments
initially proposed in the request for
comment, would allow dealermunicipal advisors engaged in diverse
lines of business or with complex
organizational structures to choose to
have separate plans coordinated to
cover appropriate areas or incorporate
all training requirements into a single
plan.
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Economic and Administrative Burdens
Some commenters raised the concern
that the requirements are likely to be
burdensome on small and single-person
municipal advisors.34 Commenters also
believe there could be considerable
financial cost related to the
development of in-house training
materials. PRAG stated, ‘‘like other nonbroker-dealer MA firms, [the firm] has
had to develop compliance procedures,
hire compliance personnel and divert
time of existing personnel from other
duties in order to document compliance
with MSRB rules. The transition has
been burdensome for us as it has been
for all independent MA firms.’’ Lamont
Financial expressed, ‘‘if each firm then
has to develop its own materials, the
cost in lost productive work time will be
significant and the quality of any
training will be dependent on the
municipal advisor preparing the
materials.’’ Goldberg declared, the
‘‘latest Request for Comments suggest
overregulation [and] increasing
interference with [and] restriction of
business conduct.’’ Similarly, NAMA
stated, ‘‘the MSRB should recognize the
multiple roles a principal in a small MA
firm or a sole-practitioner MA has to
their clients and under the rulemaking
regime already imposed by the MSRB.’’
NAMA further adds, ‘‘[t]he additional
requirements of continuing education
for all MAs and especially sole
practitioners and smaller firms, should
be considered along with the already
existing regulatory burdens of the MSRB
rulebook, and not create an
overwhelming economic or
administrative burden on these
professionals.’’
As an initial matter, the MSRB
acknowledges that the proposed rule
change would require municipal
advisors to devote some level of
resources to the development of its
continuing education program.
However, requiring registration, testing
and training of municipal advisors
should further strengthen compliance
with securities laws, rules and
regulations. Moreover, the MSRB has
considered whether the regulation is
appropriately tailored and needed in
furtherance of the protection of
investors, municipal entities and the
public interests. It is important to note
that the proposed rule change does not
require a municipal advisor to produce
in-house training materials, but rather,
provides flexibility recognizing there are
less costly alternatives to developing inhouse training materials, such as
34 Columbia Capital, Lamont Financial, NAMA
and PRAG.
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16455
utilizing existing content available or
content subsequently developed by
third-party resources. Each municipal
advisor also has the flexibility to
determine its firm-specific training
needs and the content of its training for
its covered persons. Small municipal
advisors and sole proprietorships with a
narrowly focused municipal advisory
business may find establishing a
continuing education program is
uniquely different and significantly less
complex and narrower in scope than
that of full-service firms. As the MSRB
has noted in this filing, the content and
method for delivery of continuing
education training is determined by the
municipal advisor.
Other Comments
Roberts noted that the nature of its
municipal advisory business does not
involve the engagement of municipal
entity clients. That is, the municipal
advisor only provides municipal
advisory services to obligated person
clients. Roberts expressed concerns
regarding the application of the
requirement for municipal advisors to
provide continuing education training
on a municipal advisor’s fiduciary duty
obligations. The commenter
recommended that the MSRB revise the
proposal to allow for an exception to the
requirement, if it lacks applicability to
the respective municipal advisor. The
proposed rule change has been amended
to reflect that the training is with
respect to the fiduciary duty obligations
of municipal advisors to municipal
entity clients. The scope of municipal
advisory business can be diverse;
therefore, a municipal advisor may or
may not engage in municipal advisory
activities on behalf of a municipal entity
client. However, this does not negate the
fact that a municipal advisor, at some
point, may pursue an undertaking that
involves engaging in municipal advisory
activities on behalf of a municipal entity
client. Therefore, all municipal advisors
are subject to the requirement to provide
training on the fiduciary duty
obligation; however, municipal advisors
have the flexibility to determine the
extent and scope of that training.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period of
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the self-regulatory organization
consents, the Commission will:
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(A) By order approve or disapprove
such proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
For the Commission, pursuant to delegated
authority.35
Eduardo A. Aleman,
Assistant Secretary.
IV. Solicitation of Comments
BILLING CODE 8011–01–P
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
MSRB–2017–02 on the subject line.
Paper Comments
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• 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–2017–02. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
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–
2017–02 and should be submitted on or
before April 25, 2017.
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[FR Doc. 2017–06562 Filed 4–3–17; 8:45 am]
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–80331; File No. SR–IEX–
2017–08]
Self-Regulatory Organizations:
Investors Exchange LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Correct
Typographical Errors in SR–IEX–2017–
06
March 29, 2017.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 2 and
Rule 19b–4 thereunder,3 notice is
hereby given that, on March 17, 2017,
the Investors Exchange LLC filed with
the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I and II below, which Items have
been prepared by the self-regulatory
organization. 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
Pursuant to the provisions of Section
19(b)(1) under the Securities Exchange
Act of 1934 (‘‘Act’’),4 and Rule 19b–4
thereunder,5 Investors Exchange LLC
(‘‘IEX’’ or ‘‘Exchange’’) is filing with the
Commission a proposed rule change to
correct several typographical errors in
Rule 11.190(g)(1)(A) and in the Purpose
Section of SR–IEX–2017–06 describing
the changes to IEX Rule 11.190(g)(1)(A)
proposed therein. The Exchange has
designated this proposal as noncontroversial and has satisfied the
requirements of Rule 19b–4(f)(6)(iii)
under the Act.6
The text of the proposed rule change
is available at the Exchange’s Web site
at www.iextrading.com, at the principal
office of the Exchange, and at the
Commission’s Public Reference Room.
35 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
4 15 U.S.C. 78s(b)(1).
5 17 CFR 240.19b–4.
6 17 CFR 240.19b–4(f)(6)(iii).
1 15
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II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of
and basis for the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of these statement may be examined at
the places specified in Item IV below.
The self-regulatory organization has
prepared summaries, set forth in
Sections A, B, and C below, of the most
significant aspects of such statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange recently filed with the
Commission an immediately effective
proposed rule change to amend Rule
11.190(g) to modify the quote instability
coefficients and quote instability
threshold included in the quote
instability calculation specified in
subparagraph (g)(1) of Rule 11.190 for
purposes of determining whether a
crumbling quote exists. The rule filing
was published on the Commission Web
site on March 10, 2017.7 Thereafter the
Exchange identified that the formula
contained in Rule 11.190(g)(1)(A) (the
‘‘formula’’) contains several minor
typographical errors. First, the
numerical references to the Quote
Stability Coefficients contained in the
formula were each represented as
regular text rather than as subscript, as
they are specified in subparagraph (a) of
Rule 11.190(g)(1)(A). Second, the Quote
Stability Variables NC and FC are
incorrectly represented as NC–1 and
FC–1 respectively in the formula.
Exhibit 5 to this filing corrects both of
these typographical errors. In addition,
Exhibit 5 to SR–IEX–2017–06 contains
inconsistent notations on text marked
for deletion and retention whereby the
same phrase is marked for deletion and
also marked as retained and relocated in
the following subparagraph.
Specifically, the phrase ‘‘the quote
instability factor result from the quote
stability calculation is greater than the
defined quote instability threshold’’ is
not clearly shown as relocated. Exhibit
5 to this rule filing corrects this
typographical error by showing the text
of the relocated phrase as new text,
notwithstanding that it was previously
contained in the text of Rule
7 See Securities Exchange Act Release No. 34–
80202; File No. SR–IEX–2017–06.
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[Federal Register Volume 82, Number 63 (Tuesday, April 4, 2017)]
[Notices]
[Pages 16449-16456]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-06562]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-80327; File No. SR-MSRB-2017-02]
Self-Regulatory Organizations; Municipal Securities Rulemaking
Board; Notice of Filing of a Proposed Rule Change to Rule G-3, on
Professional Qualification Requirements, and Rule G-8, on Books and
Records, To Establish Continuing Education Requirements for Municipal
Advisors and Accompanying Recordkeeping Requirements
March 29, 2017.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Exchange Act'' or ``Act'') \1\ and Rule 19b-4 thereunder,\2\
notice is hereby given that on March 22, 2017 the Municipal Securities
Rulemaking Board (the ``MSRB'' or ``Board'') filed with the Securities
and Exchange Commission (the ``SEC'' or ``Commission'') the proposed
rule change as described in Items I, II, and III below, which Items
have been prepared by the MSRB. The Commission is publishing this
notice to solicit comments on the proposed rule change from interested
persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The MSRB filed with the Commission a proposed rule change to amend
MSRB Rule G-3, on professional qualification requirements, to establish
continuing education requirements for municipal advisors; \3\ and
accompanying amendments to MSRB Rule G-8, on books and records to be
made by brokers, dealers and municipal securities dealers (``dealers'')
and municipal advisors; and the proposed rule change also makes minor
technical changes to Rule G-3 to reflect the renumbering of sections
and updates to cross-referenced provisions (collectively the ``proposed
rule change''). The MSRB requests that the proposed rule change be
approved with an implementation date of January 1, 2018. Municipal
advisors would, therefore, have until December 31, 2018 to complete a
needs analysis, develop a written training plan and deliver the
appropriate training to comply with the annual training requirement for
calendar year 2018.
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\3\ Municipal advisor would have the same meaning as in Section
15B(e)(4) of the Act, 17 CFR 240.15Ba1-1(d)(1)-(4) and other rules
and regulations thereunder.
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The text of the proposed rule change is available on the MSRB's Web
site at www.msrb.org/Rules-and-Interpretations/SEC-Filings/2017-Filings.aspx, at the MSRB's principal office, and at the Commission's
Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the MSRB included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The MSRB has prepared summaries, set forth in Sections
A, B, and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
Now that the MSRB has launched the Municipal Advisor Representative
Qualification Examination (Series 50),\4\ in connection with its
statutory mandate,\5\ the MSRB seeks to amend Rule G-3(i) to prescribe
continuing education requirements for municipal advisors. Section
15B(b) of the Act, as amended by the Dodd-Frank Wall Street Reform and
Consumer Protection Act (``Dodd-Frank Act''), specifically requires the
MSRB to provide professional standards and continuing education
requirements for municipal advisors. The goal of continuing education
is to ensure that certain associated persons of municipal advisors stay
abreast of issues that may affect their job responsibilities and of
product and regulatory developments. The proposed rule change also
would amend Rule G-8 to establish recordkeeping requirements related to
the administration of a municipal advisor's continuing education
program.
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\4\ On February 26, 2015, the MSRB received approval from the
SEC amending Rule G-3 to establish two new registration
classifications for municipal advisors: Municipal advisor
representatives and municipal advisor principals; and to require
each prospective municipal advisor representative and municipal
advisor principal to take and pass the municipal advisor
representative qualification examination. See Exchange Act Release
No. 74384 (February 26, 2015), 80 FR 11706 (March 4, 2015) (SR-MSRB-
2014-08).
\5\ See 15 U.S.C. 78o-4(b)(2)(L)(ii) and (iii).
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In addition, the proposed rule change would make technical changes
to Rule G-3 to reflect the renumbering of sections and updates to
cross-referenced provisions.
Background
In May 1993, due to the increasing complexity of the securities
industry, a self-regulatory organization (``SRO'') task force \6\ was
formed by the industry's SROs, to study and develop recommendations
regarding continuing education needs in the securities industry. In
September 1993, the task force issued a report recommending a formal
two-part continuing education program.\7\ The task force also
recommended that a permanent council on continuing education, composed
of broker-dealers and SRO representatives, be formed to develop the
content for the continuing education program and provide ongoing
maintenance of the program. Pursuant to this recommendation, the
Securities Industry/Regulatory Council on Continuing Education (``CE
Council'') was formed. \8\ The CE Council prepared
[[Page 16450]]
draft rules to implement the continuing education program, which the
SROs filed as proposed enabling rules with the Commission.\9\
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\6\ The SROs in the task force included the MSRB, American Stock
Exchange, Inc., the Chicago Board Options Exchange, Inc., the
National Association of Securities Dealers, Inc. (n/k/a the
Financial Industry Regulatory Authority), the New York Stock
Exchange, Inc., and the Philadelphia Stock Exchange, Inc.
\7\ Report and Recommendations of the Securities Industry Task
Force on Continuing Education (September 1993).
\8\ The CE Council is currently composed of up to 20-industry
members from broker-dealers, representing a broad cross section of
securities industry firms, and representatives from the MSRB and
other SROs, as well as liaisons from the SEC and the North American
Securities Administrators Association.
\9\ See Exchange Act Release No. 35341 (February 8, 1995), 60 FR
8426 (February 14, 1995) (SR-MSRB-94-17, SR-AMEX-94-59, SR-CBOE-94-
49, SR-CHX-94-27, SR-NASD-94-72, SR-NYSE-94-43, SR-PSE-94-35, and
SR-PHLX-94-52).
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The MSRB was a member of the CE Council upon its formation and has
remained a member since. Consistent with the CE Council's
recommendation, the MSRB filed, and the SEC approved, amendments to
Rule G-3 establishing a formal two-part continuing education program
for registered persons, requiring uniform industry-wide periodic
training in regulatory matters, and ongoing training programs conducted
by firms to enhance their registered persons' securities knowledge and
skills. Hence, continuing education requirements for securities
industry participants are not a new regulatory development.
Dealers are currently required, pursuant to Rule G-3(i), to
maintain a continuing education program for their ``covered registered
persons'' \10\ after their initial qualification and registration. Rule
G-3(i) also sets out the two-pronged approach to continuing education
requirements consisting of a Regulatory Element and a Firm Element
component. The Regulatory Element, which is developed by the CE
Council, is a computer-based training program that focuses on
compliance, regulatory, ethical and sales practice standards with the
content derived from common industry rules and regulations, as well as
widely accepted standards and practices within the industry. Under Rule
G-3(i)(i)(A), covered registered persons are required to complete
Regulatory Element training within 120 days of the second anniversary
of their registration approval date, and every three years
thereafter.\11\
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\10\ Under Rule G-3(i)(ii)(A), a ``covered registered person''
means ``any person registered with a broker, dealer or municipal
securities dealer and qualified as a representative or principal in
accordance with this rule or as a general securities principal and
who regularly engages in or supervises municipal securities
activities.''
\11\ MSRB Rule G-3(i)(i)(A).
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The Firm Element is a firm-administered training program that
requires dealers to annually evaluate and prioritize their training
needs. The documentation evidencing such annual evaluation is commonly
referred to as a needs analysis. A needs analysis generally reflects a
firm's assessment of its unique training needs based on various
factors, for example, the business activities the firm and its
associated persons engage in, the level of industry experience the
firm's associated persons have and any changes to applicable rules or
regulations. Upon completion of a needs analysis, a dealer is required
to develop a written training plan consistent with its analysis of the
training priorities identified. Dealers must maintain records
documenting the completion of the needs analysis, the content of the
training programs and completion of the training by each of the firm's
covered registered persons.\12\
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\12\ MSRB Rule G-9(b)(viii)(C).
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Proposed Amendments to Rule G-3: Establishing Continuing Education
Requirements for Municipal Advisors
As described in detail below, the MSRB is proposing amendments to
Rule G-3 to establish continuing education requirements for municipal
advisors. Like the Firm Element component for dealers, municipal
advisors would be required to, at least annually, conduct a needs
analysis that evaluates and prioritizes their specific training needs,
develop a written training plan based on the needs identified in the
analysis, and deliver training concerning municipal advisory activities
designed to meet those training needs. However, the proposed
requirements for municipal advisors would differ from the dealers' Firm
Element requirements with respect to identifying those that are subject
to the training and the content that must be covered in the training as
part of the minimum standards for the annual training.
Under proposed Rule G-3(i)(ii), municipal advisors would be
required to implement a continuing education training program for those
individuals qualified as either a municipal advisor representative or
as a municipal advisor principal (collectively, ``covered
persons'').\13\ The establishment of continuing education requirements
for municipal advisors would assist in ensuring that all firms provide
a minimum-level standard of training that is appropriate in the public
interest and for the protection of investors and municipal entities or
obligated persons.
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\13\ Under Rule G-3(d)(i)(A), ``municipal advisor
representative'' means ``a natural person associated with a
municipal advisor who engages in municipal advisory activities on
the municipal advisor's behalf.'' Under MSRB Rule G-3(e)(i),
``municipal advisor principal'' means ``a natural person associated
with a municipal advisor who is qualified as a municipal advisor
representative and is directly engaged in the management, direction
or supervision of the municipal advisory activities of the municipal
advisor and its associated persons.''
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Pursuant to proposed Rule G-3(i)(ii)(B)(1), a municipal advisor
would be required to, at least annually, conduct a needs analysis that
evaluates and prioritizes its training needs, develop a written
training plan based on the needs analysis, and deliver training
applicable to its municipal advisory activities. Additionally, in
developing a written training plan, a municipal advisor must take into
consideration the firm's size, organizational structure, scope of
municipal advisory activities, as well as regulatory developments.
Proposed Rule G-3(i)(ii)(B)(2) would prescribe the minimum
standards for continuing education training by requiring that each
municipal advisor's training include, at a minimum, training on the
applicable regulatory requirements and the fiduciary duty obligations
owed to municipal entity clients. The minimum training on the
applicable regulatory requirements would require a municipal advisor's
continuing education program to include training on the regulatory
requirements applicable to the municipal advisory activities its
covered persons engage in. However, training on the fiduciary duty
obligation owed to municipal entity clients is a minimum component of
the continuing education training for all covered persons, even those
that may not engage in municipal advisory activities on behalf of a
municipal entity client. The fiduciary duty obligation owed to a
municipal entity client is a keystone principal of the regulatory
framework for municipal advisors that the MSRB believes every covered
person engaged in municipal advisory activities should be familiar
with. A municipal advisor would, nonetheless, still have the
flexibility to determine the appropriate scope of training that its
covered persons need on the fiduciary duty obligation based on the
municipal advisory activities that its covered persons engage in.
Recognizing that the nature of municipal advisory activities
engaged in by municipal advisors can be diverse, the proposed rule
change would provide municipal advisors with sufficient flexibility to
determine their firm-specific training needs and the content and scope
of the training appropriate for their covered persons. For example, a
municipal advisor that only provides advice to municipal entities on
swap transactions would be permitted to design its annual training plan
based upon the rules and practices applicable to its limited business
model, so long as such training plan included the applicable regulatory
requirements
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applicable to that limited business and a component regarding the
fiduciary duty obligation owed to municipal entity clients. Moreover,
municipal advisors would be able to determine the method for delivering
such training. For example, a municipal advisor could determine that
the most effective manner for delivering the training would be to
require its covered persons to attend an applicable seminar by subject
matter experts and/or to utilize an on-line training resource.
The MSRB notes that the minimum requirements for continuing
education training, outlined under the proposed rule change, should not
be viewed by municipal advisors as the full scope of the subject matter
appropriate for municipal advisors' training programs. The minimum
standard for training does not negate the need for each municipal
advisor to consider whether, based on its needs analysis, additional
training applicable to the municipal advisory activities it conducts
are appropriate.
Proposed Rule G-3(i)(ii)(B)(3) would require a municipal advisor to
administer its continuing education program in accordance with the
annual evaluation and prioritization of its training needs and the
written training plan developed as consistent with its needs analysis.
Also, pursuant to this provision, a municipal advisor would be required
to maintain records documenting the content of its training programs
and a record that each of its covered persons identified completed the
applicable training.
Under proposed Rule G-3(i)(ii)(C), a municipal advisor's covered
persons (those individuals qualified as a municipal advisor
representative or municipal advisor principal) would be required to
participate in the firm's continuing education training programs. If
consistent with its training plan, a municipal advisor could deliver
training appropriate for all covered persons. In addition, a municipal
advisor may determine that its training needs indicate that it should
also deliver particular training for certain covered persons, for
example, those covered persons that have been designated with
supervisory responsibilities under Rule G-44, or those covered persons
that have been engaged in municipal advisory activities for a short
period of time.
Under proposed Rule G-3(i)(ii)(D), on specific training
requirements, the appropriate examining authority may require a
municipal advisor, individually or as part of a larger group, to
provide specific training to its covered persons in such areas the
appropriate examining authority deems appropriate.\14\ Such a
requirement may stipulate the class of covered persons for which it is
applicable, the time period in which the requirement must be satisfied
and, where appropriate, the actual training content.
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\14\ For purposes of Rule G-3(i)(ii)(D), ``appropriate examining
authority'' means ``a registered securities association with respect
to a municipal advisor that is a member of such association, or the
Commission, or the Commission's designee, with respect to any other
municipal advisor.''
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In an effort to reduce regulatory overlap for dealer-municipal
advisors,\15\ the proposed rule change would allow a dealer-municipal
advisor to deliver continuing education training that would satisfy its
training needs for the firm's dealer and municipal advisor activities.
More specifically, pursuant to Rule G-3(i)(ii)(E), as proposed, each
dealer-municipal advisor would be permitted to develop a single written
training plan, if that training plan is consistent with each needs
analysis that was conducted of the firm's municipal advisory activities
and municipal securities activities. In addition, the proposed rule
provision would allow a municipal advisor to conduct training for its
covered persons and covered registered persons, which would satisfy the
continuing education requirements under Rules G-3(i)(i)(B) and G-
3(i)(ii), if such training is consistent with the firm's written
training plan(s) and that training meets the minimum standards for the
training programs, as required under the rule.
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\15\ A member of the Financial Industry Regulatory Authority
that is a municipal securities dealer and municipal advisor is
commonly referred to as a ``dealer-municipal advisor.''
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Proposed Amendments to Rule G-8
The proposed amendments to Rule G-8 address the books and records
that must be made and maintained by a municipal advisor to show
compliance with recordkeeping requirements related to the
administration of a municipal advisor's continuing education program.
The Board adopted the approach of specifying, in some detail, the
information to be reflected in various records. Specifically, the
proposed amendments to Rule G-8(h) would require each municipal advisor
to make and maintain records regarding the firm's completion of its
needs analysis and the development of its corresponding written
training plan. Moreover, with respect to each municipal advisor's
written training plan, municipal advisors would be required to make and
keep records documenting the content of the firm's training programs
and a record evidencing completion of the training programs by each
covered person.\16\ Recordkeeping requirements are an important element
of compliance and the proposed amendments to Rule G-8 are appropriately
tailored to facilitate the examination of a municipal advisor's
compliance with the continuing education requirements.
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\16\ Rule G-9(h) generally requires municipal advisors to
preserve the books and records described in Rule G-8(h) for a period
of not less than five years for purposes of consistency with SEC
Rule 15Ba1-8 of the Act on books and records to be made and
maintained by municipal advisors. See Exchange Act Release No. 73415
(October 23, 2014), 79 FR 64423 (October 29, 2014) (SR-MSRB-2014-
06).
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Technical Amendments
The MSRB is proposing minor technical amendments to add paragraph
headers, and renumber and update rule cross-references to Rule G-
3(i)(i) and Rule G-3(i)(ii). Rule G-3(i)(i) would be revised by adding
the paragraph header ``Continuing Education Requirements for Brokers,
Dealers, and Municipal Securities Dealers.'' Rule G-3(i)(i)(D) would be
revised by adding the paragraph header ``Reassociation'' and renumbered
Rule G-3(i)(i)(A)(4). Rule G-3(i)(i)(E) would be relocated to proposed
subparagraph Rule G-3(i)(i)(A)(4). Rule G-3(i)(ii) would be re-lettered
Rule G-3(i)(i)(B). Due to these changes, other paragraphs under Rule G-
3(i) would be renumbered and re-lettered.
As noted above, the MSRB is seeking an implementation date for the
proposed rule change of January 1, 2018. To comply with the annual
training requirement for calendar year 2018, a municipal advisor would
need to complete a needs analysis, develop a written training plan and
deliver the appropriate training by December 31, 2018.
2. Statutory Basis
The MSRB believes that the proposed rule change is consistent with
Section 15B(b)(2)(A) of the Act,\17\ which provides that the MSRB's
rules shall:
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\17\ 15 U.S.C. 78o-4(b)(2)(A).
provide that no municipal securities broker or municipal securities
dealer shall effect any transaction in, or induce or attempt to
induce the purchase or sale of, any municipal security, and no
broker, dealer, municipal securities dealer, or municipal advisor
shall provide advice to or on behalf of a municipal entity or
obligated person with respect to municipal financial products or the
issuance of municipal securities, unless . . . such municipal
securities broker or municipal securities dealer and every natural
person associated with such municipal securities broker or municipal
securities dealer meet such standards of training, experience,
competence, and such other qualifications as
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the Board finds necessary or appropriate in the public interest or
for the protection of investors and municipal entities or obligated
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persons.
This provision provides the MSRB with authority to establish
standards of training, experience, competence and other qualifications
as the MSRB finds necessary. The MSRB believes that the proposed rule
change is consistent with this provision of the Act in that the
proposed rule change would provide for minimum levels of training for
persons engaged in municipal advisory activities, which is in the
public interest and for the protection of investors, municipal entities
and obligated persons. The SEC noted that ``[the] new registration
requirements and regulatory standards are intended to mitigate some of
the problems observed with the conduct of some municipal advisors,
including [. . .] advice rendered by financial advisors without
adequate training or qualifications, and failure to place the duty of
loyalty to their clients ahead of their own interests.'' \18\ Requiring
municipal advisors to provide continuing education, including minimum
training on the fiduciary duty obligations owed to municipal entities,
is consistent with and in furtherance of the stated objectives
articulated in the Municipal Advisor Registration Final Rule. In
addition, a continuing education requirement provides investors,
municipal entities and obligated persons with the confidence that
individuals who engage in municipal advisory activities and those who
supervise municipal advisory activities are kept informed of regulatory
developments that can occur after such individuals pass a qualification
examination to engage in municipal advisory activities.
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\18\ See Exchange Act Release No. 70462 (September 20, 2013), 78
FR 67467 at 67469 (November 12, 2013) (``Municipal Advisor
Registration Final Rule'').
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Additionally, the MSRB believes that the proposed rule change is
consistent with Section 15B(b)(2)(L) of the Act,\19\ which provides
that the MSRB's rules shall, with respect to municipal advisors:
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\19\ 15 U.S.C. 78o-4(b)(2)(L).
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(i) Prescribe means reasonably designed to prevent acts, practices,
and courses of business as are not consistent with a municipal
advisor's fiduciary duty to its clients;
(ii) provide continuing education requirements for municipal
advisors;
(iii) provide professional standards; and
(iv) not impose a regulatory burden on small municipal advisors
that is not necessary or appropriate in the public interest and for the
protection of investors, municipal entities, and obligated persons,
provided that there is robust protection of investors against fraud.
As noted by the SEC in the Municipal Advisor Registration Final
Rule, ``the municipal advisor regulatory regime should continue to
enhance municipal entity and obligated person protections and
incentivize municipal advisors not to engage in misconduct.'' \20\ The
proposed rule change would establish continuing education program
requirements for municipal advisors. By establishing a formal, robust
continuing education program, municipal advisors would ensure their
covered persons are kept informed of issues that affect their job
responsibilities and of regulatory developments, which is in
furtherance of the protection of investors against fraud and
misconduct.
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\20\ See Municipal Advisor Registration Final Rule, supra note
14, at 67611.
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The MSRB believes that, while the proposed rule change would lead
to some associated costs, the costs would be a necessary and
appropriate regulatory burden to ensure that individuals engaging in
municipal advisory activities are adequately trained and maintain an
adequate level of industry knowledge. Specifically, the MSRB believes
that requiring municipal advisors to have a continuing education
program serves to maintain the integrity of the municipal securities
market and, specifically, preserve the public confidence, including the
confidence of municipal entities and obligated persons, that those
engaged in municipal advisory activities meet minimum standards of
training, experience, competence, and such other qualifications as the
Board finds necessary or appropriate. A discussion of the economic
analysis of the proposed rule change and its impact on municipal
advisors is provided below.
Lastly, the MSRB also believes that the proposed rule change is
consistent with Section 15B(b)(2)(G) of the Act,\21\ 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.
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\21\ 15 U.S.C. 78o-4(b)(2)(G).
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The proposed amendments to Rule G-8 would assist in ensuring that
municipal advisors are complying with proposed Rule G-3 by extending
the existing recordkeeping requirements applicable to municipal
advisors to include making and maintaining records relating to their
continuing education program. Establishing a requirement for municipal
advisors to maintain records reflecting their continuing education
programs would allow the appropriate examining authority that examines
municipal advisors to better monitor and promote compliance with the
proposed rule change.
B. Self-Regulatory Organization's Statement on Burden on Competition
Section 15B(b)(2)(C) of the Act \22\ requires that MSRB rules not
be designed to impose any burden on competition not necessary or
appropriate in furtherance of the purposes of the Act. The MSRB has
considered the economic impact associated with the proposed rule
change, including a comparison to reasonable alternative regulatory
approaches, relative to the baseline. The MSRB does not believe that
the proposed rule change would impose any burden on competition that is
not necessary or appropriate in furtherance of the purposes of the Act.
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\22\ 15 U.S.C. 78o-4(b)(2)(C).
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The MSRB believes that the proposed rule change would produce
benefits for users of municipal advisory services by ensuring
compliance, by municipal advisors, with existing regulations and
applicable laws that protect investors, municipal entities, and
obligated persons. The proposed rule change would keep covered persons
informed of issues and regulatory developments that affect their job
responsibilities with respect to helping protect investors and
municipal entities. Such requirements may reduce the risk that users of
municipal advisory services would receive advice that results in harm
or negative impact. Thus, the proposed rule change would help promote a
larger pool of qualified municipal advisor professionals available for
selection by users of municipal advisory services, resulting in the
possibility of greater meaningful competition between providers of
these services.
The MSRB recognizes that municipal advisors would incur
programmatic costs associated with developing a continuing education
program, delivering training and maintaining records of compliance with
the continuing education requirements. These costs are likely to be
highest when the rule's requirements are initially being implemented,
but should diminish over time after these initial start-up costs are
incurred. The effect on competition between municipal advisors may be
impacted by these upfront costs as some firms, particularly
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larger firms, may be better able to bear these costs than other firms.
To mitigate these costs, the proposal was modified, based on public
comments, to offer flexibility to municipal advisors in how they
implement the requirements of the proposed rule change. The proposed
rule change allows flexibility for developing continuing education
training based on firm size, organizational structure, and scope of
business activities. In addition, the proposed rule change has been
modified to also allow for the development of a single training plan
that is consistent with each needs analysis conducted by a dealer-
municipal advisor. Moreover, dealer-municipal advisors can incorporate
identified, firm-specific training needs, with respect to their
municipal advisory activities, into their existing training programs,
as long as any offered training is consistent with the written training
plan(s).
The MSRB understands that most small municipal advisors may not
employ full-time staff for the purpose of developing and implementing
continuing education training. However, the MSRB believes that the
proposed rule change, which provides sufficient flexibility regarding
how the requirement is met, does not demand that municipal advisors
hire additional staff. Moreover, third parties, including the MSRB, may
provide training resources that would be available to municipal
advisors at a relatively low cost. To the extent that the costs
associated with the proposed rule change may cause some municipal
advisors to exit the market or to consolidate with other firms, the
MSRB believes these effects are unlikely to materially impact
competition for the provision of municipal advisory services.
The MSRB considered alternatives, including the development of a
mandatory training program, similar to the Regulatory Element
requirement for dealers, and a more prescriptive continuing education
requirement.\23\ However, at this time, the MSRB does not believe that
such proposals are necessary and that the current proposed rule change
achieves the proper balance between the likely benefits associated with
the proposed rule change and the likely costs associated with
implementing the requirements of the proposed rule change.
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\23\ MSRB Regulatory Notice 2016-24, Request for Comment on
Draft Provisions to Establish a Continuing Education Requirement for
Municipal Advisors (``draft amendments'') (September 30, 2016)
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The MSRB considered the economic impact of the proposed rule change
and has addressed comments relevant to the impact in additional
sections of the filing.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The MSRB solicited comment on establishing continuing education
requirements for municipal advisors in a Request for Comment \24\ and
received 11 comment letters in response to the draft amendments.\25\ A
copy of MSRB Notice 2016-24 is attached as Exhibit 2a; a list of the
comment letters received in response is attached as Exhibit 2b; and
copies of the comment letters are attached as Exhibit 2c. Below is a
summary of the comments and the MSRB's responses are provided.
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\24\ See MSRB Regulatory Notice 2016-24, supra note 23.
\25\ See Email from G. Letti, Breena LLC, dated September 30,
2016 (``Breena''); Email from Garth Schulz, Castle Advisory Company
LLC, dated September 30, 2016 (``Castle Advisory''); Letter from
Jeff White, Principal, Columbia Capital Management, LLC, dated
November 11, 2016 (``Columbia Capital''); Letter from David T.
Bellaire, Executive Vice President and General Counsel, Financial
Services Institute, dated November 14, 2016 (``FSI''); Letter from
Robert A. Lamb, President, Lamont Financial Services Corporation,
dated October 21, 2016 (``Lamont Financial''); Email from Lawrence
Goldberg, dated September 30, 2016(``Goldberg''); Letter from Susan
Gaffney, Executive Director, National Association of Municipal
Advisors, dated November 14, 2016 (``NAMA''); Letter from Leo
Karwejna, Managing Director and Chief Compliance Officer, PFM Group,
dated November 14, 2016 (``PFM''); Letter from Marianne F. Edmonds,
Senior Managing Director, Public Resources Advisory Group, dated
November 14, 2016 (``PRAG''); Email from Jonathan Roberts, Roberts
Consulting, LLC, dated October 14, 2016 (``Roberts''); Letter from
Donna DiMaria, Chairman of the Board of Directors, Third Party
Marketers Association, dated November 17, 2016 (``3PM'').
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Support for the Proposed Rule Change
In response to MSRB Notice 2016-24, commenters generally expressed
support for the establishment of continuing education requirements for
municipal advisors.\26\ PFM commented that they ``[welcome] the
implementation of continuing education requirements for municipal
advisors because [they] believe there are inherent benefits of ongoing
continuing education which would assist municipal advisors in expanding
their knowledge and promoting compliance with applicable regulations
necessary within the current regulatory environment.'' FSI stated that
it supports the proposed rule change because, as proposed, such
amendments would ``establish a flexible, principles-based rule that is
harmonized with current FINRA [continuing education] requirements.''
FSI also commended the MSRB for ``choosing a flexible and less
prescriptive approach to this rule making.'' PRAG commented that
``continuing education is a necessary part of the regulatory
framework.'' Similarly, NAMA commented ``[c]ontinuing education
requirements are imperative to ensuring that MAs are held to a
professional standard that strengthens their professional
responsibilities to municipal entities.''
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\26\ 3PM, Breena, Castle Advisory, Columbia Capital, FSI, Lamont
Financial, NAMA, PFM and PRAG.
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Although supportive, a few commenters suggested the need for
clarification on aspects of the proposal and additional guidance with
respect to the implementation of any continuing education
requirements.\27\
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\27\ NAMA, PFM and PRAG.
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Implementation of the Proposed Rule Change
Certain commenters asserted that the proposal is premature and
recommended that the MSRB delay implementing continuing education
requirements for municipal advisors.\28\ NAMA recommended that the MSRB
``step back and complete an analysis on the impact that the
implementation of all of the new rules and qualification standards have
on MAs, and then determine the scope of continuing education
standards.'' Lamont Financial noted that a phased in implementation
period ``would be the only appropriate way to make the rule
effective.'' According to PFM, the MSRB should consider ``[t]he
institution of a reasonable [phased] in period that considers
additional requirements for municipal advisor principals which more
likely consists of at least a two-year timeframe for implementing the
proposed continuing education requirements.'' PRAG expressed a similar
sentiment, stating that the ``implementation of continuing education
requirements [should] be delayed until the `grace period' for the
Series 50 exam has passed and implementation of the Series 54 exam has
occurred.''
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\28\ Lamont, NAMA and PRAG.
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The MSRB is supportive of a delayed implementation period. The MSRB
believes that implementing the continuing education requirements after
the one-year grace period for the Municipal Advisor Representative
Qualification Examination (Series 50) \29\
[[Page 16454]]
affords municipal advisors time to continue to more fully digest
current regulatory requirements and for municipal advisor professionals
to take and pass the Series 50 exam. The MSRB does not believe,
however, that it is necessary to delay the implementation of continuing
education requirements until the development of the Municipal Advisor
Principal Qualification Examination (Series 54), as any municipal
advisor must first be qualified as a municipal advisor representative.
Moreover, the goal of the continuing education requirement is to
enhance the knowledge, skill, and professionalism of covered persons by
ensuring that all covered persons receive regular training, and in an
acceptable depth, applicable to a firm's municipal advisory activities.
As noted earlier in the filing, the MSRB has requested an
implementation date of January 1, 2018. As a result, municipal advisors
would have until December 31, 2018, to conduct the first required
annual training in compliance with the rule.
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\29\ The one-year grace period for the Series 50 examination
ends on September 12, 2017. The one-year grace period allows
municipal advisor professionals to continue to engage in or
supervise municipal advisory activities, without having passed the
Series 50 examination, until the expiration of the grace period.
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Commercial Training Materials
Some commenters expressed concerns regarding the lack of
commercially available materials specifically designed to use in
delivering continuing education training for municipal advisors.\30\
Columbia Capital indicated, ``it is not likely that third-parties will
develop CE content that is broad enough to encompass the full breadth
of the MA's role with respect to governmental issuers and obligated
parties.'' Moreover, according to Columbia Capital, ``most MA firms
will be left to develop their own CE programs--an outcome that could be
onerous for small firms.'' PRAG noted it is ``not confident that
[third-party] providers will step into this space and have concern
[sic] about both the cost and time required for the development of
appropriate materials.'' Lamont Financial stated, ``the Board may be
out over its skis in considering [the] rule at this point because the
development of commercial training resources for municipal advisors has
not been significant to date.''
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\30\ Columbia Capital, Lamont Financial and PRAG.
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Conversely, 3PM stated that ``several of the industry's CE
providers began offering MA training modules as part of their firm-
element product offerings over a year ago.'' Columbia Capital noted,
``[w]e have historically provided ongoing continuing education for our
MA professionals in-house using a mix of formal and informal training/
education methods. We also leverage free and low-cost resources
provided by third-parties--state GFOA conferences, web-based seminars
from organizations like the Council of Development Finance Agencies,
etc.--to supplement our advisors' continuing education.'' Lamont
Financial acknowledged that the MSRB is a resource for training
materials and expressed that ``the Board should continue to develop
materials that will help educate professionals in the field.'' Lamont
Financial also added that ``[c]ertain national associations, such as
NAMA, may be a good source for providing continuing education to
municipal advisors.''
As proposed, the continuing education requirements for municipal
advisors preserve flexibility as to the content and delivery method for
continuing education training. The proposed rule change does not
prescribe content requirements for the training that municipal advisors
must provide, beyond addressing the regulatory requirements and,
specifically, the fiduciary duty obligation to a firm's municipal
entity clients. Instead, the proposed rule change affords municipal
advisors the flexibility to identify and deliver continuing education
training in the most convenient and effective manner possible based on
their business model. A municipal advisor's training program may
utilize multiple methods of delivery, such as seminars, computer-based
training, webcasts, or dissemination of information requiring written
acknowledgement that the materials have been received and read.
Moreover, industry trade associations may be a good source of
continuing education training materials, in addition to podcasts,
webinars and educational materials developed by the MSRB. Accordingly,
the MSRB does not believe the lack of commercially-available content
would cause an undue burden on municipal advisors.\31\
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\31\ For example, as suggested by Lamont Financial, continuing
education training would most likely occur through attendance at
conferences or committee conference calls from membership in
organizations like the National Society of Compliance Professionals
or participation in organizations related to the business of the
advisor.
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Conducting a Needs Analysis and Developing a Written Training Plan
Two commenters noted the proposal would benefit from additional
clarity and details regarding completing a needs analysis, including
the core subjects to be covered, and on developing a written training
plan.\32\ NAMA suggested that the MSRB could provide such details and
expectations, with respect to the development of a needs analysis, by
providing representative sample needs analyses or additional guidance.
NAMA also stated, more specifically, further guidance would benefit
municipal advisors with respect to:
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\32\ NAMA and PFM.
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How firms should identify and evaluate applicable training
needs, including those related to the fiduciary duty standard and
regulatory issues that arise with respect to current practices for
clients, as well as anticipated or forthcoming responsibilities for
clients;
What content should be included in a written training
plan;
Acceptable delivery mechanisms for meeting continuing
education requirements; and
How to document that training was completed.
PFM requested that the MSRB ``provid[e] more specific guidance on
required subjects with further interpretive guidance describing
information to be covered on core concepts within the municipal
industry.'' Additionally, PFM suggested that the MSRB publish core
competency subject requirements on a range of various topics for
purposes of ensuring ``a level of consistency in educational
information so as to enhance the quality and standard of training
received by all municipal advisors.''
The MSRB recognizes that additional guidance on conducting a needs
analysis and how to implement a continuing education program may
benefit municipal advisors, especially non-dealer municipal advisors.
The MSRB intends, before the proposed rule change is implemented,\33\
whether in collaboration with industry associations, or otherwise, to
provide guidance to assist municipal advisors in understanding their
obligations to develop a continuing education program. The guidance
would not be designed to promote or establish a uniform training
program, but rather to provide a common approach to assist municipal
advisors in the development and implementation of a firm-specific
training program. Municipal advisors should be aware that any guidance
or approaches recommended for consideration would not create a safe
harbor and that each municipal advisor would need to decide what
measures
[[Page 16455]]
should be taken in fulfilling its continuing education obligations
based on the municipal advisory activities it engages in.
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\33\ The MSRB notes, to assist broker-dealers in complying with
their continuing education program requirements, the CE Council
publishes a Guide to Firm Element Needs Analysis and Training Plan
Development that is available at https://www.cecouncil.com/media/232538/guide_to_firm_element.pdf.
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Additional Compliance Burdens and Duplicative Documentation
Requirements
3PM expressed concerns that the requirement for dealer-municipal
advisors to complete a separate needs analysis and separate written
training plan for both its municipal advisory activities and municipal
securities activities would be duplicative and did not sufficiently
reduce regulatory overlap. 3PM stated, ``by requiring firms to complete
separate needs analyses, written training plans and other documentation
for its municipal advisory and broker dealer activities, is in fact
creating, rather than reducing, regulatory overlap.'' According to 3PM,
given that dealer-municipal advisors are examined by FINRA, there is
``[no] benefit to examiners in segregating [the details of a firm's]
training that apply to [its] MA business from other areas being
evaluated by FINRA.''
The MSRB acknowledges that, in some areas, additional regulatory
efficiencies could be achieved for dealer-municipal advisors. With
respect to dealer-municipal advisors conducting a separate needs
analysis, accounting for both their municipal advisory activities, as
well as, their dealer activities, the MSRB notes that, because firms'
municipal advisory and municipal securities lines of businesses are
subject to separate functions and regulatory regimes, such regulatory
burden is appropriate. Dealer-municipal advisors must evidence that a
separate needs analysis was conducted, by clearly delineating the needs
analysis, for the separate business lines, within the dealer-municipal
advisor's written training plan(s). However, the MSRB believes that
permitting dealer-municipal advisors to develop a single written
training plan that comprehensively details and satisfies the needs
analysis for both the firm's municipal advisory activities and dealer
activities could further reduce regulatory overlap. To that end, the
proposed rule change, which differs slightly from the draft amendments
initially proposed in the request for comment, would allow dealer-
municipal advisors engaged in diverse lines of business or with complex
organizational structures to choose to have separate plans coordinated
to cover appropriate areas or incorporate all training requirements
into a single plan.
Economic and Administrative Burdens
Some commenters raised the concern that the requirements are likely
to be burdensome on small and single-person municipal advisors.\34\
Commenters also believe there could be considerable financial cost
related to the development of in-house training materials. PRAG stated,
``like other non-broker-dealer MA firms, [the firm] has had to develop
compliance procedures, hire compliance personnel and divert time of
existing personnel from other duties in order to document compliance
with MSRB rules. The transition has been burdensome for us as it has
been for all independent MA firms.'' Lamont Financial expressed, ``if
each firm then has to develop its own materials, the cost in lost
productive work time will be significant and the quality of any
training will be dependent on the municipal advisor preparing the
materials.'' Goldberg declared, the ``latest Request for Comments
suggest overregulation [and] increasing interference with [and]
restriction of business conduct.'' Similarly, NAMA stated, ``the MSRB
should recognize the multiple roles a principal in a small MA firm or a
sole-practitioner MA has to their clients and under the rulemaking
regime already imposed by the MSRB.'' NAMA further adds, ``[t]he
additional requirements of continuing education for all MAs and
especially sole practitioners and smaller firms, should be considered
along with the already existing regulatory burdens of the MSRB
rulebook, and not create an overwhelming economic or administrative
burden on these professionals.''
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\34\ Columbia Capital, Lamont Financial, NAMA and PRAG.
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As an initial matter, the MSRB acknowledges that the proposed rule
change would require municipal advisors to devote some level of
resources to the development of its continuing education program.
However, requiring registration, testing and training of municipal
advisors should further strengthen compliance with securities laws,
rules and regulations. Moreover, the MSRB has considered whether the
regulation is appropriately tailored and needed in furtherance of the
protection of investors, municipal entities and the public interests.
It is important to note that the proposed rule change does not require
a municipal advisor to produce in-house training materials, but rather,
provides flexibility recognizing there are less costly alternatives to
developing in-house training materials, such as utilizing existing
content available or content subsequently developed by third-party
resources. Each municipal advisor also has the flexibility to determine
its firm-specific training needs and the content of its training for
its covered persons. Small municipal advisors and sole proprietorships
with a narrowly focused municipal advisory business may find
establishing a continuing education program is uniquely different and
significantly less complex and narrower in scope than that of full-
service firms. As the MSRB has noted in this filing, the content and
method for delivery of continuing education training is determined by
the municipal advisor.
Other Comments
Roberts noted that the nature of its municipal advisory business
does not involve the engagement of municipal entity clients. That is,
the municipal advisor only provides municipal advisory services to
obligated person clients. Roberts expressed concerns regarding the
application of the requirement for municipal advisors to provide
continuing education training on a municipal advisor's fiduciary duty
obligations. The commenter recommended that the MSRB revise the
proposal to allow for an exception to the requirement, if it lacks
applicability to the respective municipal advisor. The proposed rule
change has been amended to reflect that the training is with respect to
the fiduciary duty obligations of municipal advisors to municipal
entity clients. The scope of municipal advisory business can be
diverse; therefore, a municipal advisor may or may not engage in
municipal advisory activities on behalf of a municipal entity client.
However, this does not negate the fact that a municipal advisor, at
some point, may pursue an undertaking that involves engaging in
municipal advisory activities on behalf of a municipal entity client.
Therefore, all municipal advisors are subject to the requirement to
provide training on the fiduciary duty obligation; however, municipal
advisors have the flexibility to determine the extent and scope of that
training.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period of up to 90 days (i) as
the Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
[[Page 16456]]
(A) By order approve or disapprove such proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-MSRB-2017-02 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-2017-02. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than 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-2017-02 and should be
submitted on or before April 25, 2017.
For the Commission, pursuant to delegated authority.\35\
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\35\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-06562 Filed 4-3-17; 8:45 am]
BILLING CODE 8011-01-P