80 FR 51645 - Self-Regulatory Organizations; Municipal Securities Rulemaking Board; Notice of Filing of Amendment No. 1 to Proposed Rule Change Consisting of Proposed New Rule G-42, on Duties of Non-Solicitor Municipal Advisors, and Proposed Amendments to Rule G-8, on Books and Records To Be Made by Brokers, Dealers, Municipal Securities Dealers, and Municipal Advisors

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 80, Issue 164 (August 25, 2015)

Page Range		51645-51646
FR Document		2015-20936
Federal Register, Volume 80 Issue 164 (Tuesday, August 25, 2015)
[Federal Register Volume 80, Number 164 (Tuesday, August 25, 2015)]
[Notices]
[Pages 51645-51646]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2015-20936]



[[Page 51645]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75737; File No. SR-MSRB-2015-03]


Self-Regulatory Organizations; Municipal Securities Rulemaking 
Board; Notice of Filing of Amendment No. 1 to Proposed Rule Change 
Consisting of Proposed New Rule G-42, on Duties of Non-Solicitor 
Municipal Advisors, and Proposed Amendments to Rule G-8, on Books and 
Records To Be Made by Brokers, Dealers, Municipal Securities Dealers, 
and Municipal Advisors

I. Introduction

    On April 24, 2015, the Municipal Securities Rulemaking Board 
(``MSRB'') filed with the Securities and Exchange Commission (``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 consisting of proposed new Rule 
G-42, on duties of non-solicitor municipal advisors, and proposed 
amendments to Rule G-8, on books and records to be made by brokers, 
dealers, municipal securities dealers, and municipal advisors. The 
proposed rule change was published for comment in the Federal Register 
on May 8, 2015.\3\ The Commission received fifteen comment letters on 
the proposal.\4\ On June 16, 2015, the MSRB granted an extension of 
time for the Commission to act on the filing until August 6, 2015. On 
August 6, 2015, the Commission issued an order instituting proceedings 
under Section 19(b)(2)(B) of the Act \5\ to determine whether to 
approve or disapprove the proposed rule change.\6\ On August 12, 2015, 
the MSRB responded to the comments \7\ and filed Amendment No. 1 to the 
proposed rule change.\8\ The text of Amendment No. 1 and the MSRB's 
letter are available on the MSRB's Web site. The Commission is 
publishing this notice to solicit comments on Amendment No. 1 to the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Exchange Act Release No. 74860 (May 4, 2015), 80 FR 26752 
(``Notice''). The comment period closed on May 29, 2015.
    \4\ Comment letters are available at www.sec.gov/comments/sr-msrb-2015-03/msrb201503.shtml.
    \5\ 15 U.S.C. 78s(b)(2)(B).
    \6\ See Securities Exchange Act Release No. 75628 (August 6, 
2015), 80 FR 48355 (August 12, 2015). The comment period closes on 
September 11, 2015.
    \7\ See Letter from Michael L. Post, MSRB, to Secretary, SEC, 
dated August 12, 2015 (``MSRB Response Letter''), available at 
http://www.sec.gov/comments/sr-msrb-2015-03/msrb201503-19.pdf.
    \8\ See Letter from Michael L. Post, MSRB, to Secretary, SEC, 
dated August 12, 2015 (``MSRB Amendment Letter''), available at 
http://www.sec.gov/comments/sr-msrb-2015-03/msrb201503-20.pdf.
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II. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Amendment

    The MSRB is proposing to delete, in Proposed Rule G-42(a)(ii), the 
phrase ``, without limitation,'' to address any ambiguity regarding the 
relationship between additional fiduciary duties and the specified 
duties of care and loyalty. The MSRB, however, emphasizes the proposed 
amendment in no respect narrows or otherwise substantively modifies the 
scope of the fiduciary duty to which a municipal advisor would be 
subject under Proposed Rule G-42. Under Proposed Rule G-42(a)(ii), a 
municipal advisor is subject to a fiduciary duty that includes a duty 
of loyalty and a duty of care. It has been the MSRB's intent from the 
inception of this rulemaking initiative not to purport to 
comprehensively set forth every aspect of the fiduciary duty that may 
be owed under the broad principle that Congress determined should apply 
to municipal advisors to municipal entity clients. Instead, Proposed 
Rule G-42 is designed primarily to set forth the core principles of the 
fiduciary duty that a municipal advisor would owe to its municipal 
entity client, and address and provide guidance on certain conduct that 
is likely to occur and issues that are likely to arise in the provision 
of municipal advisory services. Although it is not possible for the 
MSRB to set forth every aspect of a fiduciary duty in Proposed Rule G-
42 and the MSRB has not sought to do so, the MSRB nevertheless believes 
that the proposed rule change will provide municipal advisors with 
significant helpful guidance in understanding many aspects of their 
fiduciary duty and the conduct that is required of them.\9\
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    \9\ See Notice, 80 FR 26752, at 26762.
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    The MSRB is also proposing amendments to streamline the steps 
needed to comply with proposed sections (b) and (c) generally, which 
are also responsive to comments received regarding the combined 
requirements of the proposed paragraphs.\10\ In proposed Rule G-42(b), 
the MSRB proposes to combine the substantially similar disclosures of 
conflicts of interest in proposed paragraphs (b)(i)(A) and (b)(i)(G) as 
new proposed paragraph (b)(i)(F) and delete proposed paragraphs 
(b)(i)(A) and (b)(i)(G). The MSRB also would renumber proposed 
paragraphs (b)(i)(B) through (b)(i)(F), respectively, as proposed 
paragraphs (b)(i)(A) through (B)(i)(E).
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    \10\ See Notice, 80 FR 26752, at 26762-26763.
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    The MSRB proposes amendments regarding proposed section (c), which 
requires the documentation of the municipal advisory relationship in 
writing, and, in proposed subsection (c)(ii), which provides that a 
municipal advisor must include in the documentation the disclosures of 
conflicts of interest and other information (i.e., information 
regarding certain legal or disciplinary events as specified in proposed 
subsection (b)(ii)). Under the proposed amendment, a municipal advisor 
would not be required to provide the disclosure of conflicts of 
interest and other information required under proposed subsection 
(c)(ii) if the municipal advisor previously fully complied with the 
requirements of proposed section (b) to disclose such information and 
proposed subsection (c)(ii) would not require the disclosure of any 
materially different information than that previously disclosed to the 
client. The MSRB believes that the proposed amendment, to be 
incorporated in Proposed Rule G-42 as the third sentence of new 
proposed paragraph .06 of the Supplementary Material, entitled 
``Relationship Documentation,'' would permit a municipal advisor to 
avoid making duplicative disclosures regarding its conflicts of 
interest and other matters. The proposed amendment also would include, 
as the first two sentences of new proposed paragraph .06, the un-
numbered paragraph previously located after proposed subsection 
(c)(vii). The MSRB believes that the material set forth in the un-
numbered paragraph, which relates to updating and supplementing the 
relationship documentation, is more appropriately organized with the 
proposed amendment relating to proposed subsection (c)(ii) discussed 
above, and, therefore, proposes to organize such un-numbered paragraph 
in new proposed paragraph .06. Finally, with the incorporation of new 
proposed paragraph .06, proposed paragraphs .06 through .12 of the 
Supplementary Material would be renumbered, respectively, as proposed 
paragraphs .07 through .13 of the Supplementary Material.
    The MSRB also proposes to amend, in response to comments, proposed 
subsection (c)(iv) of Rule G-42 of the original proposed rule change to 
require a municipal advisor, at the time of making the disclosures 
required under proposed subsections (c)(iii) and (c)(iv), to provide 
its clients with a brief explanation of the basis for the

[[Page 51646]]

materiality of the change or addition to its Forms MA and MA-I. The 
proposed amendment would supplement a proposed requirement that the 
municipal advisor provide the date of the last material change or 
addition to the legal or disciplinary event disclosures on any Form MA 
or Form MA-I to the client. The proposed amendment to include the 
explanation of materiality would allow a municipal advisor client to 
assess the effect that such change or addition may have on the 
municipal advisory relationship and evaluate whether it should seek or 
review additional information.
    In response to a concern raised in the comments, the MSRB proposes 
to clarify, in proposed section (d), a specific requirement applicable 
to a recommendation made by a municipal advisor, and distinguish it 
from the requirements a municipal advisor is subject to when reviewing 
a recommendation made by another party. The proposed amendment to 
proposed section (d) would add a statement providing that ``a municipal 
advisor making a recommendation must have a reasonable basis to believe 
that the recommended municipal securities transaction or municipal 
financial product is suitable for the client,'' which would clarify the 
proposed requirement that the municipal advisor must determine, based 
on the information obtained through the reasonable diligence of such 
municipal advisor, whether the municipal securities transaction or 
municipal financial product is suitable for the client. The proposed 
amendment would state more explicitly that a municipal advisor would be 
prohibited from making recommendations to clients regarding municipal 
securities transactions and municipal financial products that are 
unsuitable for such clients. To further clarify proposed section (d), 
the MSRB also proposes to modify proposed subsection (d)(ii) to provide 
that the requirement to inform the client that a recommendation is 
unsuitable potentially arises only in the context of the review of a 
recommendation of another, by adding the parenthetical phrase ``(as may 
be applicable in the case of a review of a recommendation).''
    The MSRB also proposes a minor amendment to clarify proposed Rule 
G-42(e)(i)(B), which prohibits a municipal advisor from delivering an 
invoice for fees or expenses for municipal advisory activities that do 
not accurately reflect the activities actually performed or the 
personnel that actually performed those activities. Specifically, as 
revised, the provision would prohibit the delivery of such an invoice 
if it ``is materially inaccurate in its reflection of the activities 
actually performed or the personnel that actually performed those 
activities.'' The proposed clarification, which is responsive to 
comments that expressed concern regarding invoices containing minor or 
immaterial errors, would incorporate in the proposed provision an 
explicit, rather than implicit, limitation based on materiality, and is 
consistent with the MSRB's explanation of the provision in the original 
proposed rule change.\11\
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    \11\ In the original proposed rule change, the MSRB noted that 
the scope of inaccuracy targeted by the proposed provision was 
``limited to the significant subjects of the services performed and 
personnel who performed those services.'' See Notice, 80 FR 26752, 
at 26777.
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    Finally, Amendment No. 1 would incorporate minor, non-substantive 
amendments to proposed subsections (e)(ii), regarding prohibited 
principal transactions. The proposed amendments to proposed subsection 
(e)(ii) would clarify the provision, to provide:

    A municipal advisor to a municipal entity client, and any 
affiliate of such municipal advisor, is prohibited from engaging 
with the municipal entity client in a principal transaction that is 
the same, or directly related to the, municipal securities 
transaction or municipal financial product as to which the municipal 
advisor is providing or has provided advice to the municipal entity 
client.

    Similarly, technical and non-substantive changes would be 
incorporated in proposed subsection (f)(i), defining the term, 
``Engaging in a principal transaction.'' Finally, the proposed 
amendments to proposed paragraph .11 of the Supplementary Material 
would renumber the provision as proposed paragraph .12 of the 
Supplementary Material, as previously noted, and change the reference 
in the second line of the provision from ``engaging in a principal 
transaction'' to ``principal transaction'' to conform proposed 
renumbered paragraph .12 to proposed amended subsection (f)(i).
    The MSRB proposes to make the proposed rule change effective six 
months after Commission approval of all changes.

III. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments regarding the foregoing, including whether the filing as 
amended by Amendment No. 1 is consistent with the Act. Comments may be 
submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-MSRB-2015-03 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-2015-03. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549 on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of the MSRB. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-MSRB-2015-03 and should be 
submitted on or before September 11, 2015.

    For the Commission, pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2015-20936 Filed 8-24-15; 8:45 am]
 BILLING CODE 8011-01-P
51646 Federal Register / Vol. 80, No. 164 / Tuesday, August 25, 2015 / Notices

materiality of the change or addition to such an invoice if it ‘‘is materially Electronic Comments
its Forms MA and MA–I. The proposed inaccurate in its reflection of the
amendment would supplement a activities actually performed or the • Use the Commission’s Internet
proposed requirement that the personnel that actually performed those comment form (http://www.sec.gov/
municipal advisor provide the date of activities.’’ The proposed clarification, rules/sro.shtml); or
the last material change or addition to which is responsive to comments that • Send an email to rule-comments@
the legal or disciplinary event expressed concern regarding invoices sec.gov. Please include File Number SR–
disclosures on any Form MA or Form containing minor or immaterial errors, MSRB–2015–03 on the subject line.
MA–I to the client. The proposed would incorporate in the proposed
amendment to include the explanation provision an explicit, rather than Paper Comments
of materiality would allow a municipal implicit, limitation based on materiality,
advisor client to assess the effect that • Send paper comments in triplicate
and is consistent with the MSRB’s to Secretary, Securities and Exchange
such change or addition may have on explanation of the provision in the
the municipal advisory relationship and Commission, 100 F Street NE.,
original proposed rule change.11
evaluate whether it should seek or Washington, DC 20549.
review additional information. Finally, Amendment No. 1 would
incorporate minor, non-substantive All submissions should refer to File
In response to a concern raised in the Number SR–MSRB–2015–03. This file
comments, the MSRB proposes to amendments to proposed subsections
(e)(ii), regarding prohibited principal number should be included on the
clarify, in proposed section (d), a
transactions. The proposed amendments subject line if email is used. To help the
specific requirement applicable to a
recommendation made by a municipal to proposed subsection (e)(ii) would Commission process and review your
advisor, and distinguish it from the clarify the provision, to provide: comments more efficiently, please use
requirements a municipal advisor is only one method. The Commission will
A municipal advisor to a municipal entity
subject to when reviewing a client, and any affiliate of such municipal
post all comments on the Commission’s
recommendation made by another party. advisor, is prohibited from engaging with the Internet Web site (http://www.sec.gov/
The proposed amendment to proposed municipal entity client in a principal rules/sro.shtml). Copies of the
section (d) would add a statement transaction that is the same, or directly submission, all subsequent
providing that ‘‘a municipal advisor related to the, municipal securities amendments, all written statements
making a recommendation must have a transaction or municipal financial product as with respect to the proposed rule
reasonable basis to believe that the to which the municipal advisor is providing change that are filed with the
recommended municipal securities or has provided advice to the municipal Commission, and all written
transaction or municipal financial entity client. communications relating to the
product is suitable for the client,’’ proposed rule change between the
which would clarify the proposed Similarly, technical and non- Commission and any person, other than
requirement that the municipal advisor substantive changes would be those that may be withheld from the
must determine, based on the incorporated in proposed subsection
public in accordance with the
information obtained through the (f)(i), defining the term, ‘‘Engaging in a
provisions of 5 U.S.C. 552, will be
reasonable diligence of such municipal principal transaction.’’ Finally, the
available for Web site viewing and
advisor, whether the municipal proposed amendments to proposed
printing in the Commission’s Public
securities transaction or municipal paragraph .11 of the Supplementary
Material would renumber the provision Reference Room, 100 F Street NE.,
financial product is suitable for the
client. The proposed amendment would as proposed paragraph .12 of the Washington, DC 20549 on official
state more explicitly that a municipal Supplementary Material, as previously business days between the hours of
advisor would be prohibited from noted, and change the reference in the 10:00 a.m. and 3:00 p.m. Copies of the
making recommendations to clients second line of the provision from filing also will be available for
regarding municipal securities ‘‘engaging in a principal transaction’’ to inspection and copying at the principal
transactions and municipal financial ‘‘principal transaction’’ to conform office of the MSRB. All comments
products that are unsuitable for such proposed renumbered paragraph .12 to received will be posted without change;
clients. To further clarify proposed proposed amended subsection (f)(i). the Commission does not edit personal
section (d), the MSRB also proposes to The MSRB proposes to make the identifying information from
modify proposed subsection (d)(ii) to proposed rule change effective six submissions. You should submit only
provide that the requirement to inform months after Commission approval of information that you wish to make
the client that a recommendation is all changes. available publicly. All submissions
unsuitable potentially arises only in the should refer to File Number SR–MSRB–
context of the review of a III. Solicitation of Comments 2015–03 and should be submitted on or
recommendation of another, by adding before September 11, 2015.
the parenthetical phrase ‘‘(as may be Interested persons are invited to
applicable in the case of a review of a submit written data, views, and For the Commission, pursuant to delegated
recommendation).’’ arguments regarding the foregoing, authority.12
The MSRB also proposes a minor including whether the filing as amended Jill M. Peterson,
amendment to clarify proposed Rule G– by Amendment No. 1 is consistent with
asabaliauskas on DSK5VPTVN1PROD with NOTICES

Assistant Secretary.
42(e)(i)(B), which prohibits a municipal the Act. Comments may be submitted by [FR Doc. 2015–20936 Filed 8–24–15; 8:45 am]
advisor from delivering an invoice for any of the following methods:
BILLING CODE 8011–01–P
fees or expenses for municipal advisory
activities that do not accurately reflect 11 In the original proposed rule change, the MSRB

the activities actually performed or the noted that the scope of inaccuracy targeted by the
proposed provision was ‘‘limited to the significant
personnel that actually performed those subjects of the services performed and personnel
activities. Specifically, as revised, the who performed those services.’’ See Notice, 80 FR
provision would prohibit the delivery of 26752, at 26777. 12 17 CFR 200.30–3(a)(12).

VerDate Sep<11>2014 17:10 Aug 24, 2015 Jkt 235001 PO 00000 Frm 00116 Fmt 4703 Sfmt 9990 E:\FR\FM\25AUN1.SGM 25AUN1
Document Created: 2018-02-23 11:02:36
Document Modified: 2018-02-23 11:02:36
Category		Regulatory Information
Collection		Federal Register
sudoc Class		AE 2.7: GS 4.107: AE 2.106:
Publisher		Office of the Federal Register, National Archives and Records Administration
Section		Notices
FR Citation		80 FR 51645