80 FR 57240 - Self-Regulatory Organizations; Municipal Securities Rulemaking Board; Notice of Filing of a Proposed Rule Change Consisting of Proposed Amendments to Rule G-20, on Gifts, Gratuities and Non-Cash Compensation, and Rule G-8, on Books and Records To Be Made by Brokers, Dealers, Municipal Securities Dealers, and Municipal Advisors, and the Deletion of Prior Interpretive Guidance
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 80, Issue 183 (September 22, 2015)
Federal Register Volume 80, Issue 183 (September 22, 2015)
| Page Range | 57240-57251 | |
| FR Document | 2015-23975 |
[Federal Register Volume 80, Number 183 (Tuesday, September 22, 2015)] [Notices] [Pages 57240-57251] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2015-23975] ======================================================================= ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-75932; File No. SR-MSRB-2015-09] Self-Regulatory Organizations; Municipal Securities Rulemaking Board; Notice of Filing of a Proposed Rule Change Consisting of Proposed Amendments to Rule G-20, on Gifts, Gratuities and Non-Cash Compensation, and Rule G-8, on Books and Records To Be Made by Brokers, Dealers, Municipal Securities Dealers, and Municipal Advisors, and the Deletion of Prior Interpretive Guidance September 16, 2015. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that on September 2, 2015, the Municipal Securities Rulemaking Board (the ``MSRB'' or ``Board'') filed with the Securities and Exchange Commission (the ``SEC'' or ``Commission'') the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the MSRB. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(i). \2\ 17 CFR 240.19b-4. --------------------------------------------------------------------------- I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The MSRB filed with the Commission a proposed rule change consisting of proposed amendments to Rule G-20 (with amendments, ``proposed amended Rule G-20''), on gifts, gratuities and non-cash compensation, proposed amendments to Rule G-8, on books and records to be made by brokers, dealers, municipal securities dealers, and municipal advisors, and the deletion of prior interpretive guidance that would be codified by proposed amended Rule G-20 (the ``proposed rule change''). The MSRB requested that the proposed rule change be approved with an implementation date six months after the Commission approval date for all changes. The text of the proposed rule change is available on the MSRB's Web site at www.msrb.org/Rules-and-Interpretations/SEC-Filings/2015-Filings.aspx, at the MSRB's principal office, and at the Commission's Public Reference Room. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the MSRB included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The MSRB has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose Following the financial crisis of 2008, Congress enacted the Dodd- Frank Wall Street Reform and Consumer Protection Act (the ``Dodd-Frank Act'').\3\ The Dodd-Frank Act amended Section 15B of the Exchange Act to establish a new federal regulatory regime requiring municipal advisors to register with the Commission, deeming them to owe a fiduciary duty to their municipal entity clients and granting the MSRB rulemaking authority over them. The MSRB, in the exercise of that rulemaking authority, has been developing a comprehensive regulatory framework for municipal advisors and their associated persons.\4\ Important elements of that regulatory framework are the proposed amendments to Rules G-20 \5\ and G-8. --------------------------------------------------------------------------- \3\ Publix Law 111-203, 124 Stat. 1376 (2010). \4\ MSRB Rule D-11 defines ``associated persons'' as follows: Unless the context otherwise requires or a rule of the Board otherwise specifically provides, the terms ``broker,'' ``dealer,'' ``municipal securities broker,'' ``municipal securities dealer,'' ``bank dealer,'' and ``municipal advisor'' shall refer to and include their respective associated persons. Unless otherwise specified, persons whose functions are solely clerical or ministerial shall not be considered associated persons for purposes of the Board's rules. \5\ Existing Rule G-20 is designed, in part, to minimize the conflicts of interest that arise when a dealer attempts to induce organizations active in the municipal securities market to engage in business with such dealers by means of personal gifts or gratuities given to employees of such organizations. Rule G-20 helps to ensure that a dealer's municipal securities activities are undertaken in arm's length, merit-based transactions in which conflicts of interest are minimized. See MSRB Notice 2004-17 (Jun. 15, 2004). --------------------------------------------------------------------------- The proposed rule change would further the purposes of the Exchange Act, as amended by the Dodd-Frank Act, by addressing improprieties and conflicts that may arise when municipal advisors and/or their associated persons [[Page 57241]] give gifts or gratuities to employees who may influence the award of municipal advisory business. Extending the policies embodied in existing Rule G-20 to municipal advisors through proposed amended Rule G-20 would ensure common standards for brokers, dealers, and municipal securities dealers (``dealers'') and municipal advisors (dealers, together with municipal advisors, ``regulated entities'') that all operate in the municipal securities market.\6\ --------------------------------------------------------------------------- \6\ MSRB Rule G-17 is the MSRB's fundamental fair-dealing rule. It provides that a dealer or municipal advisor, in the conduct of its municipal securities activities or municipal advisory activities, shall deal fairly with all persons and shall not engage in any deceptive, dishonest, or unfair practice. As frequently previously stated, Rule G-17 may apply regardless of whether Rule G- 20 or any other MSRB rule also may be applicable to a particular set of facts and circumstances. See, e.g., Interpretative Notice Concerning the Application of MSRB Rule G-17 to Underwriters of Municipal Securities (Aug. 2, 2012) (reminding underwriters of the application of Rule G-20, in addition to their obligations under Rule G-17). --------------------------------------------------------------------------- Proposed Amended Rule G-20 In summary, the proposed amendments to Rule G-20 would:Extend the relevant existing provisions of the rule to municipal advisors and their associated persons and to gifts given in relation to municipal advisory activities; Consolidate and codify interpretive guidance, including interpretive guidance published by the Financial Industry Regulatory Authority, Inc. (``FINRA'') and adopted by the MSRB, to ease the compliance burden on regulated entities that must understand and comply with these obligations, and delete prior interpretive guidance that would be codified by proposed amended Rule G-20; and Add a new provision to prohibit the seeking or obtaining of reimbursement by a regulated entity of certain entertainment expenses from the proceeds of an offering of municipal securities. Further, proposed amended Rule G-20 would include several revisions that are designed to assist regulated entities and their associated persons with their understanding of and compliance with the rule. Those revisions include the definition of additional key terms and the addition of a paragraph that sets forth the purpose of the rule. Proposed amended Rule G-20 is discussed below. A. Extension of Rule G-20 to Municipal Advisors and Municipal Advisory Activities and Clarifying Amendments Proposed amended Rule G-20 would extend to municipal advisors and their associated persons: (i) The general dealer prohibition of gifts or gratuities in excess of $100 per person per year in relation to the municipal securities activities of the recipient's employer (the ``$100 limit''); (ii) the exclusions contained in the existing rule from that general prohibition (including certain consolidations and the codifications of prior interpretive guidance) and the addition of bereavement gifts to those exclusions; and (iii) the existing exclusion relating to contracts of employment or compensation for services. Proposed section (g), on non-cash compensation in connection with primary offerings, would not be extended to municipal advisors or to associated persons thereof. (i) General Prohibition of Gifts or Gratuities in Excess of $100 per Year Proposed section (c) (based on section (a) of existing Rule G-20) would extend to a municipal advisor and its associated persons the provision that currently prohibits a dealer and its associated persons, in certain circumstances, from giving directly or indirectly any thing or service of value, including gratuities (``gifts''), in excess of $100 per year to a person (other than an employee of the dealer). As proposed, the prohibited payments or services by a dealer or municipal advisor or associated persons would be those provided in relation to the municipal securities activities or municipal advisory activities of the employer of the recipient (other than an employee of the regulated entity). (ii) Exclusions From the $100 Limit Proposed section (d) (based on section (b) of existing Rule G-20) would extend to a municipal advisor and its associated persons the provision that excludes certain gifts from the $100 limit of proposed section (c) as long as the conditions articulated by proposed section (d) and the relevant subsection, as applicable, are met. Proposed section (d) also would state that gifts, in order to be excluded from the $100 limit, must not give rise to any apparent or actual material conflict of interest. Proposed section (d) would include proposed subsections (d)(i) through (d)(iv) and (d)(vi) that would consolidate and codify interpretive guidance that the MSRB provided in MSRB Notice 2007-06 (the ``2007 MSRB Gifts Notice'').\7\ That notice encouraged dealers to adhere to the highest ethical standards and reminded dealers that Rule G-20 was designed to ``avoid conflicts of interest.'' \8\ The 2007 MSRB Gifts Notice's interpretive guidance also included FINRA guidance that the MSRB had adopted by reference.\9\ Further, proposed subsection (d)(v) would codify FINRA interpretive guidance relating to bereavement gifts that the MSRB previously had not adopted.\10\ The MSRB believes that these proposed codifications will (i) enhance the understanding of the interpretive guidance applicable to the exclusions, (ii) foster compliance with the rule, and (iii) enhance efficiencies for regulated entities and regulatory enforcement agencies. A more detailed discussion of the subsections to proposed section (d) is provided below. --------------------------------------------------------------------------- \7\ See Dealer Payments in Connection with the Municipal Issuance Process, MSRB Notice 2007-06 (Jan. 29, 2007). \8\ Id. \9\ See 2007 MSRB Gifts Notice (reminding dealers of the application of Rule G-20 and Rule G-17 in connection with certain payments made and expenses reimbursed during the municipal bond issuance process, and stating that the National Association of Securities Dealers, Inc.'s (``NASD'') guidance provided in NASD Notice to Members 06-69 (Dec. 2006) to assist dealers in complying with NASD Rule 3060 applies as well to comparable provisions of Rule G-20). \10\ See FINRA Letter to Amal Aly, SIFMA (Reasonable and Customary Bereavement Gifts), dated December 17, 2007 (stating that FINRA staff agrees that reasonable and customary bereavement gifts (e.g., appropriate flowers, food platter for the mourners, perishable items intended to comfort the recipient or recipient's family) are not ``in relation to the business of the employer of the recipient'' under FINRA Rule 3060, but that bereavement gifts beyond what is reasonable and customary would be deemed to be gifts in relation to the business of the employer of the recipient and subject to the $100 limit of Rule 3060) (``FINRA bereavement gift guidance''). --------------------------------------------------------------------------- Proposed subsection (d)(i) would exclude, as is currently the case for dealers under existing Rule G-20, a gift of meals or tickets to theatrical, sporting, and other entertainment given by a regulated entity or its associated persons from the $100 limit if they are a ``normal business dealing.'' The regulated entity or its associated persons would be required to host the gifted event, as is currently the case for dealers. If the regulated entity or its associated persons were to fail to host gifts of these types, then those gifts would be subject to the $100 limit. In addition, the regulated entity would be excluded from the $100 limit if it were to sponsor legitimate business functions that are recognized by the Internal Revenue Service as deductible business expenses. Finally, municipal advisors and their associated persons would be held to the same standard as dealers, in that gifts would not qualify as ``normal business dealings'' if they were ``so frequent or so extensive as to raise any question of propriety.'' Proposed subsections (d)(ii) through (iv) would establish three categories of [[Page 57242]] gifts that previously were excluded from the $100 limit under the category of ``reminder advertising'' in the rule language regarding ``normal business dealings'' in existing section (b) of Rule G-20. The MSRB believes that these more specific categories in the proposed new subsections will assist regulated entities with their compliance obligations by providing additional guidance on the types of gifts that constitute reminder advertising under the existing rule. Those more specific categories are: Gifts commemorative of a business transaction, such as a desk ornament or Lucite tombstone (proposed subsection (d)(ii)); de minimis gifts, such as pens and notepads (proposed subsection (d)(iii)); and promotional gifts of nominal value that bear an entity's corporate or other business logo and that are substantially below the $100 limit (proposed subsection (d)(iv)). Proposed subsection (d)(v) would exclude bereavement gifts from the $100 limit. That proposed subsection would consolidate and codify the FINRA bereavement gift guidance currently applicable to dealers that exempts customary and reasonable bereavement gifts from the $100 limit. Under proposed subsection (d)(v), the bereavement gift would be required to be reasonable and customary for the circumstances. Finally, proposed subsection (d)(vi) would exclude personal gifts given upon the occurrence of infrequent life events, such as a wedding gift or a congratulatory gift for the birth of a child. Similar to proposed subsection (d)(v), proposed subsection (d)(vi) would consolidate and codify the FINRA personal gift guidance currently applicable to dealers. That guidance exempts personal gifts that are not ``in relation to the business of the employer of the recipient'' \11\ from the $100 limit. Proposed paragraph .04 of the Supplementary Material, discussed below, would provide guidance as to types of personal gifts that generally would not be subject to the $100 limit. --------------------------------------------------------------------------- \11\ NASD Notice to Members 06-69 (Dec. 2006). --------------------------------------------------------------------------- With regard to proposed subsections (d)(ii) through (vi), the ``frequency'' and ``extensiveness'' limitations applicable to proposed subsection (d)(i) would not apply. The MSRB is proposing to modify those limitations to better reflect the characteristics of the gifts described in proposed subsections (d)(ii) through (vi). Gifts described in those subsections would be gifts that are not subject to the $100 limit, and, typically would not give rise to a conflict of interest that Rule G-20 was designed to address. Transaction-commemorative gifts, de minimis gifts, promotional gifts, bereavement gifts, and personal gifts, as described in the proposed rule change, by their nature, are given infrequently and/or are of such nominal value that retaining the requirement that such gifts be ``not so frequent or extensive'' would be unnecessarily duplicative of the description of these gifts and could result in confusion. To assist regulated entities with their understanding of the rule's exclusions and with their compliance with the rule, the proposed rule change would provide guidance regarding promotional gifts and ``other business logos'' (proposed paragraph .03 of the Supplementary Material) and personal gifts (proposed paragraph .04 of the Supplementary Material). Specifically, proposed paragraph .03 would clarify that the logos of a product or service being offered by a regulated entity, for or on behalf of a client or an affiliate of the regulated entity, would constitute an ``other business logo'' under proposed subsection (d)(iv). The promotional items bearing such logos, therefore, would be excluded from the $100 limit so long as they meet all of the other terms of proposed section (d) and proposed subsection (d)(iv), including the requirement that the promotional items not give rise to any apparent or actual material conflict of interest.\12\ These items would qualify as excluded promotional gifts because they are as unlikely to result in improper influence as items that previously have been excluded (i.e., those items bearing the corporate or other business logo of the regulated entity itself). --------------------------------------------------------------------------- \12\ The logo of a 529 college savings plan (``529 plan'') for which a dealer is acting as a distributor would likely constitute an ``other business logo'' under proposed paragraph .03 of the Supplementary Material. For purposes of determining the applicability of proposed amended Rule G-20 and the exclusion from the $100 limit under proposed subsection (d)(iv), the analysis would ``look through'' to the ultimate recipient of the gift. For example, a state issuer arranges to have a box of 200 tee shirts containing the logo of its 529 advisor-sold plan delivered to the 529 plan's primary distributor. That distributor, in turn, provides the box of tee shirts to a selling firm. Registered representatives of that selling firm then distribute one tee shirt to each of 200 school children. Each gift of a tee shirt would constitute one gift to each school child. --------------------------------------------------------------------------- Proposed paragraph .04 of the Supplementary Material regarding personal gifts would state that a number of factors should be considered when determining whether a gift is in relation to the municipal securities or municipal advisory activities of the employer of the recipient. Those factors would include, but would not be limited to, the nature of any pre-existing personal or family relationship between the associated person giving the gift and the recipient and whether the associated person or the regulated entity with which he or she is associated paid for the gift.\13\ Proposed paragraph .04 would also state that a gift would be presumed to be given in relation to the municipal securities or municipal advisory activities, as applicable, of the employer of the recipient when a regulated entity bears the cost of a gift, either directly or indirectly by reimbursing an associated person. --------------------------------------------------------------------------- \13\ See supra n.11. --------------------------------------------------------------------------- (iii) Exclusion for Compensation Paid as a Result of Contracts of Employment or Compensation for Services Proposed section (f) would extend to municipal advisors the exclusion from the $100 limit in existing Rule G-20(c) for contracts of employment with or compensation for services that are rendered pursuant to a prior written agreement meeting certain content requirements. However, proposed section (f) would clarify that the type of payment that would be excluded from the general limitation of proposed section (c) is ``compensation paid as a result of contracts of employment,'' and not, simply, ``contracts of employment'' (emphasis added). The MSRB is proposing this amendment to clarify that the exclusion in proposed section (f) from the limitation of proposed section (c) does not apply to the existence or creation of employment contracts. Rather, that exclusion would apply to the compensation paid as a result of certain employment contracts. This amendment is only a clarification and would not alter the requirements currently applicable to dealers. B. Consolidation and Codification of MSRB and FINRA Interpretive Guidance As discussed above under ``Extension of Rule G-20 to Municipal Advisors and Municipal Advisory Activities and Clarifying Amendments,'' the proposed amendments would consolidate and codify existing FINRA interpretive guidance previously adopted by the MSRB and incorporate additional relevant FINRA interpretive guidance that has not previously been adopted by the MSRB. The interpretive guidance codified by the proposed amendments would provide that gifts and gratuities that generally would not be subject to the $100 limit would include: transaction-commemorating,\14\ de [[Page 57243]] minimis,\15\ promotional,\16\ bereavement \17\ and personal gifts \18\ discussed above. --------------------------------------------------------------------------- \14\ Proposed subsection (d)(ii), on transaction-commemorative gifts. \15\ Proposed subsection (d)(iii), on de minimis gifts. \16\ Proposed subsection (d)(iv), on promotional gifts. \17\ Proposed subsection (d)(v), on bereavement gifts. \18\ Proposed subsection (d)(vi), on personal gifts. --------------------------------------------------------------------------- The substance of the statement in the 2007 MSRB Gifts Notice, which provides that certain portions of the NASD Notice to Members 06-69 apply as well to comparable provisions of MSRB Rule G-20, would be codified in the proposed rule change, That portion of the interpretative guidance, accordingly, would be deleted. While FINRA's interpretive guidance regarding bereavement gifts was not formerly adopted by the MSRB, the MSRB believes that this guidance will be appropriate for regulated entities as it would be consistent with the purpose and scope of proposed amended Rule G-20. Further, the MSRB believes that the consolidation and codification of applicable interpretive guidance will foster compliance with the rule as well as create efficiencies for regulated entities and regulatory enforcement agencies. In addition to the interpretive guidance discussed above, proposed paragraphs .01, .02, and .05 of the Supplementary Material would provide guidance relating to the valuation and the aggregation of gifts and to the applicability of state laws. Proposed paragraph .01 of the Supplementary Material would state that a gift's value should be determined generally according to the higher of its cost or market value. Proposed paragraph .02 of the Supplementary Material would state that regulated entities must aggregate all gifts that are subject to the $100 limit given by the regulated entity and each associated person of the regulated entity to a particular recipient over the course of a year however ``year'' is selected to be defined by the regulated entity (i.e., calendar year or fiscal year, or rolling basis). Proposed paragraphs .01 and .02 reflect existing FINRA interpretive guidance regarding the aggregation of gifts for purposes of its gift rules, which the MSRB has previously adopted.\19\ --------------------------------------------------------------------------- \19\ NASD Notice to Members 06-69 (Dec. 2006); 2007 MSRB Gifts Notice. --------------------------------------------------------------------------- Proposed paragraph .05 of the Supplementary Material would remind regulated entities that, in addition to all the requirements of proposed amended Rule G-20, regulated entities may also be subject to other duties, restrictions, or obligations under state or other laws. In addition, proposed paragraph .05 would provide that proposed amended Rule G-20 would not supersede any more restrictive provisions of state or other laws applicable to regulated entities or their associated persons. As applied to many municipal advisors previously unregistered with, and unregulated by, the MSRB and their associated persons, the provision would serve to directly alert or remind municipal advisors that additional laws and regulations may apply in this area.\20\ --------------------------------------------------------------------------- \20\ The MSRB previously had provided this alert or reminder through interpretative guidance. See 2007 MSRB Gifts Notice (noting that state and local laws also may limit or proscribe activities of the type addressed in this notice). --------------------------------------------------------------------------- C. Prohibition of Reimbursement for Entertainment Expenses Proposed section (e) of Rule G-20 would provide that a regulated entity is prohibited from requesting or obtaining reimbursement for certain entertainment expenses from the proceeds of an offering of municipal securities. This provision would address a matter highlighted by a recent FINRA enforcement action.\21\ Specifically, proposed section (e) would provide that a regulated entity that engages in municipal securities or municipal advisory activities for or on behalf of a municipal entity or obligated person in connection with an offering of municipal securities is prohibited from requesting or obtaining reimbursement of its costs and expenses related to the entertainment of any person, including, but not limited to, any official or other personnel of the municipal entity or personnel of the obligated person, from the proceeds of such offering of municipal securities. --------------------------------------------------------------------------- \21\ Department of Enforcement v. Gardnyr Michael Capital, Inc. (CRD No. 30520) and Pfilip Gardnyr Hunt, Jr., FINRA Disciplinary Proceeding No. 2011026664301 (Jan. 28, 2014) (concluding that, while the hearing panel did not ``endorse the practice of municipal securities firms seeking and obtaining reimbursement for entertainment expenses incurred in bond rating trips,'' neither the MSRB's rules nor interpretive guidance put the dealer on fair notice that such conduct would be unlawful); see 2007 MSRB Gifts Notice (stating that ``dealers should consider carefully whether payments they make in regard to expenses of issuer personnel in the course of the bond issuance process, including in particular but not limited to payments for which dealers seek reimbursement from bond proceeds, comport with the requirements of'' Rules G-20 and G-17). --------------------------------------------------------------------------- Proposed section (e), however, limits what would constitute an entertainment expense. Specifically, the term ``entertainment expenses'' would exclude ``ordinary and reasonable expenses for meals hosted by the regulated entity and directly related to the offering for which the regulated entity was retained.'' Proposed subsection (e) also would be intended to allow the continuation of the generally accepted market practice of a regulated entity advancing normal travel costs (e.g., reasonable airfare and hotel accommodations) to personnel of a municipal entity or obligated person for business travel related to a municipal securities issuance, such as bond rating trips and obtaining reimbursement for such costs. Some examples of prohibited entertainment expenses that would, for purposes of proposed section (e), be included are tickets to theater, sporting or other recreational spectator events, sightseeing tours, and transportation related to attending such entertainment events. D. Additional Proposed Amendments to Rule G-20 In addition to the previously discussed proposed amendments to Rule G-20, the MSRB also is proposing several amendments to assist readers with their understanding of and compliance with Rule G-20. These proposed amendments include (i) a revised rule title, (ii) a new provision stating the rule's purpose, and (iii) a re-ordering of existing provisions and additional defined terms. (i) Amendment to Title To better reflect the content of proposed amended Rule G-20, the title of the rule would be amended to include the phrase ``Expenses of Issuance.'' This amendment would alert readers that the rule addresses expenses that are related to the issuance of municipal securities and that the reader should consult the rule if a question arises regarding such a matter. (ii) Addition of Purpose Section Proposed section (a) would set forth the purpose of Rule G-20. It would include a brief synopsis of the rule's scope and function. (iii) Re-ordering and Definitions of Terms To assist readers with their understanding of the rule, proposed section (b), at the beginning of the proposed amended rule, would define terms that currently are included in the last section of existing Rule G-20, section (e). The MSRB is also proposing to include three additional defined terms solely for the purposes of proposed amended Rule G-20: ``person,'' ``municipal advisor'' and ``regulated entity.'' ``Regulated entity'' would mean a broker, dealer, municipal securities dealer or municipal advisor, but would exclude the associated persons of such [[Page 57244]] entities. Incorporation of this term into the rule would simplify and shorten the text of proposed amended Rule G-20 as it would replace applicable references within proposed amended Rule G-20 to dealers while also including municipal advisors. The term ``municipal advisor'' would have the same meaning as in Section 15B(e)(4) of the Exchange Act.\22\ The MSRB included that term to clarify that proposed amended Rule G-20 would apply to municipal advisors that are such on the basis of providing advice and also that are such on the basis of undertaking a solicitation.\23\ ``Person'' would mean a natural person, codifying the MSRB's existing interpretive guidance stating the same.\24\ --------------------------------------------------------------------------- \22\ 15 U.S.C. 78o-4(e)(4). \23\ Id. \24\ See MSRB Interpretive Letter ``Person'' (Mar. 19, 1980). --------------------------------------------------------------------------- Proposed Amendments to Rule G-8 Proposed amendments to Rule G-8 would extend to municipal advisors the recordkeeping requirements related to Rule G-20 that currently apply to dealers.\25\ Those recordkeeping requirements would be set forth under proposed paragraphs (h)(ii)(A) and (B) of Rule G-8. Municipal advisors would be required to make and retain records of (i) all gifts and gratuities that are subject to the $100 limit and (ii) all agreements of employment or for compensation for services rendered and records of all compensation paid as a result of those agreements. Municipal advisor recordkeeping requirements would be identical to the recordkeeping requirements to which dealers would be subject in proposed amended Rule G-8(a)(xvii)(A) and (B) (discussed below). The MSRB believes that the proposed amendments to Rule G-8 will ensure common standards for municipal advisors and dealers, and will assist in the enforcement of proposed amended Rule G-20 by requiring that regulated entities, including municipal advisors, create and maintain records to document their compliance with proposed amended Rule G-20. --------------------------------------------------------------------------- \25\ The MSRB solicited comments regarding possible amendments to Rule G-9 in its Request for Comment on Draft Amendments to MSRB Rule G-20, on Gifts, Gratuities and Non-Cash Compensation, to Extend its Provisions to Municipal Advisors, MSRB Notice 2014-18 (Oct. 23, 2014). However, the MSRB omitted those amendments from this proposed rule change because their substance subsequently was addressed by a separate rulemaking initiative. See Notice of Filing of Amendment No. 1 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 1, Consisting of Proposed New Rule G-44, on Supervisory and Compliance Obligations of Municipal Advisors; Proposed Amendments to Rule G-8, on Books and Records to be Made by Brokers, Dealers and Municipal Securities Dealers; and Proposed Amendments to Rule G-9, on Preservation of Records, Exchange Act Release No. 73415 (Oct. 23, 2014), 79 FR 64423 (Oct. 29, 2014) (File No. SR-MSRB-2014-06). --------------------------------------------------------------------------- Further, the Board is proposing to amend the rule language contained in Rule G-8(a)(xvii)(A), (B), and (C) applicable to dealers, to reflect the revisions to proposed amended Rule G-20. Specifically, proposed amended paragraph (a)(xvii)(A) would provide that a separate record of any gift or gratuity subject to the general limitation of proposed amended Rule G-20(c) must be made and kept by dealers (emphasis added to amended rule text). The proposed amendments to paragraph (a)(xvii)(A) would track the reordering of sections in proposed amended Rule G-20 (replacing the reference to Rule G-20(a) with a reference to Rule G-20(c)) and would provide greater specificity as to the records that a dealer must maintain by referencing the terms used in proposed amended Rule G-20(c). Paragraph (a)(xvii)(B) would be amended to clarify that dealers must make and keep records of all agreements referred to in proposed amended Rule G-20(f) and records of all compensation paid as a result of those agreements (emphasis added to proposed amended rule text). Similar to paragraph (a)(xvii)(A), the proposed amendments to paragraph (a)(xvii)(B) would track the reordering of sections in proposed amended Rule G-20 (replacing the reference to Rule G-20(c) with a reference to proposed amended Rule G- 20(f)) and would provide greater specificity as to the types of records that a dealer must maintain by referencing the terms used in proposed amended Rule G-20(f). Paragraph (a)(xvii)(C) also would be amended to track the reordering of sections in proposed amended Rule G-20 (replacing the references to Rule G-20(d) with references to proposed amended Rule G-20(g)). 2. Statutory Basis Section 15B(b)(2) of the Exchange Act \26\ provides that --------------------------------------------------------------------------- \26\ 15 U.S.C. 78o-4(b)(2). [t]he Board shall propose and adopt rules to effect the purposes of this title with respect to transactions in municipal securities effected by brokers, dealers, and municipal securities dealers and advice provided to or on behalf of municipal entities or obligated persons by brokers, dealers, municipal securities dealers, and municipal advisors with respect to municipal financial products, the issuance of municipal securities, and solicitations of municipal entities or obligated persons undertaken by brokers, dealers, municipal securities dealers, and municipal advisors. Section 15B(b)(2)(C) of the Exchange Act \27\ provides that the MSRB's rules shall be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in municipal securities and municipal financial products, to remove impediments to and perfect the mechanism of a free and open market in municipal securities and municipal financial products, and, in general, to protect investors, municipal entities, obligated persons, and the public interest. --------------------------------------------------------------------------- \27\ 15 U.S.C. 78o-4(b)(2)(C). The MSRB believes that the proposed rule change is consistent with Section 15B(b)(2) and Section 15B(b)(2)(C) of the Exchange Act. The proposed rule change would help prevent fraudulent and manipulative practices, promote just and equitable principles of trade and protect investors, municipal entities, obligated persons and the public interest by reducing, or at least exposing, the potential for conflicts of interest in municipal advisory activities by extending the relevant provisions of existing Rule G-20 to municipal advisors and their associated persons. Proposed amended Rule G-20 would help ensure that engagements of municipal advisors, as well as engagements of dealers, are awarded on the basis of merit and not as a result of gifts made to employees controlling the award of such business. By expressly prohibiting the seeking of reimbursement from the proceeds of issuance expenses for the entertainment of any person, including any official or other municipal entity personnel or obligated person personnel, proposed amended Rule G-20 would serve as an effective means of curtailing such practices by providing regulated entities with clear notice and guidance regarding the existing MSRB regulations of such matters. Further, proposed amended Rule G-20 would enhance compliance with Rule G-20 by codifying certain MSRB interpretive guidance and by adopting and codifying certain FINRA interpretive guidance. This codification not only will heighten regulated entity compliance and efficiency (and heighten regulatory enforcement efficiency), but will help prevent inadvertent violations of Rule G-20. In addition, the proposed amendments to Rule G-8 would assist in the enforcement of Rule G-20 by extending the relevant existing recordkeeping requirements of Rule G-8 that currently are applicable to dealers to municipal advisors. Regulated [[Page 57245]] entities, in a consistent and congruent manner, would be required to create and maintain records of (i) any gifts subject to the $100 limit in proposed amended Rule G-20(c) and (ii) all agreements for services referred to in proposed amended Rule G-20(f), along with the compensation paid as a result of such agreements. The MSRB believes that the requirement that all regulated entities create and retain the documents required by proposed amended Rule G-8 will allow organizations that examine regulated entities to more precisely monitor and promote compliance with the proposed rule change. Increased compliance with the proposed rule change would likely reduce the frequency and magnitude of conflicts of interests that could potentially result in harm to investors, municipal entities, or obligated persons, or undermine the public's confidence in the municipal securities market. Section 15B(b)(2)(L)(iv) of the Exchange Act \28\ requires that rules adopted by the Board: --------------------------------------------------------------------------- \28\ 15 U.S.C. 78o-4(b)(2)(L)(iv). not impose a regulatory burden on small municipal advisors that is not necessary or appropriate in the public interest and for the protection of investors, municipal entities, and obligated persons, --------------------------------------------------------------------------- provided that there is robust protection of investors against fraud. The MSRB believes that while the proposed rule change will affect all municipal advisors, it is a necessary regulatory burden because it will curb practices that could harm municipal entities and obligated persons. Specifically, the MSRB believes the proposed rule change will lessen the frequency and severity of violations of the public trust by elected officials and others involved in the issuance of municipal securities that might otherwise have their decisions regarding the awarding of municipal advisory business influenced by the gifts given by regulated entities and their associated persons. While the proposed rule change would burden some small municipal advisors, the MSRB believes that any such burden is outweighed by the need to maintain the integrity of the municipal securities market and to preserve investor and public confidence in the municipal securities market, including the bond issuance process. The MSRB also believes that the proposed rule change is consistent with Section 15B(b)(2)(G) of the Exchange Act,\29\ which provides that the MSRB's rules shall --------------------------------------------------------------------------- \29\ 15 U.S.C. 78o-4(b)(2)(G). prescribe records to be made and kept by municipal securities brokers, municipal securities dealers, and municipal advisors and --------------------------------------------------------------------------- the periods for which such records shall be preserved. The proposed rule change would extend the provisions of existing Rule G-8 to require that municipal advisors as well as dealers make and keep records of: gifts given that are subject to the $100 limit; and all agreements referred to in proposed section (f) (on compensation for services) and records of compensation paid as a result of those agreements. The MSRB believes that the proposed amendments to Rule G-8 related to books and records will promote compliance with and facilitate enforcement of proposed amended Rule G-20, other MSRB rules such as Rule G-17, and other applicable securities laws and regulations. B. Self-Regulatory Organization's Statement on Burden on Competition Section 15B(b)(2)(C) of the Exchange Act \30\ requires that MSRB rules not be designed to impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Exchange Act. In addition, Section 15B(b)(2)(L)(iv) of the Exchange Act provides that MSRB rules may not impose a regulatory burden on small municipal advisors that is not necessary or appropriate in the public interest and for the protection of investors, municipal entities, and obligated persons provided that there is robust protection of investors against fraud.\31\ --------------------------------------------------------------------------- \30\ 15 U.S.C. 78o-4(b)(2)(C). \31\ 15 U.S.C. 78o-4(b)(2)(L)(iv). --------------------------------------------------------------------------- In determining whether these standards have been met, the MSRB was guided by the Board's Policy on the Use of Economic Analysis in MSRB Rulemaking.\32\ In accordance with this policy, the Board has evaluated the potential impacts on competition of the proposed rule change, including in comparison to reasonable alternative regulatory approaches, relative to the baseline. The MSRB also considered other economic impacts of the proposed rule change and has addressed any comments relevant to these impacts in other sections of this document. --------------------------------------------------------------------------- \32\ Policy on the Use of Economic Analysis in MSRB Rulemaking, available at, http://www.msrb.org/About-MSRB/Financial-and-Other-Information/Financial-Policies/Economic-Analysis-Policy.aspx. --------------------------------------------------------------------------- The MSRB does not believe that the proposed rule change will impose any additional burdens on competition, relative to the baseline, that are not necessary or appropriate in furtherance of the purposes of the Exchange Act. To the contrary, the MSRB believes that the proposed rule change is likely to increase competition. Extending the relevant current restrictions to municipal advisors and their municipal advisory activities will, the MSRB believes, promote merit-based (e.g., the quality of advice, level of expertise and services offered by the municipal advisor) and price-based competition for municipal advisory services and curb or limit the selection or retention of a municipal advisor based on the receipt of gifts. A market in which the participants compete on the basis of price and quality is more likely to represent a ``level playing field'' for existing providers and encourage the entry of well-qualified new providers. Of particular note is the positive impact the proposed changes are likely to have on dealers that are also municipal advisors that may currently be at a competitive disadvantage vis-[agrave]-vis municipal advisors that are not subject to any of the current restrictions of Rule G-20 or the associated requirements of Rule G-8. The proposed prohibition against the use of offering proceeds to pay certain entertainment expenses, which would apply to all regulated entities, is also, for the reasons stated above, likely to have no negative impact on competition and, to the contrary, may foster greater competition among all regulated entities. The MSRB considered whether costs associated with the proposed rule change, relative to the baseline, could affect the competitive landscape. The MSRB recognizes that the compliance, supervisory and recordkeeping requirements associated with the proposed rule change may impose costs and that those costs may disproportionately affect municipal advisors that are not also broker-dealers or that have not otherwise previously been regulated in this area and have not already established compliance programs to comply with the current requirements of Rule G-20 or the associated requirements of Rule G-8 and MSRB Rule G-27. During the comment period, the MSRB sought information that would support quantitative estimates of these costs, but did not receive any relevant data. For those municipal advisors with no Rule G-20 compliance program or relevant experience, however, the MSRB believes the existing requirements of MSRB Rule G-44 provide a foundation upon which Rule G- 20 specific compliance activities can be built and likely significantly reduces the marginal cost of complying with the proposed changes to Rule G-20. To further reduce [[Page 57246]] compliance costs and reduce inadvertent violations of Rule G-20, the MSRB has distilled and incorporated additional interpretive guidance that was not previously included in the draft amendments and clarified specific points. The MSRB believes these refinements will help minimize costs that could affect the competitive landscape and will particularly benefit smaller firms. Nonetheless, the MSRB recognizes that small municipal advisors and sole proprietors may not employ full-time compliance staff and that the cost of ensuring compliance with the requirements of the proposed rule change may be proportionally higher for these smaller firms, potentially leading to exit from the industry or consolidation. However, as the SEC recognized in its Order Adopting the SEC Final Rule, the market for municipal advisory services is likely to remain competitive despite the potential exit of some municipal advisors (including small entity municipal advisors) or the consolidation of municipal advisors.\33\ --------------------------------------------------------------------------- \33\ Exchange Act Release No. 70462 (Sept. 20, 2013) 78 FR 67468, 67608 (Nov. 12, 2013). --------------------------------------------------------------------------- C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others The MSRB received eight comment letters \34\ in response to the Request for Comment on the draft amendments to Rules G-20 and G-8. Many commenters expressed support for the draft amendments. NAMA welcomed the amendments and their attempt to limit the gaining of influence through the giving of gifts and gratuities. BDA and SIFMA expressed their general support of extending Rule G-20's requirements to municipal advisors as each believed the amendments would promote a level-playing field for the regulation of municipal advisors and dealers acting in the municipal securities and municipal advisory marketplace. Several commenters, however, expressed concerns or suggested changes to the draft amendments. The comment letters are summarized and addressed below by topic. --------------------------------------------------------------------------- \34\ Comments were received in response to the Request for Comment from: An anonymous attorney (``Anonymous''), Bond Dealers of America: Letter from Michael Nicholas, Chief Executive Officer, dated December 8, 2014 (``BDA''); Chris Taylor, dated October 23, 2014 (``Taylor''); FCS Group: Letter from Taree Bollinger, dated October 24, 2014 (``FCS''); Investment Company Institute: Letter from Tamara K. Salmon, Senior Associate Counsel, dated December 5, 2014 (``ICI''); National Association of Municipal Advisors: Letter from Terri Heaton, President, dated December 8, 2014 (``NAMA'') (formerly, National Association of Independent Public Finance Advisors); The PFM Group: Letter from Joseph J. Connolly, Counsel, dated November 7, 2014 (``PFM''); and Securities Industry and Financial Markets Association: Letter from Leslie M. Norwood, Managing Director and Associate General Counsel, dated December 8, 2014 (``SIFMA''). --------------------------------------------------------------------------- A. $100 Limit NAMA and PFM expressed concerns that the $100 limit would not adequately apply to gifts given to certain recipients that, in their opinion, should be subject to the $100 limit of proposed amended Rule G-20. Further, NAMA and Anonymous suggested revisions to the amount of the $100 limit. (i) Application of Proposed Amended Rule G-20(c) to Certain Recipients NAMA believed the $100 limit would not apply to gifts given to employees or officials of municipal entities or obligated persons.\35\ In NAMA's view, such persons, for the most part, do not engage in ``municipal advisory activities'' or ``municipal securities business'' as such business is proposed to be defined in amended MSRB Rule G-37, on political contributions and prohibitions on municipal securities business. --------------------------------------------------------------------------- \35\ NAMA stated that the term ``municipal securities activities'' is not defined by the proposed rule change, but did not provide any explanation of its statement or reason for its statement. The term ``municipal securities activities'' is a term that is used in existing Rule G-20 and frequently throughout the MSRB Rule Book. --------------------------------------------------------------------------- The MSRB has determined not to revise proposed amended Rule G-20(c) in response to NAMA's concerns. Even if employees or officials of municipal entities or obligated persons generally do not engage in ``municipal advisory activities,'' the MSRB has made clear in existing interpretive guidance regarding Rule G-20 that issuer personnel are considered to engage in ``municipal securities activities.'' \36\ The language of both existing Rule G-20 and proposed amended Rule G-20 applies to gifts given in relation to this broad term, ``municipal securities activities,'' and not the narrower term, ``municipal securities business,'' which was developed for the particular purposes of MSRB Rule G-37. --------------------------------------------------------------------------- \36\ See, e.g., 2007 MSRB Gifts Notice (stating that dealers should consider carefully whether payments of expenses they make in regard to expenses of issuer personnel, in the course of the bond issuance process, comport with Rules G-20 and G-17). The MSRB does not suggest that it has relevant regulatory authority over municipal entities or obligated persons; rather, the MSRB can appropriately regulate the conduct of dealers and municipal advisors in the giving of gifts to personnel of municipal entities and obligated persons. --------------------------------------------------------------------------- PFM believed that section (c) of proposed amended Rule G-20 would not apply to gifts given to elected or appointed issuer officials, because the government, in its view, is not their ``employer.'' Existing Rule G-20(a), however, which would be retained as proposed amended Rule G-20(c), broadly defines ``employer'' to include ``a principal for whom the recipient of a payment or service is acting as agent or representative.'' \37\ Thus, for purposes of existing and proposed amended Rule G-20, elected and appointed officials are considered employees of the governmental entity on behalf of which they act as agent or representative. --------------------------------------------------------------------------- \37\ See, e.g., First Fidelity Securities Group, Exchange Act Release No. 36694, Administrative Proceeding File No. 3-8917 (Jan. 9, 1996) (finding violations of Rule G-20 based on payments to financial consultants of issuer, concluding they were ``agent[s] or representative[s]'' of issuer within the meaning of the rule). See Self-Regulatory Organizations; Order Approving A Proposed Rule Change by the Municipal Securities Rulemaking Board Relating to Recordkeeping & Record Retention Requirements Concerning Gifts & Gratuities, Exchange Act Release No. 34372 (July 13, 1994) (File No. SR-MSRB-94-7) (``Rule G-20 is intended to prevent fraud and inappropriate influence in the municipal securities market by limiting the amount of gifts or gratuities from municipal securities dealers to persons not employed by the dealers, including issuer officials and employees of other dealers, in relation to municipal securities activities.'' (citation omitted)). --------------------------------------------------------------------------- (ii) Changing the Amount of the $100 Limit NAMA and Anonymous submitted comments regarding changing the amount of the $100 limit. NAMA proposed that the $100 limit be raised to $250 per person per year, believing this would strike the appropriate balance of allowing reasonable and customary gift giving while also limiting conflicts of interest, and would align Rule G-20 with MSRB Rule G-37. NAMA stated that, in Rule G-37, the MSRB determined that the contribution level of $250 (without the exceptions in Rule G-20) was sufficient to address the needs of individuals seeking to give political contributions while not allowing those contributions to be so excessive as to allow the contributor to gain undue influence. NAMA proposed that supplementary material be added to state, in effect, that occasional gifts of meals or tickets to theatrical, sporting, and other entertainments that are hosted by the regulated entity would be presumed to be so extensive as to raise a question of propriety if they exceed $250 in any year in conjunction with any gifts provided under Rule G-20(c). NAMA asserted that because the purposes of Rule G-20 and Rule G-37 are united in their attempt to limit a dealer's or a municipal advisor's ability to gain undue influence through the [[Page 57247]] giving of gifts or contributions, that the rules should be written similarly. Anonymous suggested that the MSRB set a $20 or less per gift limit and lower the $100 limit to $50 per year to level the playing field among all types of municipal advisors and to attain broader compatibility with various federal, state and local regulations regarding gifts. Anonymous further stated that the effective limit to a municipal advisor who also is registered as an investment adviser and subject to the requirements of the Investment Advisers Act of 1940 (the ``Advisers Act'') (a ``municipal advisor/investment adviser''), even in the absence of proposed amended G-20 generally would be zero because, in its view, a municipal advisor/investment adviser is subject to Advisers Act Rule 206(4)-5 (the Advisers Act ``pay to play'' rule) in its municipal advisory activities.\38\ Anonymous stated that Rule 206(4)-5 defines payments as ``any gift, subscription, loan, advance, or deposit of money or anything of value,'' and contains no de minimis exception. --------------------------------------------------------------------------- \38\ 17 CFR 275.206(4)-5. --------------------------------------------------------------------------- Rule G-37 is designed to address potential political corruption that may result from pay-to-play practices,\39\ and as such, is tailored in light constitutional First Amendment concerns. Existing Rule G-20, on the other hand, is designed to address commercial bribery by minimizing the conflicts of interest that arise when a dealer attempts to induce organizations active in the municipal securities market to engage in business with such dealers by means of gifts or gratuities given to employees of such organizations.\40\ Rules G-37 and G-20 thus address substantially different regulatory needs in different legal contexts, and the dollar thresholds used in those rules currently differ on that basis. The MSRB believes that the mere purported alignment with Rule G-37 is an insufficient justification for raising the $100 limit. --------------------------------------------------------------------------- \39\ Exchange Act Release No. 33868, 59 FR 17621, 17624 (Apr. 13, 1994) (File No. SR-MSRB-1994-02). Pay-to-play practices typically involve a person making a cash or in-kind political contribution (or soliciting or coordinating with others to make such contributions) in an attempt to influence the selection of the contributor to engage in municipal securities activities or municipal advisory activities. \40\ See supra n.5. --------------------------------------------------------------------------- Further, the parallel that Anonymous draws between proposed amended Rule G-20 and the SEC's regulation of political contributions by certain investment advisors under Advisers Act Rule 206(4)-5 fails to account for the difference in the scope of each regulation. Specifically, Anonymous' interpretation of the regulations fails to recognize the much broader application of proposed amended Rule G-20. Proposed amended Rule G-20 would apply to any gifts given in relation to any of the municipal securities or municipal advisory activities of the recipient's employer. Advisers Act Rule 206(4)-5, on the other hand, is much narrower in application--it restricts only payments for a solicitation of a government entity for investment advisory services.\41\ Also, proposed amended Rule G-20 would explicitly apply to gifts given to many regulated persons (e.g., associated persons of dealers and municipal advisors). By contrast, the complete prohibition Anonymous cites from Advisers Act Rule 206(4)-5 does not apply to payments to defined regulated persons. While it may be appropriate to limit payment for a solicitation to zero unless certain conditions are met, this is not a sufficient rationale to reduce the $100 limit for gifts in proposed amended Rule G-20(c). Adopting Anonymous' recommendation would likely result in an overly and unnecessarily restrictive prohibition that would not allow for appropriate social interactions between regulated entities and their prospective and/or actual business associates. The MSRB, at this time, has determined not to decrease the $100 limit for gifts set forth in proposed amended Rule G-20(c). --------------------------------------------------------------------------- \41\ 17 CFR 275.206(4)-5. --------------------------------------------------------------------------- B. Gifts Not Subject to the $100 Limit (i) ``Normal Business Dealings'' NAMA expressed concern that proposed amended Rule G-20(d), which sets forth the exclusions from the $100 limit, leaves open opportunities for abuse particularly because the associated books and records requirement does not require the maintenance of records of excluded gifts. NAMA expressed concern in particular regarding proposed subsection (d)(i), which would, under certain circumstances, exclude from the $100 limit the giving of occasional meals or tickets to theatrical, sporting or entertainment events. In NAMA's view, regulated entities would be able to engage in otherwise impermissible gift giving under the guise of ``normal business dealings,'' and such gift giving likely would result in the improper influence that Rule G-20 was designed to curtail. NAMA suggested modifying the amended rule to impose an aggregate limit of $250 on all gifts given as part of ``normal business dealings,'' believing the aggregate limit would be consistent with the dollar threshold used in MSRB Rule G-37. The MSRB, like NAMA, is concerned that the exclusions from the $100 limit not be abused. For this reason, proposed amended Rule G-20 would place important conditions on the several types of excluded gifts, including those in the category of ``normal business dealings.'' All of the gifts described in proposed section (d) would be excluded only if they do not ``give rise to any apparent or actual material conflict of interest,'' and, under proposed section (d)(i), ``normal business dealing'' gifts would be excluded only if they are not ``so frequent or so extensive as to raise any question of propriety.'' Moreover, dealers and municipal advisors are subject to the fundamental fair-dealing obligations of MSRB Rule G-17. Rule G-17 likely addresses at least some of the concerns raised by NAMA by prohibiting regulated entities from characterizing excessive or lavish expenses for the personal benefit of issuer personnel as an expense of the issue, as such behavior could possibly constitute a deceptive, dishonest or unfair practice.\42\ The MSRB has determined at this juncture not to further revise proposed amended Rule G-20 because the MSRB believes the proposed rule change adequately addresses the concerns raised by NAMA relating to excluded gifts generally and ``normal business dealings'' in particular. --------------------------------------------------------------------------- \42\ See 2007 MSRB Gifts Notice (stating that a dealer should be aware that characterizing excessive or lavish expenses for the personal benefit of issuer personnel as an expense of the issue, may, depending on all the facts and circumstances, constitute a deceptive, dishonest, or unfair practice in violation of Rule G-17). --------------------------------------------------------------------------- (ii) Nominal Value Standard for Promotional Gifts ICI expressed concern regarding proposed amended Rule G-20(d)(iv), which provides that promotional gifts generally would not be subject to the $100 limit if such gifts are of nominal value, i.e., ``substantially below the general $100 limit.'' ICI stated that this standard is too vague, would be difficult to comply with, and that the resulting ambiguity would permit the MSRB to second guess a regulated entity's good faith effort to comply with the rule. ICI stated that deleting the phrase would better align Rule G-20 with FINRA's comparable non-cash compensation rule for investment company securities, and would facilitate registrants' compliance with such rules. Since 2007, the MSRB has used the ``substantially below the general $100 limit'' standard by way of its [[Page 57248]] interpretive guidance, which incorporates FINRA guidance to the same effect under the FINRA gift and non-cash compensation rules.\43\ The MSRB believes that it is appropriate at this time to retain this standard for determining whether a promotional gift is of nominal value because, among other reasons, the current standard is harmonized with more analogous FINRA regulation, ICI's concern about consequences from perceived vagueness is speculative, and a bright-line limit could distort behavior resulting in increased gift giving at or near any bright-line limit. --------------------------------------------------------------------------- \43\ FINRA Rules 3220 and 2320; NASD Rule 2820. --------------------------------------------------------------------------- (iii) Gifts of Promotional Items and ``Other Business Logos'' ICI requested clarification regarding the application of proposed amended Rule G-20 to promotional gifts that display the brand or logo of the product for which the regulated entity is acting as a distributor, such as a 529 college savings plan, and not the brand or logo of the regulated entity itself. ICI stated its belief that Rule G- 20 would not appear to be triggered when a regulated entity utilizes promotional gifts that display the logo of a client or product of a regulated entity, such as a logo for a 529 college savings plan, because such gifts do not promote that regulated entity's brand or logo. ICI recommended that the MSRB clarify that proposed amended Rule G-20(c) does not apply at all in such instances, and that the regulated entity therefore need not rely on an exclusion for the giving of such promotional gifts. The restrictions of proposed Rule G-20 are not, as suggested by ICI, triggered because a gift given by a regulated entity or its associated person promotes that regulated entity's brand or logo. Rather, proposed amended Rule G-20 has potential application to the giving of ``any thing or service of value'' in relation to the recipient's employer's municipal securities or municipal advisory activities (emphasis added). The proposed amended rule provides for exclusions of certain gifts, including the exclusion for promotional gifts ``displaying the regulated entity's corporate or other business logo.'' As such, if the gift items described by ICI meet all of the requirements to qualify for an exclusion as described in proposed section (d) and proposed subsection (d)(iv), then the restrictions of proposed amended Rule G-20(c) would not apply. Proposed paragraph .03 to the Supplementary Material would provide this guidance regarding promotional gifts, and due to the apparent misapprehension of the scope of the rule in the commentary, would clarify that such gifts are potentially subject to the $100 limit of proposed amended section (c). C. Incorporation of Applicable FINRA Interpretive Guidance NAMA commented that the MSRB should codify all applicable FINRA guidance on gifts and gratuities into the rule language of Rule G-20. NAMA noted that many municipal advisors are not FINRA members and stated that regulated entities (particularly non-FINRA members) should not be expected to review FINRA interpretive guidance to fully understand their obligations under Rule G-20. The MSRB generally agrees with NAMA. In addition, the MSRB recognizes that some municipal advisors may be establishing compliance programs to comply with MSRB rules for the first time. The MSRB further believes that it will be more efficient for all regulated entities and regulatory enforcement agencies if additional applicable FINRA interpretive guidance is codified in proposed amended Rule G-20. As such, the MSRB has distilled and included in proposed amended Rule G-20 the substance of additional portions of the interpretive guidance contained in NASD Notice to Members 06-69 addressing the valuation and aggregation of gifts. As previously noted, proposed paragraph .01 of the Supplementary Material would state that a gift's value should be determined by regulated entities generally according to the higher of cost or market value. Proposed paragraph .02 of the Supplementary Material would state that regulated entities must aggregate all gifts that are subject to the $100 limit given by the regulated entity and each associated person of the regulated entity to a particular recipient over the course of a year. D. Alignment With FINRA Rules ICI commented that it is supportive of the MSRB's rulemaking effort to align, when appropriate, MSRB rules with congruent FINRA rules, and that the comments ICI submitted were intended to foster additional alignment with FINRA rules. In particular, ICI stated that the MSRB should consider how it might better align Rule G-20 with FINRA's comparable rules, including NASD Rule 2830(l)(5) since that rule was not addressed in the MSRB's Request for Comment. In addition, ICI suggested that the MSRB should monitor FINRA's retrospective review relating to gifts, gratuities and non-cash compensation and consider making conforming amendments to its rules to keep in line with any amendments that FINRA might adopt. As part of the MSRB's rulemaking process, the MSRB considers the appropriateness and implications of harmonization between MSRB and FINRA rules that address similar subject matters. The MSRB believes that such harmonization, when practicable, can facilitate compliance and reduce the cost of compliance for regulated entities. As discussed above, the MSRB has consolidated and proposed to codify a significant portion of FINRA's interpretive guidance set forth in NASD Notice to Members 06-69 on gifts and gratuities in proposed amended Rule G-20. In addition, portions of proposed amended Rule G-20 and existing Rule G-20 are substantially similar to other applicable NASD and FINRA rules, including NASD Rule 2830(l)(5), Investment Company Securities, and FINRA Rule 2320(g)(4), Variable Contracts of an Insurance Company. With regard to FINRA's retrospective review of its gifts, gratuities and non-cash compensation rules, the MSRB has monitored from the beginning of this rulemaking initiative, and continues to monitor, FINRA's activities in this area, and may consider further potential harmonization if FINRA proposes or adopts any amendments to its relevant rules. E. Entertainment Expenses and Bond Proceeds (i) Definition of Entertainment Expenses BDA, NAMA, SIFMA, and Anonymous requested clarification regarding the expenses that would be subject to the prohibition in proposed amended Rule G-20(e). BDA requested that the MSRB clarify ``entertainment expenses'' versus expenses for ``normal and necessary meals'' and ``normal travel costs.'' BDA also suggested that the MSRB treat a regulated entity's meals with clients that are generally part of travel separately from items like tickets to sporting or theatrical events, which BDA believed was clearly entertainment. BDA requested that, if the MSRB were to not amend proposed amended Rule G-20(e) itself, that the MSRB should provide interpretive guidance to clarify the issue. NAMA commented that the entertainment expense reimbursement prohibition was appropriate and suitably tailored. Nevertheless, NAMA believed that it would be clearer if entertainment expenses were defined as ``necessary expenses for meals that comply with the expense guidelines of the municipal entity for their personnel [[Page 57249]] (any amounts in excess would not be reimbursable and subject to limitation).'' SIFMA commented that ``entertainment expenses'' should not include expenses ``reasonably related to a legitimate business purpose.'' SIFMA stated that such a revision to the draft rule language would improve the clarity of the rule and would aid in compliance with the rule. Further, SIFMA suggested that the entertainment expense provision might be clearer if the provision stated that meals that are ``a fair and reasonable amount, indexed to inflation, such as not to exceed $100 per person'' are not, for purposes of the provision, entertainment expenses and therefore not subject to the prohibition. Anonymous suggested that the MSRB modify proposed section (e) to clarify that the prohibition is not intended to unnecessarily restrict how a regulated entity may appropriately use the fees it earns from its clients when the fees are paid from the proceeds of an offering of municipal securities. After careful consideration of these comments, the MSRB has included a clarification in the proposed entertainment expense provision to conform proposed amended Rule G-20(e) to a standard used in tax law for analogous purposes. That tax law standard is used to identify a legitimate connection to business activity and avoid excess expenses in relation to that activity. The modification replaces the phrase ``reasonable and necessary expenses for meals'' with ``ordinary and reasonable expenses for meals'' (emphasis added) hosted by the regulated entity and directly related to the offering for which the regulated entity was retained. Beyond this modification, the MSRB believes that the proposed entertainment expense provision, including with respect to its scope, is sufficiently clear. The MSRB believes that the inclusion of a discrete dollar limit or other more prescriptive language as suggested by some commenters would result in an overly inflexible rule. Further, the MSRB believes that making the scope of the prohibition turn on the existence and parameters of client entertainment and gift policies, as suggested by NAMA, would result in a lack of uniformity and potential confusion among market participants. (ii) Other Comments Regarding Entertainment Expenses and Bond Proceeds SIFMA stated that it agreed with the intent of the prohibition of seeking or obtaining reimbursement for entertainment expenses from the proceeds of an issuance of municipal securities. Nonetheless, SIFMA commented that it was concerned: (i) About the ``function and interpretation of the prohibition;'' (ii) that the entertainment expense provision would prohibit a practice which is currently not prohibited by MSRB rules; \44\ (iii) that regulated entities should be able to accommodate clients that would like entertainment expenses to be paid for and reimbursed to the dealer out of the proceeds of the offering; \45\ and (iv) that the provision augurs ``federal regulatory creep'' over state and local issuers, which would ``become another area where regulators will hold dealers responsible indirectly for state and local issuer behavior that they cannot regulate directly.'' Anonymous stated that it believed the entertainment prohibition provision would prohibit an investment adviser registered under the Advisers Act (``RIA'') employed by firms that also employ municipal advisors from obtaining reimbursement for appropriate business expenses (such as an RIA taking a commercial client of their investment advisory business out to lunch to discuss business) because it construed the firm's funds (which were earned municipal advisory fees paid to the firm from bond proceeds) as retaining their character as ``bond proceeds.'' --------------------------------------------------------------------------- \44\ SIFMA stated that it understood that such practices may be permitted or prohibited depending on state or local laws. \45\ The MSRB believes that SIFMA's recommendation would circumvent the purpose of the proposed entertainment expense provision because it would allow dealers to seek or obtain reimbursement for entertainment expenses from an issuer by including such expenses in the underwriter's discount. The MSRB believes that SIFMA's suggested change would be contrary to the intent of the proposed entertainment expense provision. --------------------------------------------------------------------------- Proposed amended Rule G-20(e) would address a concern of the MSRB that reimbursement of certain expenses from bond proceeds may violate MSRB rules, including Rules G-20 and G-17.\46\ The MSRB has provided guidance that obtaining reimbursement for expenses from bond proceeds, even ``if thought to be a common industry practice'' may raise a question under applicable MSRB rules depending on ``the character, nature and extent of expenses paid by dealers or reimbursed as an expense of the issue.'' \47\ The MSRB believes that proposed amended Rule G-20(e) will promote just and equitable principles of trade. --------------------------------------------------------------------------- \46\ See supra n. 21. \47\ Id. --------------------------------------------------------------------------- Further, the proposed reimbursement prohibition is explicitly limited in its application to the conduct of dealers and municipal advisors. It would not prohibit a municipal entity from using bond proceeds to pay for entertainment costs, though other laws or regulations outside of MSRB rules may apply. The proposed prohibition also would not preclude dealers and municipal advisors from providing business entertainment--i.e., items or services of value--that is within the scope of ``normal business dealing,'' which would include, for example, meals or tickets to theatrical, sporting or other entertainments, subject to the conditions of proposed amended Rule G- 20(d)(i) (the provision on normal business dealings). Accordingly, the MSRB has determined not to revise proposed amended Rule G-20, at this time, in response to the comments from SIFMA or Anonymous relating to the entertainment expense reimbursement prohibition. F. Application of Non-Cash Compensation Provisions to Municipal Advisors In response to the Request for Comment, NAMA commented that the provisions of draft amended section (g), which would have extended the non-cash compensation provisions in connection with primary offerings that currently apply to dealers to municipal advisors and their associated persons, appeared to be inapplicable to non-dealer municipal advisors. Anonymous supported the extension of such provisions to municipal advisors. After carefully considering the comments, the MSRB believes, at this juncture, that extending the requirements of proposed section (g) to a municipal advisor and any associated person thereof is not necessary. However, the MSRB intends to monitor the activities of municipal advisors in relation to its rules, and may revisit this matter at a future date. G. Potential Regulatory Alternatives Anonymous suggested that the MSRB consider two alternatives to proposed amended Rule G-20. According to Anonymous, to ensure that municipal advisors/investment advisers are not unduly disadvantaged by the ability of non-RIAs to give gifts, the MSRB should incorporate Advisers Act Rule 206(4)-5 into Rule G-20 and clarify that Rule 206(4)- 5 also applies to municipal advisory activities of any MSRB-regulated entity. Anonymous believed that because Rule 206(4)-5 already applies to municipal advisors/investment advisers, the incorporation of that rule into Rule G-20 would reduce duplicative rulemaking and would increase regulatory certainty. [[Page 57250]] Alternatively, Anonymous suggested that the MSRB recommend to the SEC that it adjust Rule 206(4)-5 to be more compatible with proposed amended Rule G-20 as to the municipal advisory activities of municipal advisors/investment advisers. The MSRB believes that Anonymous's concerns are addressed by other MSRB rules or rule provisions that the MSRB has already proposed. Advisers Act Rule 206(4)-5 prohibits an investment adviser from providing or agreeing to provide, directly or indirectly, payments to solicit a government entity for investment advisory services unless such person is a defined regulated person. MSRB Rule G-38, solicitation of municipal securities business, flatly prohibits a dealer, directly or indirectly, from paying any person who is not an affiliated person of the dealer for a solicitation of municipal securities business on behalf of such dealer. In addition, proposed MSRB Rule G-42, on duties of non-solicitor advisors, currently pending with the SEC for approval or disapproval, would generally prohibit payments for solicitations with certain limited exceptions that would include allowing payments that constitute ``normal business dealings'' as defined in Rule G-20, reasonable fees paid to another registered municipal adviser, and payments to an affiliate. The MSRB therefore believes that it is unnecessary to incorporate Advisers Act Rule 206(4)-5 into Rule G-20 to address Anonymous's concerns. H. Recordkeeping Requirements (i) Recordkeeping for Certain Gifts Not Subject to $100 Limit NAMA commented that a regulated entity should be required to maintain records for gifts that are subject to either the normal business dealing exclusion under proposed amended Rule G-20(d)(i) or the personal gift exclusion under proposed amended Rule G-20(d)(vi). NAMA noted that gifts that constitute normal business dealings within proposed amended Rule G-20(d)(i) require recordkeeping to comply with certain requirements of the Internal Revenue Service and of various municipalities, such as in California. Therefore, according to NAMA, imposing a recordkeeping requirement would not be an entirely new burden, would provide protection against pay-to-play activities and would provide a means to determine whether such gifts give rise to questions of impropriety or conflicts of interest. NAMA also commented that, to afford meaningful enforcement, the MSRB should require a regulated entity to keep records of any personal gifts given pursuant to proposed amended Rule G-20(d)(iv) that were paid for, directly or indirectly, by the regulated entity. After carefully considering the comments, the MSRB continues to believe that the recordkeeping requirements of Rule G-8(h) that relate to Rule G-20 should be limited to items that are subject to the $100 limit. The MSRB believes this approach to recordkeeping under Rule G-20 will continue to harmonize with existing FINRA recordkeeping requirements for dealers. Moreover, significant safeguards that are provided by other MSRB rules, including Rules G-27, G-44, and G-17, weigh against imposing the additional recordkeeping burdens on regulated entities suggested by NAMA. As the MSRB reminded dealers in its 2007 MSRB Gifts Notice on Rule G-20, dealers are required to have supervisory policies and procedures in place under Rule G-27 that are reasonably designed to prevent and detect violations of Rule G-20 (and of other applicable securities laws).\48\ Recently adopted Rule G-44, on supervision and compliance obligations of municipal advisors, imposes similar supervisory requirements on municipal advisors. Further, and also as the MSRB reminded dealers in 2007 in particular contexts, the making of payments that might not otherwise be subject to Rule G-20 could constitute separate violations of Rule G-17, which currently applies to municipal advisors and dealers.\49\ --------------------------------------------------------------------------- \48\ 2007 MSRB Gifts Notice. \49\ Id. --------------------------------------------------------------------------- (ii) Recordkeeping of Services Agreements PFM objected to the draft amendment to Rule G-8(h)(ii)(B) that would require municipal advisors to keep all agreements referred to in draft amended G-20(f), on compensation for services. PFM stated that this requirement would be a substantial and unjustified burden on municipal advisors due to the large number of transactions for which, it believed, they would need to maintain records. Furthermore, PFM believed that the MSRB does not have statutory authority to require recordkeeping of contracts for services of a non-securities related nature and stated that it believed that Rule G-8(h)(ii)(B) would require such recordkeeping. PFM suggested that draft amended Rule G- 8(h)(ii)(B) be revised to limit the required agreements to those ``relied upon by the registrant pursuant to Rule G-20(c)'' rather than those ``referred to in Rule G-20(f).'' FCS requested clarification as to whether Rule G-8(h)(ii)(B) would require a municipal advisor to keep a record of every contract the municipal advisor enters into ``for municipal advisory services whether or not any gifts [were] given.'' The comments from PFM and FCS appear to be predicated on a misunderstanding of the types of agreements that are referred to in proposed section (f). The proposed section provides that the $100 limit does not apply to compensation for services that are rendered pursuant to a prior written agreement meeting certain content requirements. Thus, the agreements referred to in proposed section (f) are those under which compensation would otherwise be subject to the $100 limit (i.e., compensation in relation to the municipal securities or municipal advisory activities of the employer of the recipient). As such, agreements of a non-securities related nature, about which PFM expressed concern, would not be required to be kept by proposed amended Rule G-8(h)(ii)(B). (iii) Recordkeeping by Registered Investment Advisers Anonymous commented that it believed that while the draft recordkeeping requirements were relevant, such requirements were unnecessary for municipal advisors/investment advisers because, according to Anonymous, RIAs are required to keep such records under the Advisers Act Rule 206(4)-3.\50\ Anonymous suggested that the MSRB consider exempting municipal advisors/investment advisers from the recordkeeping requirements associated with Rule G-20. --------------------------------------------------------------------------- \50\ 17 CFR 275.206(4)-3. --------------------------------------------------------------------------- To help ensure a level playing field as well as to enhance compliance and enforcement, the MSRB believes that all regulated entities, including municipal advisors/investment advisers, should be subject to substantially identical recordkeeping requirements associated with Rule G-20. Therefore, regardless of whether a regulated entity also may be subject to a comparable requirement under other federal securities laws, that regulated entity would be required to comply with Rule G-20's associated recordkeeping requirements. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 45 days of the date of publication of this notice in the Federal Register or within such longer period of [[Page 57251]] up to 90 days (i) as the Commission may designate if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the self-regulatory organization consents, the Commission will: (A) by order approve or disapprove such proposed rule change, or (B) institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or Send an email to rule-comments@sec.gov. Please include File Number SR-MSRB-2015-09 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-2015-09. 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-2015-09 and should be submitted on or before October 13, 2015. For the Commission, pursuant to delegated authority.\51\ --------------------------------------------------------------------------- \51\ 17 CFR 200.30-3(a)(12). Brent J. Fields, Secretary. [FR Doc. 2015-23975 Filed 9-21-15; 8:45 am] BILLING CODE 8011-01P
![57240 Federal Register / Vol. 80, No. 183 / Tuesday, September 22, 2015 / Notices
10 of the Code of Federal Regulations SECURITIES AND EXCHANGE II. Self-Regulatory Organization’s
(10 CFR), part 35, ‘‘Medical Use of COMMISSION Statement of the Purpose of, and
Byproduct Material.’’ Meeting Statutory Basis for, the Proposed Rule
information, including a copy of the [Release No. 34–75932; File No. SR–MSRB– Change
agenda and the subcommittee’s draft 2015–09] In its filing with the Commission, the
report, will be available at http:// MSRB included statements concerning
www.nrc.gov/reading-rm/doc- Self-Regulatory Organizations; the purpose of and basis for the
collections/acmui/meetings/2015.html Municipal Securities Rulemaking proposed rule change and discussed any
no later than December 4, 2015. The Board; Notice of Filing of a Proposed comments it received on the proposed
agenda and handouts may also be Rule Change Consisting of Proposed rule change. The text of these statements
obtained by contacting Ms. Sophie Amendments to Rule G–20, on Gifts, may be examined at the places specified
Holiday using the information below. Gratuities and Non-Cash in Item IV below. The MSRB has
DATES: The teleconference meeting will Compensation, and Rule G–8, on prepared summaries, set forth in
be held on Monday, December 18, 2015, Books and Records To Be Made by Sections A, B, and C below, of the most
1:00 p.m. to 3:00 p.m. Eastern Standard Brokers, Dealers, Municipal Securities significant aspects of such statements.
Time. Dealers, and Municipal Advisors, and
Public Participation: Any member of A. Self-Regulatory Organization’s
the Deletion of Prior Interpretive
the public who wishes to participate in Statement of the Purpose of, and
Guidance
the teleconference should contact Ms. Statutory Basis for, the Proposed Rule
Holiday using the contact information September 16, 2015. Change
below. Pursuant to Section 19(b)(1) of the 1. Purpose
FOR FURTHER INFORMATION CONTACT: Securities Exchange Act of 1934 (the Following the financial crisis of 2008,
Sophie Holiday, email: ‘‘Act’’) 1 and Rule 19b–4 thereunder,2 Congress enacted the Dodd-Frank Wall
Sophie.Holiday@nrc.gov, telephone: notice is hereby given that on Street Reform and Consumer Protection
(404) 997–4691. September 2, 2015, the Municipal Act (the ‘‘Dodd-Frank Act’’).3 The Dodd-
Securities Rulemaking Board (the Frank Act amended Section 15B of the
Conduct of the Meeting ‘‘MSRB’’ or ‘‘Board’’) filed with the Exchange Act to establish a new federal
Dr. Philip Alderson, ACMUI Vice Securities and Exchange Commission regulatory regime requiring municipal
Chairman, will preside over the (the ‘‘SEC’’ or ‘‘Commission’’) the advisors to register with the
meeting. Dr. Alderson will conduct the proposed rule change as described in Commission, deeming them to owe a
meeting in a manner that will facilitate Items I, II, and III below, which Items fiduciary duty to their municipal entity
the orderly conduct of business. The have been prepared by the MSRB. The clients and granting the MSRB
following procedures apply to public Commission is publishing this notice to rulemaking authority over them. The
participation in the meeting: solicit comments on the proposed rule MSRB, in the exercise of that
1. Persons who wish to provide a change from interested persons. rulemaking authority, has been
written statement should submit an developing a comprehensive regulatory
electronic copy to Ms. Holiday at the I. Self-Regulatory Organization’s
framework for municipal advisors and
contact information listed above. All Statement of the Terms of Substance of
their associated persons.4 Important
submittals must be received by the Proposed Rule Change
elements of that regulatory framework
December 15, 2015, three business days The MSRB filed with the Commission are the proposed amendments to Rules
prior to the meeting, and must pertain a proposed rule change consisting of G–20 5 and G–8.
to the subcommittee’s draft report. Staff proposed amendments to Rule G–20 The proposed rule change would
is not soliciting public comment on the (with amendments, ‘‘proposed amended further the purposes of the Exchange
draft final rule itself. Rule G–20’’), on gifts, gratuities and Act, as amended by the Dodd-Frank Act,
2. Questions and comments from non-cash compensation, proposed by addressing improprieties and
members of the public will be permitted amendments to Rule G–8, on books and conflicts that may arise when municipal
during the meetings, at the discretion of records to be made by brokers, dealers, advisors and/or their associated persons
the Vice Chairman. municipal securities dealers, and
3. The draft transcript and meeting municipal advisors, and the deletion of
3 Publix Law 111–203, 124 Stat. 1376 (2010).
summary will be available on ACMUI’s prior interpretive guidance that would
4 MSRB Rule D–11 defines ‘‘associated persons’’
Web site http://www.nrc.gov/reading- as follows:
be codified by proposed amended Rule Unless the context otherwise requires or a rule of
rm/doc-collections/acmui/meetings/ G–20 (the ‘‘proposed rule change’’). The the Board otherwise specifically provides, the terms
2015.html on or about February 1, 2016. MSRB requested that the proposed rule ‘‘broker,’’ ‘‘dealer,’’ ‘‘municipal securities broker,’’
This meeting will be held in change be approved with an ‘‘municipal securities dealer,’’ ‘‘bank dealer,’’ and
accordance with the Atomic Energy Act ‘‘municipal advisor’’ shall refer to and include their
implementation date six months after respective associated persons. Unless otherwise
of 1954, as amended (primarily section the Commission approval date for all specified, persons whose functions are solely
161a); the Federal Advisory Committee changes. clerical or ministerial shall not be considered
Act (5 U.S.C. App); and the associated persons for purposes of the Board’s rules.
Commission’s regulations in 10 CFR The text of the proposed rule change 5 Existing Rule G–20 is designed, in part, to
part 7. is available on the MSRB’s Web site at minimize the conflicts of interest that arise when
www.msrb.org/Rules-and- a dealer attempts to induce organizations active in
Dated at Rockville, Maryland, this 16th day the municipal securities market to engage in
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Interpretations/SEC-Filings/2015- business with such dealers by means of personal
of September, 2015.
Filings.aspx, at the MSRB’s principal gifts or gratuities given to employees of such
For the Nuclear Regulatory Commission. office, and at the Commission’s Public organizations. Rule G–20 helps to ensure that a
Andrew L. Bates, Reference Room. dealer’s municipal securities activities are
Advisory Committee Management Officer. undertaken in arm’s length, merit-based
transactions in which conflicts of interest are
[FR Doc. 2015–24034 Filed 9–21–15; 8:45 am] 1 15 U.S.C. 78s(b)(i). minimized. See MSRB Notice 2004–17 (Jun. 15,
BILLING CODE 7590–01–P 2 17 CFR 240.19b–4. 2004).
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![57244 Federal Register / Vol. 80, No. 183 / Tuesday, September 22, 2015 / Notices
entities. Incorporation of this term into create and maintain records to Section 15B(b)(2)(C) of the Exchange Act 27
the rule would simplify and shorten the document their compliance with provides that the MSRB’s rules shall be
text of proposed amended Rule G–20 as proposed amended Rule G–20. designed to prevent fraudulent and
manipulative acts and practices, to promote
it would replace applicable references Further, the Board is proposing to just and equitable principles of trade, to
within proposed amended Rule G–20 to amend the rule language contained in foster cooperation and coordination with
dealers while also including municipal Rule G–8(a)(xvii)(A), (B), and (C) persons engaged in regulating, clearing,
advisors. The term ‘‘municipal advisor’’ applicable to dealers, to reflect the settling, processing information with respect
would have the same meaning as in revisions to proposed amended Rule G– to, and facilitating transactions in municipal
Section 15B(e)(4) of the Exchange Act.22 20. Specifically, proposed amended securities and municipal financial products,
The MSRB included that term to clarify paragraph (a)(xvii)(A) would provide to remove impediments to and perfect the
that proposed amended Rule G–20 mechanism of a free and open market in
that a separate record of any gift or municipal securities and municipal financial
would apply to municipal advisors that gratuity subject to the general limitation products, and, in general, to protect
are such on the basis of providing of proposed amended Rule G–20(c) investors, municipal entities, obligated
advice and also that are such on the must be made and kept by dealers persons, and the public interest.
basis of undertaking a solicitation.23 (emphasis added to amended rule text).
‘‘Person’’ would mean a natural person, The MSRB believes that the proposed
The proposed amendments to paragraph rule change is consistent with Section
codifying the MSRB’s existing (a)(xvii)(A) would track the reordering
interpretive guidance stating the same.24 15B(b)(2) and Section 15B(b)(2)(C) of the
of sections in proposed amended Rule Exchange Act. The proposed rule
Proposed Amendments to Rule G–8 G–20 (replacing the reference to Rule G– change would help prevent fraudulent
20(a) with a reference to Rule G–20(c)) and manipulative practices, promote
Proposed amendments to Rule G–8
and would provide greater specificity as just and equitable principles of trade
would extend to municipal advisors the
to the records that a dealer must and protect investors, municipal
recordkeeping requirements related to
maintain by referencing the terms used entities, obligated persons and the
Rule G–20 that currently apply to
in proposed amended Rule G–20(c). public interest by reducing, or at least
dealers.25 Those recordkeeping
Paragraph (a)(xvii)(B) would be exposing, the potential for conflicts of
requirements would be set forth under
amended to clarify that dealers must interest in municipal advisory activities
proposed paragraphs (h)(ii)(A) and (B)
make and keep records of all agreements by extending the relevant provisions of
of Rule G–8. Municipal advisors would
referred to in proposed amended Rule existing Rule G–20 to municipal
be required to make and retain records
of (i) all gifts and gratuities that are G–20(f) and records of all compensation advisors and their associated persons.
subject to the $100 limit and (ii) all paid as a result of those agreements Proposed amended Rule G–20 would
agreements of employment or for (emphasis added to proposed amended help ensure that engagements of
compensation for services rendered and rule text). Similar to paragraph municipal advisors, as well as
records of all compensation paid as a (a)(xvii)(A), the proposed amendments engagements of dealers, are awarded on
result of those agreements. Municipal to paragraph (a)(xvii)(B) would track the the basis of merit and not as a result of
advisor recordkeeping requirements reordering of sections in proposed gifts made to employees controlling the
would be identical to the recordkeeping amended Rule G–20 (replacing the award of such business. By expressly
requirements to which dealers would be reference to Rule G–20(c) with a prohibiting the seeking of
subject in proposed amended Rule G– reference to proposed amended Rule G– reimbursement from the proceeds of
8(a)(xvii)(A) and (B) (discussed below). 20(f)) and would provide greater issuance expenses for the entertainment
The MSRB believes that the proposed specificity as to the types of records that of any person, including any official or
amendments to Rule G–8 will ensure a dealer must maintain by referencing other municipal entity personnel or
common standards for municipal the terms used in proposed amended obligated person personnel, proposed
advisors and dealers, and will assist in Rule G–20(f). Paragraph (a)(xvii)(C) also amended Rule G–20 would serve as an
the enforcement of proposed amended would be amended to track the effective means of curtailing such
Rule G–20 by requiring that regulated reordering of sections in proposed practices by providing regulated entities
entities, including municipal advisors, amended Rule G–20 (replacing the with clear notice and guidance
references to Rule G–20(d) with regarding the existing MSRB regulations
22 15 U.S.C. 78o–4(e)(4). references to proposed amended Rule of such matters. Further, proposed
23 Id. G–20(g)). amended Rule G–20 would enhance
24 See MSRB Interpretive Letter ‘‘Person’’ (Mar.
2. Statutory Basis compliance with Rule G–20 by
19, 1980).
25 The MSRB solicited comments regarding codifying certain MSRB interpretive
possible amendments to Rule G–9 in its Request for
Section 15B(b)(2) of the Exchange guidance and by adopting and codifying
Comment on Draft Amendments to MSRB Rule G– Act 26 provides that certain FINRA interpretive guidance.
20, on Gifts, Gratuities and Non-Cash [t]he Board shall propose and adopt rules This codification not only will heighten
Compensation, to Extend its Provisions to
Municipal Advisors, MSRB Notice 2014–18 (Oct. to effect the purposes of this title with regulated entity compliance and
23, 2014). However, the MSRB omitted those respect to transactions in municipal efficiency (and heighten regulatory
amendments from this proposed rule change securities effected by brokers, dealers, and enforcement efficiency), but will help
because their substance subsequently was municipal securities dealers and advice prevent inadvertent violations of Rule
addressed by a separate rulemaking initiative. See provided to or on behalf of municipal entities
Notice of Filing of Amendment No. 1 and Order G–20.
or obligated persons by brokers, dealers,
Granting Accelerated Approval of a Proposed Rule In addition, the proposed
Change, as Modified by Amendment No. 1,
municipal securities dealers, and municipal
advisors with respect to municipal financial amendments to Rule G–8 would assist
Consisting of Proposed New Rule G–44, on
tkelley on DSK3SPTVN1PROD with NOTICES
Supervisory and Compliance Obligations of products, the issuance of municipal in the enforcement of Rule G–20 by
Municipal Advisors; Proposed Amendments to Rule securities, and solicitations of municipal extending the relevant existing
G–8, on Books and Records to be Made by Brokers, entities or obligated persons undertaken by recordkeeping requirements of Rule G–
Dealers and Municipal Securities Dealers; and brokers, dealers, municipal securities dealers, 8 that currently are applicable to dealers
Proposed Amendments to Rule G–9, on and municipal advisors.
Preservation of Records, Exchange Act Release No.
to municipal advisors. Regulated
73415 (Oct. 23, 2014), 79 FR 64423 (Oct. 29, 2014)
(File No. SR–MSRB–2014–06). 26 15 U.S.C. 78o–4(b)(2). 27 15 U.S.C. 78o–4(b)(2)(C).
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![57246 Federal Register / Vol. 80, No. 183 / Tuesday, September 22, 2015 / Notices
compliance costs and reduce advisory marketplace. Several not apply to gifts given to elected or
inadvertent violations of Rule G–20, the commenters, however, expressed appointed issuer officials, because the
MSRB has distilled and incorporated concerns or suggested changes to the government, in its view, is not their
additional interpretive guidance that draft amendments. The comment letters ‘‘employer.’’ Existing Rule G–20(a),
was not previously included in the draft are summarized and addressed below by however, which would be retained as
amendments and clarified specific topic. proposed amended Rule G–20(c),
points. The MSRB believes these broadly defines ‘‘employer’’ to include
refinements will help minimize costs A. $100 Limit
‘‘a principal for whom the recipient of
that could affect the competitive NAMA and PFM expressed concerns a payment or service is acting as agent
landscape and will particularly benefit that the $100 limit would not or representative.’’ 37 Thus, for purposes
smaller firms. adequately apply to gifts given to certain of existing and proposed amended Rule
Nonetheless, the MSRB recognizes recipients that, in their opinion, should G–20, elected and appointed officials
that small municipal advisors and sole be subject to the $100 limit of proposed are considered employees of the
proprietors may not employ full-time amended Rule G–20. Further, NAMA governmental entity on behalf of which
compliance staff and that the cost of and Anonymous suggested revisions to they act as agent or representative.
ensuring compliance with the the amount of the $100 limit.
requirements of the proposed rule (ii) Changing the Amount of the $100
change may be proportionally higher for (i) Application of Proposed Amended Limit
these smaller firms, potentially leading Rule G–20(c) to Certain Recipients
NAMA and Anonymous submitted
to exit from the industry or NAMA believed the $100 limit would comments regarding changing the
consolidation. However, as the SEC not apply to gifts given to employees or amount of the $100 limit. NAMA
recognized in its Order Adopting the officials of municipal entities or proposed that the $100 limit be raised
SEC Final Rule, the market for obligated persons.35 In NAMA’s view, to $250 per person per year, believing
municipal advisory services is likely to such persons, for the most part, do not this would strike the appropriate
remain competitive despite the potential engage in ‘‘municipal advisory balance of allowing reasonable and
exit of some municipal advisors activities’’ or ‘‘municipal securities customary gift giving while also limiting
(including small entity municipal business’’ as such business is proposed conflicts of interest, and would align
advisors) or the consolidation of to be defined in amended MSRB Rule Rule G–20 with MSRB Rule G–37.
municipal advisors.33 G–37, on political contributions and NAMA stated that, in Rule G–37, the
C. Self-Regulatory Organization’s prohibitions on municipal securities MSRB determined that the contribution
Statement on Comments on the business. level of $250 (without the exceptions in
Proposed Rule Change Received From The MSRB has determined not to Rule G–20) was sufficient to address the
Members, Participants, or Others revise proposed amended Rule G–20(c) needs of individuals seeking to give
in response to NAMA’s concerns. Even political contributions while not
The MSRB received eight comment if employees or officials of municipal allowing those contributions to be so
letters 34 in response to the Request for entities or obligated persons generally excessive as to allow the contributor to
Comment on the draft amendments to do not engage in ‘‘municipal advisory gain undue influence. NAMA proposed
Rules G–20 and G–8. Many commenters activities,’’ the MSRB has made clear in that supplementary material be added to
expressed support for the draft existing interpretive guidance regarding state, in effect, that occasional gifts of
amendments. NAMA welcomed the Rule G–20 that issuer personnel are meals or tickets to theatrical, sporting,
amendments and their attempt to limit considered to engage in ‘‘municipal and other entertainments that are hosted
the gaining of influence through the securities activities.’’ 36 The language of by the regulated entity would be
giving of gifts and gratuities. BDA and both existing Rule G–20 and proposed presumed to be so extensive as to raise
SIFMA expressed their general support amended Rule G–20 applies to gifts a question of propriety if they exceed
of extending Rule G–20’s requirements given in relation to this broad term, $250 in any year in conjunction with
to municipal advisors as each believed ‘‘municipal securities activities,’’ and any gifts provided under Rule G–20(c).
the amendments would promote a level- not the narrower term, ‘‘municipal NAMA asserted that because the
playing field for the regulation of securities business,’’ which was purposes of Rule G–20 and Rule G–37
municipal advisors and dealers acting in developed for the particular purposes of are united in their attempt to limit a
the municipal securities and municipal MSRB Rule G–37. dealer’s or a municipal advisor’s ability
33 Exchange Act Release No. 70462 (Sept. 20,
PFM believed that section (c) of to gain undue influence through the
2013) 78 FR 67468, 67608 (Nov. 12, 2013). proposed amended Rule G–20 would
34 Comments were received in response to the 37 See, e.g., First Fidelity Securities Group,
35 NAMA stated that the term ‘‘municipal
Request for Comment from: An anonymous attorney Exchange Act Release No. 36694, Administrative
(‘‘Anonymous’’), Bond Dealers of America: Letter securities activities’’ is not defined by the proposed Proceeding File No. 3–8917 (Jan. 9, 1996) (finding
from Michael Nicholas, Chief Executive Officer, rule change, but did not provide any explanation violations of Rule G–20 based on payments to
dated December 8, 2014 (‘‘BDA’’); Chris Taylor, of its statement or reason for its statement. The term financial consultants of issuer, concluding they
dated October 23, 2014 (‘‘Taylor’’); FCS Group: ‘‘municipal securities activities’’ is a term that is were ‘‘agent[s] or representative[s]’’ of issuer within
Letter from Taree Bollinger, dated October 24, 2014 used in existing Rule G–20 and frequently the meaning of the rule). See Self-Regulatory
(‘‘FCS’’); Investment Company Institute: Letter from throughout the MSRB Rule Book. Organizations; Order Approving A Proposed Rule
Tamara K. Salmon, Senior Associate Counsel, dated 36 See, e.g., 2007 MSRB Gifts Notice (stating that Change by the Municipal Securities Rulemaking
December 5, 2014 (‘‘ICI’’); National Association of dealers should consider carefully whether Board Relating to Recordkeeping & Record
Municipal Advisors: Letter from Terri Heaton, payments of expenses they make in regard to Retention Requirements Concerning Gifts &
President, dated December 8, 2014 (‘‘NAMA’’) expenses of issuer personnel, in the course of the Gratuities, Exchange Act Release No. 34372 (July
tkelley on DSK3SPTVN1PROD with NOTICES
(formerly, National Association of Independent bond issuance process, comport with Rules G–20 13, 1994) (File No. SR–MSRB–94–7) (‘‘Rule G–20 is
Public Finance Advisors); The PFM Group: Letter and G–17). The MSRB does not suggest that it has intended to prevent fraud and inappropriate
from Joseph J. Connolly, Counsel, dated November relevant regulatory authority over municipal influence in the municipal securities market by
7, 2014 (‘‘PFM’’); and Securities Industry and entities or obligated persons; rather, the MSRB can limiting the amount of gifts or gratuities from
Financial Markets Association: Letter from Leslie appropriately regulate the conduct of dealers and municipal securities dealers to persons not
M. Norwood, Managing Director and Associate municipal advisors in the giving of gifts to employed by the dealers, including issuer officials
General Counsel, dated December 8, 2014 personnel of municipal entities and obligated and employees of other dealers, in relation to
(‘‘SIFMA’’). persons. municipal securities activities.’’ (citation omitted)).
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![57250 Federal Register / Vol. 80, No. 183 / Tuesday, September 22, 2015 / Notices
Alternatively, Anonymous suggested a regulated entity to keep records of any requested clarification as to whether
that the MSRB recommend to the SEC personal gifts given pursuant to Rule G–8(h)(ii)(B) would require a
that it adjust Rule 206(4)–5 to be more proposed amended Rule G–20(d)(iv) municipal advisor to keep a record of
compatible with proposed amended that were paid for, directly or indirectly, every contract the municipal advisor
Rule G–20 as to the municipal advisory by the regulated entity. enters into ‘‘for municipal advisory
activities of municipal advisors/ After carefully considering the services whether or not any gifts [were]
investment advisers. comments, the MSRB continues to given.’’
The MSRB believes that Anonymous’s believe that the recordkeeping The comments from PFM and FCS
concerns are addressed by other MSRB requirements of Rule G–8(h) that relate appear to be predicated on a
rules or rule provisions that the MSRB to Rule G–20 should be limited to items misunderstanding of the types of
has already proposed. Advisers Act Rule that are subject to the $100 limit. The agreements that are referred to in
206(4)–5 prohibits an investment MSRB believes this approach to proposed section (f). The proposed
adviser from providing or agreeing to recordkeeping under Rule G–20 will section provides that the $100 limit
provide, directly or indirectly, payments continue to harmonize with existing does not apply to compensation for
to solicit a government entity for FINRA recordkeeping requirements for services that are rendered pursuant to a
investment advisory services unless dealers. Moreover, significant prior written agreement meeting certain
such person is a defined regulated safeguards that are provided by other content requirements. Thus, the
person. MSRB Rule G–38, solicitation of MSRB rules, including Rules G–27, G– agreements referred to in proposed
municipal securities business, flatly 44, and G–17, weigh against imposing section (f) are those under which
prohibits a dealer, directly or indirectly, the additional recordkeeping burdens compensation would otherwise be
from paying any person who is not an on regulated entities suggested by subject to the $100 limit (i.e.,
affiliated person of the dealer for a NAMA. As the MSRB reminded dealers compensation in relation to the
solicitation of municipal securities in its 2007 MSRB Gifts Notice on Rule municipal securities or municipal
business on behalf of such dealer. In G–20, dealers are required to have advisory activities of the employer of
addition, proposed MSRB Rule G–42, on supervisory policies and procedures in the recipient). As such, agreements of a
duties of non-solicitor advisors, place under Rule G–27 that are non-securities related nature, about
currently pending with the SEC for reasonably designed to prevent and which PFM expressed concern, would
approval or disapproval, would detect violations of Rule G–20 (and of not be required to be kept by proposed
generally prohibit payments for other applicable securities laws).48 amended Rule G–8(h)(ii)(B).
solicitations with certain limited Recently adopted Rule G–44, on
supervision and compliance obligations (iii) Recordkeeping by Registered
exceptions that would include allowing Investment Advisers
payments that constitute ‘‘normal of municipal advisors, imposes similar
business dealings’’ as defined in Rule supervisory requirements on municipal Anonymous commented that it
G–20, reasonable fees paid to another advisors. Further, and also as the MSRB believed that while the draft
registered municipal adviser, and reminded dealers in 2007 in particular recordkeeping requirements were
payments to an affiliate. The MSRB contexts, the making of payments that relevant, such requirements were
therefore believes that it is unnecessary might not otherwise be subject to Rule unnecessary for municipal advisors/
to incorporate Advisers Act Rule G–20 could constitute separate investment advisers because, according
206(4)–5 into Rule G–20 to address violations of Rule G–17, which to Anonymous, RIAs are required to
Anonymous’s concerns. currently applies to municipal advisors keep such records under the Advisers
and dealers.49 Act Rule 206(4)–3.50 Anonymous
H. Recordkeeping Requirements suggested that the MSRB consider
(ii) Recordkeeping of Services
(i) Recordkeeping for Certain Gifts Not exempting municipal advisors/
Agreements
Subject to $100 Limit investment advisers from the
PFM objected to the draft amendment recordkeeping requirements associated
NAMA commented that a regulated to Rule G–8(h)(ii)(B) that would require with Rule G–20.
entity should be required to maintain municipal advisors to keep all To help ensure a level playing field as
records for gifts that are subject to either agreements referred to in draft amended well as to enhance compliance and
the normal business dealing exclusion G–20(f), on compensation for services. enforcement, the MSRB believes that all
under proposed amended Rule G– PFM stated that this requirement would regulated entities, including municipal
20(d)(i) or the personal gift exclusion be a substantial and unjustified burden advisors/investment advisers, should be
under proposed amended Rule G– on municipal advisors due to the large subject to substantially identical
20(d)(vi). NAMA noted that gifts that number of transactions for which, it recordkeeping requirements associated
constitute normal business dealings believed, they would need to maintain with Rule G–20. Therefore, regardless of
within proposed amended Rule G– records. Furthermore, PFM believed that whether a regulated entity also may be
20(d)(i) require recordkeeping to comply the MSRB does not have statutory subject to a comparable requirement
with certain requirements of the Internal authority to require recordkeeping of under other federal securities laws, that
Revenue Service and of various contracts for services of a non-securities regulated entity would be required to
municipalities, such as in California. related nature and stated that it believed comply with Rule G–20’s associated
Therefore, according to NAMA, that Rule G–8(h)(ii)(B) would require recordkeeping requirements.
imposing a recordkeeping requirement such recordkeeping. PFM suggested that
would not be an entirely new burden, draft amended Rule G–8(h)(ii)(B) be III. Date of Effectiveness of the
Proposed Rule Change and Timing for
tkelley on DSK3SPTVN1PROD with NOTICES
would provide protection against pay- revised to limit the required agreements
to-play activities and would provide a to those ‘‘relied upon by the registrant Commission Action
means to determine whether such gifts pursuant to Rule G–20(c)’’ rather than Within 45 days of the date of
give rise to questions of impropriety or those ‘‘referred to in Rule G–20(f).’’ FCS publication of this notice in the Federal
conflicts of interest. NAMA also Register or within such longer period of
commented that, to afford meaningful 48 2007 MSRB Gifts Notice.
enforcement, the MSRB should require 49 Id. 50 17 CFR 275.206(4)–3.
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![Federal Register / Vol. 80, No. 183 / Tuesday, September 22, 2015 / Notices 57251
up to 90 days (i) as the Commission may information that you wish to make II. Self-Regulatory Organization’s
designate if it finds such longer period available publicly. All submissions Statement of the Purpose of, and
to be appropriate and publishes its should refer to File Number SR–MSRB– Statutory Basis for, the Proposed Rule
reasons for so finding or (ii) as to which 2015–09 and should be submitted on or Change
the self-regulatory organization before October 13, 2015. In its filing with the Commission, the
consents, the Commission will: For the Commission, pursuant to self-regulatory organization included
(A) by order approve or disapprove delegated authority.51 statements concerning the purpose of,
such proposed rule change, or
(B) institute proceedings to determine Brent J. Fields, and basis for, the proposed rule change
whether the proposed rule change Secretary.
and discussed any comments it received
should be disapproved. on the proposed rule change. The text
[FR Doc. 2015–23975 Filed 9–21–15; 8:45 am]
of those statements may be examined at
IV. Solicitation of Comments BILLING CODE 8011–01P
the places specified in Item IV below.
Interested persons are invited to The Exchange has prepared summaries,
submit written data, views, and set forth in sections A, B, and C below,
SECURITIES AND EXCHANGE
arguments concerning the foregoing, of the most significant parts of such
COMMISSION
including whether the proposed rule statements.
change is consistent with the Act. A. Self-Regulatory Organization’s
[Release No. 34–75930; File No. SR–
Comments may be submitted by any of NYSEArca–2015–73] Statement of the Purpose of, and the
the following methods: Statutory Basis for, the Proposed Rule
Electronic Comments Self-Regulatory Organizations; NYSE Change
Arca, Inc.; Notice of Filing of Proposed
• Use the Commission’s Internet Rule Change, as Modified by 1. Purpose
comment form (http://www.sec.gov/ Amendment No. 1, Relating to Listing The Exchange proposes to list and
rules/sro.shtml); or and Trading of Shares of the trade shares (‘‘Shares’’) of the
• Send an email to rule- Guggenheim Total Return Bond ETF
Guggenheim Total Return Bond ETF
comments@sec.gov. Please include File (the ‘‘Fund’’) under NYSE Arca Equities
Under NYSE Arca Equities Rule 8.600
Number SR–MSRB–2015–09 on the Rule 8.600, which governs the listing
subject line. September 16, 2015. and trading of Managed Fund Shares.5
Paper Comments Pursuant to Section 19(b)(1) 1 of the The Shares will be offered by the
• Send paper comments in triplicate Securities Exchange Act of 1934 Claymore Exchange-Traded Fund Trust
to Secretary, Securities and Exchange (‘‘Act’’) 2 and Rule 19b–4 thereunder,3 2 (the ‘‘Trust’’),6 a statutory trust
Commission, 100 F Street NE., notice is hereby given that, on organized under the laws of the State of
Washington, DC 20549. September 1, 2015, NYSE Arca, Inc. Delaware and registered with the
(‘‘Exchange’’ or ‘‘NYSE Arca’’) filed Commission as an open-end
All submissions should refer to File with the Securities and Exchange management investment company.7
Number SR–MSRB–2015–09. This file Commission (‘‘Commission’’) the
number should be included on the proposed rule change as described in 5 A Managed Fund Share is a security that
subject line if email is used. To help the Items I, II, and III below, which Items represents an interest in an investment company
Commission process and review your have been prepared by the self- registered under the Investment Company Act of
comments more efficiently, please use 1940 (15 U.S.C. 80a–1) (‘‘1940 Act’’) organized as
regulatory organization. On September an open-end investment company or similar entity
only one method. The Commission will 15, 2015, the Exchange filed that invests in a portfolio of securities selected by
post all comments on the Commission’s Amendment No. 1 to the proposed rule its investment adviser consistent with its
Internet Web site (http://www.sec.gov/ change.4 The Commission is publishing investment objectives and policies. In contrast, an
rules/sro.shtml). Copies of the open-end investment company that issues
this notice to solicit comments on the Investment Company Units, listed and traded on
submission, all subsequent proposed rule change, as modified by the Exchange under NYSE Arca Equities Rule
amendments, all written statements Amendment No. 1, from interested 5.2(j)(3), seeks to provide investment results that
with respect to the proposed rule persons. correspond generally to the price and yield
change that are filed with the performance of a specific foreign or domestic stock
I. Self-Regulatory Organization’s index, fixed income securities index or combination
Commission, and all written thereof.
communications relating to the Statement of the Terms of Substance of 6 The Trust is registered under the 1940 Act. On
proposed rule change between the the Proposed Rule Change November 25, 2014, the Trust filed with the
Commission and any person, other than Commission an amendment to its registration
The Exchange proposes to list and statement on Form N–1A under the Securities Act
those that may be withheld from the
trade shares of the following under of 1933 (15 U.S.C. 77a) (‘‘Securities Act’’) and the
public in accordance with the 1940 Act relating to the Fund (File Nos. 333–
NYSE Arca Equities Rule 8.600
provisions of 5 U.S.C. 552, will be 135105 and 811–21910) (the ‘‘Registration
(‘‘Managed Fund Shares’’): Guggenheim
available for Web site viewing and Statement’’). The description of the operation of the
Total Return Bond ETF. The text of the Trust and the Fund herein is based, in part, on the
printing in the Commission’s Public
proposed rule change is available on the Registration Statement. In addition, the
Reference Room, 100 F Street NE., Commission has issued an order granting certain
Exchange’s Web site at www.nyse.com,
Washington, DC 20549 on official exemptive relief to the Trust under the 1940 Act.
at the principal office of the Exchange,
business days between the hours of See Investment Company Act Release No. 29271
and at the Commission’s Public (May 18, 2010) (File No. 812–13534) (‘‘Exemptive
10:00 a.m. and 3:00 p.m. Copies of the
Reference Room. Order’’).
tkelley on DSK3SPTVN1PROD with NOTICES
filing also will be available for 7 The Commission previously approved listing
inspection and copying at the principal 51 17 and trading on the Exchange of the following
CFR 200.30–3(a)(12).
office of the MSRB. All comments 1 15
actively managed funds under Rule 8.600. See
U.S.C. 78s(b)(1). Securities Exchange Act Release Nos. 57801 (May
received will be posted without change; 2 15 U.S.C. 78a.
8, 2008), 73 FR 27878 (May 14, 2008) (SR–
the Commission does not edit personal 3 17 CFR 240.19b–4.
NYSEArca–2008–31) (order approving Exchange
identifying information from 4 Amendment No. 1 replaces and supersedes the listing and trading of twelve actively-managed
submissions. You should submit only original filing in its entirety. Continued
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Document Created: 2015-12-15 09:35:21
Document Modified: 2015-12-15 09:35:21
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