Self-Regulatory Organizations; Municipal Securities Rulemaking Board; Notice of Filing of a Proposed Rule Change To Amend MSRB Rule G-21(e), on Municipal Fund Security Product Advertisements, 31644-31648 [2017-14240]
Download as PDF
31644
Federal Register / Vol. 82, No. 129 / Friday, July 7, 2017 / Notices
and routing decisions and for order
handling and regulatory compliance.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not: (i) Significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A) 16 of the Act and Rule 19b–
4(f)(6) thereunder.17
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is: (i) Necessary or appropriate in
the public interest; (ii) for the protection
of investors; or (iii) otherwise in
furtherance of the purposes of the Act.
If the Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or 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
Paper Comments
asabaliauskas on DSKBBXCHB2PROD with NOTICES
• Send paper comments in triplicate
to Secretary, Securities and Exchange
16 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6) requires a self-regulatory organization to give
the Commission written notice of its intent to file
the proposed rule change, along with a brief
description and the text of the proposed rule
change, at least five business days prior to the date
of filing of the proposed rule change, or such
shorter time as designated by the Commission. The
Exchange has satisfied this requirement.
17 17
20:56 Jul 06, 2017
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.18
Brent J. Fields,
Secretary.
[FR Doc. 2017–14241 Filed 7–6–17; 8:45 am]
BILLING CODE 8011–01–P
• 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–
NYSEArca–2017–70 on the subject line.
VerDate Sep<11>2014
Commission, 100 F Street NE.,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NYSEArca–2017–70. 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 Exchange. 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–
NYSEArca–2017–70, and should be
submitted on or before July 28, 2017.
Jkt 241001
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–81065; File No. SR–CBOE–
2017–010]
Self-Regulatory Organizations;
Chicago Board Options Exchange,
Incorporated; Notice of Withdrawal of
a Proposed Rule Change Related to
Unusual Market Conditions and the
Duty To Systemize Non-Electronic
Orders Prior to Representation
June 30, 2017.
On February 15, 2017, the Chicago
Board Options Exchange, Incorporated
PO 00000
18 17
CFR 200.30–3(a)(12).
Frm 00097
Fmt 4703
Sfmt 4703
(‘‘Exchange’’ or ‘‘CBOE’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Exchange Act’’) 1 and Rule
19b–4 thereunder,2 a proposed rule
change to amend its rules regarding the
circumstances in which CBOE Floor
Officials may declare a ‘‘fast’’ market
and the actions those Floor Officials
may take when a fast market is declared,
including the ability to suspend the
duty to systemize a non-electronic order
prior to representing it in open outcry
trading. The proposed rule change was
published for comment in the Federal
Register on March 6, 2017.3 On April
18, 2017, pursuant to Section 19(b)(2) of
the Exchange Act,4 the Commission
designated a longer period within which
to approve the proposed rule change,
disapprove the proposed rule change, or
institute proceedings to determine
whether to disapprove the proposed
rule change.5 On June 2, 2017, the
Commission instituted proceedings to
determine whether to approve or
disapprove the proposed rule change.6
The Commission received no comments
on the proposed rule change. On June
26, 2017, CBOE withdrew the proposed
rule change (SR–CBOE–2017–010).
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.7
Brent J. Fields,
Secretary.
[FR Doc. 2017–14244 Filed 7–6–17; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–81060; File No. SR–MSRB–
2017–04]
Self-Regulatory Organizations;
Municipal Securities Rulemaking
Board; Notice of Filing of a Proposed
Rule Change To Amend MSRB Rule G–
21(e), on Municipal Fund Security
Product Advertisements
June 30, 2017.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 80123
(February 28, 2017), 82 FR 12667 (‘‘Notice’’).
4 15 U.S.C. 78s(b)(2).
5 See Securities Exchange Act Release No. 80481,
82 FR 18941 (April 24, 2017). The Commission
designated June 4, 2017, as the date by which the
Commission shall either approve or disapprove, or
institute proceedings to determine whether to
disapprove, the proposed rule change.
6 See Securities Exchange Act Release No. 80854,
82 FR 26724 (June 8, 2017).
7 17 CFR 200.30–3(a)(12).
2 17
E:\FR\FM\07JYN1.SGM
07JYN1
Federal Register / Vol. 82, No. 129 / Friday, July 7, 2017 / Notices
‘‘Exchange Act’’ or ‘‘Act’’) 1 and Rule
19b–4 thereunder,2 notice is hereby
given that on June 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.
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–21(e), on municipal fund
security product advertisements, to
address important regulatory
developments and to enhance investor
protection in connection with
municipal fund securities (‘‘proposed
rule change’’). The MSRB requests that
the proposed rule change be approved
with an implementation date three
months after the Commission approval
date for all changes.
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
asabaliauskas on DSKBBXCHB2PROD with NOTICES
1. Purpose
Background
For over 40 years, Section 15B of the
Exchange Act has granted the Board
with rulemaking authority over the
municipal securities transactions
effected by brokers, dealers, and
1 15
2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
VerDate Sep<11>2014
20:56 Jul 06, 2017
Jkt 241001
municipal securities dealers
(collectively, ‘‘dealers’’). However,
following the financial crisis of 2008,
Congress expanded that authority with
its enactment of the Dodd-Frank Wall
Street Reform and Consumer Protection
Act (the ‘‘Dodd-Frank Act’’).3 The DoddFrank Act amended Section 15B of the
Exchange Act to establish a new federal
regulatory regime requiring municipal
advisors to register with the
Commission, deeming them to owe a
fiduciary duty to their municipal entity
clients and granting the MSRB
rulemaking authority over them.4 The
MSRB, in the exercise of that
rulemaking authority, has been
developing a comprehensive regulatory
framework for municipal advisors and
their associated persons.
In the context of developing a rule to
address advertising by municipal
advisors, the Board undertook a holistic
review of its advertising rules, and
determined to draft amendments to Rule
G–21 as well as to develop new draft
Rule G–40, on advertising by municipal
advisors. The Board sought public
comment on the draft amendments to
Rule G–21 and new draft Rule G–40,5
and, in response, received 11 comment
letters.6
While the Board is considering the
comments it received in response to that
Request for Comment on various other
Law No. 111–203, 124 Stat. 1376 (2010).
15 U.S.C. 78o–4.
5 MSRB Notice 2017–04 (Feb. 16, 2017) (the
‘‘Request for Comment’’).
6 Letter from Noreen P. White, Co-President and
Kim M. Whelan, Co-President, Acacia Financial
Group, Inc., dated April 7, 2017; Letter from Mike
Nicholas, Chief Executive Officer, Bond Dealers of
America, dated March 24, 2017; Letter from
Norman L. Ashkenas, Chief Compliance Officer,
Fidelity Brokerage Services, LLC, Richard J.
O’Brien, Chief Compliance Officer, National
Financial Services, LLC, and Jason Linde, Chief
Compliance Officer, Fidelity Investments
Institutional Services Company, LLC, dated March
24, 2017 (‘‘Fidelity’’); Letter from David T. Bellaire,
Esq., Executive Vice President & General Counsel,
Financial Services Institute, dated March 24, 2017
(‘‘FSI’’); Letter from Laura D. Lewis, Principal,
Lewis Young Robertson & Burningham, Inc., dated
March 24, 2017; Letter from Susan Gaffney,
Executive Director, National Association of
Municipal Advisors, dated March 24, 2017; Letter
from Leo Karwejna, Chief Compliance Officer,
Cheryl Maddox, General Counsel, and Catherine
Humphrey-Bennett, Municipal Advisory
Compliance Officer, Public Financial Management,
Inc. and PFM Financial Advisors LLC, dated March
23, 2017; Letter from Leslie M. Norwood, Managing
Director and Associate General Counsel, Securities
Industry and Financial Markets Association, dated
March 24, 2017 (‘‘SIFMA’’); Letter from Paul
Curley, Director of College Savings Research,
Strategic Insight, dated May 16, 2017 (‘‘SI’’); Letter
from Donna DiMaria, Chairman of the Board of
Directors and Chair of the 3PM Regulatory
Committee, Third Party Marketers Association,
dated March 23, 2017; and Letter from Robert J.
McCarthy, Director, Regulatory Policy, Wells Fargo
Advisors, dated March 24, 2017.
PO 00000
3 Pub.
4 See
Frm 00098
Fmt 4703
Sfmt 4703
31645
potential changes to advertising
regulations, the Board has concluded to
separately propose rule changes to Rule
G–21(e) alone to address important
regulatory developments and to enhance
investor protection in connection with
municipal fund securities.7
Proposed Rule Change
In summary, the proposed rule change
would amend Rule G–21(e) to:
• Reflect relevant regulatory
developments;
• enhance the ‘‘out-of-state disclosure
obligation’’ 8 about the potential other
benefits an investor may be provided by
investing in a 529 college savings plan
offered by the home state of the investor
or of the designated beneficiary;
• clarify that certain advertisements
that contain performance data may
include a hyperlink to a Web site that
contains more recent performance data;
and
• include several revisions that are
designed to promote understanding of
and compliance with the rule.
A detailed discussion about the
proposed rule change’s enhancements to
Rule G–21(e) follows.
A. Regulatory Developments
The proposed rule change would
amend Rule G–21(e) to reflect two
regulatory developments—the SEC’s
money market reforms and the
formation of the Financial Industry
Regulatory Authority, Inc. (‘‘FINRA’’).
Rule G–21(e)(i)(A)(2)(c) requires that a
municipal fund security advertisement
of an investment option that the issuer
holds out as having the characteristics
of a money market fund include certain
disclosures. The Board designed those
disclosures to protect investors by
alerting them to the potential risks of
investing in that investment option, and
modeled the disclosures on the
disclosures required for money market
fund advertisements by Rule 482(b)(4) 9
under the Securities Act of 1933, as
amended (the ‘‘1933 Act’’).10
The proposed rule change would
require that a municipal fund security
advertisement of an investment option
that has the characteristics of a money
market fund include enhanced
7 The proposed amendments to Rule G–21(e) have
no substantive connection with the draft
amendments to the other provisions of Rule G–21
or with draft Rule G–40.
8 See Interpretation on Customer Protection
Obligations Relating to the Marketing of 529 College
Savings Plans (Aug. 7, 2006) (discussing point-ofsale disclosure obligations under Rule G–17 and
defining ‘‘out-of-state disclosure obligation’’).
9 17 CFR 230.482(b)(4).
10 15 U.S.C. 77a; see File No. SR–MSRB–2004–09
(Dec. 16, 2004); Exchange Act Release No. 50919
(Dec. 22, 2004).
E:\FR\FM\07JYN1.SGM
07JYN1
31646
Federal Register / Vol. 82, No. 129 / Friday, July 7, 2017 / Notices
asabaliauskas on DSKBBXCHB2PROD with NOTICES
disclosure about the risks associated
with investing in that investment
option. Money market funds generally
invest in short-term obligations and
have a principal investment objective of
maintaining a net asset value of $1.00
per share.11 However, during the
financial crisis of 2008, money market
funds experienced high redemption
rates that caused a money market fund
to ‘‘break the buck’’ (i.e., maintain a net
asset value of less than $1.00 per
share).12 Following the financial crisis,
the SEC adopted amendments that were
designed, among other things, to make
money market funds more resilient to
certain short-term market risks and to
provide greater protections for
investors.13
The disclosure that would be required
by the proposed rule change reflects the
SEC’s money market reforms. The Board
tailored the proposed disclosure for
each of the three categories of money
market funds in which a municipal fund
security investment option could invest.
Those categories are: (i) Money market
funds that are not government money
market funds or retail money market
funds with floating net asset values that
may impose liquidity fees and that may
temporarily suspend redemptions; (ii)
money market funds that are
government money market funds or
retail money market funds that maintain
stable net asset values that may impose
liquidity fees or that may temporarily
suspend redemptions; and (iii) money
market funds that are government
money market funds that maintain
stable net asset values and that have
elected not to impose liquidity fees or
to temporarily suspend redemptions.
The proposed rule change to Rule G–
21(e)(i)(A)(2)(c) is substantially similar
to the SEC’s amendments to Rule
482(b)(4) under the 1933 Act,14 as
modified to reflect the differences in the
characteristics between municipal fund
securities and money market funds.15
11 Net asset value is the mutual fund’s total assets
minus its total liabilities. See Fast answers available
at https://www.sec.gov/fast-answers/
answersnavhtm.html.
12 On September 16, 2008, the Reserve Fund
announced that its Primary Fund would ‘‘break the
buck.’’ See Investment Company Act Rel. No. 28807
(June 30, 2009), 74 FR 32688 (July 8, 2009), note
44.
13 See Securities Act Release No. 9616 (July 23,
2014), 79 FR 47736 (Aug. 14, 2014) (adopting
money market reforms); Investment Company Act
Rel. No. 28807 (June 30, 2009), 74 FR 32688 (July
8, 2009) (proposing money market reforms).
14 17 CFR 230.482(b)(4).
15 Specifically, an interest in a 529 college savings
plan is an interest in an account (a ‘‘unit’’). The
account, in turn, may invest in mutual funds such
as a money market fund. An investor does not
receive shares of the mutual fund; the investor
receives units and only indirectly invests in the
VerDate Sep<11>2014
20:56 Jul 06, 2017
Jkt 241001
Specifically, the current disclosure
required by Rule G–21(e)(i)(A)(2)(c)
alerts a 529 college savings plan
investor that an investment option that
the issuer holds out as having the
characteristics of a money market fund
(i) is not insured or guaranteed by the
Federal Deposit Insurance Corporation
or any other government agency (unless
such guarantee is provided by or on
behalf of such issuer) and (ii) if the
money market fund is held out as
maintaining a stable net asset value, that
although the issuer seeks to preserve the
value of the investment at $1.00 per
share or such other applicable fixed
share price, it is possible to lose money
by investing in the investment option.
In addition to the current disclosure, the
proposed rule change would require
enhanced disclosure to alert the investor
that, as applicable, the underlying
mutual fund may impose a liquidity fee
or suspend redemptions and that the
investor should not expect the
underlying fund sponsor to provide
financial support to the underlying
mutual fund.
The proposed rule change also would
update Rule G–21(e)(ii)(F) and Rule G–
21(e)(vi) to substitute FINRA for
references to the National Association of
Securities Dealers, Inc. (‘‘NASD’’).
B. Out-of-State Disclosure Obligation
The proposed rule change would
enhance the out-of-state disclosure
required by Rule G–21(e)(i)(A)(2)(b).
Under Rule G–21(e)(i)(A)(2)(b), certain
advertisements for a 529 college savings
plan must provide disclosure that an
investor should consider, before
investing, whether the investor’s or the
designated beneficiary’s home state
offers any state tax or other benefits that
are only available for investment in
such state’s 529 college savings plan. To
assist an investor’s understanding of
what those other state benefits may
include, the proposed rule change
would require disclosure that those
other state benefits may include
financial aid, scholarship funds, and
protection from creditors.
advertisement of performance data by a
municipal fund security. Rule G–
21(e)(i)(A)(3)(a) requires that a
municipal fund security’s advertisement
of performance data include a legend
that discloses that the performance data
set forth in the advertisement represents
past performance; that past performance
does not guarantee future results; that
the investment return and the value of
the investment will fluctuate so that an
investor’s shares, when redeemed, may
be worth more or less than their original
cost; and that current performance may
be lower or higher than the performance
data included in the advertisement. The
proposed rule change would clarify that
an investment option that invests in a
government money market fund or a
retail money market fund may omit the
disclosure required by the legend about
principal value fluctuation. That
clarification is consistent with Rule
482(b)(3) under the 1933 Act that
permits government money market
funds and retail money market funds to
omit that disclosure.16
Further, Rule G–21(e)(i)(A)(3)(a)
requires that the legend in a municipal
fund security’s advertisement of
performance data that is not current to
the most recent month ended seven
business days before the date of any use
of the advertisement, also must disclose
where the investor may obtain more
current performance data. The legend
must include a toll-free number or a
Web site where the investor may obtain
that information. The proposed rule
change would clarify that the
advertisement may provide a hyperlink
to the Web site where the investor may
obtain total return quotations current to
most recent month end for which such
total return information is available. The
Board believes that the use of the
hyperlink to a Web site will assist
investors in obtaining more current
performance data. Further, the use of a
hyperlink to provide certain data is
consistent with the rules of other
financial regulators.17
C. Performance Data
The proposed rule change would
provide two clarifications to the legend
that must be provided in an
D. Enhancements to Terms Used in Rule
G–21(e)
To assist the reader’s understanding
of the disclosure and to assist with a
dealer’s compliance with the rule, the
proposed rule change would make
mutual fund through the units of the account.
However, this is not the case with a mutual fund
investment. A mutual fund investor directly
receives shares in a mutual fund. Therefore, the
proposed rule change, unlike Rule 482(b)(4)’s
disclosure for mutual funds, refers to an investment
in an investment option and an investor only
indirectly investing in a money market fund
through an underlying mutual fund offered by an
investment option. The proposed rule change does
not refer to direct investments in a mutual fund.
16 17 CFR 230.482(b)(3) (‘‘[a]n advertisement for
a money market fund that is a government money
market fund, as defined in § 270.2a–7(a)(16) of this
chapter, or a retail money market fund, as defined
in § 270.2a–7(a)(25) of this chapter may omit the
disclosure about principal value fluctuation’’).
17 See, e.g., FINRA Rule 2213(c)(1)(C) on
requirements for the use of bond mutual fund
volatility ratings requiring a ‘‘link to, or Web site
address for, a Web site that includes the criteria and
methodologies used to determine the rating.’’
PO 00000
Frm 00099
Fmt 4703
Sfmt 4703
E:\FR\FM\07JYN1.SGM
07JYN1
Federal Register / Vol. 82, No. 129 / Friday, July 7, 2017 / Notices
certain revisions to the provisions of
Rule G–21(e). The proposed rule change
would amend Rule G–21(e) to use terms
more commonly used with municipal
fund securities and that are used with
the MSRB’s other rules applicable to
municipal fund securities (e.g., the term
‘‘investment option’’), such as Rule G–
45, on reporting of information on
municipal fund securities. The
proposed rule change also would amend
Rule G–21(e)(i)(A)(2)(c) and Rule G–
21(e)(i)(A)(3)(c) to clarify that a
municipal fund security offers
investment options and that those
investment options, in turn, may invest
in mutual funds. Proposed paragraph
.01 of the Supplementary Material
would clarify that the term ‘‘investment
option’’ shall have the same meaning as
defined in Rule G–45(d)(vi). Proposed
paragraph .02 of the Supplementary
Material would clarify that under Rule
G–21(e)(i)(A)(2)(c), a dealer may omit
the last sentence of the required
disclosure if that disclosure is not
applicable to the underlying fund
according to Rule 482(b)(4) under the
1933 Act.18 The proposed rule change
also would amend Rule G–
21(e)(i)(A)(3)(a) to clarify that an
investor receives units in the municipal
fund security.
2. Statutory Basis
Section 15B(b)(2) of the Exchange
Act 19 provides that
[t]he Board shall propose and adopt rules
to effect the purposes of this title with
respect to transactions in municipal
securities effected by brokers, dealers, and
municipal securities dealers and advice
provided to or on behalf of municipal entities
or obligated persons by brokers, dealers,
municipal securities dealers, and municipal
advisors with respect to municipal financial
products, the issuance of municipal
securities, and solicitations of municipal
entities or obligated persons undertaken by
brokers, dealers, municipal securities dealers,
and municipal advisors.
asabaliauskas on DSKBBXCHB2PROD with NOTICES
Section 15B(b)(2)(C) of the Exchange
Act 20 provides that the MSRB’s rules
shall
be designed to prevent fraudulent and
manipulative acts and practices, to promote
just and equitable principles of trade, to
foster cooperation and coordination with
persons engaged in regulating, clearing,
settling, processing information with respect
to, and facilitating transactions in municipal
securities and municipal financial products,
to remove impediments to and perfect the
mechanism of a free and open market in
municipal securities and municipal financial
products, and, in general, to protect
18 17
CFR 230.482(b)(4).
U.S.C. 78o–4(b)(2).
20 15 U.S.C. 78o–4(b)(2)(C).
19 15
VerDate Sep<11>2014
20:56 Jul 06, 2017
Jkt 241001
investors, municipal entities, obligated
persons, and the public interest.
The MSRB believes that the proposed
rule change is consistent with the
provisions of Sections 15B(b)(2) 21 and
15B(b)(2)(C) of the Exchange Act 22
because it would update and modernize
the MSRB’s municipal fund security
product advertising rule applicable to
dealers. The proposed rule change
would enhance certain disclosures
required by the rule to reflect relevant
regulatory developments. Those
enhanced disclosures would protect
investors by alerting investors about
certain risks of investing in investment
options that in turn invest in money
market funds. Further, the proposed
rule change would protect investors by
providing the investor with (i) enhanced
out-of-state disclosure concerning the
potential other benefits that may be
offered by investing in the 529 college
saving plan offered by the investor’s or
the designated beneficiary’s home state
and (ii) the ability to obtain more
current performance information
through the use of a hyperlink to a Web
site. By providing investors with
enhanced disclosure, an investor has
more information to evaluate the
municipal fund security advertisement,
which in turn, would help prevent
fraudulent acts and practices as well as
promote just and equitable principles of
trade. In addition, the enhanced
disclosures would facilitate transactions
in municipal fund securities by
eliminating certain discordance between
the disclosure required by Rule G–21(e)
relating to investment options that
invest in money market funds and the
disclosure required by the advertising
rules applicable to money market funds
registered with the Commission. By so
doing, the Board believes that it would
facilitate efficient and uniform
examination and enforcement by the
regulators that enforce the Board’s rules.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
Section 15B(b)(2)(C) of the Exchange
Act 23 requires that MSRB rules not be
designed to impose any burden on
competition not necessary or
appropriate in furtherance of the
purposes of the Exchange Act. In
accordance with the Board’s policy on
the use of economic analysis,24 the
MSRB has considered the economic
21 15
22 15
U.S.C. 78o–4(b)(2).
U.S.C. 78o–4(b)(2)(C).
23 Id.
24 Policy on the Use of Economic Analysis in
MSRB Rulemaking, available at, https://
www.msrb.org/About-MSRB/Financial-and-OtherInformation/FinancialPolicies/Economic-AnalysisPolicy.aspx.
PO 00000
Frm 00100
Fmt 4703
Sfmt 4703
31647
impact of the proposed rule change—
with regard to certain advertisements of
municipal fund securities that require
additional disclosures as related to 529
college savings plans— 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
Exchange Act.
The proposed rule change would
enhance those additional disclosures as
they relate to 529 college savings plans
by expanding the disclosure about the
other state benefits that are available
only for investments in such state’s
qualified tuition program. Those other
state benefits include financial aid,
scholarship funds, and protection from
creditors. The proposed rule change
would also harmonize that disclosure
with disclosure required by the recent
amendments made by the SEC to Rule
482 under the 1933 Act applicable to
certain mutual fund advertisements.
That disclosure includes disclosure
about a money market fund’s ability to
impose a liquidity fee and to
temporarily suspend redemptions.
The MSRB does not believe the
proposed rule change would create a
burden on competition, as all municipal
fund securities dealers would be subject
to the additional requirements for
disclosures.
The MSRB believes that the proposed
rule change may reduce inefficiencies
and confusion for dealers via
harmonization of MSRB rule
requirements with comparable SEC
requirements on advertising. The MSRB
believes investors should benefit from
better information in the form of more
consistent and accurate advertising
through updated requirements for
certain municipal fund security
advertisements, as investors generally
value ease of comparison of different
financial products.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The MSRB received 11 comment
letters in response to the Request for
Comment on the draft amendments to
Rule G–21 and new draft Rule G–40.25
Of those comment letters, four comment
letters addressed the draft amendments
to Rule G–21(e).26 All four commenters
25 See
supra note 5.
FSI, SIFMA and SI.
26 Fidelity,
E:\FR\FM\07JYN1.SGM
07JYN1
31648
Federal Register / Vol. 82, No. 129 / Friday, July 7, 2017 / Notices
supported the draft amendments,27 and
one commenter suggested that the
MSRB could easily separate Rule G–
21(e) from the rest of Rule G–21, if
necessary.28 Specifically, commenters
expressed support for the proposed rule
change’s use of hyperlinks,
harmonization of Rule G–21(e) with the
advertising rules of other financial
regulators, and enhanced out-of-state
disclosure. The MSRB summarizes the
comments received relating to the
proposed rule change in the four
comment letters by topic below.
A. Hyperlinks
Fidelity and SIFMA expressed
support for the use of hyperlinks to
provide more current performance
information.29 The MSRB appreciates
Fidelity’s and SIFMA’s support for the
proposed rule change and their
suggestion concerning the expanded use
of hyperlinks. The Board anticipates
that it will continue to explore the use
of hyperlinks in other areas of its rule
book.
B. Harmonization With Other Financial
Regulations
FSI supported the proposed rule
change’s harmonization with the SEC’s
advertising rules applicable to mutual
funds.30
C. Out-of-State Disclosure
SI supported the enhanced out-ofstate disclosure. SI commented that the
‘‘added detail and clarity’’ will enhance
the value of 529 college savings plans
for investors and advisors, because the
disclosure will assist the reader in more
fully understanding what the other
benefits may be of investing in a 529
college savings plan offered by the
27 See,
e.g., FSI letter at 2.
SIFMA letter at 8 (‘‘[t]his section can be
easily separated from the rest of the rule, if
necessary’’).
29 Specifically, Fidelity stated:
We fully support these draft amendments and
believe that hyperlinks are a commonly used
method of communication, well understood by
investors, through which investors can obtain
additional details on facts that matter to them.
See Fidelity letter at 3.
Similarly, SIFMA stated that, ‘‘SIFMA and its
members support the ability to use hyperlinks in
this rule . . . .’’ See SIFMA letter at 8.
30 Specifically, FSI stated:
I. FSI strongly supports efforts to harmonize Rule
G–21 with other financial regulations
. . . The Proposed Rule also amends Rule G–
21(e) to incorporate the provisions included in the
SEC’s amendments to its registered investment
company advertising rules. The draft amendments
to Rule G–21(e) replace the money market mutual
fund disclosure required by current Rule G–21 with
a modified version of the money market mutual
fund disclosure currently required by SEC rules.
See FSI letter at 2.
asabaliauskas on DSKBBXCHB2PROD with NOTICES
28 See
VerDate Sep<11>2014
22:45 Jul 06, 2017
Jkt 241001
investor’s or the designated
beneficiary’s home state.31
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period of
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the self-regulatory organization
consents, the Commission will:
(A) By order approve or disapprove
such proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
MSRB–2017–04 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–2017–04. 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
stated, in part, that:
Strategic Insight appreciates the higher level of
detail and clarity by expanding the description of
‘‘other benefits’’ to include reference to ‘‘such as
financial aid, scholarship funds, and protection
from creditors’’ as these are important factors that
investors often overlook. By expanding the
description, 529s will also be easier to understand
which encourages use of the product. Ultimately,
the added detail and clarity will enhance the value
of 529s for investors and advisors, as they may not
have been able to identify what the ‘‘other benefits’’
were referencing previously.
See SI letter.
PO 00000
31 SI
Frm 00101
Fmt 4703
Sfmt 4703
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–
2017–04 and should be submitted on or
before July 28, 2017.
For the Commission, pursuant to delegated
authority.32
Brent J. Fields,
Secretary.
[FR Doc. 2017–14240 Filed 7–6–17; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–81068; File No. SR–ICEEU–
2017–007]
Self-Regulatory Organizations; ICE
Clear Europe Limited; Order Approving
Proposed Rule Change Relating to
Amendments to the ICE Clear Europe
Limited Articles of Association
June 30, 2017.
I. Introduction
On May 2, 2017, ICE Clear Europe
Limited (‘‘ICE Clear Europe’’), filed with
the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’),1 and
Rule 19b–4 thereunder,2 a proposed rule
change (SR–ICEEU–2017–007) to amend
its Articles of Association. The
proposed rule change was published for
comment in the Federal Register on
May 19, 2017.3 The Commission
received no comment letters regarding
32 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 Securities Exchange Act Release No. 34–80674
(May 19, 2017), 82 FR 23080 (May 19, 2017) (SR–
ICEEU–2017–007) (the ‘‘Notice’’).
1 15
E:\FR\FM\07JYN1.SGM
07JYN1
Agencies
[Federal Register Volume 82, Number 129 (Friday, July 7, 2017)]
[Notices]
[Pages 31644-31648]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-14240]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-81060; File No. SR-MSRB-2017-04]
Self-Regulatory Organizations; Municipal Securities Rulemaking
Board; Notice of Filing of a Proposed Rule Change To Amend MSRB Rule G-
21(e), on Municipal Fund Security Product Advertisements
June 30, 2017.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the
[[Page 31645]]
``Exchange Act'' or ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice
is hereby given that on June 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.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The MSRB filed with the Commission a proposed rule change to amend
MSRB Rule G-21(e), on municipal fund security product advertisements,
to address important regulatory developments and to enhance investor
protection in connection with municipal fund securities (``proposed
rule change''). The MSRB requests that the proposed rule change be
approved with an implementation date three months after the Commission
approval date for all changes.
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
Background
For over 40 years, Section 15B of the Exchange Act has granted the
Board with rulemaking authority over the municipal securities
transactions effected by brokers, dealers, and municipal securities
dealers (collectively, ``dealers''). However, following the financial
crisis of 2008, Congress expanded that authority with its enactment of
the Dodd-Frank Wall Street Reform and Consumer Protection Act (the
``Dodd-Frank Act'').\3\ The Dodd-Frank Act amended Section 15B of the
Exchange Act to establish a new federal regulatory regime requiring
municipal advisors to register with the Commission, deeming them to owe
a fiduciary duty to their municipal entity clients and granting the
MSRB rulemaking authority over them.\4\ The MSRB, in the exercise of
that rulemaking authority, has been developing a comprehensive
regulatory framework for municipal advisors and their associated
persons.
---------------------------------------------------------------------------
\3\ Pub. Law No. 111-203, 124 Stat. 1376 (2010).
\4\ See 15 U.S.C. 78o-4.
---------------------------------------------------------------------------
In the context of developing a rule to address advertising by
municipal advisors, the Board undertook a holistic review of its
advertising rules, and determined to draft amendments to Rule G-21 as
well as to develop new draft Rule G-40, on advertising by municipal
advisors. The Board sought public comment on the draft amendments to
Rule G-21 and new draft Rule G-40,\5\ and, in response, received 11
comment letters.\6\
---------------------------------------------------------------------------
\5\ MSRB Notice 2017-04 (Feb. 16, 2017) (the ``Request for
Comment'').
\6\ Letter from Noreen P. White, Co-President and Kim M. Whelan,
Co-President, Acacia Financial Group, Inc., dated April 7, 2017;
Letter from Mike Nicholas, Chief Executive Officer, Bond Dealers of
America, dated March 24, 2017; Letter from Norman L. Ashkenas, Chief
Compliance Officer, Fidelity Brokerage Services, LLC, Richard J.
O'Brien, Chief Compliance Officer, National Financial Services, LLC,
and Jason Linde, Chief Compliance Officer, Fidelity Investments
Institutional Services Company, LLC, dated March 24, 2017
(``Fidelity''); Letter from David T. Bellaire, Esq., Executive Vice
President & General Counsel, Financial Services Institute, dated
March 24, 2017 (``FSI''); Letter from Laura D. Lewis, Principal,
Lewis Young Robertson & Burningham, Inc., dated March 24, 2017;
Letter from Susan Gaffney, Executive Director, National Association
of Municipal Advisors, dated March 24, 2017; Letter from Leo
Karwejna, Chief Compliance Officer, Cheryl Maddox, General Counsel,
and Catherine Humphrey-Bennett, Municipal Advisory Compliance
Officer, Public Financial Management, Inc. and PFM Financial
Advisors LLC, dated March 23, 2017; Letter from Leslie M. Norwood,
Managing Director and Associate General Counsel, Securities Industry
and Financial Markets Association, dated March 24, 2017 (``SIFMA'');
Letter from Paul Curley, Director of College Savings Research,
Strategic Insight, dated May 16, 2017 (``SI''); Letter from Donna
DiMaria, Chairman of the Board of Directors and Chair of the 3PM
Regulatory Committee, Third Party Marketers Association, dated March
23, 2017; and Letter from Robert J. McCarthy, Director, Regulatory
Policy, Wells Fargo Advisors, dated March 24, 2017.
---------------------------------------------------------------------------
While the Board is considering the comments it received in response
to that Request for Comment on various other potential changes to
advertising regulations, the Board has concluded to separately propose
rule changes to Rule G-21(e) alone to address important regulatory
developments and to enhance investor protection in connection with
municipal fund securities.\7\
---------------------------------------------------------------------------
\7\ The proposed amendments to Rule G-21(e) have no substantive
connection with the draft amendments to the other provisions of Rule
G-21 or with draft Rule G-40.
---------------------------------------------------------------------------
Proposed Rule Change
In summary, the proposed rule change would amend Rule G-21(e) to:
Reflect relevant regulatory developments;
enhance the ``out-of-state disclosure obligation'' \8\
about the potential other benefits an investor may be provided by
investing in a 529 college savings plan offered by the home state of
the investor or of the designated beneficiary;
---------------------------------------------------------------------------
\8\ See Interpretation on Customer Protection Obligations
Relating to the Marketing of 529 College Savings Plans (Aug. 7,
2006) (discussing point-of-sale disclosure obligations under Rule G-
17 and defining ``out-of-state disclosure obligation'').
---------------------------------------------------------------------------
clarify that certain advertisements that contain
performance data may include a hyperlink to a Web site that contains
more recent performance data; and
include several revisions that are designed to promote
understanding of and compliance with the rule.
A detailed discussion about the proposed rule change's enhancements
to Rule G-21(e) follows.
A. Regulatory Developments
The proposed rule change would amend Rule G-21(e) to reflect two
regulatory developments--the SEC's money market reforms and the
formation of the Financial Industry Regulatory Authority, Inc.
(``FINRA'').
Rule G-21(e)(i)(A)(2)(c) requires that a municipal fund security
advertisement of an investment option that the issuer holds out as
having the characteristics of a money market fund include certain
disclosures. The Board designed those disclosures to protect investors
by alerting them to the potential risks of investing in that investment
option, and modeled the disclosures on the disclosures required for
money market fund advertisements by Rule 482(b)(4) \9\ under the
Securities Act of 1933, as amended (the ``1933 Act'').\10\
---------------------------------------------------------------------------
\9\ 17 CFR 230.482(b)(4).
\10\ 15 U.S.C. 77a; see File No. SR-MSRB-2004-09 (Dec. 16,
2004); Exchange Act Release No. 50919 (Dec. 22, 2004).
---------------------------------------------------------------------------
The proposed rule change would require that a municipal fund
security advertisement of an investment option that has the
characteristics of a money market fund include enhanced
[[Page 31646]]
disclosure about the risks associated with investing in that investment
option. Money market funds generally invest in short-term obligations
and have a principal investment objective of maintaining a net asset
value of $1.00 per share.\11\ However, during the financial crisis of
2008, money market funds experienced high redemption rates that caused
a money market fund to ``break the buck'' (i.e., maintain a net asset
value of less than $1.00 per share).\12\ Following the financial
crisis, the SEC adopted amendments that were designed, among other
things, to make money market funds more resilient to certain short-term
market risks and to provide greater protections for investors.\13\
---------------------------------------------------------------------------
\11\ Net asset value is the mutual fund's total assets minus its
total liabilities. See Fast answers available at https://www.sec.gov/fast-answers/answersnavhtm.html.
\12\ On September 16, 2008, the Reserve Fund announced that its
Primary Fund would ``break the buck.'' See Investment Company Act
Rel. No. 28807 (June 30, 2009), 74 FR 32688 (July 8, 2009), note 44.
\13\ See Securities Act Release No. 9616 (July 23, 2014), 79 FR
47736 (Aug. 14, 2014) (adopting money market reforms); Investment
Company Act Rel. No. 28807 (June 30, 2009), 74 FR 32688 (July 8,
2009) (proposing money market reforms).
---------------------------------------------------------------------------
The disclosure that would be required by the proposed rule change
reflects the SEC's money market reforms. The Board tailored the
proposed disclosure for each of the three categories of money market
funds in which a municipal fund security investment option could
invest. Those categories are: (i) Money market funds that are not
government money market funds or retail money market funds with
floating net asset values that may impose liquidity fees and that may
temporarily suspend redemptions; (ii) money market funds that are
government money market funds or retail money market funds that
maintain stable net asset values that may impose liquidity fees or that
may temporarily suspend redemptions; and (iii) money market funds that
are government money market funds that maintain stable net asset values
and that have elected not to impose liquidity fees or to temporarily
suspend redemptions. The proposed rule change to Rule G-
21(e)(i)(A)(2)(c) is substantially similar to the SEC's amendments to
Rule 482(b)(4) under the 1933 Act,\14\ as modified to reflect the
differences in the characteristics between municipal fund securities
and money market funds.\15\
---------------------------------------------------------------------------
\14\ 17 CFR 230.482(b)(4).
\15\ Specifically, an interest in a 529 college savings plan is
an interest in an account (a ``unit''). The account, in turn, may
invest in mutual funds such as a money market fund. An investor does
not receive shares of the mutual fund; the investor receives units
and only indirectly invests in the mutual fund through the units of
the account. However, this is not the case with a mutual fund
investment. A mutual fund investor directly receives shares in a
mutual fund. Therefore, the proposed rule change, unlike Rule
482(b)(4)'s disclosure for mutual funds, refers to an investment in
an investment option and an investor only indirectly investing in a
money market fund through an underlying mutual fund offered by an
investment option. The proposed rule change does not refer to direct
investments in a mutual fund.
---------------------------------------------------------------------------
Specifically, the current disclosure required by Rule G-
21(e)(i)(A)(2)(c) alerts a 529 college savings plan investor that an
investment option that the issuer holds out as having the
characteristics of a money market fund (i) is not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other government
agency (unless such guarantee is provided by or on behalf of such
issuer) and (ii) if the money market fund is held out as maintaining a
stable net asset value, that although the issuer seeks to preserve the
value of the investment at $1.00 per share or such other applicable
fixed share price, it is possible to lose money by investing in the
investment option. In addition to the current disclosure, the proposed
rule change would require enhanced disclosure to alert the investor
that, as applicable, the underlying mutual fund may impose a liquidity
fee or suspend redemptions and that the investor should not expect the
underlying fund sponsor to provide financial support to the underlying
mutual fund.
The proposed rule change also would update Rule G-21(e)(ii)(F) and
Rule G-21(e)(vi) to substitute FINRA for references to the National
Association of Securities Dealers, Inc. (``NASD'').
B. Out-of-State Disclosure Obligation
The proposed rule change would enhance the out-of-state disclosure
required by Rule G-21(e)(i)(A)(2)(b). Under Rule G-21(e)(i)(A)(2)(b),
certain advertisements for a 529 college savings plan must provide
disclosure that an investor should consider, before investing, whether
the investor's or the designated beneficiary's home state offers any
state tax or other benefits that are only available for investment in
such state's 529 college savings plan. To assist an investor's
understanding of what those other state benefits may include, the
proposed rule change would require disclosure that those other state
benefits may include financial aid, scholarship funds, and protection
from creditors.
C. Performance Data
The proposed rule change would provide two clarifications to the
legend that must be provided in an advertisement of performance data by
a municipal fund security. Rule G-21(e)(i)(A)(3)(a) requires that a
municipal fund security's advertisement of performance data include a
legend that discloses that the performance data set forth in the
advertisement represents past performance; that past performance does
not guarantee future results; that the investment return and the value
of the investment will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost; and that
current performance may be lower or higher than the performance data
included in the advertisement. The proposed rule change would clarify
that an investment option that invests in a government money market
fund or a retail money market fund may omit the disclosure required by
the legend about principal value fluctuation. That clarification is
consistent with Rule 482(b)(3) under the 1933 Act that permits
government money market funds and retail money market funds to omit
that disclosure.\16\
---------------------------------------------------------------------------
\16\ 17 CFR 230.482(b)(3) (``[a]n advertisement for a money
market fund that is a government money market fund, as defined in
Sec. 270.2a-7(a)(16) of this chapter, or a retail money market
fund, as defined in Sec. 270.2a-7(a)(25) of this chapter may omit
the disclosure about principal value fluctuation'').
---------------------------------------------------------------------------
Further, Rule G-21(e)(i)(A)(3)(a) requires that the legend in a
municipal fund security's advertisement of performance data that is not
current to the most recent month ended seven business days before the
date of any use of the advertisement, also must disclose where the
investor may obtain more current performance data. The legend must
include a toll-free number or a Web site where the investor may obtain
that information. The proposed rule change would clarify that the
advertisement may provide a hyperlink to the Web site where the
investor may obtain total return quotations current to most recent
month end for which such total return information is available. The
Board believes that the use of the hyperlink to a Web site will assist
investors in obtaining more current performance data. Further, the use
of a hyperlink to provide certain data is consistent with the rules of
other financial regulators.\17\
---------------------------------------------------------------------------
\17\ See, e.g., FINRA Rule 2213(c)(1)(C) on requirements for the
use of bond mutual fund volatility ratings requiring a ``link to, or
Web site address for, a Web site that includes the criteria and
methodologies used to determine the rating.''
---------------------------------------------------------------------------
D. Enhancements to Terms Used in Rule G-21(e)
To assist the reader's understanding of the disclosure and to
assist with a dealer's compliance with the rule, the proposed rule
change would make
[[Page 31647]]
certain revisions to the provisions of Rule G-21(e). The proposed rule
change would amend Rule G-21(e) to use terms more commonly used with
municipal fund securities and that are used with the MSRB's other rules
applicable to municipal fund securities (e.g., the term ``investment
option''), such as Rule G-45, on reporting of information on municipal
fund securities. The proposed rule change also would amend Rule G-
21(e)(i)(A)(2)(c) and Rule G-21(e)(i)(A)(3)(c) to clarify that a
municipal fund security offers investment options and that those
investment options, in turn, may invest in mutual funds. Proposed
paragraph .01 of the Supplementary Material would clarify that the term
``investment option'' shall have the same meaning as defined in Rule G-
45(d)(vi). Proposed paragraph .02 of the Supplementary Material would
clarify that under Rule G-21(e)(i)(A)(2)(c), a dealer may omit the last
sentence of the required disclosure if that disclosure is not
applicable to the underlying fund according to Rule 482(b)(4) under the
1933 Act.\18\ The proposed rule change also would amend Rule G-
21(e)(i)(A)(3)(a) to clarify that an investor receives units in the
municipal fund security.
---------------------------------------------------------------------------
\18\ 17 CFR 230.482(b)(4).
---------------------------------------------------------------------------
2. Statutory Basis
Section 15B(b)(2) of the Exchange Act \19\ provides that
---------------------------------------------------------------------------
\19\ 15 U.S.C. 78o-4(b)(2).
[t]he Board shall propose and adopt rules to effect the purposes
of this title with respect to transactions in municipal securities
effected by brokers, dealers, and municipal securities dealers and
advice provided to or on behalf of municipal entities or obligated
persons by brokers, dealers, municipal securities dealers, and
municipal advisors with respect to municipal financial products, the
issuance of municipal securities, and solicitations of municipal
entities or obligated persons undertaken by brokers, dealers,
---------------------------------------------------------------------------
municipal securities dealers, and municipal advisors.
Section 15B(b)(2)(C) of the Exchange Act \20\ provides that the
MSRB's rules shall
---------------------------------------------------------------------------
\20\ 15 U.S.C. 78o-4(b)(2)(C).
be designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, to
foster cooperation and coordination with persons engaged in
regulating, clearing, settling, processing information with respect
to, and facilitating transactions in municipal securities and
municipal financial products, to remove impediments to and perfect
the mechanism of a free and open market in municipal securities and
municipal financial products, and, in general, to protect investors,
---------------------------------------------------------------------------
municipal entities, obligated persons, and the public interest.
The MSRB believes that the proposed rule change is consistent with
the provisions of Sections 15B(b)(2) \21\ and 15B(b)(2)(C) of the
Exchange Act \22\ because it would update and modernize the MSRB's
municipal fund security product advertising rule applicable to dealers.
The proposed rule change would enhance certain disclosures required by
the rule to reflect relevant regulatory developments. Those enhanced
disclosures would protect investors by alerting investors about certain
risks of investing in investment options that in turn invest in money
market funds. Further, the proposed rule change would protect investors
by providing the investor with (i) enhanced out-of-state disclosure
concerning the potential other benefits that may be offered by
investing in the 529 college saving plan offered by the investor's or
the designated beneficiary's home state and (ii) the ability to obtain
more current performance information through the use of a hyperlink to
a Web site. By providing investors with enhanced disclosure, an
investor has more information to evaluate the municipal fund security
advertisement, which in turn, would help prevent fraudulent acts and
practices as well as promote just and equitable principles of trade. In
addition, the enhanced disclosures would facilitate transactions in
municipal fund securities by eliminating certain discordance between
the disclosure required by Rule G-21(e) relating to investment options
that invest in money market funds and the disclosure required by the
advertising rules applicable to money market funds registered with the
Commission. By so doing, the Board believes that it would facilitate
efficient and uniform examination and enforcement by the regulators
that enforce the Board's rules.
---------------------------------------------------------------------------
\21\ 15 U.S.C. 78o-4(b)(2).
\22\ 15 U.S.C. 78o-4(b)(2)(C).
---------------------------------------------------------------------------
B. Self-Regulatory Organization's Statement on Burden on Competition
Section 15B(b)(2)(C) of the Exchange Act \23\ requires that MSRB
rules not be designed to impose any burden on competition not necessary
or appropriate in furtherance of the purposes of the Exchange Act. In
accordance with the Board's policy on the use of economic analysis,\24\
the MSRB has considered the economic impact of the proposed rule
change--with regard to certain advertisements of municipal fund
securities that require additional disclosures as related to 529
college savings plans-- 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 Exchange Act.
---------------------------------------------------------------------------
\23\ Id.
\24\ Policy on the Use of Economic Analysis in MSRB Rulemaking,
available at, https://www.msrb.org/About-MSRB/Financial-and-Other-Information/FinancialPolicies/Economic-Analysis-Policy.aspx.
---------------------------------------------------------------------------
The proposed rule change would enhance those additional disclosures
as they relate to 529 college savings plans by expanding the disclosure
about the other state benefits that are available only for investments
in such state's qualified tuition program. Those other state benefits
include financial aid, scholarship funds, and protection from
creditors. The proposed rule change would also harmonize that
disclosure with disclosure required by the recent amendments made by
the SEC to Rule 482 under the 1933 Act applicable to certain mutual
fund advertisements. That disclosure includes disclosure about a money
market fund's ability to impose a liquidity fee and to temporarily
suspend redemptions.
The MSRB does not believe the proposed rule change would create a
burden on competition, as all municipal fund securities dealers would
be subject to the additional requirements for disclosures.
The MSRB believes that the proposed rule change may reduce
inefficiencies and confusion for dealers via harmonization of MSRB rule
requirements with comparable SEC requirements on advertising. The MSRB
believes investors should benefit from better information in the form
of more consistent and accurate advertising through updated
requirements for certain municipal fund security advertisements, as
investors generally value ease of comparison of different financial
products.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The MSRB received 11 comment letters in response to the Request for
Comment on the draft amendments to Rule G-21 and new draft Rule G-
40.\25\ Of those comment letters, four comment letters addressed the
draft amendments to Rule G-21(e).\26\ All four commenters
[[Page 31648]]
supported the draft amendments,\27\ and one commenter suggested that
the MSRB could easily separate Rule G-21(e) from the rest of Rule G-21,
if necessary.\28\ Specifically, commenters expressed support for the
proposed rule change's use of hyperlinks, harmonization of Rule G-21(e)
with the advertising rules of other financial regulators, and enhanced
out-of-state disclosure. The MSRB summarizes the comments received
relating to the proposed rule change in the four comment letters by
topic below.
---------------------------------------------------------------------------
\25\ See supra note 5.
\26\ Fidelity, FSI, SIFMA and SI.
\27\ See, e.g., FSI letter at 2.
\28\ See SIFMA letter at 8 (``[t]his section can be easily
separated from the rest of the rule, if necessary'').
---------------------------------------------------------------------------
A. Hyperlinks
Fidelity and SIFMA expressed support for the use of hyperlinks to
provide more current performance information.\29\ The MSRB appreciates
Fidelity's and SIFMA's support for the proposed rule change and their
suggestion concerning the expanded use of hyperlinks. The Board
anticipates that it will continue to explore the use of hyperlinks in
other areas of its rule book.
---------------------------------------------------------------------------
\29\ Specifically, Fidelity stated:
We fully support these draft amendments and believe that
hyperlinks are a commonly used method of communication, well
understood by investors, through which investors can obtain
additional details on facts that matter to them.
See Fidelity letter at 3.
Similarly, SIFMA stated that, ``SIFMA and its members support
the ability to use hyperlinks in this rule . . . .'' See SIFMA
letter at 8.
---------------------------------------------------------------------------
B. Harmonization With Other Financial Regulations
FSI supported the proposed rule change's harmonization with the
SEC's advertising rules applicable to mutual funds.\30\
---------------------------------------------------------------------------
\30\ Specifically, FSI stated:
I. FSI strongly supports efforts to harmonize Rule G-21 with
other financial regulations
. . . The Proposed Rule also amends Rule G-21(e) to incorporate
the provisions included in the SEC's amendments to its registered
investment company advertising rules. The draft amendments to Rule
G-21(e) replace the money market mutual fund disclosure required by
current Rule G-21 with a modified version of the money market mutual
fund disclosure currently required by SEC rules.
See FSI letter at 2.
---------------------------------------------------------------------------
C. Out-of-State Disclosure
SI supported the enhanced out-of-state disclosure. SI commented
that the ``added detail and clarity'' will enhance the value of 529
college savings plans for investors and advisors, because the
disclosure will assist the reader in more fully understanding what the
other benefits may be of investing in a 529 college savings plan
offered by the investor's or the designated beneficiary's home
state.\31\
---------------------------------------------------------------------------
\31\ SI stated, in part, that:
Strategic Insight appreciates the higher level of detail and
clarity by expanding the description of ``other benefits'' to
include reference to ``such as financial aid, scholarship funds, and
protection from creditors'' as these are important factors that
investors often overlook. By expanding the description, 529s will
also be easier to understand which encourages use of the product.
Ultimately, the added detail and clarity will enhance the value of
529s for investors and advisors, as they may not have been able to
identify what the ``other benefits'' were referencing previously.
See SI letter.
---------------------------------------------------------------------------
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period of up to 90 days (i) as
the Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove such proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-MSRB-2017-04 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-2017-04. 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-2017-04 and should be
submitted on or before July 28, 2017.
For the Commission, pursuant to delegated authority.\32\
---------------------------------------------------------------------------
\32\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Brent J. Fields,
Secretary.
[FR Doc. 2017-14240 Filed 7-6-17; 8:45 am]
BILLING CODE 8011-01-P