81 FR 60651 - Political Contributions by Certain Investment Advisers: Ban on Third-Party Solicitation; Notice of Order With Respect to MSRB Rule G-37
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 81, Issue 171 (September 2, 2016)
Federal Register Volume 81, Issue 171 (September 2, 2016)
| Page Range | 60651-60653 | |
| FR Document | 2016-20890 |
[Federal Register Volume 81, Number 171 (Friday, September 2, 2016)] [Proposed Rules] [Pages 60651-60653] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2016-20890] ======================================================================= ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION 17 CFR Part 275 [Release No. IA-4512; File No. S7-17-16] Political Contributions by Certain Investment Advisers: Ban on Third-Party Solicitation; Notice of Order With Respect to MSRB Rule G- 37 AGENCY: Securities and Exchange Commission. ACTION: Notice of intent to issue order. ----------------------------------------------------------------------- SUMMARY: The Securities and Exchange Commission (``Commission'' or ``SEC'') intends to issue an order pursuant to section 206 of the Investment Advisers Act of 1940 (the ``Advisers Act'') and rule 206(4)- 5 thereunder (the ``SEC Pay to Play Rule'') finding that the Municipal Securities Rulemaking Board (``MSRB'') rule G-37 (the ``MSRB Pay to Play Rule'') imposes substantially equivalent or more stringent restrictions on municipal advisors than the SEC Pay to Play Rule imposes on investment advisers and is consistent with the objectives of the SEC Pay to Play Rule. DATES: Hearing requests should be received by the Commission by 5:30 p.m. on September 19, 2016. ADDRESSES: Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090. FOR FURTHER INFORMATION CONTACT: Sirimal R. Mukerjee, Senior Counsel, Melissa Roverts Harke, Senior Special Counsel, or Sara Cortes, Assistant Director, at (202) 551-6787 or [email protected], Investment Adviser Regulation Office, Division of Investment Management, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-8549. SUPPLEMENTARY INFORMATION: Hearing or Notification of Hearing An order will be issued unless the Commission orders a hearing. Interested persons may request a hearing by writing to the Commission's Secretary. Hearing requests should be received by the Commission by 5:30 p.m. on September 19, 2016. Pursuant to rule 0-5 under the Advisers Act, hearing requests should state the nature of the writer's interest, any facts bearing upon the desirability of a hearing on the matter, the reason for the request, and [[Page 60652]] the issues contested. Persons who wish to be notified of a hearing may request notification by writing to the Commission's Secretary. The Commission intends to issue an order under the Advisers Act.\1\ --------------------------------------------------------------------------- \1\ 15 U.S.C. 80b. Unless otherwise noted, all references to statutory sections are to the Advisers Act, and all references to rules under the Advisers Act, including rule 206(4)-5, are to Title 17, Part 275 of the Code of Federal Regulations [17 CFR part 275]. --------------------------------------------------------------------------- I. Background The Commission adopted the SEC Pay to Play Rule [17 CFR 275.206(4)- 5] under the Advisers Act [15 U.S.C. 80b] to prohibit an investment adviser from providing advisory services for compensation to a government client for two years after the adviser or certain of its executives or employees (``covered associates'') make a contribution to certain elected officials or candidates.\2\ Rule 206(4)-5 also prohibits an adviser and its covered associates from providing or agreeing to provide, directly or indirectly, payment to any third-party for a solicitation of advisory business from any government entity on behalf of such adviser, unless such third-party is a ``regulated person'' (``third-party solicitor ban'').\3\ Rule 206(4)-5 defines a ``regulated person'' as an SEC-registered investment adviser,\4\ a registered broker or dealer subject to pay to play restrictions adopted by a registered national securities association that prohibit members from engaging in distribution or solicitation activities if certain political contributions have been made,\5\ or a registered municipal advisor subject to pay to play restrictions adopted by the MSRB that prohibit members from engaging in distribution or solicitation activities if certain political contributions have been made.\6\ In addition, in order for a broker-dealer or municipal advisor to be a regulated person under rule 206(4)-5, the Commission must find, by order, that these pay to play rules: (i) Impose substantially equivalent or more stringent restrictions on broker-dealers or municipal advisors than the SEC Pay to Play Rule imposes on investment advisers; and (ii) are consistent with the objectives of the SEC Pay to Play Rule.\7\ --------------------------------------------------------------------------- \2\ Political Contributions by Certain Investment Advisers, Investment Advisers Act Rel. No. 3043 (July 1, 2010) [75 FR 41018 (July 14, 2010)] (``SEC Pay to Play Rule Release''). \3\ See id. at section II.B.2.(b). See also 17 CFR 275.206(4)- 5(a)(2)(i)(A). \4\ See 17 CFR 275.206(4)-5(f)(9)(i). \5\ See 17 CFR 275.206(4)-5(f)(9)(ii). \6\ See 17 CFR 275.206(4)-5(f)(9)(iii). On June 22, 2011, the Commission amended the SEC Pay to Play Rule to add municipal advisors to the definition of ``regulated persons.'' See Rules Implementing Amendments to the Investment Advisers Act of 1940, Investment Advisers Act Rel. No. 3221 (June 22, 2011) [76 FR 42950 (July 19, 2011)] (``Municipal Advisor Addition Release''). The Commission adopted final rules with respect to the registration of municipal advisors on September 20, 2013. See Registration of Municipal Advisors, Exchange Act Rel. No. 70462 (Sept. 20, 2013) [78 FR 67468 (Nov. 12, 2013)] (``Municipal Advisor Registration Release''). \7\ See 17 CFR 275.206(4)-5(f)(9). --------------------------------------------------------------------------- Rule 206(4)-5 became effective on September 13, 2010 and the compliance date for the third-party solicitor ban was set to September 13, 2011.\8\ When the Commission added municipal advisors to the definition of regulated person, the Commission also extended the third- party solicitor ban's compliance date to June 13, 2012.\9\ In the absence of a final municipal advisor registration rule, the Commission extended the third-party solicitor ban's compliance date from June 13, 2012 to nine months after the compliance date of the final rule,\10\ which was July 31, 2015.\11\ On June 25, 2015, the Commission issued notice of the July 31, 2015 compliance date.\12\ --------------------------------------------------------------------------- \8\ See SEC Pay to Play Rule Release, supra footnote 2, at section III. \9\ See Municipal Advisor Addition Release, supra footnote 6, at section II.D.1. \10\ See Political Contributions by Certain Investment Advisers: Ban on Third-Party Solicitation; Extension of Compliance Date, Investment Advisers Act Rel. No. 3418 (June 8, 2012) [77 FR 35263 (June 13, 2012)]. \11\ The final date on which a municipal advisor must file a complete application for registration was October 31, 2014. See Municipal Advisor Registration Release, supra footnote 6, at section V. \12\ See Political Contributions by Certain Investment Advisers: Ban on Third-Party Solicitation; Notice of Compliance Date, Investment Advisers Act Rel. No. 4129 (June 25, 2015) [80 FR 37538 (July 2, 2015)]. On June 25, 2015, the Division of Investment Management published an FAQ that provides that the Division would not recommend enforcement action to the Commission against any investment adviser or its covered associates for the payment to any third person to solicit a government entity for investment advisory services until the later of (i) the effective date of a pay to play rule adopted by the Financial Industry Regulatory Authority or (ii) the effective date of a pay to play rule adopted by the MSRB. See http://www.sec.gov/divisions/investment/pay-to-play-faq.htm#1.4. --------------------------------------------------------------------------- On December 16, 2015, the MSRB filed with the Commission proposed amendments to the MSRB Pay to Play Rule to extend its application to municipal advisors, which the Commission published for notice and comment on December 23, 2015 pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (the ``Exchange Act'') and rule 19b-4 thereunder.\13\ On February 17, 2016, the MSRB published a regulatory notice announcing that the proposed amendments to the MSRB Pay to Play Rule were deemed approved by the Commission under section 19(b)(2)(D) of the Exchange Act on February 13, 2016 and the effective date of the rule is August 17, 2016.\14\ Prior to its amendment, the MSRB Pay to Play Rule only applied to brokers, dealers and municipal securities dealers. --------------------------------------------------------------------------- \13\ See Self-Regulatory Organizations; Municipal Securities Rulemaking Board; Notice of Filing of a Proposed Rule Change Consisting of Proposed Amendments to Rule G-37, on Political Contributions and Prohibitions on Municipal Securities Business, Rule G-8, on Books and Records, Rule G-9, on Preservation of Records, and Forms G-37 and G-37x, Exchange Act Rel. No. 76763 (Dec. 24, 2015) [80 FR 81710 (Dec. 30, 2015)] (the ``MSRB Pay to Play Release''). \14\ On August 4, 2016, the MSRB published a regulatory notice announcing that it filed with the Commission an amendment to the MSRB Pay to Play Rule, effective on August 17, 2016, to clarify that contributions by persons who become associated with a dealer and become municipal finance professionals of the dealer, if made prior to August 17, 2016, are subject to the two-year look-back and may subject a dealer to a prohibition on municipal securities business. This amendment does not change the rule's application to municipal advisors. See MSRB Files Amendment to Rule G-37 to Clarify its Application to Contributions before August 17, 2016, Regulatory Notice 2016-18, dated August 4, 2016, available at http://msrb.org/ ~/media/Files/Regulatory-Notices/Announcements/2016-18.ashx?n=1. A dealer may become subject to a ban on municipal securities business for a period of two years from the making of a contribution, even if the contribution is made by a person who, although not a municipal finance professional of the dealer at the time of the contribution, becomes a municipal financial professional of the dealer within two years of making the contribution (frequently referred to as the ``two-year look-back''). See Proposed Rule Change to Clarify an Existing Requirement in Rule G-37 Regarding the Two-Year Look-Back, SR-MSRB-2016-10 (Aug. 4, 2016), available at http://msrb.org/~/ media/Files/SEC-Filings/2016/MSRB-2016-10.ashx. --------------------------------------------------------------------------- II. Discussion of Order Pursuant to section 206 of the Advisers Act and rule 206(4)- 5(f)(9)(iii)(B) thereunder, the Commission is providing notice \15\ that the Commission intends to issue an order finding that the MSRB Pay to Play Rule (i) imposes substantially equivalent or more stringent restrictions on municipal advisors than the SEC Pay to Play Rule imposes on investment advisers and (ii) is consistent with the objectives of the SEC Pay to Play Rule. The MSRB Pay to Play Rule imposes substantially similar requirements for municipal advisors as the SEC Pay to Play Rule imposes on investment advisers. For example, the MSRB Pay to Play Rule will: --------------------------------------------------------------------------- \15\ See section 211(c) of the Advisers Act (requiring the Commission to provide appropriate notice and opportunity for hearing for orders issued under the Advisers Act). ---------------------------------------------------------------------------Prohibit a municipal advisor from engaging in municipal advisory business with a municipal entity for two years, subject to exceptions, following the making of a contribution to certain officials of the municipal entity by the municipal advisor, a municipal advisor professional of the municipal advisor, or a political action committee controlled [[Page 60653]] by the municipal advisor or a municipal advisor professional of the municipal advisor; \16\ --------------------------------------------------------------------------- \16\ MSRB Pay to Play Release, supra footnote 13, at 81712. --------------------------------------------------------------------------- Prohibit municipal advisors and municipal advisor professionals from soliciting contributions, or coordinating contributions, to certain officials of a municipal entity with which the municipal advisor is engaging, or seeking to engage, in municipal advisory business; \17\ --------------------------------------------------------------------------- \17\ Id. --------------------------------------------------------------------------- Prohibit municipal advisors and certain municipal advisor professionals from soliciting payments, or coordinating payments, to political parties of states and localities with which the municipal advisor is engaging in, or seeking to engage in, municipal advisory business; \18\ --------------------------------------------------------------------------- \18\ Id. --------------------------------------------------------------------------- Prohibit municipal advisors and municipal advisor professionals from committing indirect violations of the MSRB Pay to Play Rule; \19\ --------------------------------------------------------------------------- \19\ Id. --------------------------------------------------------------------------- Extend applicable interpretive guidance under the existing MSRB pay to play rule to municipal advisors; \20\ and --------------------------------------------------------------------------- \20\ Id. --------------------------------------------------------------------------- Include a new defined term (``municipal advisor third- party solicitor'') for municipal advisors that undertake a solicitation of a municipal entity on behalf of a third-party dealer, municipal advisor or investment adviser. Certain aspects of the rule will apply to this distinct type of municipal advisor. The Commission believes that the rule imposes substantially equivalent or more stringent restrictions on municipal advisors than rule 206(4)-5 imposes on investment advisers and would be consistent with the objectives of rule 206(4)-5. By the Commission. Dated: August 25, 2016. Brent J. Fields, Secretary. [FR Doc. 2016-20890 Filed 9-1-16; 8:45 am] BILLING CODE 8011-01-P
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in any format other than a completed reasonably believe shows wrongdoing Dated: August 22, 2016.
OSC Form. If a filer does not use the by a Federal agency. OSC must Mark Cohen,
OSC Form to submit a complaint, OSC determine whether there is a substantial Principal Deputy Special Counsel.
will provide the filer with information likelihood that the information discloses [FR Doc. 2016–20527 Filed 9–1–16; 8:45 am]
about the Form. The complaint will be a violation of any law, rule, or BILLING CODE 7405–01–P
considered to be filed on the date on regulation; gross mismanagement; gross
which OSC receives a completed Form. waste of funds; abuse of authority; or a
(4) The OSC Form is available: substantial and specific danger to public SECURITIES AND EXCHANGE
(i) Online, at: http://www.osc.gov (to health or safety. If it does, the law COMMISSION
complete online); requires OSC to refer the information to
(ii) By calling OSC, at: (800) 872–9855 the agency head involved for 17 CFR Part 275
(toll-free), or (202) 653–7188 (in the investigation and a written report on the
Washington, DC area); or findings to the Special Counsel. The law [Release No. IA–4512; File No. S7–17–16]
(iii) By writing to OSC, at: U.S. Office does not authorize OSC to investigate
of Special Counsel, Complaints Political Contributions by Certain
the subject of a disclosure. Investment Advisers: Ban on Third-
Examining Unit, 1730 M Street NW., (b) Procedures for filing disclosures.
Suite 218, Washington, DC 20036–4505. Party Solicitation; Notice of Order With
Current or former Federal employees,
(5) A complainant can file a Respect to MSRB Rule G–37
and applicants for Federal employment,
completed Form with OSC by any of the may file a disclosure of the type of AGENCY: Securities and Exchange
following methods: information described in paragraph (a) Commission.
(i) Electronically, at: http:// of this section with OSC. Such ACTION: Notice of intent to issue order.
www.osc.gov (for completion and filing disclosures must be filed in writing
electronically); (including electronically—see paragraph SUMMARY: The Securities and Exchange
(ii) By fax, to: (202) 653–5151; or (b)(3)(i) of this section). Commission (‘‘Commission’’ or ‘‘SEC’’)
(iii) By mail, to: U.S. Office of Special (1) Filers are encouraged to use the intends to issue an order pursuant to
Counsel, Complaints Examining Unit, Form established by OSC to file a section 206 of the Investment Advisers
1730 M Street NW., Suite 218, disclosure of the type of information Act of 1940 (the ‘‘Advisers Act’’) and
Washington, DC 20036–4505. described in paragraph (a) of this rule 206(4)–5 thereunder (the ‘‘SEC Pay
(d) Procedures for filing complaints section with OSC. The Form provides to Play Rule’’) finding that the
alleging violation of the Hatch Act. (1) more information about OSC Municipal Securities Rulemaking Board
Complaints alleging a violation of the jurisdiction, and procedures for (‘‘MSRB’’) rule G–37 (the ‘‘MSRB Pay to
Hatch Act may be submitted in any processing whistleblower disclosures. Play Rule’’) imposes substantially
written form, but use of the Form The Form is available: equivalent or more stringent restrictions
established by OSC is encouraged. (i) Online, at: http://www.osc.gov (to on municipal advisors than the SEC Pay
Complaints should include: complete online); to Play Rule imposes on investment
(i) The complainant’s name, mailing (ii) By calling OSC, at: (800) 572–2249 advisers and is consistent with the
address, telephone number, and a time (toll-free), or (202) 653–9125 (in the objectives of the SEC Pay to Play Rule.
when OSC can contact that person about Washington, DC area); or DATES: Hearing requests should be
his or her complaint (unless the matter (iii) By writing to OSC, at: U.S. Office received by the Commission by 5:30
is submitted anonymously); of Special Counsel, Disclosure Unit, p.m. on September 19, 2016.
(ii) The department or agency, 1730 M Street NW., Suite 218, ADDRESSES: Secretary, Securities and
location, and organizational unit Washington, DC 20036–4505. Exchange Commission, 100 F Street NE.,
complained of; and (2) Filers may use another written Washington, DC 20549–1090.
(iii) A concise description of the format to submit a disclosure to OSC,
actions complained about, names and FOR FURTHER INFORMATION CONTACT:
but the submission should include:
positions of employees who took the (i) The name, mailing address, and Sirimal R. Mukerjee, Senior Counsel,
actions, if known to the complainant, telephone number(s) of the person(s) Melissa Roverts Harke, Senior Special
and dates of the actions, preferably in making the disclosure(s), and a time Counsel, or Sara Cortes, Assistant
chronological order, together with any when OSC can contact that person about Director, at (202) 551–6787 or IArules@
documentary evidence that the his or her disclosure; sec.gov, Investment Adviser Regulation
complainant can provide. (ii) The department or agency, Office, Division of Investment
(2) The OSC Form for filing a location and organizational unit Management, Securities and Exchange
complaint is available as described in complained of; and Commission, 100 F Street NE.,
paragraphs (c)(4)(i) through (iii) of this (iii) A statement as to whether the Washington, DC 20549–8549.
section. filer consents to disclosure of his or her SUPPLEMENTARY INFORMATION:
(3) A written Hatch Act complaint can identity by OSC to the agency involved, Hearing or Notification of Hearing
be filed with OSC by any of the methods in connection with any OSC referral to
listed in paragraphs (c)(5)(i) through (iii) that agency. An order will be issued unless the
of this section. (3) A disclosure can be filed in Commission orders a hearing. Interested
■ 3. Section 1800.2 is revised to read as writing with OSC by any of the persons may request a hearing by
follows: following methods: writing to the Commission’s Secretary.
Hearing requests should be received by
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(i) Electronically, at: http://
§ 1800.2 Filing disclosures of information. www.osc.gov (for completion and filing the Commission by 5:30 p.m. on
(a) General. OSC is authorized by law electronically); September 19, 2016. Pursuant to rule 0–
(at 5 U.S.C. 1213) to provide an (ii) By fax, to: (202) 653–5151; or 5 under the Advisers Act, hearing
independent and secure channel for use (iii) By mail, to: U.S. Office of Special requests should state the nature of the
by current or former Federal employees Counsel, Disclosure Unit, 1730 M Street writer’s interest, any facts bearing upon
and applicants for Federal employment NW., Suite 218, Washington, DC 20036– the desirability of a hearing on the
in disclosing information that they 4505. matter, the reason for the request, and
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the issues contested. Persons who wish these pay to play rules: (i) Impose MSRB published a regulatory notice
to be notified of a hearing may request substantially equivalent or more announcing that the proposed
notification by writing to the stringent restrictions on broker-dealers amendments to the MSRB Pay to Play
Commission’s Secretary. or municipal advisors than the SEC Pay Rule were deemed approved by the
The Commission intends to issue an to Play Rule imposes on investment Commission under section 19(b)(2)(D) of
order under the Advisers Act.1 advisers; and (ii) are consistent with the the Exchange Act on February 13, 2016
I. Background objectives of the SEC Pay to Play Rule.7 and the effective date of the rule is
Rule 206(4)–5 became effective on August 17, 2016.14 Prior to its
The Commission adopted the SEC Pay September 13, 2010 and the compliance amendment, the MSRB Pay to Play Rule
to Play Rule [17 CFR 275.206(4)–5] date for the third-party solicitor ban was only applied to brokers, dealers and
under the Advisers Act [15 U.S.C. 80b] set to September 13, 2011.8 When the municipal securities dealers.
to prohibit an investment adviser from Commission added municipal advisors
providing advisory services for to the definition of regulated person, the II. Discussion of Order
compensation to a government client for Commission also extended the third- Pursuant to section 206 of the
two years after the adviser or certain of party solicitor ban’s compliance date to Advisers Act and rule 206(4)–
its executives or employees (‘‘covered June 13, 2012.9 In the absence of a final 5(f)(9)(iii)(B) thereunder, the
associates’’) make a contribution to municipal advisor registration rule, the Commission is providing notice 15 that
certain elected officials or candidates.2 Commission extended the third-party the Commission intends to issue an
Rule 206(4)–5 also prohibits an adviser solicitor ban’s compliance date from order finding that the MSRB Pay to Play
and its covered associates from June 13, 2012 to nine months after the Rule (i) imposes substantially
providing or agreeing to provide, compliance date of the final rule,10 equivalent or more stringent restrictions
directly or indirectly, payment to any which was July 31, 2015.11 On June 25, on municipal advisors than the SEC Pay
third-party for a solicitation of advisory 2015, the Commission issued notice of to Play Rule imposes on investment
business from any government entity on the July 31, 2015 compliance date.12 advisers and (ii) is consistent with the
behalf of such adviser, unless such On December 16, 2015, the MSRB objectives of the SEC Pay to Play Rule.
third-party is a ‘‘regulated person’’ filed with the Commission proposed The MSRB Pay to Play Rule imposes
(‘‘third-party solicitor ban’’).3 Rule amendments to the MSRB Pay to Play substantially similar requirements for
206(4)–5 defines a ‘‘regulated person’’ as Rule to extend its application to municipal advisors as the SEC Pay to
an SEC-registered investment adviser,4 a municipal advisors, which the Play Rule imposes on investment
registered broker or dealer subject to pay Commission published for notice and advisers. For example, the MSRB Pay to
to play restrictions adopted by a comment on December 23, 2015 Play Rule will:
registered national securities association pursuant to section 19(b)(1) of the • Prohibit a municipal advisor from
that prohibit members from engaging in Securities Exchange Act of 1934 (the engaging in municipal advisory
distribution or solicitation activities if ‘‘Exchange Act’’) and rule 19b–4 business with a municipal entity for two
certain political contributions have been thereunder.13 On February 17, 2016, the years, subject to exceptions, following
made,5 or a registered municipal advisor the making of a contribution to certain
subject to pay to play restrictions 7 See 17 CFR 275.206(4)–5(f)(9).
officials of the municipal entity by the
adopted by the MSRB that prohibit 8 See SEC Pay to Play Rule Release, supra
municipal advisor, a municipal advisor
members from engaging in distribution footnote 2, at section III.
9 See Municipal Advisor Addition Release, supra professional of the municipal advisor, or
or solicitation activities if certain footnote 6, at section II.D.1. a political action committee controlled
political contributions have been made.6 10 See Political Contributions by Certain
In addition, in order for a broker-dealer Investment Advisers: Ban on Third-Party 14 On August 4, 2016, the MSRB published a
or municipal advisor to be a regulated Solicitation; Extension of Compliance Date, regulatory notice announcing that it filed with the
Investment Advisers Act Rel. No. 3418 (June 8,
person under rule 206(4)–5, the 2012) [77 FR 35263 (June 13, 2012)].
Commission an amendment to the MSRB Pay to
Commission must find, by order, that 11 The final date on which a municipal advisor
Play Rule, effective on August 17, 2016, to clarify
that contributions by persons who become
must file a complete application for registration was associated with a dealer and become municipal
1 15 U.S.C. 80b. Unless otherwise noted, all October 31, 2014. See Municipal Advisor finance professionals of the dealer, if made prior to
references to statutory sections are to the Advisers Registration Release, supra footnote 6, at section V.
12 See Political Contributions by Certain
August 17, 2016, are subject to the two-year look-
Act, and all references to rules under the Advisers back and may subject a dealer to a prohibition on
Act, including rule 206(4)–5, are to Title 17, Part Investment Advisers: Ban on Third-Party municipal securities business. This amendment
275 of the Code of Federal Regulations [17 CFR part Solicitation; Notice of Compliance Date, Investment does not change the rule’s application to municipal
275]. Advisers Act Rel. No. 4129 (June 25, 2015) [80 FR advisors. See MSRB Files Amendment to Rule G–
2 Political Contributions by Certain Investment 37538 (July 2, 2015)]. On June 25, 2015, the
37 to Clarify its Application to Contributions before
Advisers, Investment Advisers Act Rel. No. 3043 Division of Investment Management published an
August 17, 2016, Regulatory Notice 2016–18, dated
(July 1, 2010) [75 FR 41018 (July 14, 2010)] (‘‘SEC FAQ that provides that the Division would not
August 4, 2016, available at http://msrb.org/∼/
Pay to Play Rule Release’’). recommend enforcement action to the Commission
media/Files/Regulatory-Notices/Announcements/
3 See id. at section II.B.2.(b). See also 17 CFR against any investment adviser or its covered
associates for the payment to any third person to 2016-18.ashx?n=1. A dealer may become subject to
275.206(4)–5(a)(2)(i)(A). a ban on municipal securities business for a period
4 See 17 CFR 275.206(4)–5(f)(9)(i).
solicit a government entity for investment advisory
services until the later of (i) the effective date of a of two years from the making of a contribution,
5 See 17 CFR 275.206(4)–5(f)(9)(ii).
pay to play rule adopted by the Financial Industry even if the contribution is made by a person who,
6 See 17 CFR 275.206(4)–5(f)(9)(iii). On June 22,
Regulatory Authority or (ii) the effective date of a although not a municipal finance professional of
2011, the Commission amended the SEC Pay to Play pay to play rule adopted by the MSRB. See http:// the dealer at the time of the contribution, becomes
Rule to add municipal advisors to the definition of www.sec.gov/divisions/investment/pay-to-play- a municipal financial professional of the dealer
‘‘regulated persons.’’ See Rules Implementing faq.htm#1.4. within two years of making the contribution
Amendments to the Investment Advisers Act of (frequently referred to as the ‘‘two-year look-back’’).
Lhorne on DSK30JT082PROD with PROPOSALS
13 See Self-Regulatory Organizations; Municipal
1940, Investment Advisers Act Rel. No. 3221 (June Securities Rulemaking Board; Notice of Filing of a See Proposed Rule Change to Clarify an Existing
22, 2011) [76 FR 42950 (July 19, 2011)] (‘‘Municipal Proposed Rule Change Consisting of Proposed Requirement in Rule G–37 Regarding the Two-Year
Advisor Addition Release’’). The Commission Amendments to Rule G–37, on Political Look-Back, SR–MSRB–2016–10 (Aug. 4, 2016),
adopted final rules with respect to the registration Contributions and Prohibitions on Municipal available at http://msrb.org/∼/media/Files/SEC-
of municipal advisors on September 20, 2013. See Securities Business, Rule G–8, on Books and Filings/2016/MSRB-2016-10.ashx.
Registration of Municipal Advisors, Exchange Act 15 See section 211(c) of the Advisers Act
Records, Rule G–9, on Preservation of Records, and
Rel. No. 70462 (Sept. 20, 2013) [78 FR 67468 (Nov. Forms G–37 and G–37x, Exchange Act Rel. No. (requiring the Commission to provide appropriate
12, 2013)] (‘‘Municipal Advisor Registration 76763 (Dec. 24, 2015) [80 FR 81710 (Dec. 30, 2015)] notice and opportunity for hearing for orders issued
Release’’). (the ‘‘MSRB Pay to Play Release’’). under the Advisers Act).
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by the municipal advisor or a municipal SECURITIES AND EXCHANGE The Commission intends to issue an
advisor professional of the municipal COMMISSION order under the Advisers Act.1
advisor; 16 I. Background
17 CFR Part 275
• Prohibit municipal advisors and
municipal advisor professionals from The Commission adopted the SEC Pay
[Release No. IA–4511; File No. S7–16–16] to Play Rule [17 CFR 275.206(4)–5]
soliciting contributions, or coordinating
contributions, to certain officials of a under the Advisers Act [15 U.S.C. 80b]
Political Contributions by Certain to prohibit an investment adviser from
municipal entity with which the Investment Advisers: Ban on Third-
municipal advisor is engaging, or providing advisory services for
Party Solicitation; Notice of Order With compensation to a government client for
seeking to engage, in municipal Respect to FINRA Rule 2030 two years after the adviser or certain of
advisory business; 17
AGENCY: Securities and Exchange its executives or employees (‘‘covered
• Prohibit municipal advisors and Commission. associates’’) make a contribution to
certain municipal advisor professionals certain elected officials or candidates.2
ACTION: Notice of intent to issue order.
from soliciting payments, or Rule 206(4)–5 also prohibits an adviser
coordinating payments, to political SUMMARY: The Securities and Exchange and its covered associates from
parties of states and localities with Commission (‘‘Commission’’ or ‘‘SEC’’) providing or agreeing to provide,
which the municipal advisor is engaging intends to issue an order pursuant to directly or indirectly, payment to any
in, or seeking to engage in, municipal section 206 of the Investment Advisers third-party for a solicitation of advisory
advisory business; 18 Act of 1940 (the ‘‘Advisers Act’’) and business from any government entity on
• Prohibit municipal advisors and rule 206(4)–5 thereunder (the ‘‘SEC Pay behalf of such adviser, unless such
municipal advisor professionals from to Play Rule’’) finding that Financial third-party is a ‘‘regulated person’’
Industry Regulatory Authority (‘‘third-party solicitor ban’’).3 Rule
committing indirect violations of the
(‘‘FINRA’’) rule 2030 (the ‘‘FINRA Pay 206(4)–5 defines a ‘‘regulated person’’ as
MSRB Pay to Play Rule; 19
to Play Rule’’), which was approved by an SEC-registered investment adviser,4 a
• Extend applicable interpretive the Commission on August 25, 2016, registered broker or dealer subject to pay
guidance under the existing MSRB pay imposes substantially equivalent or to play restrictions adopted by a
to play rule to municipal advisors; 20 more stringent restrictions on brokers- registered national securities association
and dealers than the SEC Pay to Play Rule that prohibit members from engaging in
• Include a new defined term imposes on investment advisers and is distribution or solicitation activities if
(‘‘municipal advisor third-party consistent with the objectives of the SEC certain political contributions have been
solicitor’’) for municipal advisors that Pay to Play Rule. made,5 or a registered municipal advisor
undertake a solicitation of a municipal DATES: Hearing requests should be subject to pay to play restrictions
entity on behalf of a third-party dealer, received by the Commission by 5:30 adopted by the Municipal Securities
p.m. on September 19, 2016. Rulemaking Board (the ‘‘MSRB’’) that
municipal advisor or investment
prohibit members from engaging in
adviser. Certain aspects of the rule will ADDRESSES: Secretary, Securities and
distribution or solicitation activities if
apply to this distinct type of municipal Exchange Commission, 100 F Street NE.,
certain political contributions have been
advisor. Washington, DC 20549–1090.
made.6 In addition, in order for a
The Commission believes that the rule FOR FURTHER INFORMATION CONTACT: broker-dealer or municipal advisor to be
imposes substantially equivalent or Sirimal R. Mukerjee, Senior Counsel, a regulated person under rule 206(4)–5,
more stringent restrictions on municipal Melissa Roverts Harke, Senior Special the Commission must find, by order,
advisors than rule 206(4)–5 imposes on Counsel, or Sara Cortes, Assistant that these pay to play rules: (i) Impose
investment advisers and would be Director, at (202) 551–6787 or IArules@ substantially equivalent or more
consistent with the objectives of rule sec.gov, Investment Adviser Regulation stringent restrictions on broker-dealers
Office, Division of Investment or municipal advisors than the SEC Pay
206(4)–5.
Management, Securities and Exchange to Play Rule imposes on investment
By the Commission. Commission, 100 F Street NE.,
Dated: August 25, 2016. Washington, DC 20549–8549. 1 15 U.S.C. 80b. Unless otherwise noted, all
Brent J. Fields, SUPPLEMENTARY INFORMATION: references to statutory sections are to the Advisers
Act, and all references to rules under the Advisers
Secretary. Hearing or Notification of Hearing Act, including rule 206(4)–5, are to Title 17, Part
[FR Doc. 2016–20890 Filed 9–1–16; 8:45 am] 275 of the Code of Federal Regulations [17 CFR part
An order will be issued unless the 275].
BILLING CODE 8011–01–P
Commission orders a hearing. Interested 2 Political Contributions by Certain Investment
persons may request a hearing by Advisers, Investment Advisers Act Rel. No. 3043
writing to the Commission’s Secretary. (July 1, 2010) [75 FR 41018 (July 14, 2010)] (‘‘SEC
Pay to Play Rule Release’’).
Hearing requests should be received by 3 See id. at section II.B.2.(b). See also 17 CFR
the Commission by 5:30 p.m. on 275.206(4)–5(a)(2)(i)(A).
September 19, 2016. Pursuant to rule 0– 4 See 17 CFR 275.206(4)–5(f)(9)(i).
5 under the Advisers Act, hearing 5 See 17 CFR 275.206(4)–5(f)(9)(ii). While rule
requests should state the nature of the 206(4)–5 applies to any registered national
Lhorne on DSK30JT082PROD with PROPOSALS
writer’s interest, any facts bearing upon securities association, FINRA is currently the only
registered national securities association under
16 MSRB Pay to Play Release, supra footnote 13, the desirability of a hearing on the section 19(a) of the Securities Exchange Act of 1934
at 81712. matter, the reason for the request, and [15 U.S.C. 78s(b)] (the ‘‘Exchange Act’’). As such,
17 Id. the issues contested. Persons who wish for convenience, we will refer directly to FINRA in
to be notified of a hearing may request this Notice when describing the exception for
18 Id.
certain broker-dealers from the third-party solicitor
19 Id. notification by writing to the ban.
20 Id. Commission’s Secretary. 6 See 17 CFR 275.206(4)–5(f)(9)(iii).
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Document Created: 2018-02-09 11:55:38
Document Modified: 2018-02-09 11:55:38
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Proposed Rules | |
| Action | Notice of intent to issue order. | |
| Dates | Hearing requests should be received by the Commission by 5:30 p.m. on September 19, 2016. | |
| Contact | Sirimal R. Mukerjee, Senior Counsel, Melissa Roverts Harke, Senior Special Counsel, or Sara Cortes, Assistant Director, at (202) 551-6787 or [email protected], Investment Adviser Regulation Office, Division of Investment Management, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-8549. | |
| FR Citation | 81 FR 60651 |
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