Self-Regulatory Organizations; Municipal Securities Rulemaking Board; Notice of Filing of Amendment No. 2 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 1 and Amendment No. 2, To Amend and Restate the MSRB's August 2, 2012 Interpretive Notice Concerning the Application of Rule G-17 to Underwriters of Municipal Securities, 61660-61670 [2019-24601]

Download as PDF 61660 Federal Register / Vol. 84, No. 219 / Wednesday, November 13, 2019 / Notices Competitive Product List and Notice of Filing Materials Under Seal; Filing Acceptance Date: November 6, 2019; Filing Authority: 39 U.S.C. 3642, 39 CFR 3020.30 et seq., and 39 CFR 3015.5; Public Representative: Kenneth R. Moeller; Comments Due: November 15, 2019. 3. Docket No(s).: MC2020–22 and CP2020–21; Filing Title: USPS Request to Add Priority Mail Contract 559 to Competitive Product List and Notice of Filing Materials Under Seal; Filing Acceptance Date: November 6, 2019; Filing Authority: 39 U.S.C. 3642, 39 CFR 3020.30 et seq., and 39 CFR 3015.5; Public Representative: Kenneth R. Moeller; Comments Due: November 15, 2019. This Notice will be published in the Federal Register. Darcie S. Tokioka, Acting Secretary. [FR Doc. 2019–24646 Filed 11–12–19; 8:45 am] BILLING CODE 7710–FW–P The Postal Service gives notice of filing a request with the Postal Regulatory Commission to add a domestic shipping services contract to the list of Negotiated Service Agreements in the Mail Classification Schedule’s Competitive Products List. DATES: Date of required notice: November 13, 2019. FOR FURTHER INFORMATION CONTACT: Sean Robinson, 202–268–8405. SUPPLEMENTARY INFORMATION: The United States Postal Service® hereby gives notice that, pursuant to 39 U.S.C. 3642 and 3632(b)(3), on November 6, 2019, it filed with the Postal Regulatory Commission a USPS Request to Add Priority Mail Contract 559 to Competitive Product List. Documents are available at www.prc.gov, Docket Nos. MC2020–22, CP2020–21. SUMMARY: SECURITIES AND EXCHANGE COMMISSION Notice. The Postal Service gives notice of filing a request with the Postal Regulatory Commission to add a domestic shipping services contract to the list of Negotiated Service Agreements in the Mail Classification Schedule’s Competitive Products List. SUMMARY: Date of required notice: November 13, 2019. DATES: FOR FURTHER INFORMATION CONTACT: Sean Robinson, 202–268–8405. The United States Postal Service® hereby gives notice that, pursuant to 39 U.S.C. 3642 and 3632(b)(3), on November 6, 2019, it filed with the Postal Regulatory Commission a USPS Request to Add Priority Mail & First-Class Package Service Contract 125 to Competitive Product List. Documents are available at www.prc.gov, Docket Nos. MC2020–21, CP2020–20. SUPPLEMENTARY INFORMATION: Sean Robinson, Attorney, Corporate and Postal Business Law. [FR Doc. 2019–24602 Filed 11–12–19; 8:45 am] [Release No. 34–87478; File No. SR–MSRB– 2019–10] Self-Regulatory Organizations; Municipal Securities Rulemaking Board; Notice of Filing of Amendment No. 2 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 1 and Amendment No. 2, To Amend and Restate the MSRB’s August 2, 2012 Interpretive Notice Concerning the Application of Rule G–17 to Underwriters of Municipal Securities November 6, 2019. I. Introduction On August 1, 2019, the Municipal Securities Rulemaking Board (the ‘‘MSRB’’ or ‘‘Board’’) filed with the Securities and Exchange Commission (the ‘‘SEC’’ or ‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Exchange Act’’ or ‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change (the ‘‘original proposed rule change’’) to amend and 1 15 2 17 BILLING CODE 7710–12–P 17:23 Nov 12, 2019 ACTION: BILLING CODE 7710–12–P Postal ServiceTM. VerDate Sep<11>2014 Postal ServiceTM. Notice. AGENCY: [FR Doc. 2019–24606 Filed 11–12–19; 8:45 am] Product Change—Priority Mail and First-Class Package Service Negotiated Service Agreement ACTION: Product Change—Priority Mail Negotiated Service Agreement Sean Robinson, Attorney, Corporate and Postal Business Law. POSTAL SERVICE AGENCY: POSTAL SERVICE Jkt 250001 PO 00000 U.S.C. 78s(b)(1). CFR 240.19b–4. Frm 00067 Fmt 4703 Sfmt 4703 restate the MSRB’s August 2, 2012 interpretive notice concerning the application of MSRB Rule G–17 to underwriters of municipal securities (the ‘‘2012 Interpretive Notice’’).3 The original proposed rule change was published for comment in the Federal Register on August 9, 2019.4 The Commission received three comment letters in response to the original proposed rule change.5 On September 10, 2019, the MSRB granted an extension of time for the Commission to act on the filing until November 7, 2019. On October 7, 2019, the MSRB responded to the comments 6 and filed Amendment No. 1 to the original proposed rule change (‘‘Amendment No. 1’’).7 The Commission published notice of Amendment No. 1 in the Federal Register on October 15, 2019.8 In response to Amendment No. 1, the Commission received three comment letters.9 On October 31, 2019, the MSRB submitted a response to comments received on Amendment No. 1 10 and 3 The 2012 Interpretive Notice was approved by the SEC on May 4, 2012 and became effective on August 2, 2012. See Release No. 34–66927 (May 4, 2012); 77 FR 27509 (May 10, 2012) (File No. SR– MSRB–2011–09); and MSRB Notice 2012–25 (May 7, 2012). The 2012 Interpretive Notice is available here. 4 Exchange Act Release No. 86572 (Aug. 5, 2019), 84 FR 39646 (Aug. 9, 2019) (‘‘Notice of Filing’’). The comment period closed on August 30, 2019. 5 See Letter to Secretary, Commission, from Tamara K. Salmon, Associate General Counsel, Investment Company Institute dated Aug. 26, 2019 (the ‘‘ICI Letter’’), Letter to Secretary, Commission, from Leslie M. Norwood, Managing Director and Associate General Counsel, Securities Industry and Financial Markets Association, dated August 30, 2019 (the ‘‘First SIFMA Letter’’); Letter to Secretary, Commission, from Susan Gaffney, Executive Director, National Association of Municipal Advisors, dated August 30, 2019 (the ‘‘First NAMA Letter’’). 6 See Letter to Secretary, Commission, from Gail Marshall, Chief Compliance Officer, MSRB, dated October 7, 2019 (the ‘‘First Response Letter’’), available at https://www.sec.gov/comments/srmsrb-2019-10/srmsrb201910-6261133-193028.pdf. 7 Amendment No. 1 is available at https:// msrb.org/∼/media/Files/SEC-Filings/2019/MSRB2019-10-A-1.ashx?. 8 See Exchange Act Release No. 87255 (October 8, 2019), 84 FR 55192 (October 15, 2019) (the ‘‘Notice of Amendment No. 1’’). The comment period closed on October 29, 2019. 9 See Letter to Secretary, Commission, from Susan Gaffney, Executive Director, National Association of Municipal Advisors, dated October 29, 2019 (the ‘‘Second NAMA Letter’’); Letter to Secretary, Commission, from Leslie M. Norwood, Managing Director and Associate General Counsel, Securities Industry and Financial Markets Association, dated October 29, 2019 (the ‘‘Second SIFMA Letter’’); Letter to Secretary, Commission, from Michael Nicholas, Chief Executive Officer, Bond Dealers of America, dated October 29, 2019 (the ‘‘BDA Letter’’). 10 See Letter to Secretary, Commission, from Gail Marshall, Chief Compliance Officer, MSRB, dated October 31, 2019 (the ‘‘Second Response Letter’’ and, together with the First Response Letter, the ‘‘MSRB Response Letters’’), available at https:// E:\FR\FM\13NON1.SGM 13NON1 Federal Register / Vol. 84, No. 219 / Wednesday, November 13, 2019 / Notices filed Amendment No. 2 to the original proposed rule change (‘‘Amendment No. 2’’).11 This order approves the original proposed rule change, as modified by Amendment No. 1 and Amendment No. 2 (as so modified, the ‘‘proposed rule change’’), on an accelerated basis. II. Description of Proposed Rule Change As described more fully in the Notice of Filing, Amendment No. 1, and Amendment No. 2, the MSRB stated that the purpose of the proposed rule change is to update and streamline certain obligations specified in the 2012 Interpretive Notice (the 2012 Interpretive Notice, so amended by the proposed rule change, is referred to herein as the ‘‘Revised Interpretive Notice’’) and, thereby, benefit issuers and underwriters of municipal securities alike by reducing the burdens associated with those obligations, including the obligation of underwriters to make, and the burden on issuers to acknowledge and review, written disclosures that itemize risks and conflicts that are unlikely to materialize during the course of a transaction, not unique to a given transaction or a particular underwriter where a syndicate is formed, and/or otherwise duplicative.12 A. Incorporation of Subsequent MSRB Guidance Into Revised Interpretive Notice The MSRB stated that the proposed rule change would integrate certain concepts (with revisions as described in the Notice of Filing, Amendment No. 1, and Amendment No. 2) from (i) the MSRB’s implementation guidance dated July 18, 2012 concerning the 2012 Interpretive Notice (the ‘‘Implementation Guidance’’) 13 and (ii) the regulatory guidance dated March 25, 2013 answering certain frequently asked questions regarding the 2012 Interpretive Notice (the ‘‘FAQs’’) 14 into the Revised Interpretive Notice, thereby consolidating the Implementation Guidance, FAQs, and the Revised Interpretive Notice into a single publication.15 www.sec.gov/comments/sr-msrb-2019-10/ srmsrb201910-6381148-197768.pdf. 11 Amendment No. 2 is available at https:// msrb.org/∼/media/Files/SEC-Filings/2019/MSRB2019-10-A-2.ashx?. 12 See Notice of Filing. 13 See MSRB Notice 2012–38 (July 18, 2012). 14 See MSRB Notice 2013–08 (Mar. 25, 2013). 15 See Notice of Filing. VerDate Sep<11>2014 17:23 Nov 12, 2019 Jkt 250001 i. Applicability of the Revised Interpretive Notice to the Continuous Offering of Municipal Fund Securities The MSRB noted that the Implementation Guidance makes clear that the 2012 Interpretive Notice applies not only to primary offerings of new issues of municipal bonds and notes by an underwriter, but also to a dealer serving as primary distributor (but not to dealers serving solely as selling dealers) in a continuous offering of municipal fund securities, such as interests in 529 savings plans.16 In the original proposed rule change, the MSRB incorporated this concept from the Implementation Guidance, adding a reference to Achieving a Better Life Experience (ABLE) programs.17 In response to concerns raised in the comments to the original proposed rule change, the MSRB proposed in Amendment No. 1 and Amendment No. 2 to modify the proposed rule change to state, ‘‘[t]his notice does not apply to a dealer acting as a primary distributor in a continuous offering of municipal fund securities.’’ 18 Thus, the MSRB stated, the original proposed rule change, as revised by Amendment No. 1 and Amendment No. 2, makes clear that the specific fair dealing duties outlined in the proposed rule change—which articulate the delivery of certain disclosures at particular times during the course of an underwriting transaction—would not be applicable to the situations of a dealer serving as a primary distributor in a continuous offering of municipal fund securities.19 The MSRB noted that Amendment No. 1 did not revise the portion of the text of the original proposed rule change indicating that the fair dealing obligations outlined in the interpretive notice may serve as one of many bases for dealers acting in a capacity not specifically addressed therein—such as a dealer serving as a primary distributor in a continuous offering of municipal fund securities—to determine how to establish appropriate policies and procedures for ensuring it meets its fair dealing obligations under Rule G–17.20 ii. Applicability of the Revised Interpretive Notice to a Primary Offering That Is Placed With Investors by a Placement Agent The MSRB noted that the Implementation Guidance provides that no type of underwriting is wholly excluded from the application of the 2012 Interpretive Notice, including certain private placement activities.21 The MSRB stated that the proposed rule change would incorporate this concept from the Implementation Guidance into the Revised Interpretive Notice with certain revisions, as discussed in further detail in the Notice of Filing and Amendment No. 1.22 Pursuant to Amendment No. 1, the MSRB added language to the Revised Interpretive Notice clarifying that the disclosures delivered by an underwriter to an issuer must not be inaccurate or misleading, and that nothing in the Revised Interpretive Notice should be construed as requiring an underwriter to make a disclosure to an issuer that is false.23 In addition, the MSRB stated that the proposed rule change would update the 2012 Interpretive Notice by incorporating supplemental language into the Revised Interpretive Notice intended to harmonize it with the Commission’s adoption of its permanent rules regarding the registration and record-keeping requirements applicable to municipal advisors, and related exclusions and exceptions, which went into effect after the effective date of the 2012 Interpretive Notice.24 The MSRB stated that it believes that the guidance provided by this harmonizing language is in keeping with the existing references included in the 2012 Interpretive Notice and its guidance regarding the existence of other relevant or similar legal obligations that could have a bearing on an underwriter’s fair dealing obligations under Rule G–17.25 iii. Statements Regarding Negotiated Offerings and Defining Negotiated and Competitive Offerings for Purposes of the Revised Interpretive Notice The MSRB stated that by its terms, and as presently stated in the Implementation Guidance, the 2012 Interpretive Notice applies primarily to negotiated offerings of municipal securities, with many of its provisions not applicable to competitive offerings.26 The MSRB noted that the Implementation Guidance clarified what constitutes a negotiated offering for purposes of the 2012 Interpretive Notice, and the MSRB stated that the proposed rule change would incorporate this language into the Revised Interpretive Notice.27 21 See Notice of Filing. Notice of Filing, Amendment No. 1. 23 See Amendment No. 1. 24 See Notice of Filing. 25 Id. 26 Id. 27 Id. 22 See 16 Id. 17 Id. 18 See 19 See Amendment No. 1, Amendment No. 2. Amendment No. 1. 20 Id. PO 00000 Frm 00068 Fmt 4703 Sfmt 4703 61661 E:\FR\FM\13NON1.SGM 13NON1 61662 Federal Register / Vol. 84, No. 219 / Wednesday, November 13, 2019 / Notices iv. Applicability of the Revised Interpretive Notice to Persons Other Than Issuers of Municipal Securities The MSRB noted that the 2012 Interpretive Notice outlines the duties that a dealer owes to an issuer of municipal securities when the dealer underwrites a new issuance, and that the Implementation Guidance provides that the 2012 Interpretive Notice ‘‘does not set out the underwriter’s fair dealing obligations to other parties involved with a municipal securities financing, including a conduit borrower.’’ 28 The MSRB stated that the proposed rule change would incorporate the language from the Implementation Guidance into the Revised Interpretive Notice with conforming revisions, stating ‘‘[t]his notice does not set out the underwriter’s fair-practice duties to other parties to a municipal securities financing (e.g., conduit borrowers).’’ 29 v. Statements Regarding Underwriters’ Discouragement of the Engagement of a Municipal Advisor The MSRB noted that the Implementation Guidance further clarifies the scope of the prohibition included in the 2012 Interpretive Notice, affirming that an underwriter must not recommend that the issuer not retain a municipal advisor.30 The MSRB stated that the proposed rule change would incorporate this concept into the Revised Interpretive Notice certain revisions, as more fully discussed in the Notice of Filing, providing that ‘‘Underwriters also must not recommend issuers not retain a municipal advisor. Accordingly, underwriters may not discourage issuers from using a municipal advisor or otherwise imply that the hiring of a municipal advisor would be redundant because the sole underwriter or underwriting syndicate can provide the services that a municipal advisor would.’’ 31 vi. Statements Regarding Third-Party Payments The MSRB noted that the Implementation Guidance clarifies the obligation of underwriters to disclose certain third-party payments, as well as other payments, values or credits received by an underwriter.32 The MSRB stated that proposed rule change would incorporate the language from the Implementation Guidance into the Revised Interpretive Notice, with certain revisions, including the removal of language regarding ‘‘normal course of business’’ payments that the MSRB believed was redundant, as more fully described in the Notice of Filing.33 vii. Need for Each Underwriter in a Syndicate To Deliver Dealer-Specific Conflicts of Interest When Applicable The MSRB noted that the FAQs clarify what disclosures may be effected by a syndicate manager on behalf of comanaging underwriters in the syndicate. The MSRB stated that the proposed rule change would incorporate the relevant language from the FAQs into the Revised Interpretive Notice with certain revisions, including the technical clarification that such disclosures apply to ‘‘actual material conflicts of interest’’ and ‘‘potential material conflicts of interest’’ in order to make the statements consistent with related amendments in the proposed rule change, as more fully described in the Notice of Filing.34 viii. Statements Regarding the Timing for the Delivery of Certain Disclosures The MSRB noted that the Implementation Guidance and FAQs clarify the timing for the delivery of the disclosures under the 2012 Interpretive Notice.35 The MSRB stated that the proposed rule change would incorporate these timing concepts from the Implementation Guidance and FAQs into the Revised Interpretive Notice with certain revisions (e.g., by utilizing the Revised Interpretive Notice’s defined terms of ‘‘standard disclosure,’’ ‘‘dealer-specific disclosures,’’ and ‘‘transaction-specific disclosures’’).36 The MSRB stated that the proposed rule change also would incorporate the concept that the timelines are defined to ensure that underwriters act promptly to deliver disclosures in light of all the relevant facts and circumstances, but are not ‘‘intended to establish strict, hairtrigger tripwires resulting in mere technical rule violations.’’ 37 ix. Statements Regarding Whether Underwriters May Rely on Certain Representations of Issuer Officials The MSRB noted that the FAQs clarify the circumstances under which an underwriter may rely on the representations of issuer officials.38 The MSRB stated that the proposed rule change would incorporate this language from the FAQs into the Revised Interpretive Notice with clarifying language regarding the relevance of facts discovered during the course of an underwriter’s due diligence, including diligence related to the transaction generally or pursuant to an underwriter’s own determination of whether it has any actual material conflicts of interest or potential material conflicts of interest.39 Specifically, the Revised Interpretive Notice supplements the existing statement from the FAQs with language intended to clarify that if an underwriter becomes aware of a fact through the normal course of its diligence that would lead it to doubt a representation of an issuer official, such information may rise to the level of a red flag that would not allow the underwriter to reasonably rely on the written representation.40 x. Statements Regarding an Underwriter Having a Reasonable Basis for Its Representations and Other Material Information Provided to Issuers The MSRB noted that the 2012 Interpretive Notice states that underwriters must ‘‘have a reasonable basis for representations and other material information provided to issuers’’ and clarifies that the obligation ‘‘extends to the reasonableness of assumptions underlying the material information being provided,’’ and that the Implementation Guidance further contextualizes this reasonable basis standard.41 The MSRB stated that the proposed rule change would incorporate this language from the Implementation Guidance into the Revised Interpretive Notice with certain revisions, including removing certain language regarding an underwriter’s use of assumptions, which the MSRB believed was potentially confusing and redundant, as further described in the Notice of Filing.42 xi. Statements Regarding Whether a Particular Recommended Financing Structure or Product Is Complex The MSRB noted that the 2012 Implementation Guidance contains a description of a ‘‘complex municipal securities financing’’ that is further clarified in the Implementation Guidance.43 The MSRB further noted the 2012 Interpretive Notice then provides a non-exclusive, illustrative list of examples of new issue structures 33 Id. 28 Id. 34 Id. 39 Id. 29 Id. 35 Id. 40 Id. 30 Id. 36 Id. 41 Id. 31 Id. 37 Id. 42 Id. 32 Id. 38 Id. 43 Id. VerDate Sep<11>2014 17:23 Nov 12, 2019 Jkt 250001 PO 00000 Frm 00069 Fmt 4703 Sfmt 4703 E:\FR\FM\13NON1.SGM 13NON1 Federal Register / Vol. 84, No. 219 / Wednesday, November 13, 2019 / Notices that constitute a complex municipal securities financing.44 The MSRB stated that the proposed rule change would incorporate this language from the Implementation Guidance into the Revised Interpretive Notice with conforming revisions and an update to the illustrative, nonexclusive list of interest rate benchmarks to include the Secured Overnight Financing Rate (SOFR).45 The MSRB stated that it believes this edit is a necessary update to ensure that the Revised Interpretive Notice would reflect current market practices.46 xii. Statements Regarding the Specificity of Disclosures The MSRB noted that the 2012 Interpretive Notice provides that an underwriter of a negotiated issue that recommends a complex municipal securities transaction or product to an issuer has an obligation to disclose all financial material risks known to the underwriter and reasonably foreseeable at the time of the disclosure, financial characteristics, incentives, and conflicts of interest regarding the transaction or product.47 The MSRB further noted that the Implementation Guidance provided clarification and additional guidance with respect to this obligation, as further described in the Notice of Filing.48 The MSRB stated that the proposed rule change would incorporate the language from the Implementation Guidance into the Revised Interpretive Notice with certain revisions as further described in the Notice of Filing and Amendment No. 1, including the removal of the statement regarding how such disclosures might assist issuers.49 xiii. Statements Regarding Profit Sharing Arrangements The MSRB noted that the 2012 Interpretive Notice states that, ‘‘[a]rrangements between the underwriter and an investor purchasing new issue securities from the underwriter according to which profits realized from the resale by such investor of the securities are directly or indirectly split or otherwise shared with the underwriter also would, depending on the facts and circumstances (including in particular if such resale occurs reasonably close in time to the 44 Id. 45 Id. 46 Id. 47 Id. B. Amending the Nature, Timing, and Manner of Disclosures The MSRB stated that the proposed rule change would define certain categories of underwriter disclosures and assign the responsibility for the delivery of certain disclosures to the syndicate manager in circumstances where a syndicate is formed, as described below and as further described in the Notice of Filing and Amendment No. 1.52 i. Definitions of Certain Categories of Underwriter Disclosures The MSRB stated that the proposed rule change would define the following terms in order to delineate a dealer’s various fair dealing obligations under the Revised Interpretive Notice: ‘‘standard disclosures’’ as collectively referring to the disclosures concerning the role of an underwriter and an underwriter’s compensation; ‘‘dealerspecific disclosures’’ as collectively referring to the disclosures concerning an underwriter’s actual material conflicts of interest and potential material conflicts of interest; and ‘‘transaction-specific disclosures’’ as collectively referring to the disclosures concerning the material aspects of financing structures that the underwriter recommends.53 ii. Assignment of Responsibility for the Standard Disclosures and TransactionSpecific Disclosures The MSRB noted that the 2012 Interpretive Notice states that a syndicate manager is permitted, but not required, to make the standard disclosures and the transaction-specific disclosures on behalf of the other underwriters in the syndicate.54 The MSRB stated that the amendments in the original proposed rule change would obligate only the syndicate manager 55 of a syndicate—or sole underwriter, as the case may be—to make the standard disclosures and transaction-specific disclosures and would eliminate any obligation of other co-managing underwriters in the syndicate to make the standard disclosures and transaction-specific disclosures.56 In response to concerns raised in the comments to the original proposed rule change, the MSRB proposed in Amendment No. 1 to modify the original proposed rule change to state that the underwriter making a recommendation to an issuer regarding a financing structure or product, including, when applicable, a Complex Municipal Securities Financing Recommendation,57 has the fair dealing obligation to deliver the applicable transaction-specific disclosures.58 Consequently, the MSRB stated, pursuant to Amendment No. 1, when the syndicate manager (or any other underwriter in the syndicate) is not the underwriter making the recommendation of a financing structure or product to the issuer, such underwriter does not have a fair dealing obligation under the proposed rule change to deliver the transactionspecific disclosures with respect to such financing structure or product.59 In addition, the MSRB stated that the proposed rule change provides that any disclosures delivered by a syndicate manager prior to or concurrent with the formation of a syndicate would not need to be identified as delivered in the capacity of the syndicate manager or otherwise redelivered ‘‘on behalf’’ of the syndicate.60 The MSRB further noted that, pursuant to the proposed rule change, each member of the syndicate would remain responsible for ensuring the delivery of any dealer-specific disclosures if, but only if, such syndicate member had actual material conflicts of interest or potential material conflicts of interest that must be disclosed.61 iii. Separate Identification of the Standard Disclosures The MSRB noted that the 2012 Interpretive Notice currently permits the delivery of omnibus disclosure documents, in which the standard 55 As defined in Exhibit 5 to Amendment No. 2. Notice of Filing. 57 As defined in Exhibit 5 to Amendment No. 2. 58 See Amendment No. 1. 59 Id. 60 See Notice of Filing. 61 Id. 56 See 48 Id. 49 See Notice of Filing, Amendment No. 1. See also ‘‘Amending the Nature, timing and Manner of Disclosures—Assignment of responsibility for the Standard Disclosures and Transaction-Specific Disclosures,’’ infra. VerDate Sep<11>2014 original sale by the underwriter to the investor), constitute a violation of the underwriter’s fair dealing obligation under Rule G–17.’’ 50 The MSRB stated that the proposed rule change would incorporate into the Revised Interpretive Notice additional language from the Implementation Guidance, which reads, in relevant part, ‘‘[u]nderwriters should be mindful that, depending on the facts and circumstances, such an arrangement may be inferred from a purposeful but not otherwise justified pattern of transactions or other course of action, even without the existence of a formal written agreement.’’ 51 17:23 Nov 12, 2019 Jkt 250001 50 See Notice of Filing. 51 Id. 52 See 53 See Notice of Filing, Amendment No. 1. Notice of Filing. 54 Id. PO 00000 Frm 00070 Fmt 4703 Sfmt 4703 61663 E:\FR\FM\13NON1.SGM 13NON1 61664 Federal Register / Vol. 84, No. 219 / Wednesday, November 13, 2019 / Notices disclosures need not be separately identified from the transaction-specific disclosures and dealer-specific disclosures.62 The proposed rule change would require the separate identification and formatting of the standard disclosures (i.e., disclosures concerning the role of the underwriter and the underwriter’s compensation) from the transaction-specific disclosure and the dealer-specific disclosures.63 iv. Meaning of ‘‘Recommendation’’ for Purposes of Disclosures Related to Complex Municipal Securities Financings The MSRB noted that the 2012 Interpretive Notice provides that an underwriter in a negotiated offering that recommends a complex municipal securities financing to an issuer must disclose the material financial characteristics of the complex municipal securities financing, as well as the material financial risks of the financing that are known to the underwriter and reasonably foreseeable at the time of the disclosure (a ‘‘complex municipal securities financing disclosure’’).64 As the MSRB further noted, the Implementation Guidance provides that the requirement to provide a complex municipal securities financing disclosure is triggered if: the new issue is sold in a negotiated offering; the new issue is a complex municipal securities financing; and such financing was recommended by the underwriter.65 The MSRB stated that these aspects of the 2012 Interpretive Notice would remain applicable under the Revised Interpretive Notice.66 However, the MSRB noted that the 2012 Interpretive Notice does not define the term ‘‘recommendation’’ for purposes of this requirement.67 The MSRB stated that it believes it is important to provide this clarification to facilitate dealer compliance with the proposed rule change. Therefore, as further described in the Notice of Filing, the MSRB stated that the proposed rule change would clarify that a communication by an underwriter is a ‘‘recommendation’’ that triggers the obligation to deliver a complex municipal securities financing disclosure if—given its content, context, and manner of presentation — the communication reasonably would be viewed as a call to action to engage in a complex municipal securities financing or reasonably would influence an issuer to engage in a particular complex municipal securities financing.68 v. ‘‘Reasonably Likely’’ Standard for Disclosure of Potential Material Conflicts of Interest The MSRB noted that the 2012 Interpretive Notice currently requires the underwriter to disclose to the issuer any actual material conflicts of interest and any potential material conflicts of interest, and that the Implementation Guidance provides guidance as to when such obligation is triggered.69 The MSRB stated that these aspects of the 2012 Interpretive Notice would remain applicable under the Revised Interpretive Notice. However, the MSRB noted, the proposed rule change provides that an underwriter’s potential material conflict of interest must be disclosed as part of the dealer-specific disclosures if, but only if, the potential material conflict of interest is ‘‘reasonably likely’’ to mature into an actual material conflict of interest during the course of that specific transaction.70 The MSRB noted that the proposed rule change will not diminish an underwriter’s fair dealing obligation to update, or otherwise supplement, its dealer-specific disclosures in circumstances when a previously undisclosed potential conflict of interest later ripens into an actual material conflict of interest.71 vi. Underwriters Are Not Obligated To Provide Written Disclosure of Conflicts of Other Parties As the MSRB noted, the 2012 Interpretive Notice requires underwriters to provide issuers with certain standard disclosures, dealerspecific disclosures, and transactionspecific disclosures, when and if applicable. By their respective definitions, the standard disclosures cover generic conflicts of interest that could apply to any underwriter in any underwriting; the dealer-specific disclosures are the actual material conflicts of interest and potential material conflicts of interest generally unique to a specific underwriter; and the transaction-specific disclosures relate to the specific financing structure recommended by an underwriter.72 The MSRB stated that the proposed rule change would expressly state that underwriters are not required to make 62 Id. 63 Id. 68 Id. 64 Id. 69 Id. 65 Id. 70 Id. 66 Id. 71 Id. 67 Id. 72 Id. VerDate Sep<11>2014 17:23 Nov 12, 2019 Jkt 250001 PO 00000 Frm 00071 Fmt 4703 Sfmt 4703 any written disclosures on the part of issuer personnel or any other parties to the transaction as part of the standard disclosures, dealer-specific disclosures, or the transaction-specific disclosures.73 vii. Disclosures Must Be ‘‘Clear and Concise’’ The MSRB noted that the 2012 Interpretive Notice currently requires disclosures to be ‘‘designed to make clear to such official the subject matter of such disclosures and their implications for the issuer.’’ 74 The MSRB stated that the proposed rule change would provide that an underwriter’s disclosures must be delivered in a ‘‘clear and concise’’ manner.75 viii. Definition of Municipal Entity The MSRB noted that the 2012 Interpretive Notice currently provides a definition of ‘‘municipal entity’’ that references Section 15B(e)(8) under the Exchange Act.76 In light of the Commission’s definition contained in Exchange Act Rule 15Ba1–1 77 and the MSRB’s definition of ‘‘municipal entity’’ as used under Rule G–42, both of which were adopted after the publication of the 2012 Interpretive Notice, the MSRB stated that the proposed rule change would incorporate a specific reference to this rule definition, in addition to the general statutory definition, to avoid any confusion about the scope of the Revised Interpretive Notice and to promote harmonization with Exchange Act Rule 15Ba1–1 and Rule G–42.78 C. Additional Standard Disclosure Regarding the Engagement of Municipal Advisors The MSRB noted that the 2012 Interpretive Notice currently requires an underwriter to make five discrete statements regarding the underwriter’s role as part of the standard disclosures, including a disclosure that, ‘‘unlike a municipal advisor, the underwriter does not have a fiduciary duty to the issuer under the federal securities laws and is, therefore, not required by federal law to act in the best interest of the issuer without regard to its own or other interests.’’ 79 The MSRB stated that the proposed rule change would incorporate 73 Id. 74 Id. 75 Id. 76 Id. 77 See Registration of Municipal Advisors, Release No. 34–70462 (September 20, 2013), 78 FR 67467 (hereinafter, the ‘‘MA Rule Adopting Release’’) (November 12, 2013) (available at https:// www.sec.gov/rules/final/2013/34-70462.pdf). 78 See Notice of Filing. 79 Id. E:\FR\FM\13NON1.SGM 13NON1 Federal Register / Vol. 84, No. 219 / Wednesday, November 13, 2019 / Notices a new standard disclosure that ‘‘the issuer may choose to engage the services of a municipal advisor with a fiduciary obligation to represent the issuer’s interests in the transaction.’’ 80 D. Permit Email Read Receipt To Serve as Issuer Acknowledgement The MSRB noted that the 2012 Interpretive Notice currently requires underwriters to attempt to receive written acknowledgement of receipt by the official of the issuer other than by evidence of automatic email receipt.81 The MSRB stated that the proposed rule change would permit an email read receipt to serve as the issuer’s acknowledgement under the Revised Interpretive Notice.82 The proposed rule change would define the term ‘‘email read receipt’’ to mean ‘‘an automatic response generated by a recipient issuer official confirming that an email has been opened.’’ The MSRB stated that it believes that this proposed change will not compromise issuer protection, because the proposed rule change would require the email read receipt to come from an issuer official that is not party to a conflict, based on the underwriter’s knowledge, and either has been specifically identified by the issuer to receive such disclosure communications or, in the absence of such specific identification, is an issuer official who the underwriter reasonably believes has the authority to bind the issuer by contract with the underwriter. The MSRB further stated that the proposed rule change would also clarify that, ‘‘[w]hile an email read receipt may generally be an acceptable form of an issuer’s written acknowledgement under this notice, an underwriter, may not rely on such an email read receipt as an issuer’s written acknowledgement where such reliance is unreasonable under all of the facts and circumstances, such as where the underwriter is on notice that the issuer official to whom the email is addressed has not in fact received or opened the email.’’ 83 E. Other Technical and Conforming Amendments The MSRB stated that the proposed rule change would make certain other technical and conforming changes to the proposed rule change, as described in detail in the Notice of Filing, Amendment No. 1, and Amendment No. 2.84 The MSRB responded that it believes there is merit to the commenter’s view that the proposed rule change ‘‘should provide additional guidance regarding its application to underwriters of 529 plans,’’ but that the MSRB did not believe incorporating the specific revisions proposed by the commenter would be prudent because such revisions may reduce the clarity of the disclosure obligations applicable to other underwriters and, thereby, reduce the overall clarity of the Revised Interpretive Notice.94 The MSRB further stated that it believes that the III. Summary of Comments Received commenter’s comments regarding the and MSRB’s Responses to Comments need to provide more clarity in this As noted previously, the Commission regard would be better addressed in an received three comment letters in interpretation or other guidance response to the Notice of Filing and separately issued under Rule G–17 that three comment letters in response to more narrowly considers the fair dealing Amendment No. 1. The MSRB obligations of dealers serving as primary responded to the comment letters on the distributors in a continuous offering of Notice of Filing in its First Response municipal fund securities.95 Letter,87 and the MSRB responded to the Consequently, rather than comment letters on Amendment No. 1 incorporating the specific text proposed in its Second Response Letter.88 One by the commenter, the MSRB, in commenter expressed its support for the Amendment No. 1 and Amendment No. original proposed rule change 89 and for 2, incorporated a revision to the original Amendment No. 1.90 proposed rule change that, the MSRB stated, would strike the relevant text A. Application to Underwriters of incorporated from the Implementation Municipal Fund Securities Guidance, which, as filed, would clarify In the original proposed rule change, the application of the original proposed the MSRB proposed to revise the 2012 rule change to the circumstances of a Interpretive Notice to incorporate continuous offering of municipal fund existing language from the 96 Implementation Guidance clarifying the securities. The proposed rule change, as amended by Amendment No.1 and application of the notice ‘‘to a dealer Amendment No. 2, would replace this serving as a primary distributor (but not to dealers serving solely as selling group language with a statement that ‘‘[t]his notice does not apply to a dealer acting members) in a continuous offering of as a primary distributor in a continuous municipal fund securities, such as offering of municipal fund interests in 529 savings plans and securities.’’ 97 The MSRB further states Achieving a Better Life Experience that it intends to make clear that the 91 (ABLE) programs.’’ In response to the specific fair practice duties outlined in Notice of Filing, one commenter the Revised Interpretive Notice requested that the MSRB revise the original proposed rule change to further articulating the delivery of certain disclosures at particular times during ‘‘distinguish the disclosure required of 529 underwriters from those required of the course of an underwriting transaction would not be applicable to bond offering underwriters’’ and the situations of a dealer serving as a recommended specific revisions in this primary distributor in a continuous 92 regard. For example, the commenter offering of municipal fund securities.98 requested that the standard disclosures concerning the underwriter’s role under B. Delivery of Complex Municipal the original proposed rule change allow Securities Financing Disclosures such disclosures to be amended ‘‘to the In response to the Notice of Filing, extent applicable to the nature of the one commenter expressed concern that relationship with the issuer.’’ 93 the text of the original proposed rule change did not identify ‘‘who needs to 85 See Notice of Filing. provide transaction specific disclosures 86 See Amendment No. 1, Amendment No. 2. 87 See First Response Letter. for a swap recommendation if not made In the Notice of Filing, the MSRB stated that it will publish a regulatory notice within 90 days of the publication of approval of the proposed rule change in the Federal Register, and such notice will specify the compliance date for the amendments described in the proposed rule change, which in any case shall be not less than 90 days, nor more than one year, following the date of the notice establishing such compliance date.85 The MSRB is requesting accelerated approval of Amendment No. 1 and Amendment No. 2.86 80 Id. 88 See 81 Id. 89 See 82 Id. 83 Id. 84 See Notice of Filing, Amendment No. 1, Amendment No. 2. VerDate Sep<11>2014 17:23 Nov 12, 2019 Jkt 250001 61665 Second Response Letter. First NAMA Letter. 90 See Second NAMA Letter. 91 See Notice of Filing. 92 See ICI Letter. 93 Id. PO 00000 Frm 00072 Fmt 4703 Sfmt 4703 94 See First Response Letter. 95 Id. 96 Id. 97 Id. 98 Id. E:\FR\FM\13NON1.SGM 13NON1 61666 Federal Register / Vol. 84, No. 219 / Wednesday, November 13, 2019 / Notices by the syndicate manager or sole manager.’’ 99 This commenter encouraged the MSRB to amend the original proposed rule change to make clear that ‘‘the duty to provide such disclosures should remain with the underwriter or dealer providing or recommending the derivatives, even after a syndicate is formed.’’ 100 The commenter stated that ‘‘recommendations on derivatives require specialized knowledge and . . . in this case, the underwriter or dealer making the recommendation and otherwise providing the derivative product be responsible for making the appropriate transaction-specific disclosures on the material aspects of this financing structure to the issuer.’’ 101 The MSRB stated that it believes that there is merit to this point and agreed with the commenter’s suggestion that the original proposed rule change should be amended to clarify in the amended revised interpretive notice that, except in limited circumstances, the underwriter making a financing recommendation to an issuer has a fair dealing obligation to deliver the requisite transaction-specific disclosures.102 More specifically, the MSRB agreed with the commenter’s view that the duty to provide a complex municipal securities financing disclosure generally should remain with the dealer ‘‘recommending’’ a financing structure and/or ‘‘providing’’ a specific product within that structure (such as a derivative product), ‘‘even after the syndicate is formed.’’ 103 Accordingly, pursuant to Amendment No. 1, the MSRB revised the original proposed rule change to make clear that: (1) The underwriter making a recommendation to the issuer regarding a financing structure has the fair dealing obligation to deliver the applicable transaction-specific disclosures, and (2), conversely, when the syndicate manager (or any other underwriter in the syndicate) is not the underwriter making such a recommendation to the issuer, then such underwriter does not have a fair dealing obligation under the amended revised interpretive notice to deliver the transaction-specific disclosures.104 The MSRB stated that it believes that these revisions in Amendment No. 1 are responsive to this comment and are consistent with the goal of the Board’s retrospective review of the 2012 Interpretive Notice.105 The MSRB also believes that these revisions in Amendment No. 1 will continue to reduce the number of duplicative disclosures that an issuer receives during the course of a transaction involving an underwriting syndicate.106 C. Application to Underwriters Serving as Placement Agents In the original proposed rule change, the MSRB proposed to revise the 2012 Interpretive Notice to incorporate existing language from the Implementation Guidance that clarifies the application of the 2012 Interpretive Notice to circumstances in which a dealer serves as an agent of an issuer in the placement of the issuer’s municipal securities.107 In response to the Notice of Filing, one commenter expressed concerns regarding this portion of the original proposed rule change.108 The commenter encouraged the MSRB to strike the language in footnote 12 of Exhibit 5 of the original proposed rule change and replace it with language that grants dealers the flexibility to omit and disclaim certain fair dealing disclosures when an engagement with an issuer to place municipal securities makes such disclosures not true.109 Specifically, the commenter requested that the proposed language in footnote 12 of Exhibit 5 be replaced with the following statement, ‘‘[i]f the nature of the engagement makes one or more of the required disclosures not true, then it should be permissible to omit such disclosures and disclaim such in the relevant engagement letter.’’ 110 The MSRB stated that it believes there is merit to the commenter’s concern that the Revised Interpretive Notice should not be interpreted to require a dealer serving as an agent to an issuer in the placement of the issuer’s municipal securities to deliver inaccurate disclosures.111 Therefore, the MSRB proposed in Amendment No. 1, to revise the original proposed rule change to supplement the existing language with the following text, ‘‘[a]s a threshold matter, the disclosures delivered by an underwriter to an issuer must not be inaccurate or misleading, and nothing in this notice should be construed as requiring an underwriter to make a disclosure to an issuer that is false.’’ 112 The MSRB stated that it believes this revision to be a clarifying change, 105 Id. because an underwriter’s overarching fair dealing obligation under Rule G–17 prohibits it from engaging in any deceptive or dishonest practice.113 D. Certain Standardized Disclosures for Complex Municipal Securities Financing In response to Amendment No. 1, two commenters raised concerns about the standardized disclosures with respect to complex municipal securities financings.114 One commenter expressed concerns that the proposed rule change would create a vague and imprecise standard for determining what is a complex municipal securities financing and what kinds of information related to the transaction would need to be disclosed and under what conditions.115 The commenter stated that underwriters need more precision and guidance around this standard in order to implement sound compliance and consistent disclosures, and urged the MSRB to revise this element of the proposed rule change.116 Another commenter stated that its members read the term ‘‘individualized’’ in the proposed rule changed to mean that standard or model disclosures are designed to be clear, concise and tailored to the specific type or class of financing, and not a book of disclosures relating to all potential types of financings, and requested confirmation from the MSRB that this interpretation is accurate.117 The MSRB stated that it generally agrees with the statement that it would be consistent with the current text of the proposed rule change, as well as the intent of the original proposed rule change, for an underwriter to develop policies and procedures that provide for the development and delivery of certain standardized transaction-specific disclosures for complex municipal securities financings for which an underwriter anticipates commonly recommending to its issuer clients (‘‘Standardized Complex Municipal Securities Transaction Disclosures’’).118 The MSRB further provided that, assuming that the content of such Standardized Complex Municipal Securities Transaction Disclosure is (a) drafted in a clear and concise manner for issuer personnel of both greater and lesser degrees of sophistication and (b) otherwise consistent with the requirements of the Revised Interpretive 106 Id. 99 See First SIFMA Letter. 107 See 100 Id. 108 See 101 Id. 109 Id. 102 See First Response Letter. 111 See 104 Id. 112 Id. 17:23 Nov 12, 2019 Jkt 250001 PO 00000 113 Id. 114 See 115 See BDA Letter, Second SIFMA Letter. BDA Letter. 116 Id. 110 Id. 103 Id. VerDate Sep<11>2014 Notice of Filing. First SIFMA Letter. First Response Letter. Frm 00073 117 See 118 See Fmt 4703 Sfmt 4703 E:\FR\FM\13NON1.SGM Second SIFMA Letter. Second Response Letter. 13NON1 Federal Register / Vol. 84, No. 219 / Wednesday, November 13, 2019 / Notices Notice, the proposed rule change would only require the underwriter to tailor the content of such Standardized Complex Municipal Securities Transaction Disclosure to the extent that such disclosure did not fully describe the material financial features and risks unique to that particular recommended financing in such a clear and concise manner for the issuer personnel receiving the disclosure.119 The MSRB stated that it does not need to amend the proposed rule change to address this comment because, as outlined in the Second Response Letter and as noted by the commenter, the concept can be reasonably understood from the existing language of the amended proposed rule change.120 In response to the commenter’s concern that the standard for determining what is a complex municipal securities financing is vague, the MSRB stated that it previously has addressed these concerns in its previous statements.121 E. Tiered Disclosure Requirements Based on Issuer Characteristics In response to the Notice of Filing, and again in response to Amendment No. 1, one commenter stated that it believes that tiered disclosure requirements may be beneficial to issuers and underwriters.122 The commenter requested that the MSRB ‘‘provide examples of concrete hypotheticals in order to provide clarity to regulated dealers regarding how the content of [the] transaction-based disclosures may potentially vary by issuer sophistication and still survive regulatory scrutiny.’’ 123 The MSRB noted that the proposed rule change sets out a principles-based approach to an underwriter’s fair dealing obligation to deliver certain disclosures and incorporates existing hypothetical examples from the Implementation Guidance and FAQs.124 The MSRB stated that it evaluated formal disclosure tiers and declined to adopt such tiers or other disclosure requirements based on rigid issuer classifications in response to prior stakeholder comments because the MSRB believes there is not an obvious, appropriate methodology for classifying issuers in a manner that would advance the policies underlying the 2012 Interpretive Notice or that would materially relieve burdens for 119 Id. 120 Id. 121 Id. 122 See First SIFMA Letter, Second SIFMA Letter. First SIFMA Letter. 124 See First Response Letter. 123 See VerDate Sep<11>2014 17:23 Nov 12, 2019 Jkt 250001 underwriters or issuers, and requiring different disclosure standards for different issuers may have unintended consequences that compromise issuer protections.125 The MSRB stated that the comments do not alter the MSRB’s conclusions in this regard.126 F. Standard for the Disclosure of Potential Material Conflicts of Interest In response to the Notice of Filing, and again in response to Amendment No. 1, two commenters requested that the MSRB amend the original proposed rule change to require only disclosures of actual conflicts of interest.127 The MSRB noted that the 2012 Interpretive Notice currently requires the underwriter to disclose to the issuer any actual material conflicts of interest and any potential material conflicts of interest, which requirement is triggered if: The new issue is sold in a negotiated underwriting; the matter to be disclosed represents a conflict of interest, either in reality or potentially; and any such actual or potential conflict of interest is material.128 The MSRB stated that these aspects of the 2012 Interpretive Notice would remain applicable under the proposed rule change. However, the proposed rule change would provide that an underwriter’s potential material conflict of interest must be disclosed as part of the dealer-specific disclosures if, but only if, the potential material conflict of interest is ‘‘reasonably likely’’ to mature into an actual material conflict of interest during the course of that specific transaction.129 This MSRB further noted that this revision would reduce a dealer’s burden by narrowing the dealer-specific disclosures currently required under the 2012 Interpretive Notice from all potential material conflicts to those potential material conflicts that meet this more focused standard.130 The MSRB reiterated that, as indicated in the Notice of Filing, it believes that the disclosure of material conflicts of interest remains significant to an issuer’s evaluation of the dealer providing underwriting services, which justifies the obligation for underwriters to continue to provide these disclosures.131 To the degree that an underwriter has knowledge that a material conflict of interest does not 125 See First Response Letter, Second Response Letter. 126 Id. 127 See First SIFMA Letter, Second SIFMA Letter, BDA Letter. 128 See First Response Letter. 129 Id. 130 Id. 131 See First Response Letter, Second Response Letter. PO 00000 Frm 00074 Fmt 4703 Sfmt 4703 61667 currently exist, but is reasonably likely to ripen into an actual material conflict of interest during the course of the underwriting transaction, the MSRB stated that it continues to believe that the municipal securities market is best served by the underwriter providing advanced notification to the issuer of the likelihood of such material conflict of interest, rather than waiting to disclose the conflict until it has ripened into an actual conflict.132 G. Standard Disclosure Regarding the Engagement of a Municipal Advisor In response to the Notice of Filing, and again in response to Amendment No. 1, two commenters requested that the MSRB amend the original proposed rule change to eliminate the new standard disclosure that ‘‘the issuer may choose to engage the services of a municipal advisor with a fiduciary obligation to represent the issuer’s interests in the transaction.’’ 133 One commenter also stated that the Revised Interpretive Notice should make clear that neither municipal advisors nor underwriters may misrepresent the services and duties that the other is permitted to provide.134 The MSRB reiterated that it believes that this additional disclosure will further clarify the distinctions between an underwriter—who is subject to a duty of fair dealing when providing advice regarding the issuance of municipal securities to municipal entities—and a municipal advisor—who is subject to a federal statutory fiduciary duty when providing advice regarding the issuance of municipal securities to municipal entities—and, thereby, would promote the protection of municipal entity issuers in accordance with the MSRB’s statutory mandate at a relatively minimal burden to underwriters.135 The MSRB acknowledged that the additional disclosure would cause underwriters to incur costs associated with revising their policies and procedures and delivering the new disclosure in their standard disclosures during transactions; however, the MSRB concluded that any costs associated with the proposed rule change would be outweighed by its benefits.136 The MSRB further stated that, because the Revised Interpretive Notice is limitedly focused on underwriters’ fair dealing obligations to issuers, not the duties of loyalty and care that municipal advisors 132 Id. 133 See First SIFMA Letter, Second SIFMA Letter, BDA Letter. 134 See Second SIFMA Letter. 135 See First Response Letter, Second Response Letter. 136 See Second Response Letter. E:\FR\FM\13NON1.SGM 13NON1 61668 Federal Register / Vol. 84, No. 219 / Wednesday, November 13, 2019 / Notices owe their municipal entity clients, the Revised Interpretive Notice is not the appropriate vehicle to address the duties of municipal advisors, recognizing that MSRB Rule G–42, on the duties of non-solicitor municipal advisors, effectively prohibits a municipal advisor from knowingly misrepresenting its services or the services of an underwriter.137 H. Interaction of Proposed Rule Change With Pending Matters In response to the Notice of Filing, and again in response to Amendment No. 1, two commenters expressed concerns about the interaction of the proposed rule change with other pending matters.138 One commenter 139 expressed concerns that the text of the proposed rule change may ‘‘front-run’’ a related issue that is now under consideration by the Commission regarding the duties of municipal placement agents under the federal securities laws.140 Another commenter expressed the belief that the MSRB missed an important and timely opportunity to provide substantial compliance efficiencies by combining and integrating underwriter disclosures required under MSRB Rules G–17 and G–23, and urged the MSRB to do so.141 The MSRB declined to address these concerns, stating that the matters that commenters requested the MSRB address are outside the scope of the proposed rule change, which does not pertain to the duties of municipal advisors.142 I. Compliance Date for the Proposed Rule Change In response to Amendment No. 1, one commenter requested that the MSRB set a compliance date of one year from the date the proposed rule change’s amendments to the 2012 Interpretive Notice are final.143 The commenter requested this timeframe to allow ‘‘sufficient time’’ for dealers to implement the proposed rule change’s amendments and revise their policies and procedures.144 The MSRB noted 137 Id. 138 See First SIFMA Letter, Second SIFMA Letter, BDA Letter. 139 See First SIFMA Letter, Second SIFMA Letter. 140 See ‘‘Notice of Proposed Exemptive Order Granting a Conditional Exemption from the Broker Registration Requirements of Section l5(a) of the Securities Exchange Act of 1934 for Certain Activities of Registered Municipal Advisors,’’ Exchange Act Release No. 87204 (Oct. 2, 2019), 84 FR 54062 (Oct. 9, 2019). 141 See BDA Letter. 142 See First Response Letter, Second Response Letter. 143 See Second SIFMA Letter. 144 Id. VerDate Sep<11>2014 17:23 Nov 12, 2019 Jkt 250001 that it had indicated in the original proposed rule change that, if the proposed rule change is approved by the Commission, it will publish a regulatory notice within 90 days of the publication of such approval in the Federal Register and such notice would specify the compliance date for the amendments described in the proposed rule change, which in any case would be not less than 90 days, nor more than one year, following the date of the regulatory notice.145 The MSRB stated that this is consistent with the commenter’s request.146 The MSRB will work with stakeholders, as needed, to determine reasonable compliance dates for the changes, recognizing the commenter’s request for at least a one-year compliance timeline given that policy and procedures would need to be updated to conform to the proposed rule change.147 IV. Discussion and Commission Findings The Commission has carefully considered the original proposed rule change, the comment letters received, the MSRB Response Letters, Amendment No. 1, and Amendment No. 2. The Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to the MSRB. In particular, the proposed rule change, as modified by Amendment No. 1 and Amendment No. 2, is consistent with Section 15B(b)(2)(C) of the Act.148 Section 15B(b)(2)(C) of the Act requires that the MSRB’s rules 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.149 The Commission believes that the proposed rule change is consistent with the provisions of Section 15B(b)(2)(C) of the Act because it will protect municipal entities from fraudulent and 145 See Second Response Letter. 146 Id. 147 Id. 148 15 U.S.C. 78o–4(b)(2)(C). 149 Id. PO 00000 Frm 00075 Fmt 4703 Sfmt 4703 manipulative acts and practices, remove impediments to and perfect the mechanism of a free and open market, and promote just and equitable principles of trade. The Commission believes that the proposed rule change would promote the protection of municipal entities by protecting them from fraudulent and manipulative acts and practices. By (i) Specifying which underwriters are obligated to deliver the ‘‘standard disclosures,’’ ‘‘transaction-specific disclosures’’ and ‘‘dealer-specific disclosures’’;, (ii) requiring the separate identification and formatting of the standard disclosures by underwriters; and (iii) requiring that disclosures be clear and concise, the proposed rule change will enable issuers to more efficiently and carefully evaluate the information contained in the disclosures they do receive, which may result in better-informed issuers. Further, the Commission believes the addition by the proposed rule change of a new standard disclosure that the issuer may choose to engage the services of a municipal advisor with a fiduciary obligation to represent the issuer’s interests in the transaction will promote the protection of municipal entities by expressly informing them that they may obtain the advice of a municipal advisor, who would serve as a fiduciary to the issuer. The Commission believes that the proposed rule change would remove impediments to and perfect the mechanism of a free and open market, and promote just and equitable principles of trade by clarifying and streamlining underwriters’ disclosure obligations to municipal entity issuers, thereby facilitating more efficient compliance with those obligations. By incorporating certain provisions of the Implementation Guidance and FAQs, with certain revisions, into the Revised Interpretive Notice, the proposed rule change provides for a single consolidated document to which underwriters may look, facilitating the efficient identification of any applicable fair dealing obligations. By (i) specifying that the standard disclosures and many transaction-specific disclosures should be sent to issuers only from the syndicate manager or sole underwriter; (ii) clarifying that underwriters are not obligated to provide written disclosures regarding the conflicts of issuer personnel or other parties to the transaction; and (iii) providing that disclosures must be made in a clear and concise manner, the proposed rule change would remove impediments to and perfect the mechanism of a free and open market, and promote just and E:\FR\FM\13NON1.SGM 13NON1 Federal Register / Vol. 84, No. 219 / Wednesday, November 13, 2019 / Notices equitable principles of trade, by eliminating certain redundant and generic disclosures currently delivered by underwriters to issuers that provide little, if any, informational benefits to issuers, but do create non-trivial compliance and recordkeeping burdens on underwriters. By clarifying the definition of Complex Municipal Securities Financing Recommendation, and specifying the particular underwriter that must provide these particularized transaction-specific disclosures to issuers, the proposed rule change would promote just and equitable principles of trade by eliminating legal ambiguity under the Revised Interpretive Notice, thereby reducing the compliance burden for underwriters without diminishing the protection of municipal entities. By specifying that the underwriter making a Complex Municipal Securities Financing Recommendation must provide the transaction-specific disclosure for that recommendation, the proposed rule change may improve the accuracy and usefulness of such disclosures to municipal entities. The Commission further believes that proposed rule change would remove impediments to and perfect the mechanism of a free and open market by clarifying which potential material conflicts of interest must be disclosed by underwriters and at what time. This portion of the proposed rule change may reduce the volume of initial conflicts disclosures that must be provided, limiting such disclosures to those conflicts that are most concrete and probable, and therefore most useful to issuers at that time. The Commission further believes that the proposed rule change would remove impediments to and perfect the mechanism of a free and open market, and facilitate transactions in municipal securities, by permitting an email read receipt to serve as the issuer’s acknowledgement of receipt of the applicable disclosures under the Revised Interpretive Notice. This provision of the proposed rule change would improve the efficiency of the disclosure process by allowing underwriters to seek, and issuers to provide, acknowledgement electronically through the built-in, automatic process of an email system. The Commission believes that municipal entities would continue to be protected under the Revised Interpretive Notice because the underwriter would have a fair dealing obligation to receive the email read receipt from a specific official identified as the issuer’s primary contact for the receipt of such disclosures or from an issuer official VerDate Sep<11>2014 17:23 Nov 12, 2019 Jkt 250001 that the underwriter reasonably believes has authority to bind the issuer by contract with the underwriter. In addition, the proposed rule change would not permit an underwriter to rely on an email read receipt as an issuer’s acknowledgement where such reliance is unreasonable under all of the facts and circumstances, such as where the underwriter is on notice that the issuer official to whom the email is addressed has not in fact received or opened the email. Further, the recipient of such an automatic email read receipt request would still have the option to not provide this form of acknowledgement. In approving the proposed rule change, the Commission also has considered the impact of the proposed rule change, on efficiency, competition, and capital formation.150 The Commission believes that the proposed rule change clarifies underwriter disclosure obligations and will streamline certain obligations specified in the 2012 Interpretive Notice and, thereby, reduce the burdens associated with those obligations, including the obligation of underwriters to make, and the burden on issuers to acknowledge and review, written disclosures that are duplicative, itemize risks and conflicts that are not reasonably likely to materialize during the course of a transaction, and/or are not unique to a particular transaction or underwriting engagement. The Commission further believes that the proposed rule change may increase the efficiency of certain market practices, such as enhancing the ability of issuers to efficiently and properly evaluate the risks associated with a given transaction (thereby improving the protection of issuers), including by separately identifying the different categories of disclosures, providing additional clarity to underwriters regarding the scope of their regulatory obligations to municipal entity issuers, and permitting an email read receipt to serve the issuer’s acknowledgment of receipt of disclosures in certain circumstances, thereby reducing the burdens of obtaining acknowledgment in those cases. As noted above, the Commission received three comment letters on the Notice of Filing and three comment letters on Amendment No. 1. The Commission believes that the MSRB, through its responses and through Amendment No. 1 and Amendment No. 2, has addressed commenters’ concerns. For the reasons noted above, the Commission believes that the proposed rule change is consistent with the Act. 150 15 PO 00000 Fmt 4703 V. Solicitation of Comments on Amendment No. 2 Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether Amendment No. 2 to the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use of 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–2019–10 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–2019–10. 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 website (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 website 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; we do 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–2019–10 and should be submitted on or before December 4, 2019. VI. Accelerated Approval of Proposed Rule Change The Commission finds good cause for approving the original proposed rule U.S.C. 78c(f). Frm 00076 61669 Sfmt 4703 E:\FR\FM\13NON1.SGM 13NON1 61670 Federal Register / Vol. 84, No. 219 / Wednesday, November 13, 2019 / Notices change, as modified by Amendment No. 1 and Amendment No. 2, prior to the 30th day after the date of publication of the Notices of Amendment No. 1 and Amendment No. 2 in the Federal Register. As discussed above, Amendment No. 1 proposes to revise the original proposed rule change to state that (1) the underwriter making a recommendation to the issuer regarding a financing structure, including, when applicable, a Complex Municipal Securities Financing Recommendation, has the fair dealing obligation to deliver the applicable transaction-specific disclosures and (2) the notice does not apply to a dealer acting as a primary distributor in a continuous offering of municipal fund securities. Amendment No. 1 and Amendment No. 2 otherwise propose to revise the original proposed rule change with technical modifications intended to more precisely define the scope of its application and/or to promote clarity in its interpretation. The MSRB has stated that it believes that the modifications to the original proposed rule change are responsive to commenters, and are consistent with the original proposed rule change.151 For the foregoing reasons, the Commission finds good cause for approving the original proposed rule change, as modified by Amendment No. 1 and Amendment No. 2, on an accelerated basis, pursuant to Section 19(b)(2) of the Act. VII. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,152 that the proposed rule change (SR–MSRB–2019– 10) be, and hereby is, approved on an accelerated basis. For the Commission, pursuant to delegated authority.153 Jill M. Peterson, Assistant Secretary. [FR Doc. 2019–24601 Filed 11–12–19; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–87482; File No. 265–30] Fixed Income Market Structure Advisory Committee Securities and Exchange Commission. ACTION: Notice of Federal Advisory Committee renewal. AGENCY: 151 See Amendment No. 1, Amendment No. 2. U.S.C. 78s(b)(2). 153 17 CFR 200.30–3(a)(12). The Securities and Exchange Commission is publishing this notice to announce that the Chairman of the Commission, with the concurrence of the other Commissioners, has approved the renewal of the Securities and Exchange Commission Fixed Income Market Structure Advisory Committee. FOR FURTHER INFORMATION CONTACT: David Dimitrious, Senior Special Counsel, at (202) 551–5131, or Arisa Kettig, Special Counsel, at (202) 551– 5676, Division of Trading and Markets, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–7010. SUPPLEMENTARY INFORMATION: In accordance with the requirements of the Federal Advisory Committee Act, 5 U.S.C.—App, the Commission is publishing this notice that the Chairman of the Commission, with the concurrence of the other Commissioners, has approved the renewal of the Securities and Exchange Commission Fixed Income Market Structure Advisory Committee (the ‘‘Committee’’). The Chairman of the Commission affirms that the renewal of the Committee is necessary and in the public interest.1 The Committee’s objective is to provide the Commission with diverse perspectives on the structure and operations of the U.S. fixed income markets, as well as advice and recommendations on matters related to fixed income market structure. No more than 21 voting members will be appointed to the Committee. Such members shall represent a cross-section of those directly affected by, interested in, and/or qualified to provide advice to the Commission on matters related to fixed income market structure. The Committee’s membership will continue to be balanced fairly in terms of points of view represented. Non-voting members may also be named. The charter provides that the duties of the Committee are to be solely advisory. The Commission alone will make any determinations of actions to be taken and policies to be expressed with respect to matters within the Commission’s jurisdiction. The Committee will meet at such intervals as are necessary to carry out its functions. The charter contemplates that the full Committee will meet four times. Meetings of subgroups or subcommittees of the full Committee may occur more frequently. The Committee will operate for one year from the date it is renewed or such earlier date as determined by the SUMMARY: 152 15 VerDate Sep<11>2014 17:23 Nov 12, 2019 Jkt 250001 1 See PO 00000 41 CFR 102–3.30(a). Frm 00077 Fmt 4703 Sfmt 4703 Commission unless, before the expiration of that time period, it is renewed in accordance with the Federal Advisory Committee Act. A copy of the charter for the Committee has been filed with the Committee on Banking, Housing, and Urban Affairs of the United States Senate, the Committee on Financial Services of the United States House of Representatives, and the Committee Management Secretariat of the General Services Administration. A copy of the charter as so filed also will be filed with the Chairman of the Commission, furnished to the Library of Congress, and posted on the Commission’s website at www.sec.gov. By the Commission. Dated: November 7, 2019. Vanessa A. Countryman, Secretary. [FR Doc. 2019–24653 Filed 11–12–19; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–87474; File No. SR–DTC– 2019–010] Self-Regulatory Organizations; The Depository Trust Company; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change in Connection With Changes to the Account Structure of Euroclear Bank at The Depository Trust Company November 6, 2019. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 notice is hereby given that on October 24, 2019, The Depository Trust Company (‘‘DTC’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I, II and III below, which Items have been prepared by the clearing agency. DTC filed the proposed rule change pursuant to Section 19(b)(3)(A) of the Act 3 and Rule 19b–4(f)(4) thereunder.4 The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Clearing Agency’s Statement of the Terms of Substance of the Proposed Rule Change The proposed rule change 5 of DTC would make technical amendments to 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 15 U.S.C. 78s(b)(3)(A). 4 17 CFR 240.19b–4(f)(4). 5 Each capitalized term not otherwise defined herein has its respective meaning as set forth in the 2 17 E:\FR\FM\13NON1.SGM 13NON1

Agencies

[Federal Register Volume 84, Number 219 (Wednesday, November 13, 2019)]
[Notices]
[Pages 61660-61670]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-24601]


=======================================================================
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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87478; File No. SR-MSRB-2019-10]


Self-Regulatory Organizations; Municipal Securities Rulemaking 
Board; Notice of Filing of Amendment No. 2 and Order Granting 
Accelerated Approval of a Proposed Rule Change, as Modified by 
Amendment No. 1 and Amendment No. 2, To Amend and Restate the MSRB's 
August 2, 2012 Interpretive Notice Concerning the Application of Rule 
G-17 to Underwriters of Municipal Securities

November 6, 2019.

I. Introduction

    On August 1, 2019, the Municipal Securities Rulemaking Board (the 
``MSRB'' or ``Board'') filed with the Securities and Exchange 
Commission (the ``SEC'' or ``Commission''), pursuant to Section 
19(b)(1) of the Securities Exchange Act of 1934 (``Exchange Act'' or 
``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change (the 
``original proposed rule change'') to amend and restate the MSRB's 
August 2, 2012 interpretive notice concerning the application of MSRB 
Rule G-17 to underwriters of municipal securities (the ``2012 
Interpretive Notice'').\3\ The original proposed rule change was 
published for comment in the Federal Register on August 9, 2019.\4\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ The 2012 Interpretive Notice was approved by the SEC on May 
4, 2012 and became effective on August 2, 2012. See Release No. 34-
66927 (May 4, 2012); 77 FR 27509 (May 10, 2012) (File No. SR-MSRB-
2011-09); and MSRB Notice 2012-25 (May 7, 2012). The 2012 
Interpretive Notice is available here.
    \4\ Exchange Act Release No. 86572 (Aug. 5, 2019), 84 FR 39646 
(Aug. 9, 2019) (``Notice of Filing''). The comment period closed on 
August 30, 2019.
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    The Commission received three comment letters in response to the 
original proposed rule change.\5\ On September 10, 2019, the MSRB 
granted an extension of time for the Commission to act on the filing 
until November 7, 2019. On October 7, 2019, the MSRB responded to the 
comments \6\ and filed Amendment No. 1 to the original proposed rule 
change (``Amendment No. 1'').\7\ The Commission published notice of 
Amendment No. 1 in the Federal Register on October 15, 2019.\8\ In 
response to Amendment No. 1, the Commission received three comment 
letters.\9\ On October 31, 2019, the MSRB submitted a response to 
comments received on Amendment No. 1 \10\ and

[[Page 61661]]

filed Amendment No. 2 to the original proposed rule change (``Amendment 
No. 2'').\11\ This order approves the original proposed rule change, as 
modified by Amendment No. 1 and Amendment No. 2 (as so modified, the 
``proposed rule change''), on an accelerated basis.
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    \5\ See Letter to Secretary, Commission, from Tamara K. Salmon, 
Associate General Counsel, Investment Company Institute dated Aug. 
26, 2019 (the ``ICI Letter''), Letter to Secretary, Commission, from 
Leslie M. Norwood, Managing Director and Associate General Counsel, 
Securities Industry and Financial Markets Association, dated August 
30, 2019 (the ``First SIFMA Letter''); Letter to Secretary, 
Commission, from Susan Gaffney, Executive Director, National 
Association of Municipal Advisors, dated August 30, 2019 (the 
``First NAMA Letter'').
    \6\ See Letter to Secretary, Commission, from Gail Marshall, 
Chief Compliance Officer, MSRB, dated October 7, 2019 (the ``First 
Response Letter''), available at https://www.sec.gov/comments/sr-msrb-2019-10/srmsrb201910-6261133-193028.pdf.
    \7\ Amendment No. 1 is available at https://msrb.org/~/media/
Files/SEC-Filings/2019/MSRB-2019-10-A-1.ashx?.
    \8\ See Exchange Act Release No. 87255 (October 8, 2019), 84 FR 
55192 (October 15, 2019) (the ``Notice of Amendment No. 1''). The 
comment period closed on October 29, 2019.
    \9\ See Letter to Secretary, Commission, from Susan Gaffney, 
Executive Director, National Association of Municipal Advisors, 
dated October 29, 2019 (the ``Second NAMA Letter''); Letter to 
Secretary, Commission, from Leslie M. Norwood, Managing Director and 
Associate General Counsel, Securities Industry and Financial Markets 
Association, dated October 29, 2019 (the ``Second SIFMA Letter''); 
Letter to Secretary, Commission, from Michael Nicholas, Chief 
Executive Officer, Bond Dealers of America, dated October 29, 2019 
(the ``BDA Letter'').
    \10\ See Letter to Secretary, Commission, from Gail Marshall, 
Chief Compliance Officer, MSRB, dated October 31, 2019 (the ``Second 
Response Letter'' and, together with the First Response Letter, the 
``MSRB Response Letters''), available at https://www.sec.gov/comments/sr-msrb-2019-10/srmsrb201910-6381148-197768.pdf.
    \11\ Amendment No. 2 is available at https://msrb.org/~/media/
Files/SEC-Filings/2019/MSRB-2019-10-A-2.ashx?.
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II. Description of Proposed Rule Change

    As described more fully in the Notice of Filing, Amendment No. 1, 
and Amendment No. 2, the MSRB stated that the purpose of the proposed 
rule change is to update and streamline certain obligations specified 
in the 2012 Interpretive Notice (the 2012 Interpretive Notice, so 
amended by the proposed rule change, is referred to herein as the 
``Revised Interpretive Notice'') and, thereby, benefit issuers and 
underwriters of municipal securities alike by reducing the burdens 
associated with those obligations, including the obligation of 
underwriters to make, and the burden on issuers to acknowledge and 
review, written disclosures that itemize risks and conflicts that are 
unlikely to materialize during the course of a transaction, not unique 
to a given transaction or a particular underwriter where a syndicate is 
formed, and/or otherwise duplicative.\12\
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    \12\ See Notice of Filing.
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A. Incorporation of Subsequent MSRB Guidance Into Revised Interpretive 
Notice

    The MSRB stated that the proposed rule change would integrate 
certain concepts (with revisions as described in the Notice of Filing, 
Amendment No. 1, and Amendment No. 2) from (i) the MSRB's 
implementation guidance dated July 18, 2012 concerning the 2012 
Interpretive Notice (the ``Implementation Guidance'') \13\ and (ii) the 
regulatory guidance dated March 25, 2013 answering certain frequently 
asked questions regarding the 2012 Interpretive Notice (the ``FAQs'') 
\14\ into the Revised Interpretive Notice, thereby consolidating the 
Implementation Guidance, FAQs, and the Revised Interpretive Notice into 
a single publication.\15\
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    \13\ See MSRB Notice 2012-38 (July 18, 2012).
    \14\ See MSRB Notice 2013-08 (Mar. 25, 2013).
    \15\ See Notice of Filing.
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i. Applicability of the Revised Interpretive Notice to the Continuous 
Offering of Municipal Fund Securities
    The MSRB noted that the Implementation Guidance makes clear that 
the 2012 Interpretive Notice applies not only to primary offerings of 
new issues of municipal bonds and notes by an underwriter, but also to 
a dealer serving as primary distributor (but not to dealers serving 
solely as selling dealers) in a continuous offering of municipal fund 
securities, such as interests in 529 savings plans.\16\ In the original 
proposed rule change, the MSRB incorporated this concept from the 
Implementation Guidance, adding a reference to Achieving a Better Life 
Experience (ABLE) programs.\17\ In response to concerns raised in the 
comments to the original proposed rule change, the MSRB proposed in 
Amendment No. 1 and Amendment No. 2 to modify the proposed rule change 
to state, ``[t]his notice does not apply to a dealer acting as a 
primary distributor in a continuous offering of municipal fund 
securities.'' \18\ Thus, the MSRB stated, the original proposed rule 
change, as revised by Amendment No. 1 and Amendment No. 2, makes clear 
that the specific fair dealing duties outlined in the proposed rule 
change--which articulate the delivery of certain disclosures at 
particular times during the course of an underwriting transaction--
would not be applicable to the situations of a dealer serving as a 
primary distributor in a continuous offering of municipal fund 
securities.\19\ The MSRB noted that Amendment No. 1 did not revise the 
portion of the text of the original proposed rule change indicating 
that the fair dealing obligations outlined in the interpretive notice 
may serve as one of many bases for dealers acting in a capacity not 
specifically addressed therein--such as a dealer serving as a primary 
distributor in a continuous offering of municipal fund securities--to 
determine how to establish appropriate policies and procedures for 
ensuring it meets its fair dealing obligations under Rule G-17.\20\
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    \16\ Id.
    \17\ Id.
    \18\ See Amendment No. 1, Amendment No. 2.
    \19\ See Amendment No. 1.
    \20\ Id.
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ii. Applicability of the Revised Interpretive Notice to a Primary 
Offering That Is Placed With Investors by a Placement Agent
    The MSRB noted that the Implementation Guidance provides that no 
type of underwriting is wholly excluded from the application of the 
2012 Interpretive Notice, including certain private placement 
activities.\21\ The MSRB stated that the proposed rule change would 
incorporate this concept from the Implementation Guidance into the 
Revised Interpretive Notice with certain revisions, as discussed in 
further detail in the Notice of Filing and Amendment No. 1.\22\ 
Pursuant to Amendment No. 1, the MSRB added language to the Revised 
Interpretive Notice clarifying that the disclosures delivered by an 
underwriter to an issuer must not be inaccurate or misleading, and that 
nothing in the Revised Interpretive Notice should be construed as 
requiring an underwriter to make a disclosure to an issuer that is 
false.\23\
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    \21\ See Notice of Filing.
    \22\ See Notice of Filing, Amendment No. 1.
    \23\ See Amendment No. 1.
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    In addition, the MSRB stated that the proposed rule change would 
update the 2012 Interpretive Notice by incorporating supplemental 
language into the Revised Interpretive Notice intended to harmonize it 
with the Commission's adoption of its permanent rules regarding the 
registration and record-keeping requirements applicable to municipal 
advisors, and related exclusions and exceptions, which went into effect 
after the effective date of the 2012 Interpretive Notice.\24\ The MSRB 
stated that it believes that the guidance provided by this harmonizing 
language is in keeping with the existing references included in the 
2012 Interpretive Notice and its guidance regarding the existence of 
other relevant or similar legal obligations that could have a bearing 
on an underwriter's fair dealing obligations under Rule G-17.\25\
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    \24\ See Notice of Filing.
    \25\ Id.
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iii. Statements Regarding Negotiated Offerings and Defining Negotiated 
and Competitive Offerings for Purposes of the Revised Interpretive 
Notice
    The MSRB stated that by its terms, and as presently stated in the 
Implementation Guidance, the 2012 Interpretive Notice applies primarily 
to negotiated offerings of municipal securities, with many of its 
provisions not applicable to competitive offerings.\26\ The MSRB noted 
that the Implementation Guidance clarified what constitutes a 
negotiated offering for purposes of the 2012 Interpretive Notice, and 
the MSRB stated that the proposed rule change would incorporate this 
language into the Revised Interpretive Notice.\27\
---------------------------------------------------------------------------

    \26\ Id.
    \27\ Id.

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[[Page 61662]]

iv. Applicability of the Revised Interpretive Notice to Persons Other 
Than Issuers of Municipal Securities
    The MSRB noted that the 2012 Interpretive Notice outlines the 
duties that a dealer owes to an issuer of municipal securities when the 
dealer underwrites a new issuance, and that the Implementation Guidance 
provides that the 2012 Interpretive Notice ``does not set out the 
underwriter's fair dealing obligations to other parties involved with a 
municipal securities financing, including a conduit borrower.'' \28\ 
The MSRB stated that the proposed rule change would incorporate the 
language from the Implementation Guidance into the Revised Interpretive 
Notice with conforming revisions, stating ``[t]his notice does not set 
out the underwriter's fair-practice duties to other parties to a 
municipal securities financing (e.g., conduit borrowers).'' \29\
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    \28\ Id.
    \29\ Id.
---------------------------------------------------------------------------

v. Statements Regarding Underwriters' Discouragement of the Engagement 
of a Municipal Advisor
    The MSRB noted that the Implementation Guidance further clarifies 
the scope of the prohibition included in the 2012 Interpretive Notice, 
affirming that an underwriter must not recommend that the issuer not 
retain a municipal advisor.\30\ The MSRB stated that the proposed rule 
change would incorporate this concept into the Revised Interpretive 
Notice certain revisions, as more fully discussed in the Notice of 
Filing, providing that ``Underwriters also must not recommend issuers 
not retain a municipal advisor. Accordingly, underwriters may not 
discourage issuers from using a municipal advisor or otherwise imply 
that the hiring of a municipal advisor would be redundant because the 
sole underwriter or underwriting syndicate can provide the services 
that a municipal advisor would.'' \31\
---------------------------------------------------------------------------

    \30\ Id.
    \31\ Id.
---------------------------------------------------------------------------

vi. Statements Regarding Third-Party Payments
    The MSRB noted that the Implementation Guidance clarifies the 
obligation of underwriters to disclose certain third-party payments, as 
well as other payments, values or credits received by an 
underwriter.\32\ The MSRB stated that proposed rule change would 
incorporate the language from the Implementation Guidance into the 
Revised Interpretive Notice, with certain revisions, including the 
removal of language regarding ``normal course of business'' payments 
that the MSRB believed was redundant, as more fully described in the 
Notice of Filing.\33\
---------------------------------------------------------------------------

    \32\ Id.
    \33\ Id.
---------------------------------------------------------------------------

vii. Need for Each Underwriter in a Syndicate To Deliver Dealer-
Specific Conflicts of Interest When Applicable
    The MSRB noted that the FAQs clarify what disclosures may be 
effected by a syndicate manager on behalf of co-managing underwriters 
in the syndicate. The MSRB stated that the proposed rule change would 
incorporate the relevant language from the FAQs into the Revised 
Interpretive Notice with certain revisions, including the technical 
clarification that such disclosures apply to ``actual material 
conflicts of interest'' and ``potential material conflicts of 
interest'' in order to make the statements consistent with related 
amendments in the proposed rule change, as more fully described in the 
Notice of Filing.\34\
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    \34\ Id.
---------------------------------------------------------------------------

viii. Statements Regarding the Timing for the Delivery of Certain 
Disclosures
    The MSRB noted that the Implementation Guidance and FAQs clarify 
the timing for the delivery of the disclosures under the 2012 
Interpretive Notice.\35\ The MSRB stated that the proposed rule change 
would incorporate these timing concepts from the Implementation 
Guidance and FAQs into the Revised Interpretive Notice with certain 
revisions (e.g., by utilizing the Revised Interpretive Notice's defined 
terms of ``standard disclosure,'' ``dealer-specific disclosures,'' and 
``transaction-specific disclosures'').\36\
---------------------------------------------------------------------------

    \35\ Id.
    \36\ Id.
---------------------------------------------------------------------------

    The MSRB stated that the proposed rule change also would 
incorporate the concept that the timelines are defined to ensure that 
underwriters act promptly to deliver disclosures in light of all the 
relevant facts and circumstances, but are not ``intended to establish 
strict, hair-trigger tripwires resulting in mere technical rule 
violations.'' \37\
---------------------------------------------------------------------------

    \37\ Id.
---------------------------------------------------------------------------

ix. Statements Regarding Whether Underwriters May Rely on Certain 
Representations of Issuer Officials
    The MSRB noted that the FAQs clarify the circumstances under which 
an underwriter may rely on the representations of issuer officials.\38\ 
The MSRB stated that the proposed rule change would incorporate this 
language from the FAQs into the Revised Interpretive Notice with 
clarifying language regarding the relevance of facts discovered during 
the course of an underwriter's due diligence, including diligence 
related to the transaction generally or pursuant to an underwriter's 
own determination of whether it has any actual material conflicts of 
interest or potential material conflicts of interest.\39\ Specifically, 
the Revised Interpretive Notice supplements the existing statement from 
the FAQs with language intended to clarify that if an underwriter 
becomes aware of a fact through the normal course of its diligence that 
would lead it to doubt a representation of an issuer official, such 
information may rise to the level of a red flag that would not allow 
the underwriter to reasonably rely on the written representation.\40\
---------------------------------------------------------------------------

    \38\ Id.
    \39\ Id.
    \40\ Id.
---------------------------------------------------------------------------

x. Statements Regarding an Underwriter Having a Reasonable Basis for 
Its Representations and Other Material Information Provided to Issuers
    The MSRB noted that the 2012 Interpretive Notice states that 
underwriters must ``have a reasonable basis for representations and 
other material information provided to issuers'' and clarifies that the 
obligation ``extends to the reasonableness of assumptions underlying 
the material information being provided,'' and that the Implementation 
Guidance further contextualizes this reasonable basis standard.\41\ The 
MSRB stated that the proposed rule change would incorporate this 
language from the Implementation Guidance into the Revised Interpretive 
Notice with certain revisions, including removing certain language 
regarding an underwriter's use of assumptions, which the MSRB believed 
was potentially confusing and redundant, as further described in the 
Notice of Filing.\42\
---------------------------------------------------------------------------

    \41\ Id.
    \42\ Id.
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xi. Statements Regarding Whether a Particular Recommended Financing 
Structure or Product Is Complex
    The MSRB noted that the 2012 Implementation Guidance contains a 
description of a ``complex municipal securities financing'' that is 
further clarified in the Implementation Guidance.\43\ The MSRB further 
noted the 2012 Interpretive Notice then provides a non-exclusive, 
illustrative list of examples of new issue structures

[[Page 61663]]

that constitute a complex municipal securities financing.\44\
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    \43\ Id.
    \44\ Id.
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    The MSRB stated that the proposed rule change would incorporate 
this language from the Implementation Guidance into the Revised 
Interpretive Notice with conforming revisions and an update to the 
illustrative, non-exclusive list of interest rate benchmarks to include 
the Secured Overnight Financing Rate (SOFR).\45\ The MSRB stated that 
it believes this edit is a necessary update to ensure that the Revised 
Interpretive Notice would reflect current market practices.\46\
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    \45\ Id.
    \46\ Id.
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xii. Statements Regarding the Specificity of Disclosures
    The MSRB noted that the 2012 Interpretive Notice provides that an 
underwriter of a negotiated issue that recommends a complex municipal 
securities transaction or product to an issuer has an obligation to 
disclose all financial material risks known to the underwriter and 
reasonably foreseeable at the time of the disclosure, financial 
characteristics, incentives, and conflicts of interest regarding the 
transaction or product.\47\ The MSRB further noted that the 
Implementation Guidance provided clarification and additional guidance 
with respect to this obligation, as further described in the Notice of 
Filing.\48\ The MSRB stated that the proposed rule change would 
incorporate the language from the Implementation Guidance into the 
Revised Interpretive Notice with certain revisions as further described 
in the Notice of Filing and Amendment No. 1, including the removal of 
the statement regarding how such disclosures might assist issuers.\49\
---------------------------------------------------------------------------

    \47\ Id.
    \48\ Id.
    \49\ See Notice of Filing, Amendment No. 1. See also ``Amending 
the Nature, timing and Manner of Disclosures--Assignment of 
responsibility for the Standard Disclosures and Transaction-Specific 
Disclosures,'' infra.
---------------------------------------------------------------------------

xiii. Statements Regarding Profit Sharing Arrangements
    The MSRB noted that the 2012 Interpretive Notice states that, 
``[a]rrangements between the underwriter and an investor purchasing new 
issue securities from the underwriter according to which profits 
realized from the resale by such investor of the securities are 
directly or indirectly split or otherwise shared with the underwriter 
also would, depending on the facts and circumstances (including in 
particular if such resale occurs reasonably close in time to the 
original sale by the underwriter to the investor), constitute a 
violation of the underwriter's fair dealing obligation under Rule G-
17.'' \50\ The MSRB stated that the proposed rule change would 
incorporate into the Revised Interpretive Notice additional language 
from the Implementation Guidance, which reads, in relevant part, 
``[u]nderwriters should be mindful that, depending on the facts and 
circumstances, such an arrangement may be inferred from a purposeful 
but not otherwise justified pattern of transactions or other course of 
action, even without the existence of a formal written agreement.'' 
\51\
---------------------------------------------------------------------------

    \50\ See Notice of Filing.
    \51\ Id.
---------------------------------------------------------------------------

B. Amending the Nature, Timing, and Manner of Disclosures

    The MSRB stated that the proposed rule change would define certain 
categories of underwriter disclosures and assign the responsibility for 
the delivery of certain disclosures to the syndicate manager in 
circumstances where a syndicate is formed, as described below and as 
further described in the Notice of Filing and Amendment No. 1.\52\
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    \52\ See Notice of Filing, Amendment No. 1.
---------------------------------------------------------------------------

i. Definitions of Certain Categories of Underwriter Disclosures
    The MSRB stated that the proposed rule change would define the 
following terms in order to delineate a dealer's various fair dealing 
obligations under the Revised Interpretive Notice: ``standard 
disclosures'' as collectively referring to the disclosures concerning 
the role of an underwriter and an underwriter's compensation; ``dealer-
specific disclosures'' as collectively referring to the disclosures 
concerning an underwriter's actual material conflicts of interest and 
potential material conflicts of interest; and ``transaction-specific 
disclosures'' as collectively referring to the disclosures concerning 
the material aspects of financing structures that the underwriter 
recommends.\53\
---------------------------------------------------------------------------

    \53\ See Notice of Filing.
---------------------------------------------------------------------------

ii. Assignment of Responsibility for the Standard Disclosures and 
Transaction-Specific Disclosures
    The MSRB noted that the 2012 Interpretive Notice states that a 
syndicate manager is permitted, but not required, to make the standard 
disclosures and the transaction-specific disclosures on behalf of the 
other underwriters in the syndicate.\54\ The MSRB stated that the 
amendments in the original proposed rule change would obligate only the 
syndicate manager \55\ of a syndicate--or sole underwriter, as the case 
may be--to make the standard disclosures and transaction-specific 
disclosures and would eliminate any obligation of other co-managing 
underwriters in the syndicate to make the standard disclosures and 
transaction-specific disclosures.\56\ In response to concerns raised in 
the comments to the original proposed rule change, the MSRB proposed in 
Amendment No. 1 to modify the original proposed rule change to state 
that the underwriter making a recommendation to an issuer regarding a 
financing structure or product, including, when applicable, a Complex 
Municipal Securities Financing Recommendation,\57\ has the fair dealing 
obligation to deliver the applicable transaction-specific 
disclosures.\58\ Consequently, the MSRB stated, pursuant to Amendment 
No. 1, when the syndicate manager (or any other underwriter in the 
syndicate) is not the underwriter making the recommendation of a 
financing structure or product to the issuer, such underwriter does not 
have a fair dealing obligation under the proposed rule change to 
deliver the transaction-specific disclosures with respect to such 
financing structure or product.\59\
---------------------------------------------------------------------------

    \54\ Id.
    \55\ As defined in Exhibit 5 to Amendment No. 2.
    \56\ See Notice of Filing.
    \57\ As defined in Exhibit 5 to Amendment No. 2.
    \58\ See Amendment No. 1.
    \59\ Id.
---------------------------------------------------------------------------

    In addition, the MSRB stated that the proposed rule change provides 
that any disclosures delivered by a syndicate manager prior to or 
concurrent with the formation of a syndicate would not need to be 
identified as delivered in the capacity of the syndicate manager or 
otherwise redelivered ``on behalf'' of the syndicate.\60\
---------------------------------------------------------------------------

    \60\ See Notice of Filing.
---------------------------------------------------------------------------

    The MSRB further noted that, pursuant to the proposed rule change, 
each member of the syndicate would remain responsible for ensuring the 
delivery of any dealer-specific disclosures if, but only if, such 
syndicate member had actual material conflicts of interest or potential 
material conflicts of interest that must be disclosed.\61\
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    \61\ Id.
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iii. Separate Identification of the Standard Disclosures
    The MSRB noted that the 2012 Interpretive Notice currently permits 
the delivery of omnibus disclosure documents, in which the standard

[[Page 61664]]

disclosures need not be separately identified from the transaction-
specific disclosures and dealer-specific disclosures.\62\ The proposed 
rule change would require the separate identification and formatting of 
the standard disclosures (i.e., disclosures concerning the role of the 
underwriter and the underwriter's compensation) from the transaction-
specific disclosure and the dealer-specific disclosures.\63\
---------------------------------------------------------------------------

    \62\ Id.
    \63\ Id.
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iv. Meaning of ``Recommendation'' for Purposes of Disclosures Related 
to Complex Municipal Securities Financings
    The MSRB noted that the 2012 Interpretive Notice provides that an 
underwriter in a negotiated offering that recommends a complex 
municipal securities financing to an issuer must disclose the material 
financial characteristics of the complex municipal securities 
financing, as well as the material financial risks of the financing 
that are known to the underwriter and reasonably foreseeable at the 
time of the disclosure (a ``complex municipal securities financing 
disclosure'').\64\ As the MSRB further noted, the Implementation 
Guidance provides that the requirement to provide a complex municipal 
securities financing disclosure is triggered if: the new issue is sold 
in a negotiated offering; the new issue is a complex municipal 
securities financing; and such financing was recommended by the 
underwriter.\65\ The MSRB stated that these aspects of the 2012 
Interpretive Notice would remain applicable under the Revised 
Interpretive Notice.\66\
---------------------------------------------------------------------------

    \64\ Id.
    \65\ Id.
    \66\ Id.
---------------------------------------------------------------------------

    However, the MSRB noted that the 2012 Interpretive Notice does not 
define the term ``recommendation'' for purposes of this 
requirement.\67\ The MSRB stated that it believes it is important to 
provide this clarification to facilitate dealer compliance with the 
proposed rule change. Therefore, as further described in the Notice of 
Filing, the MSRB stated that the proposed rule change would clarify 
that a communication by an underwriter is a ``recommendation'' that 
triggers the obligation to deliver a complex municipal securities 
financing disclosure if--given its content, context, and manner of 
presentation -- the communication reasonably would be viewed as a call 
to action to engage in a complex municipal securities financing or 
reasonably would influence an issuer to engage in a particular complex 
municipal securities financing.\68\
---------------------------------------------------------------------------

    \67\ Id.
    \68\ Id.
---------------------------------------------------------------------------

v. ``Reasonably Likely'' Standard for Disclosure of Potential Material 
Conflicts of Interest
    The MSRB noted that the 2012 Interpretive Notice currently requires 
the underwriter to disclose to the issuer any actual material conflicts 
of interest and any potential material conflicts of interest, and that 
the Implementation Guidance provides guidance as to when such 
obligation is triggered.\69\ The MSRB stated that these aspects of the 
2012 Interpretive Notice would remain applicable under the Revised 
Interpretive Notice. However, the MSRB noted, the proposed rule change 
provides that an underwriter's potential material conflict of interest 
must be disclosed as part of the dealer-specific disclosures if, but 
only if, the potential material conflict of interest is ``reasonably 
likely'' to mature into an actual material conflict of interest during 
the course of that specific transaction.\70\ The MSRB noted that the 
proposed rule change will not diminish an underwriter's fair dealing 
obligation to update, or otherwise supplement, its dealer-specific 
disclosures in circumstances when a previously undisclosed potential 
conflict of interest later ripens into an actual material conflict of 
interest.\71\
---------------------------------------------------------------------------

    \69\ Id.
    \70\ Id.
    \71\ Id.
---------------------------------------------------------------------------

vi. Underwriters Are Not Obligated To Provide Written Disclosure of 
Conflicts of Other Parties
    As the MSRB noted, the 2012 Interpretive Notice requires 
underwriters to provide issuers with certain standard disclosures, 
dealer-specific disclosures, and transaction-specific disclosures, when 
and if applicable. By their respective definitions, the standard 
disclosures cover generic conflicts of interest that could apply to any 
underwriter in any underwriting; the dealer-specific disclosures are 
the actual material conflicts of interest and potential material 
conflicts of interest generally unique to a specific underwriter; and 
the transaction-specific disclosures relate to the specific financing 
structure recommended by an underwriter.\72\ The MSRB stated that the 
proposed rule change would expressly state that underwriters are not 
required to make any written disclosures on the part of issuer 
personnel or any other parties to the transaction as part of the 
standard disclosures, dealer-specific disclosures, or the transaction-
specific disclosures.\73\
---------------------------------------------------------------------------

    \72\ Id.
    \73\ Id.
---------------------------------------------------------------------------

vii. Disclosures Must Be ``Clear and Concise''
    The MSRB noted that the 2012 Interpretive Notice currently requires 
disclosures to be ``designed to make clear to such official the subject 
matter of such disclosures and their implications for the issuer.'' 
\74\ The MSRB stated that the proposed rule change would provide that 
an underwriter's disclosures must be delivered in a ``clear and 
concise'' manner.\75\
---------------------------------------------------------------------------

    \74\ Id.
    \75\ Id.
---------------------------------------------------------------------------

viii. Definition of Municipal Entity
    The MSRB noted that the 2012 Interpretive Notice currently provides 
a definition of ``municipal entity'' that references Section 15B(e)(8) 
under the Exchange Act.\76\ In light of the Commission's definition 
contained in Exchange Act Rule 15Ba1-1 \77\ and the MSRB's definition 
of ``municipal entity'' as used under Rule G-42, both of which were 
adopted after the publication of the 2012 Interpretive Notice, the MSRB 
stated that the proposed rule change would incorporate a specific 
reference to this rule definition, in addition to the general statutory 
definition, to avoid any confusion about the scope of the Revised 
Interpretive Notice and to promote harmonization with Exchange Act Rule 
15Ba1-1 and Rule G-42.\78\
---------------------------------------------------------------------------

    \76\ Id.
    \77\ See Registration of Municipal Advisors, Release No. 34-
70462 (September 20, 2013), 78 FR 67467 (hereinafter, the ``MA Rule 
Adopting Release'') (November 12, 2013) (available at https://www.sec.gov/rules/final/2013/34-70462.pdf).
    \78\ See Notice of Filing.
---------------------------------------------------------------------------

C. Additional Standard Disclosure Regarding the Engagement of Municipal 
Advisors

    The MSRB noted that the 2012 Interpretive Notice currently requires 
an underwriter to make five discrete statements regarding the 
underwriter's role as part of the standard disclosures, including a 
disclosure that, ``unlike a municipal advisor, the underwriter does not 
have a fiduciary duty to the issuer under the federal securities laws 
and is, therefore, not required by federal law to act in the best 
interest of the issuer without regard to its own or other interests.'' 
\79\ The MSRB stated that the proposed rule change would incorporate

[[Page 61665]]

a new standard disclosure that ``the issuer may choose to engage the 
services of a municipal advisor with a fiduciary obligation to 
represent the issuer's interests in the transaction.'' \80\
---------------------------------------------------------------------------

    \79\ Id.
    \80\ Id.
---------------------------------------------------------------------------

D. Permit Email Read Receipt To Serve as Issuer Acknowledgement

    The MSRB noted that the 2012 Interpretive Notice currently requires 
underwriters to attempt to receive written acknowledgement of receipt 
by the official of the issuer other than by evidence of automatic email 
receipt.\81\ The MSRB stated that the proposed rule change would permit 
an email read receipt to serve as the issuer's acknowledgement under 
the Revised Interpretive Notice.\82\ The proposed rule change would 
define the term ``email read receipt'' to mean ``an automatic response 
generated by a recipient issuer official confirming that an email has 
been opened.'' The MSRB stated that it believes that this proposed 
change will not compromise issuer protection, because the proposed rule 
change would require the email read receipt to come from an issuer 
official that is not party to a conflict, based on the underwriter's 
knowledge, and either has been specifically identified by the issuer to 
receive such disclosure communications or, in the absence of such 
specific identification, is an issuer official who the underwriter 
reasonably believes has the authority to bind the issuer by contract 
with the underwriter. The MSRB further stated that the proposed rule 
change would also clarify that, ``[w]hile an email read receipt may 
generally be an acceptable form of an issuer's written acknowledgement 
under this notice, an underwriter, may not rely on such an email read 
receipt as an issuer's written acknowledgement where such reliance is 
unreasonable under all of the facts and circumstances, such as where 
the underwriter is on notice that the issuer official to whom the email 
is addressed has not in fact received or opened the email.'' \83\
---------------------------------------------------------------------------

    \81\ Id.
    \82\ Id.
    \83\ Id.
---------------------------------------------------------------------------

E. Other Technical and Conforming Amendments

    The MSRB stated that the proposed rule change would make certain 
other technical and conforming changes to the proposed rule change, as 
described in detail in the Notice of Filing, Amendment No. 1, and 
Amendment No. 2.\84\
---------------------------------------------------------------------------

    \84\ See Notice of Filing, Amendment No. 1, Amendment No. 2.
---------------------------------------------------------------------------

    In the Notice of Filing, the MSRB stated that it will publish a 
regulatory notice within 90 days of the publication of approval of the 
proposed rule change in the Federal Register, and such notice will 
specify the compliance date for the amendments described in the 
proposed rule change, which in any case shall be not less than 90 days, 
nor more than one year, following the date of the notice establishing 
such compliance date.\85\ The MSRB is requesting accelerated approval 
of Amendment No. 1 and Amendment No. 2.\86\
---------------------------------------------------------------------------

    \85\ See Notice of Filing.
    \86\ See Amendment No. 1, Amendment No. 2.
---------------------------------------------------------------------------

III. Summary of Comments Received and MSRB's Responses to Comments

    As noted previously, the Commission received three comment letters 
in response to the Notice of Filing and three comment letters in 
response to Amendment No. 1. The MSRB responded to the comment letters 
on the Notice of Filing in its First Response Letter,\87\ and the MSRB 
responded to the comment letters on Amendment No. 1 in its Second 
Response Letter.\88\ One commenter expressed its support for the 
original proposed rule change \89\ and for Amendment No. 1.\90\
---------------------------------------------------------------------------

    \87\ See First Response Letter.
    \88\ See Second Response Letter.
    \89\ See First NAMA Letter.
    \90\ See Second NAMA Letter.
---------------------------------------------------------------------------

A. Application to Underwriters of Municipal Fund Securities

    In the original proposed rule change, the MSRB proposed to revise 
the 2012 Interpretive Notice to incorporate existing language from the 
Implementation Guidance clarifying the application of the notice ``to a 
dealer serving as a primary distributor (but not to dealers serving 
solely as selling group members) in a continuous offering of municipal 
fund securities, such as interests in 529 savings plans and Achieving a 
Better Life Experience (ABLE) programs.'' \91\ In response to the 
Notice of Filing, one commenter requested that the MSRB revise the 
original proposed rule change to further ``distinguish the disclosure 
required of 529 underwriters from those required of bond offering 
underwriters'' and recommended specific revisions in this regard.\92\ 
For example, the commenter requested that the standard disclosures 
concerning the underwriter's role under the original proposed rule 
change allow such disclosures to be amended ``to the extent applicable 
to the nature of the relationship with the issuer.'' \93\
---------------------------------------------------------------------------

    \91\ See Notice of Filing.
    \92\ See ICI Letter.
    \93\ Id.
---------------------------------------------------------------------------

    The MSRB responded that it believes there is merit to the 
commenter's view that the proposed rule change ``should provide 
additional guidance regarding its application to underwriters of 529 
plans,'' but that the MSRB did not believe incorporating the specific 
revisions proposed by the commenter would be prudent because such 
revisions may reduce the clarity of the disclosure obligations 
applicable to other underwriters and, thereby, reduce the overall 
clarity of the Revised Interpretive Notice.\94\ The MSRB further stated 
that it believes that the commenter's comments regarding the need to 
provide more clarity in this regard would be better addressed in an 
interpretation or other guidance separately issued under Rule G-17 that 
more narrowly considers the fair dealing obligations of dealers serving 
as primary distributors in a continuous offering of municipal fund 
securities.\95\
---------------------------------------------------------------------------

    \94\ See First Response Letter.
    \95\ Id.
---------------------------------------------------------------------------

    Consequently, rather than incorporating the specific text proposed 
by the commenter, the MSRB, in Amendment No. 1 and Amendment No. 2, 
incorporated a revision to the original proposed rule change that, the 
MSRB stated, would strike the relevant text incorporated from the 
Implementation Guidance, which, as filed, would clarify the application 
of the original proposed rule change to the circumstances of a 
continuous offering of municipal fund securities.\96\ The proposed rule 
change, as amended by Amendment No.1 and Amendment No. 2, would replace 
this language with a statement that ``[t]his notice does not apply to a 
dealer acting as a primary distributor in a continuous offering of 
municipal fund securities.'' \97\ The MSRB further states that it 
intends to make clear that the specific fair practice duties outlined 
in the Revised Interpretive Notice articulating the delivery of certain 
disclosures at particular times during the course of an underwriting 
transaction would not be applicable to the situations of a dealer 
serving as a primary distributor in a continuous offering of municipal 
fund securities.\98\
---------------------------------------------------------------------------

    \96\ Id.
    \97\ Id.
    \98\ Id.
---------------------------------------------------------------------------

B. Delivery of Complex Municipal Securities Financing Disclosures

    In response to the Notice of Filing, one commenter expressed 
concern that the text of the original proposed rule change did not 
identify ``who needs to provide transaction specific disclosures for a 
swap recommendation if not made

[[Page 61666]]

by the syndicate manager or sole manager.'' \99\ This commenter 
encouraged the MSRB to amend the original proposed rule change to make 
clear that ``the duty to provide such disclosures should remain with 
the underwriter or dealer providing or recommending the derivatives, 
even after a syndicate is formed.'' \100\ The commenter stated that 
``recommendations on derivatives require specialized knowledge and . . 
. in this case, the underwriter or dealer making the recommendation and 
otherwise providing the derivative product be responsible for making 
the appropriate transaction-specific disclosures on the material 
aspects of this financing structure to the issuer.'' \101\
---------------------------------------------------------------------------

    \99\ See First SIFMA Letter.
    \100\ Id.
    \101\ Id.
---------------------------------------------------------------------------

    The MSRB stated that it believes that there is merit to this point 
and agreed with the commenter's suggestion that the original proposed 
rule change should be amended to clarify in the amended revised 
interpretive notice that, except in limited circumstances, the 
underwriter making a financing recommendation to an issuer has a fair 
dealing obligation to deliver the requisite transaction-specific 
disclosures.\102\ More specifically, the MSRB agreed with the 
commenter's view that the duty to provide a complex municipal 
securities financing disclosure generally should remain with the dealer 
``recommending'' a financing structure and/or ``providing'' a specific 
product within that structure (such as a derivative product), ``even 
after the syndicate is formed.'' \103\
---------------------------------------------------------------------------

    \102\ See First Response Letter.
    \103\ Id.
---------------------------------------------------------------------------

    Accordingly, pursuant to Amendment No. 1, the MSRB revised the 
original proposed rule change to make clear that: (1) The underwriter 
making a recommendation to the issuer regarding a financing structure 
has the fair dealing obligation to deliver the applicable transaction-
specific disclosures, and (2), conversely, when the syndicate manager 
(or any other underwriter in the syndicate) is not the underwriter 
making such a recommendation to the issuer, then such underwriter does 
not have a fair dealing obligation under the amended revised 
interpretive notice to deliver the transaction-specific 
disclosures.\104\ The MSRB stated that it believes that these revisions 
in Amendment No. 1 are responsive to this comment and are consistent 
with the goal of the Board's retrospective review of the 2012 
Interpretive Notice.\105\ The MSRB also believes that these revisions 
in Amendment No. 1 will continue to reduce the number of duplicative 
disclosures that an issuer receives during the course of a transaction 
involving an underwriting syndicate.\106\
---------------------------------------------------------------------------

    \104\ Id.
    \105\ Id.
    \106\ Id.
---------------------------------------------------------------------------

C. Application to Underwriters Serving as Placement Agents

    In the original proposed rule change, the MSRB proposed to revise 
the 2012 Interpretive Notice to incorporate existing language from the 
Implementation Guidance that clarifies the application of the 2012 
Interpretive Notice to circumstances in which a dealer serves as an 
agent of an issuer in the placement of the issuer's municipal 
securities.\107\ In response to the Notice of Filing, one commenter 
expressed concerns regarding this portion of the original proposed rule 
change.\108\ The commenter encouraged the MSRB to strike the language 
in footnote 12 of Exhibit 5 of the original proposed rule change and 
replace it with language that grants dealers the flexibility to omit 
and disclaim certain fair dealing disclosures when an engagement with 
an issuer to place municipal securities makes such disclosures not 
true.\109\ Specifically, the commenter requested that the proposed 
language in footnote 12 of Exhibit 5 be replaced with the following 
statement, ``[i]f the nature of the engagement makes one or more of the 
required disclosures not true, then it should be permissible to omit 
such disclosures and disclaim such in the relevant engagement letter.'' 
\110\
---------------------------------------------------------------------------

    \107\ See Notice of Filing.
    \108\ See First SIFMA Letter.
    \109\ Id.
    \110\ Id.
---------------------------------------------------------------------------

    The MSRB stated that it believes there is merit to the commenter's 
concern that the Revised Interpretive Notice should not be interpreted 
to require a dealer serving as an agent to an issuer in the placement 
of the issuer's municipal securities to deliver inaccurate 
disclosures.\111\ Therefore, the MSRB proposed in Amendment No. 1, to 
revise the original proposed rule change to supplement the existing 
language with the following text, ``[a]s a threshold matter, the 
disclosures delivered by an underwriter to an issuer must not be 
inaccurate or misleading, and nothing in this notice should be 
construed as requiring an underwriter to make a disclosure to an issuer 
that is false.'' \112\ The MSRB stated that it believes this revision 
to be a clarifying change, because an underwriter's overarching fair 
dealing obligation under Rule G-17 prohibits it from engaging in any 
deceptive or dishonest practice.\113\
---------------------------------------------------------------------------

    \111\ See First Response Letter.
    \112\ Id.
    \113\ Id.
---------------------------------------------------------------------------

D. Certain Standardized Disclosures for Complex Municipal Securities 
Financing

    In response to Amendment No. 1, two commenters raised concerns 
about the standardized disclosures with respect to complex municipal 
securities financings.\114\ One commenter expressed concerns that the 
proposed rule change would create a vague and imprecise standard for 
determining what is a complex municipal securities financing and what 
kinds of information related to the transaction would need to be 
disclosed and under what conditions.\115\ The commenter stated that 
underwriters need more precision and guidance around this standard in 
order to implement sound compliance and consistent disclosures, and 
urged the MSRB to revise this element of the proposed rule change.\116\ 
Another commenter stated that its members read the term 
``individualized'' in the proposed rule changed to mean that standard 
or model disclosures are designed to be clear, concise and tailored to 
the specific type or class of financing, and not a book of disclosures 
relating to all potential types of financings, and requested 
confirmation from the MSRB that this interpretation is accurate.\117\
---------------------------------------------------------------------------

    \114\ See BDA Letter, Second SIFMA Letter.
    \115\ See BDA Letter.
    \116\ Id.
    \117\ See Second SIFMA Letter.
---------------------------------------------------------------------------

    The MSRB stated that it generally agrees with the statement that it 
would be consistent with the current text of the proposed rule change, 
as well as the intent of the original proposed rule change, for an 
underwriter to develop policies and procedures that provide for the 
development and delivery of certain standardized transaction-specific 
disclosures for complex municipal securities financings for which an 
underwriter anticipates commonly recommending to its issuer clients 
(``Standardized Complex Municipal Securities Transaction 
Disclosures'').\118\ The MSRB further provided that, assuming that the 
content of such Standardized Complex Municipal Securities Transaction 
Disclosure is (a) drafted in a clear and concise manner for issuer 
personnel of both greater and lesser degrees of sophistication and (b) 
otherwise consistent with the requirements of the Revised Interpretive

[[Page 61667]]

Notice, the proposed rule change would only require the underwriter to 
tailor the content of such Standardized Complex Municipal Securities 
Transaction Disclosure to the extent that such disclosure did not fully 
describe the material financial features and risks unique to that 
particular recommended financing in such a clear and concise manner for 
the issuer personnel receiving the disclosure.\119\ The MSRB stated 
that it does not need to amend the proposed rule change to address this 
comment because, as outlined in the Second Response Letter and as noted 
by the commenter, the concept can be reasonably understood from the 
existing language of the amended proposed rule change.\120\
---------------------------------------------------------------------------

    \118\ See Second Response Letter.
    \119\ Id.
    \120\ Id.
---------------------------------------------------------------------------

    In response to the commenter's concern that the standard for 
determining what is a complex municipal securities financing is vague, 
the MSRB stated that it previously has addressed these concerns in its 
previous statements.\121\
---------------------------------------------------------------------------

    \121\ Id.
---------------------------------------------------------------------------

E. Tiered Disclosure Requirements Based on Issuer Characteristics

    In response to the Notice of Filing, and again in response to 
Amendment No. 1, one commenter stated that it believes that tiered 
disclosure requirements may be beneficial to issuers and 
underwriters.\122\ The commenter requested that the MSRB ``provide 
examples of concrete hypotheticals in order to provide clarity to 
regulated dealers regarding how the content of [the] transaction-based 
disclosures may potentially vary by issuer sophistication and still 
survive regulatory scrutiny.'' \123\
---------------------------------------------------------------------------

    \122\ See First SIFMA Letter, Second SIFMA Letter.
    \123\ See First SIFMA Letter.
---------------------------------------------------------------------------

    The MSRB noted that the proposed rule change sets out a principles-
based approach to an underwriter's fair dealing obligation to deliver 
certain disclosures and incorporates existing hypothetical examples 
from the Implementation Guidance and FAQs.\124\ The MSRB stated that it 
evaluated formal disclosure tiers and declined to adopt such tiers or 
other disclosure requirements based on rigid issuer classifications in 
response to prior stakeholder comments because the MSRB believes there 
is not an obvious, appropriate methodology for classifying issuers in a 
manner that would advance the policies underlying the 2012 Interpretive 
Notice or that would materially relieve burdens for underwriters or 
issuers, and requiring different disclosure standards for different 
issuers may have unintended consequences that compromise issuer 
protections.\125\ The MSRB stated that the comments do not alter the 
MSRB's conclusions in this regard.\126\
---------------------------------------------------------------------------

    \124\ See First Response Letter.
    \125\ See First Response Letter, Second Response Letter.
    \126\ Id.
---------------------------------------------------------------------------

F. Standard for the Disclosure of Potential Material Conflicts of 
Interest

    In response to the Notice of Filing, and again in response to 
Amendment No. 1, two commenters requested that the MSRB amend the 
original proposed rule change to require only disclosures of actual 
conflicts of interest.\127\ The MSRB noted that the 2012 Interpretive 
Notice currently requires the underwriter to disclose to the issuer any 
actual material conflicts of interest and any potential material 
conflicts of interest, which requirement is triggered if: The new issue 
is sold in a negotiated underwriting; the matter to be disclosed 
represents a conflict of interest, either in reality or potentially; 
and any such actual or potential conflict of interest is material.\128\ 
The MSRB stated that these aspects of the 2012 Interpretive Notice 
would remain applicable under the proposed rule change. However, the 
proposed rule change would provide that an underwriter's potential 
material conflict of interest must be disclosed as part of the dealer-
specific disclosures if, but only if, the potential material conflict 
of interest is ``reasonably likely'' to mature into an actual material 
conflict of interest during the course of that specific 
transaction.\129\ This MSRB further noted that this revision would 
reduce a dealer's burden by narrowing the dealer-specific disclosures 
currently required under the 2012 Interpretive Notice from all 
potential material conflicts to those potential material conflicts that 
meet this more focused standard.\130\
---------------------------------------------------------------------------

    \127\ See First SIFMA Letter, Second SIFMA Letter, BDA Letter.
    \128\ See First Response Letter.
    \129\ Id.
    \130\ Id.
---------------------------------------------------------------------------

    The MSRB reiterated that, as indicated in the Notice of Filing, it 
believes that the disclosure of material conflicts of interest remains 
significant to an issuer's evaluation of the dealer providing 
underwriting services, which justifies the obligation for underwriters 
to continue to provide these disclosures.\131\ To the degree that an 
underwriter has knowledge that a material conflict of interest does not 
currently exist, but is reasonably likely to ripen into an actual 
material conflict of interest during the course of the underwriting 
transaction, the MSRB stated that it continues to believe that the 
municipal securities market is best served by the underwriter providing 
advanced notification to the issuer of the likelihood of such material 
conflict of interest, rather than waiting to disclose the conflict 
until it has ripened into an actual conflict.\132\
---------------------------------------------------------------------------

    \131\ See First Response Letter, Second Response Letter.
    \132\ Id.
---------------------------------------------------------------------------

G. Standard Disclosure Regarding the Engagement of a Municipal Advisor

    In response to the Notice of Filing, and again in response to 
Amendment No. 1, two commenters requested that the MSRB amend the 
original proposed rule change to eliminate the new standard disclosure 
that ``the issuer may choose to engage the services of a municipal 
advisor with a fiduciary obligation to represent the issuer's interests 
in the transaction.'' \133\ One commenter also stated that the Revised 
Interpretive Notice should make clear that neither municipal advisors 
nor underwriters may misrepresent the services and duties that the 
other is permitted to provide.\134\ The MSRB reiterated that it 
believes that this additional disclosure will further clarify the 
distinctions between an underwriter--who is subject to a duty of fair 
dealing when providing advice regarding the issuance of municipal 
securities to municipal entities--and a municipal advisor--who is 
subject to a federal statutory fiduciary duty when providing advice 
regarding the issuance of municipal securities to municipal entities--
and, thereby, would promote the protection of municipal entity issuers 
in accordance with the MSRB's statutory mandate at a relatively minimal 
burden to underwriters.\135\ The MSRB acknowledged that the additional 
disclosure would cause underwriters to incur costs associated with 
revising their policies and procedures and delivering the new 
disclosure in their standard disclosures during transactions; however, 
the MSRB concluded that any costs associated with the proposed rule 
change would be outweighed by its benefits.\136\ The MSRB further 
stated that, because the Revised Interpretive Notice is limitedly 
focused on underwriters' fair dealing obligations to issuers, not the 
duties of loyalty and care that municipal advisors

[[Page 61668]]

owe their municipal entity clients, the Revised Interpretive Notice is 
not the appropriate vehicle to address the duties of municipal 
advisors, recognizing that MSRB Rule G-42, on the duties of non-
solicitor municipal advisors, effectively prohibits a municipal advisor 
from knowingly misrepresenting its services or the services of an 
underwriter.\137\
---------------------------------------------------------------------------

    \133\ See First SIFMA Letter, Second SIFMA Letter, BDA Letter.
    \134\ See Second SIFMA Letter.
    \135\ See First Response Letter, Second Response Letter.
    \136\ See Second Response Letter.
    \137\ Id.
---------------------------------------------------------------------------

H. Interaction of Proposed Rule Change With Pending Matters

    In response to the Notice of Filing, and again in response to 
Amendment No. 1, two commenters expressed concerns about the 
interaction of the proposed rule change with other pending 
matters.\138\ One commenter \139\ expressed concerns that the text of 
the proposed rule change may ``front-run'' a related issue that is now 
under consideration by the Commission regarding the duties of municipal 
placement agents under the federal securities laws.\140\ Another 
commenter expressed the belief that the MSRB missed an important and 
timely opportunity to provide substantial compliance efficiencies by 
combining and integrating underwriter disclosures required under MSRB 
Rules G-17 and G-23, and urged the MSRB to do so.\141\ The MSRB 
declined to address these concerns, stating that the matters that 
commenters requested the MSRB address are outside the scope of the 
proposed rule change, which does not pertain to the duties of municipal 
advisors.\142\
---------------------------------------------------------------------------

    \138\ See First SIFMA Letter, Second SIFMA Letter, BDA Letter.
    \139\ See First SIFMA Letter, Second SIFMA Letter.
    \140\ See ``Notice of Proposed Exemptive Order Granting a 
Conditional Exemption from the Broker Registration Requirements of 
Section l5(a) of the Securities Exchange Act of 1934 for Certain 
Activities of Registered Municipal Advisors,'' Exchange Act Release 
No. 87204 (Oct. 2, 2019), 84 FR 54062 (Oct. 9, 2019).
    \141\ See BDA Letter.
    \142\ See First Response Letter, Second Response Letter.
---------------------------------------------------------------------------

I. Compliance Date for the Proposed Rule Change

    In response to Amendment No. 1, one commenter requested that the 
MSRB set a compliance date of one year from the date the proposed rule 
change's amendments to the 2012 Interpretive Notice are final.\143\ The 
commenter requested this timeframe to allow ``sufficient time'' for 
dealers to implement the proposed rule change's amendments and revise 
their policies and procedures.\144\ The MSRB noted that it had 
indicated in the original proposed rule change that, if the proposed 
rule change is approved by the Commission, it will publish a regulatory 
notice within 90 days of the publication of such approval in the 
Federal Register and such notice would specify the compliance date for 
the amendments described in the proposed rule change, which in any case 
would be not less than 90 days, nor more than one year, following the 
date of the regulatory notice.\145\ The MSRB stated that this is 
consistent with the commenter's request.\146\ The MSRB will work with 
stakeholders, as needed, to determine reasonable compliance dates for 
the changes, recognizing the commenter's request for at least a one-
year compliance timeline given that policy and procedures would need to 
be updated to conform to the proposed rule change.\147\
---------------------------------------------------------------------------

    \143\ See Second SIFMA Letter.
    \144\ Id.
    \145\ See Second Response Letter.
    \146\ Id.
    \147\ Id.
---------------------------------------------------------------------------

IV. Discussion and Commission Findings

    The Commission has carefully considered the original proposed rule 
change, the comment letters received, the MSRB Response Letters, 
Amendment No. 1, and Amendment No. 2. The Commission finds that the 
proposed rule change is consistent with the requirements of the Act and 
the rules and regulations thereunder applicable to the MSRB.
    In particular, the proposed rule change, as modified by Amendment 
No. 1 and Amendment No. 2, is consistent with Section 15B(b)(2)(C) of 
the Act.\148\ Section 15B(b)(2)(C) of the Act requires that the MSRB's 
rules 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.\149\
---------------------------------------------------------------------------

    \148\ 15 U.S.C. 78o-4(b)(2)(C).
    \149\ Id.
---------------------------------------------------------------------------

    The Commission believes that the proposed rule change is consistent 
with the provisions of Section 15B(b)(2)(C) of the Act because it will 
protect municipal entities from fraudulent and manipulative acts and 
practices, remove impediments to and perfect the mechanism of a free 
and open market, and promote just and equitable principles of trade.
    The Commission believes that the proposed rule change would promote 
the protection of municipal entities by protecting them from fraudulent 
and manipulative acts and practices. By (i) Specifying which 
underwriters are obligated to deliver the ``standard disclosures,'' 
``transaction-specific disclosures'' and ``dealer-specific 
disclosures'';, (ii) requiring the separate identification and 
formatting of the standard disclosures by underwriters; and (iii) 
requiring that disclosures be clear and concise, the proposed rule 
change will enable issuers to more efficiently and carefully evaluate 
the information contained in the disclosures they do receive, which may 
result in better-informed issuers. Further, the Commission believes the 
addition by the proposed rule change of a new standard disclosure that 
the issuer may choose to engage the services of a municipal advisor 
with a fiduciary obligation to represent the issuer's interests in the 
transaction will promote the protection of municipal entities by 
expressly informing them that they may obtain the advice of a municipal 
advisor, who would serve as a fiduciary to the issuer.
    The Commission believes that the proposed rule change would remove 
impediments to and perfect the mechanism of a free and open market, and 
promote just and equitable principles of trade by clarifying and 
streamlining underwriters' disclosure obligations to municipal entity 
issuers, thereby facilitating more efficient compliance with those 
obligations. By incorporating certain provisions of the Implementation 
Guidance and FAQs, with certain revisions, into the Revised 
Interpretive Notice, the proposed rule change provides for a single 
consolidated document to which underwriters may look, facilitating the 
efficient identification of any applicable fair dealing obligations. By 
(i) specifying that the standard disclosures and many transaction-
specific disclosures should be sent to issuers only from the syndicate 
manager or sole underwriter; (ii) clarifying that underwriters are not 
obligated to provide written disclosures regarding the conflicts of 
issuer personnel or other parties to the transaction; and (iii) 
providing that disclosures must be made in a clear and concise manner, 
the proposed rule change would remove impediments to and perfect the 
mechanism of a free and open market, and promote just and

[[Page 61669]]

equitable principles of trade, by eliminating certain redundant and 
generic disclosures currently delivered by underwriters to issuers that 
provide little, if any, informational benefits to issuers, but do 
create non-trivial compliance and recordkeeping burdens on 
underwriters. By clarifying the definition of Complex Municipal 
Securities Financing Recommendation, and specifying the particular 
underwriter that must provide these particularized transaction-specific 
disclosures to issuers, the proposed rule change would promote just and 
equitable principles of trade by eliminating legal ambiguity under the 
Revised Interpretive Notice, thereby reducing the compliance burden for 
underwriters without diminishing the protection of municipal entities. 
By specifying that the underwriter making a Complex Municipal 
Securities Financing Recommendation must provide the transaction-
specific disclosure for that recommendation, the proposed rule change 
may improve the accuracy and usefulness of such disclosures to 
municipal entities.
    The Commission further believes that proposed rule change would 
remove impediments to and perfect the mechanism of a free and open 
market by clarifying which potential material conflicts of interest 
must be disclosed by underwriters and at what time. This portion of the 
proposed rule change may reduce the volume of initial conflicts 
disclosures that must be provided, limiting such disclosures to those 
conflicts that are most concrete and probable, and therefore most 
useful to issuers at that time.
    The Commission further believes that the proposed rule change would 
remove impediments to and perfect the mechanism of a free and open 
market, and facilitate transactions in municipal securities, by 
permitting an email read receipt to serve as the issuer's 
acknowledgement of receipt of the applicable disclosures under the 
Revised Interpretive Notice. This provision of the proposed rule change 
would improve the efficiency of the disclosure process by allowing 
underwriters to seek, and issuers to provide, acknowledgement 
electronically through the built-in, automatic process of an email 
system. The Commission believes that municipal entities would continue 
to be protected under the Revised Interpretive Notice because the 
underwriter would have a fair dealing obligation to receive the email 
read receipt from a specific official identified as the issuer's 
primary contact for the receipt of such disclosures or from an issuer 
official that the underwriter reasonably believes has authority to bind 
the issuer by contract with the underwriter. In addition, the proposed 
rule change would not permit an underwriter to rely on an email read 
receipt as an issuer's acknowledgement where such reliance is 
unreasonable under all of the facts and circumstances, such as where 
the underwriter is on notice that the issuer official to whom the email 
is addressed has not in fact received or opened the email. Further, the 
recipient of such an automatic email read receipt request would still 
have the option to not provide this form of acknowledgement.
    In approving the proposed rule change, the Commission also has 
considered the impact of the proposed rule change, on efficiency, 
competition, and capital formation.\150\ The Commission believes that 
the proposed rule change clarifies underwriter disclosure obligations 
and will streamline certain obligations specified in the 2012 
Interpretive Notice and, thereby, reduce the burdens associated with 
those obligations, including the obligation of underwriters to make, 
and the burden on issuers to acknowledge and review, written 
disclosures that are duplicative, itemize risks and conflicts that are 
not reasonably likely to materialize during the course of a 
transaction, and/or are not unique to a particular transaction or 
underwriting engagement. The Commission further believes that the 
proposed rule change may increase the efficiency of certain market 
practices, such as enhancing the ability of issuers to efficiently and 
properly evaluate the risks associated with a given transaction 
(thereby improving the protection of issuers), including by separately 
identifying the different categories of disclosures, providing 
additional clarity to underwriters regarding the scope of their 
regulatory obligations to municipal entity issuers, and permitting an 
email read receipt to serve the issuer's acknowledgment of receipt of 
disclosures in certain circumstances, thereby reducing the burdens of 
obtaining acknowledgment in those cases.
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    \150\ 15 U.S.C. 78c(f).
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    As noted above, the Commission received three comment letters on 
the Notice of Filing and three comment letters on Amendment No. 1. The 
Commission believes that the MSRB, through its responses and through 
Amendment No. 1 and Amendment No. 2, has addressed commenters' 
concerns.
    For the reasons noted above, the Commission believes that the 
proposed rule change is consistent with the Act.

V. Solicitation of Comments on Amendment No. 2

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether Amendment No. 2 
to the proposed rule change is consistent with the Act. Comments may be 
submitted by any of the following methods:

Electronic Comments

     Use of the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-MSRB-2019-10 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-2019-10. 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 website (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 website 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; we do 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-2019-10 and should be submitted on or before 
December 4, 2019.

VI. Accelerated Approval of Proposed Rule Change

    The Commission finds good cause for approving the original proposed 
rule

[[Page 61670]]

change, as modified by Amendment No. 1 and Amendment No. 2, prior to 
the 30th day after the date of publication of the Notices of Amendment 
No. 1 and Amendment No. 2 in the Federal Register. As discussed above, 
Amendment No. 1 proposes to revise the original proposed rule change to 
state that (1) the underwriter making a recommendation to the issuer 
regarding a financing structure, including, when applicable, a Complex 
Municipal Securities Financing Recommendation, has the fair dealing 
obligation to deliver the applicable transaction-specific disclosures 
and (2) the notice does not apply to a dealer acting as a primary 
distributor in a continuous offering of municipal fund securities. 
Amendment No. 1 and Amendment No. 2 otherwise propose to revise the 
original proposed rule change with technical modifications intended to 
more precisely define the scope of its application and/or to promote 
clarity in its interpretation. The MSRB has stated that it believes 
that the modifications to the original proposed rule change are 
responsive to commenters, and are consistent with the original proposed 
rule change.\151\
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    \151\ See Amendment No. 1, Amendment No. 2.
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    For the foregoing reasons, the Commission finds good cause for 
approving the original proposed rule change, as modified by Amendment 
No. 1 and Amendment No. 2, on an accelerated basis, pursuant to Section 
19(b)(2) of the Act.

VII. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\152\ that the proposed rule change (SR-MSRB-2019-10) be, and 
hereby is, approved on an accelerated basis.
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    \152\ 15 U.S.C. 78s(b)(2).

    For the Commission, pursuant to delegated authority.\153\
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    \153\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-24601 Filed 11-12-19; 8:45 am]
BILLING CODE 8011-01-P
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